SJW Corp.
Annual Report 2012
SJW Corp. Mission
• Maximize shareholder value by achieving strong earnings, sustainable
growth, and competitive total returns.
• Provide high quality, low cost water and exceptional service to customers.
• Capitalize on water sector growth opportunities through constructive
business partnerships, disciplined management, and innovative applications
of technology.
• Foster a dynamic work environment that encourages personal and professional
growth, embraces diversity, and promotes mutual trust and respect.
• Conduct business with strict adherence to responsible corporate governance
and high ethical standards.
• Be a committed corporate citizen through community involvement, steadfast
environmental stewardship, and an enduring dedication to excellence.
SJW Corp.
110 W. Taylor Street, San Jose CA 95110 | 408 918 7231 | www.sjwcorp.com
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2012
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from to
Commission file number: 1-8966
SJW CORP.
(Exact name of registrant as specified in its charter)
California
(State or other jurisdiction of incorporation or organization)
110 West Taylor Street, San Jose, California
(Address of principal executive offices)
77-0066628
(I.R.S. Employer Identification No.)
95110
(Zip Code)
408-279-7800
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.521 par value per share
Name of each exchange on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Securities registered pursuant to Section 12(g) of the Act: None
Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes
No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
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.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
No
As of June 29, 2012, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was
approximately $337 million based on the closing sale price as reported on the New York Stock Exchange.
Indicate the number of shares outstanding of registrant’s common stock, as of the latest practicable date.
Class
Common Stock, $0.521 par value per share
Outstanding at February 8, 2013
18,694,785
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Proxy Statement relating to the registrant’s Annual Meeting of Shareholders, to be held on April 24, 2013,
are incorporated by reference into Part III of this Form 10-K where indicated.
TABLE OF CONTENTS
PART I
Forward-Looking Statements .......................................................................................................................................
Item 1.
Business..........................................................................................................................................................
Risk Factors....................................................................................................................................................
Unresolved Staff Comments ..........................................................................................................................
Properties........................................................................................................................................................
Legal Proceedings ..........................................................................................................................................
Mine Safety Disclosures.................................................................................................................................
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ........................................................................................................................................................
Selected Financial Data ..................................................................................................................................
Management’s Discussion and Analysis of Financial Condition and Results of Operations.........................
Quantitative and Qualitative Disclosures About Market Risk .......................................................................
Financial Statements and Supplementary Data ..............................................................................................
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ........................
Controls and Procedures.................................................................................................................................
Other Information...........................................................................................................................................
PART III
Directors, Executive Officers and Corporate Governance.............................................................................
Executive Compensation................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters......
Certain Relationships and Related Transactions, and Director Independence...............................................
Principal Accountant Fees and Services.........................................................................................................
PART IV
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Exhibits and Financial Statement Schedules..................................................................................................
Exhibit Index ....................................................................................................................................................................
Signatures .........................................................................................................................................................................
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PART I
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the federal securities laws relating to future
events and future results of SJW Corp. and its subsidiaries that are based on current expectations, estimates, forecasts, and
projections about SJW Corp. and its subsidiaries and the industries in which SJW Corp. and its subsidiaries operate and the
beliefs and assumptions of the management of SJW Corp. Such forward-looking statements are identified by words including
“expect”, “estimate”, “anticipate”, “intends”, “seeks”, “plans”, “projects”, “may”, “should”, “will”, and variation of such
words, and similar expressions. These forward-looking statements are only predictions and are subject to risks, uncertainties,
and assumptions that are difficult to predict. Therefore, actual results may differ materially and adversely from those expressed
in any forward-looking statements. Important factors that could cause or contribute to such differences include, but are not
limited to, those discussed in this report under Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” and elsewhere, and in other reports SJW Corp. files with the Securities and
Exchange Commission (the “SEC”), specifically the most recent report on Form 10-Q and reports on Form 8-K filed with the
SEC, each as it may be amended from time to time.
SJW Corp. undertakes no obligation to update or revise the information contained in this report, including the forward-
looking statements, to reflect any event or circumstance that may arise after the date of this report.
