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396
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period ______________to_____________
Commission file number 1-8966
SJW CORP.
(Exact name of registrant as specified in its charter)
California 77-0066628
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
374 West Santa Clara Street, San Jose, California 95196
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 408-279-7800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b)
OF THE ACT:
Title of each class Name of each exchange on which
Common Stock, Par Value $3.125 registered American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g)
OF THE ACT:
None
(Title of Class)
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, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. []
The aggregate market value of the voting stock held by non-affiliates of
the registrant - $118,417,860 on March 15, 1999.
Shares of common stock outstanding on March 15, 1999 - 3,045,147.
DOCUMENTS INCORPORATED BY REFERENCE
Definitive Proxy Statement relating to the Registrant's 1999 Annual
Meeting (filed on March 12, 1999), incorporated into Part III hereof.
EXHIBIT INDEX
The Exhibit Index to this Form 10-K is located in Part IV, Item 14 of
this document.
TABLE OF CONTENTS
PART I Page
Item 1. Business
a. General Development of Business Regulation and Rates 3
b. Financial Information about Industry Segments 5
c. Narrative Description of Business 5
General 5
Water Supply 5
Franchises 6
Seasonal Factors 6
Competition and Condemnation 6
Environmental Matters 7
Employees 7
Executive Officers of the Registrant 7
d. Financial Information about Foreign and Domestic
Operations and Export Sales 9
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 10
a. Market Information 10
b. Holders 10
c. Dividends 11
Item 6. Selected Financial Data 12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 7a. Quantitative and Qualitative Disclosures About Market Risk 18
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 34
PART III
Item 10. Directors and Executive Officers of the Registrant 34
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial Owners
and Management 34
Item 13. Certain Relationship on Related Transactions 34
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 34
Exhibit Index 35
Signatures 38
PART I
Item 1. Business.
(a) General Development of Business.
SJW Corp., incorporated in California on February 8, 1985. SJW Corp. is a
holding company with two wholly owned subsidiaries, San Jose Water Company
and SJW Land Company.
San Jose Water Company, with headquarters at 374 West Santa Clara Street,
San Jose, California 95196, was incorporated under the laws of the State of
California in 1931, succeeding a business founded in 1866. San Jose Water
Company is a public utility in the business of providing water service to a
population of approximately 971,000 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.
SJW Land Company was incorporated in October, 1985.
SJW Corp. also owns 1,099,952 shares of California Water Service Group.
Regulation and Rates.
San Jose Water Company's rates, service and other matters affecting its
business are subject to regulation by the California Public Utilities
Commission (CPUC).
Ordinarily, there are two types of rate increases, general and offset. The
purpose of the latter is generally to compensate utilities for increases in
specific expenses, such as those for purchased water or power.
The most recent general rate case decision authorized an initial increase
followed by two annual step increases designed to maintain the authorized
return on equity over a three-year period. General rate applications are
normally filed and processed during the last year covered by the most
recent rate case in an attempt to avoid regulatory lag.
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. 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 December 31, 1998 the balancing account had a net
under-collected balance to be offset of $875,500.
FORWARD LOOKING STATEMENTS
This report contains forward looking statements relating to future events
and financial performance of the company. Such forward-looking statements
are identified by words including "expect", "estimate", "anticipate" and
similar expressions. The company's actual results could differ materially
from those discussed in such forward-looking statements. Important factors
that could cause or contribute to such differences include the following:
The CPUC's policy and regulations can adversely affect San Jose Water
Company's operating results through the availability, timeliness and amount
of rate relief. The CPUC's willingness to allow San Jose Water Company to
recover all of its capital expenditures and to provide financial and
operational flexibility to engage in non-regulated operations can also
affect San Jose Water Company's operating results.
San Jose Water Company's sales and therefore its operating results could
be adversely affected by several events:
Difficulties in obtaining a secured water supply from the Santa Clara
Valley Water District (SCVWD) which receives its allotment from the state
and federal water projects could prevent the company from satisfying its
customer demand within its service area;
Fluctuation of customer sales due to lifestyle or weather;
Availability of recycled water and its acceptance by customers as a
substitute to potable water; and
Economic development and growth in San Jose Water Company's service area.
SJW Corp.'s expenses and therefore its operating results could be
adversely affected by the following:
Fluctuation of surface water availability from San Jose Water Company's
Santa Cruz mountain watershed, which produces a less costly water supply,
could result in the need to procure more costly water from other sources;
Stringent environmental and water quality regulations could increase San
Jose Water Company's water quality compliance costs;
Consequences from pollution and contamination of San Jose Water Company's
wells and source of supply could result in the need to procure more costly
water from other sources;
The level of labor and non-labor operating and maintenance expenses as
affected by inflationary forces and collective bargaining power could
adversely affect the operating and maintenance expenses of the corporation;
Cost and other effects of lawsuits against SJW Corp. or its subsidiaries,
whether civil, environmental, product-related or liability-related could
increase the corporation's legal, liability and insurance costs.
The City of Cupertino's lease operation could be adversely affected by
the capital requirements, the ability of San Jose Water Company to raise
rates through the City Council and the level of operating and maintenance
expenses.
SJW Land Company's expenses and operating results could be adversely
affected by the parking lot activities, the San Jose Arena events and the
development and sale of the undeveloped parcels of land.
See also the heading "Factors That May Adversely Affect Future Operation
Results" under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The company undertakes no obligation to update the information including
the forward-looking statements, contained in this report.
(b) Financial Information about Industry Segments.
San Jose Water Company generated 99% of SJW Corp.'s consolidated revenue
for the years ended December 31, 1998, 1997 and 1996, and 82%, 90% and 66%
of SJW Corp.'s consolidated income for the years ended December 31, 1998,
1997 and 1996, respectively. There were no significant changes in 1998 in
the type of products produced or services rendered by San Jose Water
Company, or in its markets or methods of distribution.
SJW Land Company contributed 13%, 3% and 28% to SJW Corp.'s consolidated
income in 1998, 1997 and 1996, respectively. In 1998 and 1996, SJW Land
Company sold non-utility properties and contributed a higher net income
percentage to SJW Corp.'s consolidated income for those respective years.
Dividend income from California Water Service Group generated 7%, 7% and 5%
of consolidated income for the years 1998, 1997 and 1996, respectively.
(c) Narrative Description of Business.
(1) (i) General.
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.
In October 1997, San Jose Water Company commenced operation of the City of
Cupertino Municipal water system under terms of a 25-year lease. The
system is adjacent to the existing San Jose Water Company Service area and
has 4,200 service connections. Under terms of the lease, San Jose Water
Company made an up-front $6.8 million lease payment to the City which will
be amortized over the lease term. The Company is responsible for all
aspects of system operation including capital improvements.
(1) (iii) Water Supply.
San Jose Water Company's water supply is obtained from wells, surface run-
off or diversion and by purchases from the Santa Clara Valley Water
District (SCVWD). Surface supplies, which during a year of normal rainfall
satisfy about 6% to 8% of San Jose Water Company's current annual needs,
provide approximately 1% of its water supply in a dry year and
approximately 14% in a wet year. In dry years the decrease in water from
surface run-off and diversion, and the corresponding increase in purchased
and pumped water increases production costs substantially.
Groundwater levels in 1998 remained at a high level reflecting the impact
of the last rainfall season. SCVWD's reservoir storage of approximately
123,000 acre feet (77% of capacity) was reported on February 22, 1999.
Until 1989, San Jose Water Company had never found it necessary to impose
mandatory water rationing. Except in a few isolated cases when service had
been interrupted or curtailed because of power or equipment failures,
construction shutdowns or other operating difficulties, San Jose Water
Company had not at any prior time in its history interrupted or imposed
mandatory curtailment of service to any type or class of customer. During
the summer of 1989 through March 1993, rationing was imposed
intermittently, to all customers based on request from SCVWD.
(1) (iv) Franchises.
San Jose Water Company holds such franchises or permits in the communities
it serves as it judges necessary to operate and maintain its facilities in
the public streets.
(1) (v) Seasonal Factors.
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.
(1) (x) Competition and Condemnation.
San Jose Water Company is a public utility regulated by the CPUC and
operates within a service area approved by the CPUC. The laws of the State
of California provide that no other investor owned public utility may
operate in San Jose Water Company's service area without first obtaining
from the CPUC a certificate of public convenience and necessity. Past
experience shows such a certificate will be issued only after demonstrating
San Jose Water Company's service in such area is inadequate.
California law also provides that whenever a public agency constructs
facilities to extend utility service to the service area of a privately
owned public utility (like San Jose Water Company), such an act constitutes
the taking of property and is conditioned upon payment of just compensation
to the private utility.
Under the constitution and statutes of the State of California,
municipalities, water districts and other public agencies have been
authorized to engage in the ownership and operation of water systems. Such
agencies are empowered to condemn properties operated by privately owned
public utilities upon payment of just compensation and are further
authorized to issue bonds (including revenue bonds) for the purpose of
acquiring or constructing water systems. To the Company's knowledge, no
municipality, water district or other public agency has pending any action
to condemn any part of San Jose Water Company's system.
(1) (xii) Environmental Matters.
San Jose Water Company maintains procedures to produce potable water in
accordance with all applicable county, state and federal environmental
rules and regulations. Additionally, San Jose Water Company is subject to
environmental regulation by various other governmental authorities. See
Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(1) (xiii) Employees.
As of December 31, 1998, San Jose Water Company had 278 employees, of whom
59 were executive, administrative or supervisory personnel, and of whom 219
were members of unions. San Jose Water Company reached a two-year
collective bargaining agreement with the Utility Workers of America,
representing the majority of employees and the International Union of
Operating Engineers, representing certain employees in the engineering
department covering the years 1999 and 2000. Both groups are affiliated
with the AFL-CIO.
Executive Officers of the Registrant.
Name Age Offices and Experience
J.W. Weinhardt 68 SJW Corp. - Chairman, Chief Executive Officer.
Prior to becoming Chairman in October 1996 he
was President; Director and Member of the
Executive Committee of the Board of Directors
since 1985.
San Jose Water Company - Chairman of the Board.
Prior to his election to Chairman of the Board
in October 1994, he was President. He also
served as Chief Executive Officer until October
1996; Director and Member of the Executive
Committee of the Board of Directors since 1974.
Mr. Weinhardt has been with San Jose Water
Company since 1963.
W.R. Roth 46 SJW Corp. - President of the Corporation since
October 1996. Prior to that he was Vice
President from April 1992 until October 1996 and
Chief Financial Officer and Treasurer from
January 1990 until October 1996.
San Jose Water Company - President since October
1994. He has been Chief Executive Officer since
October 1996. Prior to that he was Chief
Operating Officer from October 1994 until
October 1996. He was Vice President from April
1992 until July 1994 and Senior Vice President
from July 1994 until October 1994. He served as
Chief Financial Officer and Treasurer from
January 1990 through October 1994.
R.J. Balocco 48 San Jose Water Company - Vice President -
Corporate Communications since October 1995. He
was Vice President, Administration from April
1992 until October 1995 and Manager of Customer
Service until October 1995. Mr. Balocco has
been with San Jose Water Company since 1982.
G.J. Belhumeur 53 San Jose Water Company - Vice President -
Operations since April 1996. Prior to April
1996 he was Operations & Maintenance Manager.