Item 1.
Business
General Development of Business
SJW Corp. was incorporated in California on February 8, 1985. SJW Corp. is a holding company with four subsidiaries:
•
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San Jose Water Company, a wholly owned subsidiary of SJW Corp., with its headquarters located at 110
West Taylor Street in San Jose, California 95110, was originally incorporated under the laws of the State
of California in 1866. As part of a reorganization on February 8, 1985, San Jose Water Company became
a wholly owned subsidiary of SJW Corp. San Jose Water Company is a public utility in the business of
providing water service to approximately 227,000 connections that serve a population of approximately
one million people in an area comprising approximately 138 square miles in the metropolitan San Jose,
California area.
SJWTX, Inc., a wholly owned subsidiary of SJW Corp., was incorporated in the State of Texas in 2005.
SJWTX, Inc. is doing business as Canyon Lake Water Service Company (“CLWSC”). CLWSC is a
public utility in the business of providing water service to approximately 10,600 connections that serve
approximately 36,000 people. CLWSC’s service area comprises more than 240 square miles in western
Comal County and southern Blanco County in the growing region between San Antonio and Austin,
Texas. SJWTX, Inc. has a 25% interest in Acequia Water Supply Corporation (“Acequia”). Acequia has
been determined to be a variable interest entity within the scope of Financial Accounting Standards
Board (FASB) Accounting Standard Codification (ASC) Topic 810—“Consolidation” with SJWTX, Inc.
as the primary beneficiary. As a result, Acequia has been consolidated with SJWTX, Inc.
SJW Land Company, a wholly owned subsidiary of SJW Corp., was incorporated in 1985. SJW Land
Company owns undeveloped land in the states of California and Tennessee, owns and operates
commercial buildings in the states of California, Connecticut, Texas, Arizona and Tennessee, and has a
70% limited partnership interest in 444 West Santa Clara Street, L.P. As of December 31, 2012, our
Connecticut property was classified as held-for-sale.
Texas Water Alliance Limited (“TWA”), a wholly owned subsidiary of SJW Corp., is undertaking
activities that are necessary to develop a water supply project in Texas.
Together, San Jose Water Company, CLWSC and TWA are referred to as “Water Utility Services.”
SJW Land Company and its consolidated variable interest entity, 444 West Santa Clara Street, L.P., which operates
commercial building rentals, are collectively referred to as “Real Estate Services.”
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 three types of rate adjustments that affect San Jose Water Company’s revenue collection: general
rate adjustments, cost of capital adjustments, and offset rate adjustments. General rate adjustments are authorized in general rate
case decisions, which usually authorize an initial rate adjustment followed by two annual escalation adjustments designed to
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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 as required by the CPUC so that regulatory lag is avoided.
Cost of capital adjustments are rate adjustments resulting from the CPUC’s tri-annual establishment of a reasonable rate
of return for San Jose Water Company’s capital investments.
The purpose of an offset rate adjustment is to compensate utilities for changes in specific pre-authorized offsettable
capital investments or expenses, primarily for purchased water, groundwater extraction charges and purchased power. Pursuant
to Section 792.5 of the California Public Utilities Code, a balancing account must be maintained for each expense item for
which such revenue offsets have been authorized. The purpose of a balancing account is to track the under-collection or over-
collection associated with expense changes.
On September 30, 2010, San Jose Water Company, in compliance with Commission Decision 09-11-032, requested the
CPUC’s approval of upgrades to San Jose Water Company’s 40-year old Montevina Water Treatment Plant (“MWTP”). The
MWTP has aging infrastructure and many of its components are at the end of their useful lives, or they do not meet current
structural and seismic requirements. The total planned project cost is $73.7 million, over five years. San Jose Water Company’s
application requested revenue increases of $0.5 million, or 0.22% in 2011, $1.9 million, or 0.85% in 2012, $7.7 million, or
3.50% in 2013, $3.5 million, or 1.61% in 2014 and $0.8 million, or 0.38% in 2015 (all at the then current authorized rate of
return). Evidentiary hearings were completed in April 2011. However, in July 2012, the CPUC reopened the proceeding seeking
additional evidence in the case. San Jose Water Company submitted supplemental testimony on September 24, 2012. The
CPUC's Division of Ratepayer Advocates (“DRA”) submitted response testimony on November 21, 2012 and San Jose Water
Company submitted rebuttal to DRA's testimony on December 20, 2012. In January 2013, the parties to the proceeding reached
a preliminary settlement. The final settlement will be submitted for CPUC review in the second quarter of 2013. A decision on
the application is now expected in the first half of 2013.