Mr. Belhumeur has been with San Jose Water
Company since 1970.
R.J. Pardini 53 San Jose Water Company - Vice President - Chief
Engineer since April 1996. Prior to April 1996
he was Chief Engineer. Mr. Pardini has been
with San Jose Water Company since 1987.
R.S. Yoo 48 San Jose Water Company - Vice President - Water
Quality since April 1996. Prior to April 1996
he was Water Quality Manager. He has been with
San Jose Water Company since 1985.
A. Yip 45 SJW Corp., Chief Financial Officer and Treasurer
since October 1996.
San Jose Water Company - Vice President -
Finance since January 1999, Chief Financial
Officer and Treasurer since October 1994. She
was Regulatory Affairs Manager from July 1993
until October 1994. Ms. Yip has been with the
San Jose Water Company since 1986.
J. Johansson 53 San Jose Water Company - Vice President - Human
Resources since January 1999. Prior to that, he
was Director of Human Resources from March 1998
to January 1999. Prior to March 1998, he was
Personnel Manager. Mr. Johansson has been with
San Jose Water Company since 1976.
D. Drysdale 43 San Jose Water Company - Vice President -
Information System since January 1999. Prior to
that, he was Director of Information System from
March 1998 to January 1999. Prior to March
1998, he was Data Processing Manager since 1994.
Mr. Drysdale joined San Jose Water Company in
1992.
R.A. Loehr 52 SJW Corp. and San Jose Water Company, Secretary
since March 1, 1998. Mr. Loehr also serves as
an attorney and has been with San Jose Water
Company since 1987.
A.J. Elliott 35 San Jose Water Company, Controller since January
1995. Prior to that she served as Accounting
Manager. Ms. Elliott has been with San Jose
Water Company since 1990.
No executive officer has any family relationship to any other executive
officer or director. No executive officer is appointed for any set term.
There are no agreements or understandings between any executive officer and
any other person pursuant to which he was selected as an officer, other
than those with directors or officers of SJW Corp. acting solely in their
capacities as such.
(d) Financial Information about Foreign and Domestic Operations and
Export Sales.
Substantially all of SJW Corp.'s revenue and expense are derived from
operations located in the County of Santa Clara in the State of California.
Item 2. Properties.
The properties of San Jose Water Company consist of a unified system of
water production, storage, purification and distribution located in the
County of Santa Clara in the State of California. In general, the property
is comprised of franchise rights, water rights, necessary rights-of-way,
approximately 7,000 acres of land held in fee (which is primarily
nondevelopable watershed), impounding reservoirs with a capacity of
approximately 2.256 billion gallons, diversion facilities, wells,
distribution storage of approximately 240 million gallons and all water
facilities, equipment and other property necessary to supply its customers.
San Jose Water Company maintains all of its properties in good operating
condition in accordance with customary proper practice for a water utility.
San Jose Water Company's well pumping stations have a production capacity
of approximately 264 million gallons per day and the present capacity for
taking purchased water is approximately 172 million gallons per day. The
gravity water collection system has a physical delivery capacity of
approximately 25 million gallons per day. During 1998, a maximum and
average of 218 million gallons and 129 million gallons of water per day,
respectively, were delivered to the system.
San Jose Water Company holds all its principal properties in fee, subject
to current tax and assessment liens, rights-of-way, easements, and certain
minor clouds or defects in title which do not materially affect their use.
SJW Land Company owns approximately nine acres of property adjacent to San
Jose Water Company's general office facilities, approximately another five
undeveloped acres and a commercial building in the San Jose Metropolitan
area. Eight of the nine acres of land adjacent to San Jose Water Company
are used as surface parking facilities and generate the majority of SJW
Land Company's revenue.
Item 3. Legal Proceedings.
Valley Title Company
- --------------------
In 1993, Valley Title Company and its insurer claimed in a lawsuit that a
fire service pipeline ruptured, causing water and heating oil to flood the
title company's basement. In April 1995, San Jose Water Company's
insurance carrier settled the property damage claim of plaintiff insurance
company for $3.5 million.
The jury separately awarded plaintiff title company $3 million for its loss
of business documents. A unanimous appellate court reversed this decision,
and in January 1998, the California Supreme Court denied review of that
reversal.
In July 1998, Maxxum Management Company, successor to Valley Title Company,
filed a new lawsuit against San Jose Water Company. The litigation is
based upon the same facts as the first lawsuit but alleges a cause of
action in inverse condemnation.
Management has consistently maintained that any future award will be within
the stated limit of the company's insurance coverage.
Franchise Fee
- -------------
On June 27, 1995, the City of San Jose passed an ordinance imposing a
franchise fee on the gross annual receipts arising from the use, operation,
or possession of a "Potable Water Franchise." This ordinance became
effective on July 28, 1995. San Jose Water Company maintains that it has a
"constitutional franchise" dating from at least 1891, and that the City of
San Jose cannot legally impose any new franchise or new franchise fees on
San Jose Water Company's operations. San Jose Water Company filed suit to
challenge this new city ordinance.
A CPUC decision issued on November 8, 1995, authorized San Jose Water
Company to establish a memorandum account. San Jose Water Company will be
able to collect the franchise fee from its customers by surcharge in the
event that its efforts to invalidate the ordinance are unsuccessful.
In March 1997, a judgment in favor of San Jose Water Company was rendered
in the lawsuit filed to challenge the ordinance. The City has not appealed
the decision. San Jose Water Company believes the matter has come to a
successful closure.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
(a) Market Information.
(1) (i) Exchange
SJW Corp.'s common stock is traded on the American Stock Exchange under the
symbol SJW.
(1) (ii) High and Low Sales Prices
The information required by this item as to the high and low sales prices
for SJW Corp.'s common stock for each quarter in the 1998 and 1997 fiscal
years is contained in the section captioned "Market price range of stock"
in the tables set forth in Note 10 of "Notes to Consolidated Financial
Statements" in Part II, Item 8.
(b) Holders.
There were 1,062 record holders of SJW Corp.'s common stock on December 31,
1998.
(c) Dividends.
Quarterly dividends have been paid on SJW Corp.'s and its predecessor's
common stock for 221 consecutive quarters and the quarterly rate has been
increased during each of the last 31 years. The information required by
this item as to the cash dividends paid on common stock in 1998 and 1997 is
contained in the section captioned "Dividends per share" in the tables set
forth in Note 10 of "Notes to consolidated Financial Statements" in Part
II, Item 8.
Item 6. Selected Financial Data.
FIVE YEAR STATISTICAL REVIEW
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
CONSOLIDATED RESULTS
OF OPERATIONS (In thousands)
Operating revenue $106,010 110,084 102,593 97,385 99,422
Operating expense:
Operation 57,454 61,382 57,231 57,339 62,648
Maintenance 6,909 7,087 6,851 6,342 6,289
Taxes 13,206 13,454 12,234 10,764 9,426
Depreciation and
amortization 9,594 8,847 8,671 7,626 7,292
--------------------------------------------
Total operating expense 87,163 90,770 84,987 82,071 85,655
--------------------------------------------
Operating income 18,847 19,314 17,606 15,314 13,767
Interest expense, other
income and deductions 2,829 4,098 (954) 3,779 3,865
--------------------------------------------
Net income 16,018 15,216 18,560 11,535 9,902
Dividends paid 7,419 7,228 7,163 7,022 6,826
--------------------------------------------
Invested in the business $ 8,599 7,988 11,397 4,513 3,076
=============================================
CONSOLIDATED PER SHARE DATA
Net income $ 5.05 4.80 5.75 3.55 3.05
Dividends paid $ 2.34 2.28 2.22 2.16 2.10
Shareholders' equity
at year-end $ 45.19 42.13 37.86 33.49 32.02
CONSOLIDATED BALANCE SHEET
(In thousands)
Utility plant $403,227 371,200 342,368 324,098 308,515
Less accumulated
depreciation and
amortization 122,809 114,851 107,584 100,000 95,083
----------------------------------------------
Net utility plant 280,418 256,349 234,784 224,098 213,432
----------------------------------------------
Nonutility property 11,360 7,301 7,287 6,624 7,178
----------------------------------------------
Total assets 359,380 323,223 296,536 280,497 262,530
Capitalization:
Shareholders' equity 143,149 133,553 120,028 108,854 104,098
Long-term debt(includes
current maturities) 90,000 75,000 76,500 77,500 64,000
----------------------------------------------
Total capitalization $233,149 208,553 196,528 186,354 168,098
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Description of the Business
SJW Corp. is a holding company with two wholly owned subsidiaries: San
Jose Water Company and SJW Land Company. San Jose Water Company is a
public utility in the business of providing water service to a population
of approximately 971,000 in an area comprising about 138 square miles in
the metropolitan San Jose area. SJW Land Company owns and operates a 900-
space surface parking facility located adjacent to the San Jose Arena and
also owns several undeveloped real estate parcels in San Jose. SJW Corp.
owns 1,099,952 shares of California Water Service Group.
RESULTS OF OPERATIONS
CONSOLIDATED OPERATING REVENUE (in thousands)
1998 1997 1996
----------------------------
San Jose Water Company $105,025 108,991 101,780
SJW Land Company 985 1,093 813
-----------------------------
$106,010 110,084 102,593
=============================
Consolidated operating revenue for 1998 decreased $4,074,000, or 4%, from
1997 mainly due to an 8% decrease in water consumption and reduced parking
activities. The decline was partially offset by rate increases of
$1,175,000 and usage by new customers of $1,652,000.
Consolidated operating revenue for 1997 increased $7,491,000, or 7%, over
1996 due to a 5% increase in water consumption, a rate increase from the
California Public Utilities Commission (CPUC), increased activity in the
parking facilities, and the operation of the City of Cupertino municipal
water system effective October 1, 1997.
CONSOLIDATED OPERATING EXPENSE (in thousands)
1998 1997 1996
---------------------------
San Jose Water Company $85,882 89,702 83,915
SJW Land Company 894 781 614
SJW Corp. 387 287 458
---------------------------
$87,163 90,770 84,987
===========================
Consolidated operating expense in 1998 decreased 4% in comparison with 1997
due to reduced water production. Consolidated operating expense increased
7% in 1997 from the previous year primarily due to increased water
production.
SOURCES OF SUPPLY (million gallons)
1998 1997 1996
------------------------------
Purchased water 25,436 26,157 23,328
Ground water 16,379 20,846 19,152
Surface water 6,246 4,881 5,908
------------------------------
48,061 51,884 48,388
==============================
Water production in 1998 decreased 3,823 million gallons, or 7%, from 1997.
Water production in 1997 increased 3,496 million gallons, or 7%, over 1996.
The changes are consistent with the related operating expenses.
The effective consolidated income tax rates for 1998, 1997 and 1996 were
40%, 40% and 38%, respectively. Refer to Note 6 of the Notes To
Consolidated Financial Statements for the reconciliation of income tax
expense to the amount computed by applying the federal statutory rate to
income before income taxes.
OTHER INCOME AND EXPENSE
1998 dividend income increased $17,000, or 1%, over 1997 due to a $.015 per
share increase in the California Water Service Group annual dividend.