On May 2, 2011, San Jose Water Company filed Application No. 11-05-002 with the CPUC seeking authorization of an
updated Cost of Capital (“COC”) for the period from January 1, 2012 through December 31, 2014. An all-party settlement
agreement was announced by the CPUC on October 17, 2011 that provided San Jose Water Company a return on equity of
9.99%, a long-term cost of debt of 6.68% and a rate of return of 8.38%. This settlement was approved by the CPUC on July 12,
2012. Upon approval, the authorized rate of return of 8.38% became effective retroactively as of January 1, 2012. New rates for
this updated authorized rate of return became effective September 1, 2012. The differential in revenue between when the
authorized rate of return became retroactively effective (January 1, 2012) and when the rates were actually implemented
(September 1, 2012) is tracked in a memorandum account. The final decision included continuation of a Water Cost of Capital
Mechanism (“WCCM”). This WCCM is a mechanism that allows an adjustment to authorized return on equity between COC
filings. On October 15, 2012, San Jose Water Company filed an advice letter to adjust the authorized return on equity and rate
of return due to the triggering of this WCCM. The WCCM was triggered when the differential between the 12-month average
Moody's Aa utility bond index for the period October 2010 through September 2011 (5.04%) and October 2011 through
September 2012 (3.92%) exceeded 100 basis points. With the WCCM triggered, the authorized return on equity must be
adjusted by one-half of the difference. This produces an adjusted return on equity of 9.43%, which, in conjunction with the
authorized capital structure and long-term cost of debt provides an authorized rate of return of 8.09%. This 8.09% rate of return
was authorized by the CPUC and became effective January 1, 2013.
On January 3, 2012, San Jose Water Company filed a general rate case application requesting rate increases of $47.4
million, or 21.51% in 2013, $13.0 million, or 4.87% in 2014 and $34.8 million, or 12.59% in 2015. This general rate case filing
also includes: (1) recovery of the under-collected balance of $2.6 million in the balancing account, (2) disbursement of the
over-collected balance of $0.7 million accrued in various memorandum accounts and (3) implementation of a full revenue
decoupling Water Revenue Adjustment Mechanism (“WRAM”) and associated Modified Cost Balancing Account (“MCBA”).
The WRAM de-couples San Jose Water Company's revenue requirement from ratepayer usage. Under the WRAM, San Jose
Water Company would recover the full quantity revenue amounts authorized by the CPUC by using advice letter filings for any
unbilled quantity revenue amounts or refunds for over-collection, regardless of customer usage volumes. A MCBA similarly
provides for recovery/refund for changes in water supply mix from amounts authorized by the CPUC. A general rate case is a
year-long proceeding before the CPUC that involves a discovery phase led by the CPUC’s Division of Ratepayer Advocates
and customer intervenors that are assigned party status, settlement meetings, as well as possible evidentiary hearings. Parties to
the proceeding filed opening briefs on July 20, 2012 and reply briefs on August 7, 2012. On September 26, 2012, San Jose
Water Company filed a motion for interim rate relief so that if a decision was not reached by the end of 2012, San Jose Water
Company would be allowed to adopt interim rates, effective January 1, 2013, until a decision is adopted. To date a decision has
not been adopted and interim rates are currently in effect. Interim rates were set equal to fiscal year-end 2012 rates. Any
difference between interim rates and approved rates will be tracked in a memorandum account and will be submitted for
recovery or refund in the Company's next general rate case. On January 29, 2013, the administrative law judge issued a notice
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to reopen the record for the limited purpose of receiving and evaluating new information related to security and safety issues.
On the same day, San Jose Water Company filed a motion to move the security and safety consideration to a second phase of
the general rate case, which would provide for a more prompt resolution to the issues regarding revenue requirement. A pre-
hearing conference regarding this matter was held on February 19, 2013, but an administrative law judge ruling regarding the
bifurcation and scheduling related to the security and safety issues was not issued.
On June 1, 2012, San Jose Water Company filed Advice Letter No. 439A seeking authorization to increase revenues by
$7.4 million, or approximately 3.00%, to offset increases from Santa Clara Valley Water District’s (“SCVWD”) groundwater
production charges and treated water charges. The CPUC authorized this increase and the surcharges became effective on July
1, 2012.
CLWSC is subject to regulation by the Texas Commission on Environmental Quality (“TCEQ”). The TCEQ authorizes
rate increases after the filing of an Application for a Rate/Tariff Change. Rate cases may be filed as necessary, but not more
often than once every 12 months.
On August 27, 2010, CLWSC filed a rate case with the TCEQ. The filing contained a request for an immediate increase
in revenue of 38% and a total increase of 71%. The new rates (38%) became effective on October 27, 2010. CLWSC is also
requesting the TCEQ for a rate base determination. A rate base determination entails verification of plant to be included in rate
base by TCEQ staff. Evidentiary hearings on these matters were concluded in March and August of 2012, and a TCEQ decision
is expected sometime in the first quarter of 2013. Until final approval by the TCEQ, the 38% rate increase in October 2010 is
subject to adjustment or refund.
Please also see Item 1A, “Risk Factors,” and Item 7, “Management’s Discussion and Analysis of Financial Condition
and Results of Operations.”
Financial Information about Industry Segments
See Note 12 of Notes to Consolidated Financial Statements for information regarding SJW Corp.’s business segments.
Description of Business
General
The principal business of Water Utility Services consists of the production, purchase, storage, purification, distribution,
wholesale, and retail sale of water. San Jose Water Company provides water service to approximately 227,000 connections that
serve 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 territories, all in the County of Santa Clara in the State of California. San
Jose Water Company distributes water to customers in accordance with accepted water utility methods. CLWSC provides water
service to approximately 10,600 connections that serve approximately 36,000 people in a service area comprising more than
240 square miles in the growing region between San Antonio and Austin, Texas. TWA has entered into arrangements with
certain landowners in Gonzales County, Texas that provide for the development of a water supply project. In connection with
the project, TWA applied for groundwater production and transportation permits to meet the future water needs in the Canyon
Lake Water Service Company's service area and to the central Texas hill country communities and utilities adjacent to this area.
In January of 2013, TWA's permit was approved unanimously by the groundwater district in Gonzales County.
San Jose Water Company also provides non-tariffed services under agreements with municipalities and other utilities.
These non-tariffed services include water system operations, maintenance agreements and antenna leases.
In October 1997, San Jose Water Company commenced operation of the City of Cupertino municipal water system
under the terms of a 25-year lease. The system is adjacent to the San Jose Water Company service area and has approximately
4,600 service connections. Under the terms of the lease, San Jose Water Company paid an up-front $6.8 million concession fee
to the City of Cupertino that is amortized over the contract term. San Jose Water Company is responsible for all aspects of
system operation including capital improvements.
The operating results from the water business fluctuate according to the demand for water, which is often influenced by
seasonal conditions, such as summer temperatures or the amount and timing of precipitation in Water Utility Services’ service
areas. Revenue, production costs and income are affected by the changes in water sales and availability of surface water supply.
Overhead costs, such as payroll and benefits, depreciation, interest on long-term debt, and property taxes, remain fairly constant
despite variations in the amount of water sold. As a result, earnings are highest in the higher demand, warm summer months
and lowest in the lower demand, cool winter months.