San Jose Water Company's interest cost on long-term debt in 1998, including
capitalized interest, increased $22,000 from 1997 due to the issuance of
the Series E Senior Note. Interest cost on long-term debt in 1997,
including capitalized interest, decreased $108,000, from 1996 due to the
retirement of its Series P first mortgage bonds at maturity. San Jose
Water Company's weighted average cost of long-term debt, including
amortization of debt issuance costs, was 8.04%, 8.27% and 8.22% as of
December 31, 1998, 1997 and 1996, respectively.
Liquidity and Capital Resources
CAPITAL REQUIREMENTS
San Jose Water Company's budgeted capital expenditures for 1999 compared to
1998, exclusive of capital expenditures financed by customer contributions
and advances, are as follows:
BUDGETED CAPITAL EXPENDITURES (in thousands)
1999 1998
Source of supply $ 692 3% $ 86 -%
Reservoirs and tanks 1,737 8% 365 2%
Pump stations and equipment 1,902 9% 2,191 11%
Distribution system 14,386 65% 15,061 71%
Equipment and other 3,433 15% 3,350 16%
--------------------------------
$22,150 100% $21,053 100%
================================
The 1999 capital budget is concentrated in main replacements and facility
relocation. Approximately $15 million will be spent to systematically
renew the company's aging infrastructure and $1.5 million will be spent in
the first phase of operations and engineering facility expansion.
San Jose Water Company expects to incur approximately $120 million,
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, 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 asset due to increases in the cost of goods and
services.
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.
Over the past five years, SJW Corp. has paid its shareholders, in the form
of dividends, an average of 50% of its net income. The remaining earnings
have been reinvested. Capital requirements not funded by earnings are
expected to be funded through external financing in the form of unsecured
senior notes or a commercial bank line of credit. As of December 31, 1998,
SJW Corp. and its subsidiaries had $20 million of unused line of credit and
over $50 million of borrowing capacity under the terms of the senior note
agreements.
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 1998, San Jose Water Company issued $15 million in Series E unsecured 30-
year senior note. In 1997, the company redeemed its $1.5 million Series P
6.5% first mortgage bonds at maturity. The company intends to satisfy all
foreseeable future long-term financing needs with senior notes.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The results of operations of San Jose Water Company generally depend on the
following factors: (1) regulation, (2) surface water supply, and (3)
operation and maintenance expense.
REGULATION
Principally all the operating revenue of San Jose Water Company results
from the sale of water at rates authorized by the California Public
Utilities Commission (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 case
decision authorized it to earn a return on common equity in 1996, 1997,
1998 and 1999 of 10.2% which is within the range of recent rates of return
authorized by the CPUC for water utilities. The same decision also granted
the company memorandum account protection for the largely indeterminate
costs associated with the new or more stringent federal water quality
regulations. With the establishment of the water quality memorandum
account, any potential financial exposure resulting from these regulations
has been substantially reduced.
In November 1998, San Jose Water Company filed an advice letter requesting
an attrition rate increase in the amount of $1,404,000 which will become
effective January 1, 1999.
San Jose Water Company deferred the filing of a general rate case
application from January 1999 to January 2000. Consequently, apart from
any offset increases, the company is not authorized any additional step
rate increases until the next general rate case decision becomes effective
in January 2001.
SURFACE WATER SUPPLY
The level of surface water available in each year depends on the amount of
rainfall and run-off collected in San Jose Water Company's Santa Cruz
Mountains reservoirs. In a normal year, surface supply provides 6-8% of
the total water supply of the system. Surface water is a less costly
source of water and its availability may significantly impact the results
of operations.
OPERATION AND MAINTENANCE EXPENSE
San Jose Water Company reached an agreement with its unionized personnel
covering 1999 and 2000. The agreement includes a 3.5% and 3% wage increase
for 1999 and 2000, respectively, and minor benefit modifications.
YEAR 2000 ISSUES
San Jose Water Company executives, as part of their operating duties, are
evaluating the company's information technology (IT) and non-IT systems to
ensure all systems are prepared for the Year 2000 (Y2K). The company
generally uses software packages and hardware that are Y2K assured. The
company has received confirmation from various software and hardware
vendors, as well as independent testers, that the systems are Y2K ready.
San Jose Water Company has an IT master plan that identifies systems that
need to be replaced due to age, or need to be modified to generate
operating and customer service benefits. The systems that are currently
identified as non-assured were scheduled to be upgraded as part of the IT
master plan. The last of these upgrades will be complete in August 1999.
Management also contacted critical third party suppliers regarding their
Y2K readiness. Suppliers of water, power and other goods are critical to
San Jose Water Company's operations. The suppliers described their state
of readiness and contingency plans, if available. As of today, Santa
Clara Valley Water District (SCVWD) has indicated that they are not in
full compliance with Y2K because SCVWD relies on the supply from the state
government's Department of Water Resources (DWR), and currently DWR is not
in compliance. DWR is actively undertaking plans to ensure they are
compliant.
To date, there have been no significant costs associated solely with Y2K
issues. The company does not anticipate incurring material future costs
directly related to the Y2K such as modifying software and hiring Y2K
solution providers. No major IT projects have been deferred due to Y2K
issues. The costs of identifying the issues, evaluating the systems,
inquiring about third party suppliers' Y2K preparedness and any testing
are currently being expensed. Future Y2K assurance consulting costs are
expected to approximate $10,000 and will be expensed when incurred.
San Jose Water Company has Y2K contingency plans covering accounting,
operations and information systems. These plans will be modified as
additional information becomes available. In the worst case scenario, if
SCVWD is unable to provide water to the company, and power supplies are
interrupted, and the computer system that controls the water distribution
function fails, the company may be able to use its standby generators to
pump limited water from its wells to the distribution system.
ENVIRONMENTAL MATTERS
San Jose Water Company's operations are subject to water quality and
pollution control regulations issued by the United States Environmental
Protection Agency (EPA), the California Department of Health Services (DHS)
and the California Regional Water Quality Control Board. The company is
also subject to environmental laws and regulations administered by other
state and local regulatory agencies.
Under the federal Safe Drinking Water Act (SDWA), San Jose Water Company is
subject to regulation by the EPA of the quality of water it sells and
treatment techniques it uses to make the water potable. The EPA
promulgates nationally applicable maximum contaminant levels (MCLs) for
drinking water. San Jose Water Company is currently in compliance with all
of the 87 primary MCLs promulgated to date. However, the EPA and DHS have
continuing authority to issue additional regulations under the SDWA. San
Jose Water Company has implemented monitoring activities and installed
specific water treatment improvements enabling it to comply with all
existing MCLs and plan for compliance with future drinking water
regulations.
Other state and local environmental regulations apply to San Jose Water
Company's operations and facilities. These regulations relate primarily to
the handling, storage and disposal of hazardous materials. San Jose Water
Company is currently in compliance with state and local regulations
governing underground storage tanks, disposal of hazardous wastes, non-
point source discharges, and the warning provisions of the California Safe
Drinking Water and Toxic Enforcement Act of 1986.
Future drinking water regulations may require increased monitoring,
disinfection or other treatment of underground water supplies, fluoridation
of all supplies, more stringent performance standards for treatment plants
and procedures to reduce levels of disinfection by-products. San Jose
Water Company continues to seek to establish mechanisms for recovery of
government-mandated environmental compliance costs. However, currently,
there are limited regulatory mechanisms and procedures available to the
company for the recovery of such costs and there can be no assurance that
such costs will be fully recovered.
NONREGULATED OPERATIONS
The investment in California Water Service Group is expected to produce
1999 pre-tax dividend income and cash flow of approximately $1.2 million.
SJW Land Company's parking revenue is largely dependent upon the level of
events and activities at the San Jose Arena which is located adjacent to
its parking facility. SJW Land Company's other commercial property is
being fully leased while the company evaluates the best future use for this
facility.
The operating results of the City of Cupertino lease are largely dependent
on the level of operation, maintenance and capital costs incurred. As
allowed by the lease, San Jose Water Company is phasing in, over a three
year period, its regular water service rates within the City of Cupertino.
These rate adjustments will be completed by January 2000. Further changes
in water service rates will be subject to the approval of the Cupertino
City Council.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENT
In March 1998, The American Institute of Certified Public Accountants
issued Statement of Position 98-1 (SOP 98-1) Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP 98-1
requires that certain costs during the design, coding, installation to
hardware, and testing be capitalized. Internal and external costs
associated with the preliminary project stage and the post-
implementation/operation stage should be expensed as incurred. SJW Corp.
will adopt this statement in 1999. The adoption of SOP 98-1 is not
expected to have a material impact on SJW Corp's results of operations and
financial condition.
In 1998, the AICPA issued SOP 98-5 Reporting on the costs of Start-up
Activities. SOP 98-5 requires costs of start-up activities and
organization costs to be expensed as incurred. The SOP applies to start-up
activities of development stage entities as well as established operating
entities. SJW Corp. will adopt this statement in 1999. The adoption of
SOP 98-5 is not expected to have a material impact on SJW Corp.'s results
of operations and financial condition.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
Item 8. Financial Statements and Supplementary Data.
Financial Statements:
Independent Auditors' Report
----------------------------
The Shareholders and Board of Directors
SJW Corp.