5
Water Supply
San Jose Water Company’s water supply consists of groundwater from wells, surface water from watershed run-off and
diversion, and imported water purchased from the SCVWD under the terms of a master contract with SCVWD expiring in
2051. Purchased water provides approximately 40% to 45% of San Jose Water Company’s annual production. San Jose Water
Company pumps approximately 40% to 50% of its water supply from the underground basin and pays a groundwater extraction
charge to SCVWD. Surface supply, which during a year of normal rainfall satisfies about 6% to 8% of San Jose Water
Company’s annual needs, provides 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.
The pumps and motors at San Jose Water Company’s groundwater production facilities are propelled by electric power.
Over the last few years, San Jose Water Company has installed standby power generators at 32 of its strategic water production
sites. In addition, the commercial office and operations control centers are outfitted with standby power equipment that allow
critical distribution and customer service operations to continue during a power outage. SCVWD has informed San Jose Water
Company that its filter plants, which deliver purchased water to San Jose Water Company, are also equipped with standby
generators. In the event of a power outage, San Jose Water Company believes it will be able to prevent an interruption of
service to customers for a limited period by pumping water with its standby generators and by using purchased water from
SCVWD.
In 2012, the level of water in the Santa Clara Valley groundwater basin, which is managed by the SCVWD, remained
comparable to the 30-year average level. On January 1, 2013, SCVWD’s 10 reservoirs were 53.5% full with 90,400 acre-feet of
water in storage. As reported by SCVWD, the rainfall was approximately 157% of the seasonal average for the first six months
of the rainfall season that commenced on July 1, 2012 and ends on June 30, 2013. As of December 31, 2012, San Jose Water
Company’s Lake Elsman contained 1,248 million gallons. In addition, the rainfall at San Jose Water Company’s Lake Elsman
was measured at 27.74 inches for the period from July 1, 2012 through December 31, 2012, which is 197% of the five-year
average. Local surface water is a less costly source of water than groundwater or purchased water and its availability
significantly impacts San Jose Water Company’s results of operations. San Jose Water Company believes that its various
sources of water supply will be sufficient to meet customer demand in 2013.
The U.S. Fish and Wildlife Service issued a Biological Opinion (“BiOp”) and Incidental Take Statement for the Central
Valley Project (“CVP”) and the State Water Project (“SWP”) on the Delta smelt. The BiOp prescribes a range of operational
criteria that are determined based on hydrology, fish distribution, abundance and other factors. Under a “most likely” scenario,
the California Department of Water Resources and United States Bureau of Reclamation estimate that SWP and CVP supplies
to SCVWD could be reduced by approximately 17% to 18% of the supply amount they currently receive. Under a “worst case”
BiOp scenario, SWP and CVP supplies to SCVWD could be reduced by approximately 32% to 33% of the current supply
amount they receive. In addition, while there is some overlap with the California Fish & Game Commission’s restrictions to
protect longfin smelt, the longfin pumping restrictions, if triggered, could cause significant supply impacts beyond those
estimated to comply with Delta smelt requirements.
Except for 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 has not had any interrupted or imposed
mandatory curtailment of service to any type or class of customer with the exception of the summer of 1989 through
March 1993, when rationing was imposed intermittently on customers at the request of SCVWD.
California faces long-term water supply challenges. San Jose Water Company actively works with SCVWD to meet the
challenges by continuing to educate customers on responsible water use practices and to conduct long-range water supply
planning.
CLWSC’s water supply consists of groundwater from wells and purchased raw water from the Guadalupe-Blanco River
Authority (“GBRA”). CLWSC has long-term agreements with GBRA, which expire in 2040, 2044 and 2050. The agreements
provide CLWSC with 6,700 acre-feet of water per year from Canyon Lake and other sources at prices to be adjusted
periodically by GBRA.
Please also see further discussion under Item 1A, “Risk Factors” and Item 7, “Management’s Discussion and Analysis
of Financial Condition and Results of Operations.”