We have audited the consolidated financial statements of SJW Corp. and
subsidiaries as listed in Item 14(a). In connection with our audits of the
consolidated financial statements, we also have audited the financial
statement schedule as listed in Item 14(a). These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of SJW
Corp. and subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-
year period ended December 31, 1998, in conformity with generally accepted
accounting principles. Also in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG LLP
Mountain View, California
January 22, 1999
CONSOLIDATED BALANCE SHEET
SJW CORP. AND SUBSIDIARIES
December 31 (in thousands, except share data)
ASSETS
1998 1997
---- ----
Utility plant $395,386 363,359
Intangible assets 7,841 7,841
--------------------
403,227 371,200
Less accumulated depreciation
and amortization 122,809 114,851
--------------------
280,418 256,349
--------------------
Nonutility property 11,360 7,301
Current assets:
Cash and equivalents 8,066 3,832
Accounts receivable:
Customers 5,267 4,515
Other 140 178
Accrued utility revenue 6,503 6,102
Materials and supplies, at
average cost 437 545
Prepaid expenses 812 686
--------------------
21,225 15,858
--------------------
Other assets:
Investment in California Water
Service Group 34,442 32,483
Unamortized debt issuance and
reacquisition costs 4,032 3,988
Goodwill 2,000 2,085
Regulatory assets 5,137 4,598
Other 766 561
--------------------
46,377 43,715
--------------------
$359,380 323,223
====================
CONSOLIDATED BALANCE SHEET (Continued)
SJW CORP. AND SUBSIDIARIES
December 31 (in thousands, except share data)
CAPITALIZATION AND LIABILITIES
1998 1997
---- ----
Capitalization:
Shareholders' equity:
Common stock, $3.125 par value;
authorized 6,000,000 shares; issued
3,167,547 shares in 1998 and
3,170,347 in 1997 $ 9,899 9,907
Additional paid-in capital 19,085 19,235
Retained earnings 104,553 95,954
Accumulated other comprehensive income 9,612 8,457
-------------------
143,149 133,553
Long-term debt 90,000 75,000
-------------------
233,149 208,553
-------------------
Current liabilities:
Accrued pump taxes and purchased water 2,423 2,072
Accounts payable 2,163 738
Accrued interest 2,720 2,657
Accrued taxes 1,353 581
Other current liabilities 3,095 2,892
-------------------
11,754 8,940
-------------------
Deferred income taxes 25,541 21,904
Unamortized investment tax credits 2,249 2,304
Advances for construction 47,513 45,455
Contributions in aid of construction 36,258 33,268
Deferred revenue 1,244 1,120
Other noncurrent liabilities 1,672 1,679
Commitments and contingencies - -
-------------------
$359,380 323,223
===================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME
SJW CORP. AND SUBSIDIARIES
Years ended December 31 1998 1997 1996
(in thousands, except share data) ---- ---- ----
Operating revenue $106,010 110,084 102,593
Operating expense:
Operation:
Purchased water 24,124 24,341 21,914
Power 3,259 4,004 4,099
Pump taxes 12,661 15,293 14,079
Other 17,410 17,744 17,139
Maintenance 6,909 7,087 6,851
Property taxes and other
nonincome taxes 3,521 3,344 3,168
Depreciation and amortization 9,594 8,847 8,671
Income taxes 9,685 10,110 9,066
-----------------------------
87,163 90,770 84,987
-----------------------------
Operating income 18,847 19,314 17,606
Other (expense) income:
Interest on long-term debt (5,629) (5,695) (5,892)
Gain on sale of nonutility
property, net 1,629 - 5,269
Dividends 1,177 1,160 1,144
Other (6) 437 433
-----------------------------
Net income $ 16,018 15,216 18,560
-----------------------------
Other Comprehensive Income:
Unrealized gain on investment 1,959 9,384 5,087
Income taxes related to other
comprehensive income (804) (3,847) (2,085)
-----------------------------
Other comprehensive income, net 1,155 5,537 3,002
-----------------------------
Comprehensive income $ 17,173 20,753 21,562
=============================
Basic earnings per share $ 5.05 4.80 5.75
=============================
Comprehensive income per share $ 5.42 6.55 6.68
=============================
Weighted average shares
outstanding 3,169,839 3,170,347 3,226,647
=============================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
SJW CORP. AND SUBSIDIARIES
(in thousands)
Accumulated
Additional Other Com- Total
Common Paid-in Retained prehensive Shareholders'
Stock Capital Earnings Income Equity
------------------------------------------------
Balances,
December 31, 1995 $10,159 22,208 76,569 (82) 108,854
Net income - - 18,560 - 18,560
Other comprehensive
income - unrealized
gain on investment,
net of tax effect
of $2,085 - - - 3,002 3,002
------
Comprehensive Income 21,562
Purchase and retirement
of common stock (252) (2,973) - - (3,225)
Dividends paid - - (7,163) - (7,163)
- ----------------------------------------------------------------------
Balances,
December 31, 1996 9,907 19,235 87,966 2,920 120,028
Net income - - 15,216 - 15,216
Other comprehensive
income - unrealized
gain on investment,
net of tax effect
of $3,847 - - - 5,537 5,537
------
Comprehensive Income 20,753
Dividends paid - - (7,228) - (7,228)
- ----------------------------------------------------------------------
Balances,
December 31, 1997 9,907 19,235 95,954 8,457 133,553
Net income - - 16,018 - 16,018
Other comprehensive
income - unrealized
gain on investment,
net of tax effect
of $804 - - - 1,155 1,155
------
Comprehensive Income 17,173
Purchase and retirement
of common stock (8) (150) - - (158)
Dividends paid - - (7,419) - (7,419)
- ----------------------------------------------------------------------
Balances,
December 31, 1998 $9,899 19,085 104,553 9,612 143,149
- ----------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
SJW CORP. AND SUBSIDIARIES
Years ended December 31 (in thousands) 1998 1997 1996
---- ---- ----
Operating activities:
Net income $16,018 15,216 18,560
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 9,594 8,847 8,671
Deferred income taxes and credits 1,648 1,943 287
Gain on sale of nonutility property (1,629) - (5,269)
Changes in operating assets and liabilities:
Accounts receivable and accrued
utility revenue (1,115) (3,048) 752
Accounts payable and other current
liabilities 1,628 1,028 (479)
Accrued pump taxes and purchased water 351 80 (1,750)
Accrued taxes 772 386 (563)
Other changes, net (333) (554) (910)
-----------------------------
Net cash provided by operating
activities 26,934 23,898 19,299
-----------------------------
Investing activities:
Additions to utility plant (34,356) (24,109) (20,065)
Cost to retire utility plant, net
of salvage (485) (720) (273)
Additions to nonutility property (4,360) (82) (1,069)
Sale of temporary investments - - 4,300
Proceeds from sale of nonutility property 3,073 - 7,767
Water system leasehold acquisition cost - (6,800) -
-----------------------------
Net cash used in investing activities (36,128) (31,711) (9,340)
-----------------------------
Financing activities:
Dividends paid (7,419) (7,228) (7,163)
Repayment of line of credit (12,900) - -
Borrowings from line of credit 12,900 - -
Advances and contributions in aid of
construction 7,477 9,944 7,325
Refunds of advances (1,472) (1,475) (1,406)
Proceeds from issuance of long-term debt 15,000 - -
Principal payments of long-term debt - (1,500) (1,000)
Purchase and retirement of common stock (158) - (3,225)
-----------------------------
Net cash provided by (used in)
financing activities 13,428 (259) (5,469)
-----------------------------
Net change in cash and equivalents 4,234 (8,072) 4,490
Cash and equivalents, beginning of year 3,832 11,904 7,414
-----------------------------
Cash and equivalents, end of year $ 8,066 3,832 11,904
=============================
Cash paid during the year for:
Interest $ 6,005 5,993 5,607
Income taxes $ 8,238 8,846 11,443
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998, 1997, and 1996
(Dollars in thousands, except share data)
Note 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts
of SJW Corp. and its wholly owned subsidiaries. Intercompany transactions
and balances have been eliminated.
SJW Corp.'s principal subsidiary, San Jose Water Company, is a regulated
California water utility providing water service to the greater
metropolitan San Jose area. San Jose Water Company's accounting policies
comply with the applicable uniform system of accounts prescribed by the
California Public Utilities Commission (CPUC) and conform to generally
accepted accounting principles for rate-regulated public utilities. More
than 90% of San Jose Water Company's revenue is derived from the sale of
water to residential and business customers.
SJW Land Company owns and operates a 900-space surface parking facility
adjacent to the San Jose Arena, a commercial property in San Jose, and also
owns several undeveloped real estate parcels in San Jose.
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Utility Plant - The cost of additions, replacements and betterments to
utility plant is capitalized. The amount of interest capitalized in 1998,
1997 and 1996 was $378, $290 and $201, respectively. Construction in
progress was $4,631 in 1998, $2,693 in 1997 and $2,021 in 1996.
Depreciation is computed using the straight-line method over the
estimated service lives of the assets, ranging from 5 to 75 years. The
cost of utility plant retired, including retirement costs (less salvage),
is charged to accumulated depreciation, and no gain or loss is recognized.
Rate-regulated enterprises are required to charge a regulatory asset to
earnings if and when that asset no longer meets the criteria for being
recorded as a regulatory asset.
Intangible Assets - Intangible assets consist of leasehold acquisition
cost for the City of Cupertino municipal water system and turnouts
constructed for the Santa Clara Valley Water District (SCVWD) to facilitate
water delivery. All intangible assets are recorded at cost and are
amortized using the straight-line method over the legal or economic life of
the asset, whichever is shorter, not to exceed 40 years.
Nonutility Property - Nonutility property is recorded at cost and
consists primarily of land, buildings and parking facilities. Depreciation
is computed using accelerated depreciation methods over the estimated
useful lives of the assets, ranging from 5 to 39 years.
Financial Instruments - Cash and equivalents include certain highly
liquid investments with remaining maturities of three months or less when
purchased. Cash equivalents are stated at cost plus accrued interest,
which approximates fair value.
Investment in California Water Service Group and Comprehensive Income -
SJW Corp.'s investment in California Water Service Group is reported at
quoted market price, with the unrealized gain or loss reported as other
comprehensive income. The accumulated balance of other comprehensive
income is reported in the equity section of the financial statements.
Other Assets - Debt reacquisition costs are amortized over the term of
the new debt. Debt issuance costs are amortized over the life of each
issue. The excess cost over fair market value of net assets acquired is
recorded as goodwill and amortized over the periods estimated to be
benefited, not exceeding 40 years. Management periodically evaluates the
recoverability of goodwill by assessing whether the amortization of the
balance over the remaining life can be recovered through expected and
undiscounted future results to determine if an impairment has occurred.
Income Taxes - Income taxes are accounted for using the asset and
liability method. Deferred tax assets and liabilities are recognized for
the effect of temporary differences between financial and tax reporting.
Deferred tax assets and liabilities are measured using enacted tax rates
applicable to future years.
To the extent that the tax benefits of the temporary differences have
previously been passed through to customers through lower water rates,
management anticipates that the payment of the future tax liabilities
resulting from the reversal of the temporary differences will be
recoverable through rates. Therefore, a regulatory asset has been recorded
for the portion of net deferred tax liabilities which are expected to be
recovered through future rates. Although realization is not assured,
management believes it is more likely than not that all of the regulatory
asset will be realized.
To the extent permitted by the CPUC, investment tax credits resulting
from utility plant additions are deferred and amortized over the estimated
useful lives of the related property.
Advances for Construction and Contributions in Aid of Construction -
Advances for construction received after 1981 are being refunded ratably
over 40 years. Prior customer advances are refunded based on 22% of
related revenues. Estimated refunds for 1999 are $1,555.
Contributions in aid of construction represent funds received from
developers that are not refundable under CPUC regulations. Depreciation
applicable to utility plant constructed with these contributions is charged
to contributions in aid of construction.
Customer advances and contributions in aid of construction received
subsequent to 1986 and prior to June 12, 1996 generally must be included in
federal taxable income. Taxes paid relating to advances and contributions
are recorded as deferred tax assets for financial reporting purposes and
are amortized over 40 years for advances, and over the tax depreciable life
of the related asset for contributions. Receipts subsequent to June 12,
1996 are generally exempt from federal taxable income.
Advances and contributions received subsequent to 1991 and prior
to 1997 are included in state taxable income.
Revenue - Revenue of San Jose Water Company includes amounts billed to
customers and unbilled amounts based on estimated usage from the latest
meter reading to the end of the year. Included in 1997's and 1996's
operating revenue are $890 and $631, respectively, relating to recovery of
prior years' net revenue lost due to voluntary conservation programs. 1998
and 1997 operating revenue include $2,078 and $463, respectively, from the
lease operation of the City of Cupertino.
Earnings Per Share - 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 is not shown.
Business Segment Information - SJW Corp. adopted Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosures About Segments of an
Enterprise and Related Information issued by the Financial Accounting
Standards Board (FASB). 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 operations.
Note 2
CAPITALIZATION
At December 31, 1998, and 1997, 176,407 shares of $25 par value preferred
stock were authorized and unissued.
In 1998 and 1996, SJW Corp. repurchased 2,800 and 80,399 shares of its
outstanding stock at the prevailing market price in the open market at an
aggregate cost of $158 and $3,225, respectively. All repurchased shares
have been canceled and are considered authorized and unissued.
Note 3
LINE OF CREDIT
SJW Corp. and its subsidiaries have available an unsecured bank line of
credit, allowing aggregate short-term borrowings of up to $20,000. This
line of credit bears interest at variable rates and expires on May 31,
1999.
Note 4
GAIN ON SALE OF NONUTILITY PROPERTY
In June 1998, SJW Corp. recognized a gain of $1,629, net of income taxes
of $1,132, from the sale of nonutility property, receiving as consideration
a nonutility investment property with a fair value of $3,595.
In September 1996, SJW Land Company sold nonutility property receiving as
consideration $6,750 in cash and a parcel of nonutility property with a
fair value of $1,050. The transaction resulted in a gain of $5,269, net of
income tax expense of $2,155.
Note 5
LONG-TERM DEBT
Long-term debt as of December 31 was as follows:
Description Due Date 1998 1997
-----------------------------------------------------------
Senior notes: A 8.58% 2022 $ 20,000 20,000
B 7.37% 2024 30,000 30,000
C 9.45% 2020 10,000 10,000
D 7.15% 2026 15,000 15,000
E 6.81% 2028 15,000 -
-----------------------------------------------------------
Total long-term debt $ 90,000 75,000
===========================================================
Senior notes are obligations of San Jose Water Company and are unsecured.
To minimize issuance costs, all of the company's debt has historically been
privately placed. The fair value of long-term debt as of December 31, 1998
and 1997 was approximately $118,600 and $94,500, respectively based on the
amount of essentially risk-free assets that would have to be placed in
trust to extinguish these obligations.
Note 6
INCOME TAXES
The following table reconciles income tax expense to the amount computed by
applying the federal statutory rate of 35% to income before income taxes:
1998 1997 1996
- --------------------------------------------------------------
"Expected" federal income tax $ 9,392 8,864 10,423
Increase (decrease) in taxes
attributable to:
Utility plant basis 224 180 462
State taxes, net of federal
income tax benefit 1,542 1,531 1,800
Dividend received deduction (288) (284) (280)
Nonutility property sale - - (922)
Other items, net (53) (181) (262)
- --------------------------------------------------------------
$10,817 10,110 11,221
==============================================================
The components of income tax expense as of December 31 were:
1998 1997 1996
- --------------------------------------------------------------
Current:
Federal $ 6,611 6,657 7,830
State 2,124 2,225 2,961
Deferred:
Federal 1,885 1,230 907
State 197 (2) (477)
- --------------------------------------------------------------
$10,817 10,110 11,221
==============================================================
Income taxes included in
operating expense $ 9,685 10,110 9,066
Income taxes included in gain
on sale of nonutility property 1,132 - 2,155
- --------------------------------------------------------------
$10,817 10,110 11,221
==============================================================
The components of the net deferred tax liability as of December 31
were as follows:
1998 1997
- ---------------------------------------------------------------
Deferred tax assets:
Advances and contributions $13,437 12,989
Unamortized investment tax credit 1,211 1,240
Pensions and postretirement benefits 389 438
California franchise tax 649 685
Other 585 454
- ---------------------------------------------------------------
Total deferred tax assets 16,271 15,806
- ---------------------------------------------------------------
Deferred tax liabilities:
Utility plant 26,624 24,467
Investment 11,866 11,063
Debt reacquisition costs 1,239 1,289
Other 2,083 891
- ---------------------------------------------------------------
Total deferred tax liabilities 41,812 37,710
- ---------------------------------------------------------------
Net deferred tax liabilities $25,541 21,904
===============================================================
Based upon the level of historical taxable income and projections for
future taxable income over the periods which the deferred tax assets are
deductible, management believes it is more likely than not the company will
realize the benefits of these deductible differences.
Note 7
EMPLOYEE BENEFIT PLANS
SJW Corp. adopted SFAS No. 132, Employers' Disclosures about Pensions and
Other Postretirement Benefits issued by the FASB in 1998. SFAS No. 132
standardizes the disclosure requirements for pensions and other
postretirement benefits. The adoption of SFAS No. 132 did not have a
material impact on the corporation's financial condition and results of
operation.
Pension Plans - San Jose Water Company sponsors noncontributory defined
benefit pension plans. Benefits under the plans are based on an employee's
years of service and highest consecutive three years of compensation. San
Jose Water Company's policy is to contribute the net periodic pension cost
to the extent it is tax deductible.
San Jose Water Company has a Supplemental Executive Retirement Plan,
which is a defined benefit plan under which the company will pay
supplemental pension benefits to key executives in addition to the amounts
received under the retirement plan. The annual cost of this plan has been
included in the determination of the net periodic benefit cost shown below.
The plan, which is unfunded, had a projected benefit obligation of $1,721,
$1,713 and $1,413 as of December 31, 1998, 1997 and 1996 respectively, and
net periodic pension cost of $196, $222 and $193 for 1998, 1997 and 1996,
respectively.
Deferral Plan - San Jose Water Company sponsors a salary deferral plan
which allows employees to defer and contribute a portion of their earnings
to the plan. Contributions, not to exceed set limits, are matched by the
company. Company contributions were $433, $421 and $366 in 1998, 1997 and
1996, respectively.
Other Postretirement Benefits - In addition to providing pension and
savings benefits, San Jose Water Company provides health care and life
insurance benefits for retired employees. In 1997, the plan was changed to
a flat dollar plan which is unaffected by variations in health care costs.
Net periodic cost for the defined benefit plans and other postretirement
benefits was:
PENSION BENEFITS OTHER BENEFITS
1998 1997 1996 1998 1997 1996
---------------------------------------------
Weighted-Average
Assumptions as of Dec. 31: % % % % % %
Discount rate 6.75 6.75 6.50 6.75 6.75 6.50
Expected return on plan
assets 8.00 8.00 8.00 8.00 8.00 8.00
Rate of compensation
increase 4.00 4.00 4.00 n.a. n.a. n.a
Components of Net Periodic
Benefit Cost:
Service Cost $ 875 886 869 $ 36 39 48
Interest Cost 1,731 1,590 1,444 91 91 89
Expected return on
assets (2,386) (2,029) (1,766) (25) (20) (14)
Amortization of transition
obligation 3 3 3 56 56 59
Amortization of prior
service cost 190 151 131 - - -
Recognized actuarial
(gain)loss (274) (118) 11 (9) (6) (3)
---------------------------------------------
Net periodic benefit
cost $ 139 483 692 $149 160 179
=============================================
The actuarial present value of benefit obligations and the funded status
of San Jose Water Company's defined benefit pension and other
postretirement plans as of December 31 were as follows:
PENSION BENEFITS OTHER BENEFITS
1998 1997 1996 1998 1997 1996
------------------------------------------------
Change in Benefit Obligation:
Benefit obligation at
beginning of year $25,625 23,314 22,300 $1,437 1,419 1,441
Service Cost 875 886 869 36 39 48
Interest Cost 1,731 1,590 1,444 91 91 89
Amendments 863 365 - 101 (38) -
Actuarial (gain) loss 56 476 (523) (50) 4 (88)
Benefits paid (1,238) (1,006) (776) (79) (78) (71)
------------------------------------------------
Benefit obligation at
end of year $27,912 25,625 23,314 $1,536 1,437 1,419
================================================
Change in Plan Assets:
Fair value of assets at
beginning of year $30,336 25,813 22,486 $ 350 291 218
Actual return on
plan assets 3,618 4,626 3,767 16 13 9
Employer contributions - 777 324 92 103 118
Benefits paid (1,074) (880) (764) (67) (57) (54)
------------------------------------------------
Fair value of assets at
end of year $32,880 30,336 25,813 $ 391 350 291
=================================================
Funded Status:
Plan assets less
benefit obligation $4,968 4,711 2,499 $(1,145) (1,087) (1,128)
Unrecognized tran-
sition obligation 215 218 221 735 792 886
Unamortized prior
service cost 2,219 1,545 1,331 101 - -
Unrecognized actuarial
gain (7,436) (6,533) (4,532) (246) (214) (231)
-------------------------------------------------
Prepaid (accrued)
benefit cost $ (34) (59) (481) $ (555) (509) (473)
=================================================
Note 8
COMMITMENT
San Jose Water Company purchases water from Santa Clara Valley Water
District (SCVWD). Delivery schedules for purchased water are based on a
contract year beginning July 1, and are negotiated every three years under
terms of a master contract with SCVWD expiring in 2051. Based on current
prices and estimated deliveries, San Jose Water Company expects to purchase
a minimum of 90% of the delivery schedule, or $19,500 of water, from SCVWD
in the contract year ending June 30, 1999.
In 1997, San Jose Water Company entered into a 25-year lease agreement
with the City of Cupertino to operate the City's municipal water system.
Under the terms of the lease agreement, San Jose Water Company assumed
responsibility for all maintenance, operating and capital costs, while
receiving all payments for water service. Water service rates will be
subject to approval by the Cupertino City Council.
Note 9
CONTINGENCY
In 1993, Valley Title Company filed a lawsuit against San Jose Water
Company. Plaintiffs claimed a fire service pipeline ruptured in 1992,
causing water and heating oil to flood the title company's basement.
In 1995, San Jose Water Company's insurance carrier, settled with the
plaintiff insurance company for $3.5 million for costs to repair the
building. It is uncertain whether the company will be compelled to
contribute to the settlement.
Separately, a jury awarded $3 million to the title company for its loss
of business files. A unanimous appellate court reversed that judgment
which was sustained by the California Supreme Court.
In July 1998, Maxxum Management Company, successor to Valley Title
Company, filed a new lawsuit against San Jose Water Company. The
litigation is based upon the same facts as the first lawsuit but alleges a
cause of action in inverse condemnation.
San Jose Water Company believes any future award will be within the
stated limits of the company's insurance coverage.
Note 10
UNAUDITED QUARTERLY FINANCIAL DATA
Summarized quarterly financial data is as follows:
1998 Quarter ended
March June September December
- --------------------------------------------------------------------
Operating revenue $19,336 25,508 35,821 25,345
Operating income 2,687 4,692 6,968 4,500
Net income 1,526 5,190 5,807 3,495
Comprehensive income
(loss) (76) 3,933 4,185 9,131
Basic earnings per share .48 1.64 1.83 1.10
Comprehensive income
(loss) per share (0.02) 1.24 1.32 2.88
Market price range
of stock:
High 71 70 3/8 59 3/8 62 3/4
Low 56 7/8 58 3/8 50 1/2 48 1/2
Dividends per share .585 .585 .585 .585
1997 Quarter ended
March June September December
--------------------------------------------
Operating revenue $20,787 31,554 34,037 23,706
Operating income 3,139 6,172 6,199 3,804
Net income 2,006 5,124 5,154 2,932
Comprehensive income 1,033 6,827 6,837 6,056
Basic earnings per share .63 1.62 1.63 .92
Comprehensive income
per share .33 2.15 2.16 1.91
Market price range
of stock:
High 52 7/8 56 3/4 57 3/4 60 1/2
Low 46 48 51 3/4 56 3/8
Dividends per share .57 .57 .57 .57
FINANCIAL STATEMENT SCHEDULE
SJW CORP. Schedule II
-------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
Description 1998 1997 1996
----------------------------
Allowance for doubtful accounts
Balance, beginning of period $100,000 50,000 50,000
Charged to expense 131,464 170,812 174,275
Accounts written off (169,646) (150,991) (205,034)
Recoveries of accounts written off 38,182 30,179 30,759
----------------------------
Balance, end of period 100,000 100,000 50,000
============================
Reserve for self insurance
Balance, beginning of period 589,702 512,641 500,044
Charged to expense 240,000 180,000 128,500
Payments (122,602) (102,939) (115,903)
----------------------------
Balance, end of period $707,100 589,702 512,641
============================
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
The Company's Proxy Statement for its 1999 Annual Meeting of Shareholders,
which was filed on March 12, 1999 pursuant to Regulation 14A under the
Securities Exchange Act of 1934 and is incorporated by reference in this
Form 10-K pursuant to General Instruction G(3) of Form 10-K, provides the
information required under Part III (Items 10, 11, 12 and 13), except for
the information with respect to the Company's executive officers which is
included in "Item 1. Business - Executive Officers of the Registrant."