Franchises
Franchises granted by local jurisdictions permit Water Utility Services to construct, maintain, and operate a water
distribution system within the streets and other public properties of a given jurisdiction. San Jose Water Company holds the
necessary franchises to provide water in portions of the cities of San Jose and Cupertino and in the cities of Campbell, Monte
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Sereno and Saratoga, the Town of Los Gatos and the unincorporated areas of Santa Clara County. None of the franchises have a
termination date, other than the franchise for the unincorporated areas of Santa Clara County, which terminates in 2020.
Seasonal Factors
Water sales are seasonal in nature and influenced by weather conditions. The timing of precipitation and climatic
conditions can cause seasonal water consumption by customers to vary significantly. Demand for water is generally lower
during the cooler and rainy winter months. Demand increases in the spring when the temperature rises and rain diminishes.
Competition
San Jose Water Company and CLWSC are public utilities regulated by the CPUC and TCEQ, respectively, and operate
within a service area approved by the regulators. The statutory laws provide that no other investor-owned public utility may
operate in the public utilities’ service areas without first obtaining from the regulator a certificate of public convenience and
necessity. Past experience shows such a certificate will be issued only after demonstrating that 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 California law, 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 its water systems.
Environmental Matters
Water Utility Services’ procedures produce potable water in accordance with all applicable county, state and federal
environmental rules and regulations. Additionally, public utilities are subject to environmental regulation by various other state
and local governmental authorities.
Water Utility Services is currently in compliance with all of the United States Environmental Protection Agency’s (the
“EPA”) surface water treatment performance standards, drinking water standards for disinfection by-products and primary
maximum contaminant levels. These standards have been adopted and are enforced by the California Department of Public
Health and the TCEQ for San Jose Water Company and CLWSC, respectively.
Other state and local environmental regulations apply to our Water Utility Services’ operations and facilities. These
regulations relate primarily to the handling, storage and disposal of hazardous materials and discharges to the environment. In
2008, as part of routine replacement of infrastructure, San Jose Water Company identified legacy equipment containing
elemental mercury which was released into the surrounding soil. San Jose Water Company has determined the release posed no
risk of contamination to the water supply, notified the appropriate authorities and remediated the affected area. San Jose Water
Company also identified 10 other potentially affected sites. Four of these sites have been remediated and San Jose Water
Company is continuing its assessment of the remaining sites in conjunction with its infrastructure replacement program. SJW
Corp. believes there will be no material financial impact related to this matter.
San Jose Water Company is currently in compliance with all state and local regulations governing hazardous materials,
point and non-point source discharges and the warning provisions of the California Safe Drinking Water and Toxic Enforcement
Act of 1986. Please also see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of
Operations.”
Employees
As of December 31, 2012, SJW Corp. had 385 employees, of whom 344 were San Jose Water Company employees and
41 were CLWSC employees. At San Jose Water Company, 107 were executive, administrative or supervisory personnel, and
237 were members of unions. On November 23, 2010, San Jose Water Company reached a three-year collective bargaining
agreement with the Utility Workers of America, representing the majority of all employees, and the International Union of
Operating Engineers, representing certain employees in the engineering department, covering the period from January 1, 2011
through December 31, 2013. The agreements include a 2% wage increase in 2011, 2% in 2012 and 3% in 2013 for union
workers as well as increases in medical co-pays and dental deductibles. As of December 31, 2012, CLWSC had 41 employees,
of whom 9 were exempt and 32 were non-exempt employees. Non-exempt employees are subject to overtime but are not union
represented.
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Officers of the Registrant
Name
D.R. Drysdale ..........
Age
57
C.S. Giordano ..........
56
P. L. Jensen..............
53
J.P. Lynch.................
53
S. Papazian ..............
37
W.R. Roth................
60
W.L. Avila-Walker...
49
R.S. Yoo...................
62
Offices and Experience
San Jose Water Company—Vice President, Information Systems. Mr. Drysdale has served as
Vice President of Information Systems since 2000. From 1998 to 1999, Mr. Drysdale was
Director of Information Systems. From 1994 to 1998, Mr. Drysdale was Data Processing
Manager. Mr. Drysdale joined San Jose Water Company in 1992.