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) (1) Financial Statements
Page
Independent Auditors' Report, January 22, 1999 19
Consolidated Balance Sheet as of December 31, 1998 and 1997 20
Consolidated Statement of Income and Comprehensive Income
for the years ended December 31, 1998, 1997, and 1996 22
Consolidated Statement of Changes in Shareholders' Equity
for the years ended December 31, 1998, 1997 and 1996 23
Consolidated Statement of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 24
Notes to Consolidated Financial Statements 25
(2) Financial Statement Schedule:
Schedule
Number
II Valuation and Qualifying Accounts and 34
Reserves, Years ended December 31,
1998, 1997 and 1996
All other schedules are omitted as the required information is inapplicable
or the information is presented in the financial statements or related
notes.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
See Exhibit Index located immediately following paragraph (b) of this Item
14.
The exhibits filed herewith are attached hereto (except as noted) and those
indicated on the Exhibit Index which are not filed herewith were previously
filed with the Securities and Exchange Commission as indicated.
(b) Report on Form 8-K.
There have been no reports filed on Form 8-K during the last quarter of
the period covered by this report.
EXHIBIT INDEX
- -------------- Location in
Sequentially
Exhibit Numbered
No. Description Copy
2 Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession:
2.1 Stock Exchange Agreement dated as of August 20, 1992
(as amended October 21, 1992). Filed as Appendix A to
Proxy Statement/Prospectus dated November 11, 1992.
File No. 1-8966. NA
2.2 Registration Rights Agreement entered into as of
December 31, 1992 among SJW Corp., Roscoe Moss, Jr. and
George E. Moss. Filed as Exhibit 4.1 to Form 8-K
January 11, 1993. File No. 1-8966. NA
2.3 Affiliates Agreement entered into as of December 31,
1992 among SJW Corp., Roscoe Moss, Jr. and George E. Moss.
Filed as Exhibit 4.2 to Form 8-K January 11, 1993.
File No. 1-8966. NA
2.4 Affiliates Agreement entered into as December 31,
1992 among SJW Corp., Roscoe Moss Company and Roscoe Moss, Jr. Filed as
Exhibit 4.3 to Form 8-K January 11, 1993.
File No. 1-8966. NA
3 Articles of Incorporation and By-Laws:
3.1 Restated Articles of Incorporation and By-Laws of SJW Corp.,
defining the rights of holders of the equity securities of
SJW Corp. Filed as an Exhibit to Annual Report on Form 10-K
for the year ended December 31, 1991. S.E.C. File No. 1-8966. NA
4 Instruments Defining the Rights of Security Holders, including
Indentures:
No current issue of the registrant's long-term debt exceeds 10
percent of the total assets of the Company. The Company hereby
agrees to furnish upon request to the Commission a copy of each
instrument defining the rights of holders of unregistered senior
and subordinated debt of the Company. NA
Location in
Sequentially
Exhibit Numbered
Copy
No. Description 10 Material Contracts:
10.1 Water Supply Contract dated January 27, 1981 between
San Jose Water Works and the Santa Clara Valley Water District,
as amended. Filed as an Exhibit to Annual Report on Form 10-K
for the year ended December 31, 1991. File No. 1-8966. NA
Executive Compensation Plans and Arrangements:
10.2 Resolutions for Directors' Retirement Plan adopted
by SJW Corp. Board of Directors, as amended. Filed as an
Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1991. S.E.C. File No. 1-8966. NA
10.3 Resolutions for Directors' Retirement Plan adopted
by San Jose Water Company Board of Directors, as amended.
Filed as an Exhibit to Annual Report on Form 10-K for the
year ended December 31, 1991. S.E.C. File No. 1-8966. NA
10.4 Ninth amendment to San Jose Water Company
Retirement Plan as amended. Filed as an Exhibit to
Annual Report on Form 10-K for the year ended
December 31, 1996. S.E.C. File No. 1-8966. NA
10.5 San Jose Water Company Executive Supplemental
Retirement Plan adopted by San Jose Water Company Board
of Directors. Filed as an Exhibit to Annual Report on
Form 10-K for the year ended December 31, 1992.
S.E.C. File No. 1-8966. NA
10.6 First Amendment to San Jose Water Company Executive
Supplemental Retirement Plan adopted by San Jose Water
Company Board of Directors. Filed as an Exhibit to Annual
Report on Form 10-K for the year ended December 31, 1992.
S.E.C. File No. 1-8966. NA
10.7 Second Amendment to San Jose Water Company Executive
Supplemental Retirement Plan adopted by San Jose Water
Company Board of Directors. S.E.C. File No. 1-8966. 40
10.8 Third Amendment to San Jose Water Company Executive
Supplemental Retirement Plan adopted by San Jose Water
Company Board of Directors. S.E.C. File No. 1-8966 41-42
10.9 Fourth Amendment to San Jose Water Company Executive
Supplemental Retirement Plan adopted by San Jose Water
Company Board of Directors. S.E.C. File No. 1-8966 43
10.10 Fifth Amendment to San Jose Water Company Executive
Supplemental Retirement Plan adopted by San Jose Water
Company Board of Directors. S.E.C. File No. 1-8966 44-45
10.11 SJW Corp. Executive Severance Plan adopted by SJW
Board of Directors. S.E.C. File No. 1-8966. 46-56
21 Subsidiaries of the Registrant. Filed as an Exhibit
to Annual Report on Form 10-K for the year ended
December 31, 1992. S.E.C. File No. 1-8966. NA
99 Additional Exhibits: None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: January 28, 1999 By /s/
J.W. WEINHARDT, Chairman, Chief Executive
Officer and Member, Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Date: January 28, 1999 By /s/
J.W. WEINHARDT, Chairman, Chief
Executive Officer and Member,
Board of Directors
Date: January 28, 1999 By /s/
W. RICHARD ROTH, President, and Member,
Board of Directors
Date: January 28, 1999 By /s/
ANGELA YIP, Chief Financial Officer
Date: January 28, 1999 By /s/
ANDREA ELLIOTT, Chief Accounting Officer
Date: January 28, 1999 By /s/
MARK L. CALI, Member, Board of Directors
Date: January 28, 1999 By /s/
J. PHILIP DINAPOLI, Member, Board of Directors
Date: January 28, 1999 By /s/
DREW GIBSON, Member, Board of Directors
Date: January 28, 1999 By /s/
RONALD R. JAMES, Member, Board of Directors
Date: January 28, 1999 By /s/
GEORGE E. MOSS, Member, Board of Directors
Date: January 28, 1999 By /s/
ROSCOE MOSS, JR., Member, Board of Directors
Date: January 28, 1999 By /s/
CHARLES J. TOENISKOETTER, Member,
Board of Directors
In accordance with the Securities and Exchange Commission's requirements,
the Company will furnish copies of any exhibit upon payment of a 30 cents
per page fee.
To order any exhibit(s), please advise the Secretary, SJW Corp., 374
West Santa Clara Street, San Jose, CA 95196, as to the exhibit(s) desired.
On receipt of your request, the Secretary will provide to you the cost
of the specific exhibit(s). The Secretary will forward the requested
exhibits upon receipt of the required fee.
SECOND AMENDMENT TO
SAN JOSE WATER COMPANY
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
(Effective January 1, 1994)
The San Jose Water Company Executive Supplemental Retirement Plan
is hereby amended effective January 1, 1994 to read as follows:
FIRST: Section 1.7 is amended to read as follows:
1.7 "Compensation" has the meaning set forth in
Section 1.09 of the San Jose Water Company Retirement Plan, with the
exception of subsections (b) and (d).
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 29TH
day of NOVEMBER, 1994.
San Jose Water Company
By /s/ W. Richard Roth
-------------------
By /s/
-------------------
THIRD AMENDMENT TO
SAN JOSE WATER COMPANY
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
(Effective January 1, 1992)
The San Jose Water Company Executive Supplemental Retirement Plan
is hereby amended effective January 1, 1995 to read as follows:
FIRST: Article I is amended by the addition of the following new
Section 1.8B:
"1.8B "Death Benefit" has the meaning set forth in
Section 3.8 of the Plan."
SECOND: Article III is amended by the addition of the following new
Section 3.7:
"3.7 Qualified Preretirement Survivor Annuity
----------------------------------------
If a married Participant dies after his accrued benefit has
vested, but before his Benefit Commencement Date, that
Participant's surviving spouse will be entitled to a Qualified
Preretirement Survivor Annuity if the surviving spouse had been
married to the Participant as of the applicable retirement date
or as of the earlier date of death of the Participant.
(a) The Qualified Preretirement Survivor Annuity will become
payable on the later of (1) the first day of the month
coinciding with or next following the Participant's death,
or (2) the first date on which the Participant would have
been eligible to receive a Qualified Joint and Survivor
Annuity.
(b) The Qualified Preretirement Survivor Annuity will be 50%
of the amount the Participant would have received had the
Participant terminated employment on the day before the
Participant's death without having waived a Qualified Joint
and Survivor Annuity. In the case of vested Participants
who die on or before the date that they would have been
eligible to receive a Qualified Joint and Survivor Annuity,
the amount of the Qualified Preretirement Survivor Annuity
will be computed as though the Participants had survived
until they were eligible to receive a Qualified Joint and
Survivor Annuity, retired at that time with an immediate
Qualified Joint and Survivor Annuity, and died the next day."
THIRD: Article III is amended by the addition of the following new
Section 3.8:
"3.8 Death Benefit.
-------------
If an unmarried Participant dies after his accrued benefit has
vested, but before his Benefit Commencement Date, that
Participant's Beneficiary shall be entitled to a Death Benefit.
(a) The Death Benefit will become payable on the later of (1)
the first day of the month coinciding with or next
following the Participant's death, or (2) the first date
on which the Participant would have been eligible to
receive a retirement benefit.
(b) A Death Benefit will be equal to the monthly retirement
benefit the Participant would have received had the
Participant terminated employment on the day before the
Participant's death and elected to receive the optional
form of benefit described in Section 3.4 of the Plan.
In the case of vested Participants who die on or before
the date that they would have been eligible to receive a
retirement benefit, the amount of the Death Benefit will
be computed as though the Participants had survived until
they were eligible to receive a retirement benefit, retired
at that time and elected to receive the optional form of
benefit described in Section 3.4 of the Plan, and died the
next day."
FOURTH: 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 20TH
day of APRIL, 1995.
San Jose Water Company
By: /s/ W. Richard Roth
--------------------
By: /s/
--------------------
FOURTH AMENDMENT TO
SAN JOSE WATER COMPANY
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
(Effective January 1, 1992)
The San Jose Water Company Executive Supplemental Retirement Plan
is hereby amended effective March 1, 1998 to read as follows:
Section 3.1 is amended to add 3.1(c) as follows:
3.1(c) In addition to the benefit of Section 3.1(a) and (b),
Barbara Y. Nilsen shall receive the following benefit if she retires
on March 1, 1998: $40,000 in the first year, $30,000 in the second
year, and $20,000 in the third year of her retirement. The benefit
will be paid pro rata on a monthly basis. Actuarial reductions will
apply if a form of payment with beneficiary rights is elected.
Add a new Section 3.7 as follows:
1998 Retiree Benefit Increase. Subject to a ten percent (10%) maximum
benefit increase, the monthly pension of each Participant (or
Beneficiary in the case of a deceased Participant) shall be increased
0.138889% for each month or partial month which has elapsed from the
date of the initial payment of retirement benefits to each Participant
(or Beneficiary), up to and including February 28, 1998.
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 4TH
day of FEBRUARY, 1998.
San Jose Water Company
By /s/ W. Richard Roth
-------------------
Its President
By /s/
-------------------
Its Vice President
FIFTH AMENDMENT TO
SAN JOSE WATER COMPANY
EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN
(Effective January 1, 1992)
The San Jose Water Company Executive Supplemental Retirement Plan
is hereby amended effective January 1, 1995 to read as follows:
FIRST: Effective January 1, 1999, Section 3.1 is amended to read
as follows:
"3.1 The retirement benefits under this Plan to which a
Participant shall be entitled, shall be an amount equal to the
difference, if any, between (a) and (b) below:
"(a) Two and two tenths percent (2.2%) of the Final
Average Compensation of a Participant multiplied by the
Participant's Years of Service (not to exceed twenty (24) years);
and (ii) Mr. John Weinhardt shall receive an additional eight and
one quarter tenths of one percent (.825%) of Final Average
Compensation for each year of service as President and Chief
Executive Officer of the Company; less
"(b) Benefits payable to the Participant from the San
Jose Water Company Retirement Plan.
"(c) In addition to the benefit described in subsections
(a) and (b) above, Barbara Y. Nilsen shall receive the following
benefit if she retires on March 1, 1998: $40,000 in the first
year, $30,000 in the second year, and $20,000 in the third year
of retirement. The benefit will be paid pro rata on a monthly
basis. Actuarial reductions will apply if a form of payment with
beneficiary rights is elected.
"(d) In addition, to the benefit described in subsections
(b) and (c) above, Frederick Meyer shall receive an additional
2 1/2 Years of Service credit and shall be deemed to be
2 1/2 years of age older at the time he retires.
"The amount of the offset in subsection (b) shall be Actuarially
Equivalent to a single life annuity commencing on the Participant's Normal
Retirement Date."
SECOND: Effective January 1, 1999, Section 4.1 is amended to read
as follows:
4.1. A Participant shall vest in a percentage of his accrued
retirement benefit derived from Employer Contributions, upon
completion of Years of Service as follows:
Years of Service Vested Percentage
---------------- -----------------
Less than 10 None
10 or More 100%
THIRD: 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 28TH
day of JANUARY, 1999.
San Jose Water Company
By /s/ W. Richard Roth
-------------------
Its President
By /s/
-------------------
Its Vice President
SJW CORP.
EXECUTIVE SEVERANCE PLAN
* * *
The SJW Corp. Executive Severance Plan (the "Plan") is hereby adopted as of
this 28th of January, 1999, by SJW Corp. ("Company") for the benefit of the
Officers (as defined below) of Company and/or its Affiliates and Associates
(as defined below).
W I T N E S S E T H:
WHEREAS, the Officers are currently employed by Company and/or its
Affiliates or Associates (collectively referred to as the "Employer"); and
WHEREAS, the Employer wishes to retain the services of the Officers and
to encourage the Officers to remain with the Employer; and
WHEREAS, Company desires to establish this Plan to provide security for
the Officers in connection with the Officers' employment with Employer in
the event of a Change in Control (as defined below) affecting Employer;
NOW, THEREFORE, Employer hereby establishes the Plan as set forth
below.
1. DEFINITIONS. For purposes of this Plan:
(a) "Affiliate" or "Associate" shall have the meaning set
forth in Rule 1 2b-2 under the Securities Exchange Act of 1934.
(b) "Beneficiary" shall mean the person or persons whom the
Officer shall designate in writing (on the form attached hereto
as Exhibit B) to receive the benefits provided hereunder in the
event of his or her death. Such designation shall be valid only
if it is made on said form, and the Employer receives said form
prior to the Officer's death.
(c) "Change in Control" shall be deemed to take place on
the occurrence of any of the following events:
(1) Any merger or consolidation of the Employer
in which the 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
immediately prior to such merger or consolidation;
(2) A transfer of all or substantially all of the
assets of the Company;
(3) Any other Corporate reorganization in which
there is a change in ownership of the outstanding shares of
the Employer wherein thirty percent (30%) or more of the
outstanding shares of the Company are transferred to any
"person" (as such term is used in Sections 1 3(d) and
14(d)(2) of the Securities Exchange Act of 1934); or
(4) The election to the Board of Directors of the Company
of candidates who were not recommended for election by the
Board of Directors of the Company in office immediately
prior to the election, if such candidates constitute a
majority of those elected in that particular election.
(d) "Officer" shall mean any officer of Employer who has
been elected as such by the Board of Directors of said Employer
and was serving as such upon a Change in Control. The persons who
are officers as of the date of adoption of this Plan are set
forth on Exhibit A.
(e) "Good Cause" shall be deemed to exist with respect to
an Officer if, and only if:
(1) The Officer engages in acts or omissions that
result in substantial harm to the business or property of
Employer and that constitute dishonesty, intentional breach
of fiduciary obligation or intentional wrongdoing; or
(2) The Officer is convicted of a criminal
violation involving fraud or dishonesty.
(f) "Good Reason" shall exist with respect to an Officer if
and only if, without the Officer's express written consent:
(1) There is a significant change in the nature
or the scope of the Officer's authority or in his or her
overall working environment;
(2) The Officer is assigned duties materially
inconsistent with his or her present duties,
responsibilities and status;
(3) There is a reduction in the Officer's rate of
base salary or target bonus; or
(4) Employer changes by 100 miles or more the
principal location in which the Officer is required to
perform services.
(g) "Salary" shall mean the Officer's annual base salary
rate at the greater of (l) the date of the Change in Control, or
(2) the date the Officer's employment with the Employer
terminates.
2. BENEFITS UPON TERMINATION OF EMPLOYMENT.
(a) If, at any time within twenty-four (24) months after a
Change in Control occurs (i) the employment of an Officer with
his or her Employer terminates for any reason other than Good
Cause, or (ii) the Officer terminates his or her employment with
Employer for Good Reason, subject to the Benefit Limit set forth
in Section 14(b), Employer shall provide Officer benefits (the
"Change in Control Benefit") equal to:
(1) Three (3) years' Salary (less any customary
taxes and withholdings) payable in three (3) equal annual
installments beginning on the first of the month following
the month in which the Officer's employment terminates and
becomes payable thereafter on the anniversary of said
payment date.
(2) If an Officer elects to continue health
benefit coverage under the Company's health benefit coverage
plans pursuant to COBRA, Employer will provide such COBRA
coverage, without charge, to such officer and eligible
dependents until the earlier of (x) three years from the
date Officer's employment terminates, or (y) the first date
on which Officer is covered under another employer's health
benefit program without exclusion for any pre-existing
medical condition.
(3) The Company will make provision in its
Supplemental Executive Retirement Plan (SERP) so that each
Officer will receive combined retirement benefits under the
SERP and the Company's Retirement Plan equivalent to that
which would be provided if such Officer had three additional
years of service credit and were three years older on the
date of his or her retirement.
(b) The Officer shall be entitled to only one Change in Control
Benefit under this Plan. The Change in Control Benefit will be
made only if Officer executes the Release Agreement (attached
hereto as Exhibit C) and will begin following the expiration of
the seven (7) day revocation period under said Release. No
payments will be made under the Plan to Officer if Officer
revokes the Release. In the event that the Officer dies before
receiving the full Change in Control Benefit, his or her
Beneficiary shall be paid the remaining payments as they become
due.
(c) If the employment of an Officer with Employer is terminated
by Employer or Officer, other than under circumstances set forth
in Section 2(a), the Employer shall have no further obligation
with respect to the Officer under this Plan.
(d) This Plan shall have no effect, and Employer shall have no
obligations hereunder, with respect to an Officer whose
employment terminates for any reason at any time other than
within twenty-four (24) months after a Change in Control.
3. NO SOLICITATION OF REPRESENTATIVES AND OFFICERS.
No Officer shall, directly or indirectly, in his or her
individual capacity or otherwise, induce, cause, persuade, or
attempt to induce, cause, or persuade, any representative, agent
or employee of Company or any of its Affiliates and Associates to
terminate such person's employment relationship with Company or
any of its Affiliates and Associates, or to violate the terms of
any agreement between said representative, agent or employee and
Company or any of its Affiliates or Associates.
4. CONFIDENTIALITY.
Preservation of a continuing business relationship between
Company or its Affiliates and Associates and their respective
customers, representatives, and employees is of critical
importance to the continued business success of Company, its
Affiliates and Associates and it is the active policy of Company
and its Affiliates and Associates to guard as confidential
certain information not available to the public relating to the
business affairs of Company and its Affiliates and Associates. In
view of the foregoing, no Officer shall, without the prior
written consent of Company, disclose to any person or entity any
such confidential information that was obtained by the Officer in
the course of his or her employment by Employer. This section
shall not be applicable if and to the extent the Officer is
required to testify in a legislative, judicial or regulatory
proceeding pursuant to an order of Congress, any state or local
legislature, a judge or an administrative law judge or is
otherwise required by law to disclose such information.
5. FORFEITURE.
If an Officer shall at any time violate any obligation under
Section 3 or 4 in a manner that results in material damage to
Company or its Affiliates or Associates, or its business, he or
she shall immediately forfeit his or her right to any benefits
under this Plan, and Employer shall thereafter have no further
obligation hereunder to the Officer or his or her Beneficiary or
any other person.
6. OFFICER ASSIGNMENT.
Neither the Officer nor his or her Beneficiary shall have any
power or right to transfer, assign, anticipate, hypothecate,
mortgage, commute, modify, or otherwise encumber in advance any
of the benefits payable hereunder, nor shall any of said benefits
be subject to seizure for the payment of any debts, judgments,
alimony, or separate maintenance owed by the Officer or his or
her Beneficiary, or be transferable by operation of law in the
event of bankruptcy, insolvency, or otherwise.
7. BENEFITS UNFUNDED.
The Plan is intended to be unfunded for purposes of Employee
Retirement Income Security Act of 1974 and the Internal Revenue
Code. The Employer's obligation under this Plan shall be that of
an unfunded and unsecured promise by the Employer to pay money in
the future. All distributions under this Plan shall be paid from
the general assets of the Employer. The right of the Officer or
any Beneficiary to receive a distribution under this Plan shall
be an unsecured claim against the general assets of the Employer,
and neither the Officer nor any Beneficiary shall have any rights
in or against any assets of the Employer or Company and its
Affiliates and Rune.
8. APPLICABLE LAW.
The Plan and all matters arising under it shall be governed by
the laws of the State of California except to the extent
preempted by federal law.
9. NO EMPLOYMENT CONTRACT.
This Plan shall not be deemed to constitute a contract of
employment between an Officer and his or her Employer, nor shall
any provision hereof restrict the right of the Employer to
discharge the Officer, or restrict the right of the Officer to
terminate his or her employment.
10. SEVERABILITY.
In the event any provision of this Plan is held illegal or
invalid, the remaining provisions of this Plan shall not be
affected thereby.
11. SUCCESSORS.
The Plan shall be binding upon and inure to the benefit of
Company and its Affiliates and Associates, the Officers and their
respective heirs, representatives and successors. As a condition
to any Change in Control, the new controlling organization or any
other person described in Section l(c) must agree to assume and
to discharge the obligations of the Employer under this Plan.
Upon the occurrence of such event, the term "Employer" as used in
the Plan shall be deemed to refer to such new controlling
organization or other person.
12. CLAIMS PROCEDURE.
The Employer or its delegated shall have the power, in its
discretion, to interpret and make all determinations as to rights
to benefits under this Plan, its interpretation or determinations
thereof in good faith to be final and conclusive on the Officer
and his or her Beneficiary and shall be subject to review only to
the extent a court concludes that such interpretation or
determinations are arbitrary and capricious.
If a claim for benefits under the Plan is denied in whole or in
part, the claimant will be notified by the Employer or its
delegatee within 90 days of the date the claim is delivered to
the Employer, or 180 days if the claimant is told that additional
time is needed. The notification will be written in
understandable language and will state (i) specific reasons for
denial of the claim, (ii) specific references to Plan provisions
on which the denial is based, (iii) a description (if
appropriate) of any additional material or information necessary
for the claimant to perfect the claim and why such material or
information is necessary, and (iv) an explanation of the
procedure for reviewing the denied claim. A claim that is not
acted upon within 90 days (or 180 days in the case of an
extension) may be deemed by the claimant to have been denied.
Within 60 days after a claim has been denied, or deemed denied,
the claimant or his or her authorized representative may make a
request for a review by submitting to the Employer a written
statement (a) requesting a review of the denial of the claim; (b)
setting forth all of the grounds upon which the request for
review is based and any facts in support thereof; and (c) setting
forth any issues or comments which the claimant deems relevant to
the claim. The claimant may review pertinent documents relating
to the denial.
The Employer or its delegatee shall make a decision on review
within 60 days after the receipt of the claimant's request for
review or receipt of all additional materials reasonably
requested by the Administrator from the claimant, unless an
extension of time for processing a review is required, in which
case the claimant will be notified and a decision will be made
within 120 days of receipt of the request for review. The
decision will be in writing, and in understandable language. It
will give specific references to the Plan provisions on which the
decision is based. The decision of the Employer or its delegatee
on review shall be final and conclusive upon all persons except
to the extent it is found by a court to be arbitrary or
capricious.
13. AMENDMENT AND TERMINATION.
Company shall have the right to amend this Plan from time to time
and may terminate this Plan at any time; provided that within
twenty-four (24) months following a Change in Control (i) no
amendment may be made that diminishes any Officer's right in the
event of a termination of employment, following such Change in
Control, and (ii) the Plan may not be terminated. This Section 13
may not be amended.
14. TAXES; BENEFIT LIMIT.
(a) It is intended that this Plan shall be a non-qualified deferred
compensation plan and that any right to payments hereunder shall not
be treated as taxable income to the Officer or any Beneficiary prior
to distribution thereof. Any payments made under this Plan shall be
made net of any customary employment and withholding taxes.
(b) In the event that the change in Control Benefit received or to be
received by an Officer in connection with a Change in Control (the
"Change in Control Payments") would, in whole or in part, be subject
to excise tax under Section 4999 of the Internal Revenue Code (the
"Excise Tax"), then the aggregate present value measured at the date
of the payments and benefits to which the Officer shall be entitled
under Sections 2(a) shall in no event exceed the greater of the
following dollar amounts (the "Benefit Limit"):
(i) 2.99 times such Officer's average W-2 wages for the five (5)
calendar years (or such fewer number of calendar years of
employment with the Company) completed immediately prior to the
calendar year in which the Change in Control is effected (with W-
2 wages for partial years annualized) less the present value of
other payments to such Officer which are treated as "parachute
payments" under Section 280G(b)(2) of the Internal Revenue Code;
or
(ii) The amount which yields the greatest after-tax amount of
payments and benefits under such Section 2(a) after taking into
account any excise tax imposed under Section 4999 of the Internal
Revenue Code. "Present value" shall be determined in accordance
with the provisions of Section 280 G(d)(4) of the Internal
Revenue Code, utilizing a discount rate equal to 120% of the
applicable Federal rate in effect at the time of such
determination. If the foregoing provisions produces a reduction
in the Change in Control Benefit, such reduction shall be applied
to the salary continuation provided in Section 2(a)(1).
(c) If there is any disagreement between an Officer and Company as to
whether one or more payments or benefits to which the Officer becomes
entitled in connection with either the Change in Control or subsequent
termination or resignation are subject to the Excise Tax, such dispute
will be resolved as follows:
(i) In the event temporary, proposed or final Treasury
Regulations in effect at the time under Code Sections 280G and
4999 (or applicable judicial decisions) specifically address the
status of any such payment or Benefit, or the method of valuation
therefore, the characterization afforded to such payment by the
Regulations (or such decisions) will, together with the
applicable valuation methodology, be controlling.
(ii) In the event Treasury Regulations (or applicable judicial
decisions) do not address the status of any payment or benefit in
dispute, the matter will be submitted for resolution to
independent tax counsel selected by Company ("Independent
Counsel"). The resolution reached by Independent Counsel will be
final and controlling; provided, however, that if in the judgment
of Independent Counsel the status of the payment in dispute can
be resolved through the obtainment of a private letter ruling
from the Internal Revenue Service, a formal and proper request
for such ruling will be prepared and submitted by Independent
Counsel, and the determination made by the Internal Revenue
Service in the issued ruling will be controlling. All expenses
incurred in connection with the retention of Independent Counsel
and (if applicable) the preparation and submission of the ruling
request will be paid by Company.
(iii)In the event Treasury Regulations (or applicable judicial
decisions) do not address the appropriate valuation methodology
for any payment or benefit in dispute, the Present Value thereof
will, at the Independent Counsel's election, be determined
through an independent third-party appraisal, and the expenses
incurred in obtaining such appraisal will be paid by you [and
Company].
IN WITNESS WHEREOF, Company has caused this instrument to be executed
in its name by its duly authorized officers all as of this _____ day of
February, ____________.
SJW CORP.
By /s/
-----------------
Its /s/
-----------------
EXHIBIT A
OFFICERS
G. J. Belhumeur, Vice President, San Jose Water Company
A. Yip, Vice President, San Jose Water Company
R. J. Balocco, Vice President, San Jose Water Company
R. J. Pardini, Vice President, San Jose Water Company
R. S. Yoo, Vice President, San Jose Water Company
D. R. Drysdale, Vice President, San Jose Water Company
R. A. Loehr, Secretary, San Jose Water Company
J. C. Johansson, Vice President, San Jose Water Company
A. Elliott, Controller, San Jose Water Company
W. Richard Roth, President, SJW Corp.
J. Weinhardt, President, SJW Land
EXHIBIT B
DESIGNATION OF BENEFICIARIES
I, ______________________________________, hereby designate the following
person(s) as my Beneficiary(ies) under the SJW Corp. Executive Severance
Plan (the "Plan") to receive any amounts that might be payable as of the
date of my death:
Name: Percentage: %
Address:
Name: Percentage: %
Address:
This designation supersedes all prior Beneficiary designations I have made
under the Plan.
DATED: , 19_____
EXHIBIT C
RELEASE AGREEMENT
This Release Agreement ("Release") was given to me, ("Officer"), this ___
day _____ of ,____, by (the "Employer"). At such time as this Release
becomes effective and enforceable (i.e., the revocation period discussed
below has expired), and assuming Officer is otherwise eligible for payments
under the terms of the SJW Corp. Executive Severance Plan (the "Plan"),
Employer agrees to pay Officer pursuant to the terms of the Plan an amount
equal to $ payable in three (3) equal annual installments (minus customary
payroll taxes and withholdings).
In consideration of the receipt of the promise to pay such amount, Officer
hereby agrees, for himself or herself, his or her heirs, executors,
administrators, successors and assigns (hereinafter referred to as the
"Releasors"), to fully release and discharge the Employer and its officers,
directors, employees, agents, insurers, underwriters, subsidiaries,
parents, affiliates, associates, successors and assigns (hereinafter
referred to as the "Releasees") from any and all actions, causes of action,
claims, obligations, costs, losses, liabilities, damages and demands under
any federal, state or local law or laws, or common law, whether or not
known, suspected or claimed, which the Releasors have, or hereafter may
have, against the Releasees arising out of or in any way related to
Officer's employment or termination of employment with the Employer.
It is understood and agreed that this Release extends to all such claims
and/or potential claims, and that Officer, on behalf of the Releasors,
hereby expressly waives all rights with respect to all such claims under
California Civil Code Section 1542, which provides as follows:
A general release does not extend to claims which the creditor does not
know or suspect to exist in his or her favor at the time of executing the
release, which if known by him or her must have materially affected his or
her settlement with the debtor.
It is further understood and agreed that this Release includes claims and
rights Officer might have under the Age Discrimination in Employment Act
("ADEA"). The Officer's waiver of rights under the ADEA does not extend to
claims or rights that might arise after the date this Release is executed.
The monies to be paid to the Officer in this Release are in addition to any
sums to which he or she would be entitled without signing this Release. For
a period of seven (7) days following execution of this Release, Officer may
revoke the terms of this Release by a written document received by the
Employer on or before the end of the seven (7) day period. The Release will
not be final until said revocation period has expired. No payments will be
made under the Plan if the Officer revokes this Release.
Officer executes this Release without reliance on any representation by any
Releasee. Officer acknowledges that he or she has read and does understand
the provisions of the Release set forth in the preceding paragraph, that he
or she has had an opportunity to consult with an attorney prior to
executing this Release, that he or she was given twenty-one (21) days in
which to consider entering into this Release, that he or she affixes his or
her signature hereto voluntarily and without coercion, and that no promise
or inducement has been made other than those set out in this Release. This
document does not constitute, and shall not be admissible as evidence of,
an admission by any Releasee as to any fact or matter.
In case any part of this Release is later deemed to be invalid, illegal or
otherwise unenforceable, Officer agrees that the legality and
enforceability of the remaining provisions of this Release will not be
affected in any way.
Dated:
("Officer")