San Jose Water Company—Officer, Chief Engineer. Mr. Giordano has served as Chief
Engineer since June 2007. From August 2000 to June 2007, Mr. Giordano was Director of
Engineering and Construction. From January 1994 to August 2000, Mr. Giordano was
Assistant Chief Engineer. Mr. Giordano has been with San Jose Water Company since 1994.
San Jose Water Company—Senior Vice President, Regulatory Affairs. Mr. Jensen has served as
Senior Vice President of Regulatory Affairs since October 2011. From July 2007 to October
2011, Mr. Jensen was Vice President of Regulatory Affairs. From 1995 to July 2007, Mr.
Jensen was Director of Regulatory Affairs. Mr. Jensen has been with San Jose Water Company
since 1995.
SJW Corp.—Chief Financial Officer and Treasurer. Mr. Lynch has served as Chief Financial
Officer and Treasurer since October 2010. He is also Chief Financial Officer and Treasurer of
San Jose Water Company, SJW Land Company, SJWTX, Inc. and Texas Water Alliance
Limited. Prior to joining the Corporation, Mr. Lynch was an Audit Partner with KPMG LLP.
Mr. Lynch was with KPMG LLP for 26 years. Mr. Lynch is a certified public accountant.
SJW Corp.—Corporate Secretary and Attorney. Ms. Papazian has served as Corporate
Secretary and Attorney for SJW Corp. and San Jose Water Company since February 2005. She
is also Corporate Secretary of SJW Land Company, SJWTX, Inc. and Texas Water Alliance
Limited. She was admitted to the California State Bar in January 2000 and thereafter was an
Associate Attorney at The Corporate Law Group from March 2000 until February 2005.
SJW Corp.—President, Chief Executive Officer and Chairman of the Board of Directors of
SJW Corp., San Jose Water Company, SJW Land Company, SJWTX, Inc. and Texas Water
Alliance Limited. Mr. Roth was appointed Chief Executive Officer of SJW Corp. in 1999 and
President in 1996. Mr. Roth has been with San Jose Water Company since 1990.
San Jose Water Company—Controller. Ms. Avila-Walker has served as Controller since
September 2009. From August 2008 to September 2009, Ms. Avila-Walker served as Director
of Compliance. From May 2005 to May 2008, Ms. Avila-Walker served as Director of
Reporting and Finance.
San Jose Water Company—Chief Operating Officer. Mr. Yoo has served as Chief Operating
Officer since July 2005. From April 2003 to July 2005, Mr. Yoo was Senior Vice President of
Administration. From April 1996 to April 2003, Mr. Yoo was Vice President of Water Quality.
Mr. Yoo has served as President of Crystal Choice Water Service LLC from January 2001 to
August 2005 and Manager from January 2001 to January 2007. Mr. Yoo was appointed Vice
President of SJWTX, Inc. from September 2005 to April 2008. Mr. Yoo has been with San Jose
Water Company since 1985.
8
Financial Information about Foreign and Domestic Operations and Export Sales
SJW Corp.’s revenue and expense are derived substantially from Water Utility Services’ operations located in the
County of Santa Clara in the State of California and Comal County in the State of Texas.
Available Information
SJW Corp.’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and
amendments to these reports, are made available free of charge through SJW Corp.’s website at http://www.sjwcorp.com, as
soon as reasonably practicable, after SJW Corp. electronically files such material with, or furnish such material to, the SEC.
The content of SJW Corp.’s website is not incorporated by reference to or part of this report.
You may also obtain a copy of any of these reports directly from the SEC. You may read and copy any material we file
or furnish with the SEC at their Public Reference Room, located at 100 F Street N.E., Washington, D.C. 20549. The phone
number for information about the operation of the Public Reference Room is 1-800-732-0330. Because we electronically file
our reports, you may also obtain this information from the SEC internet website at http://www.sec.gov.
Item 1A.
Risk Factors
Investors should carefully consider the following risk factors and warnings before making an investment decision. The
risks described below are not the only ones facing SJW Corp. Additional risks that SJW Corp. does not yet know of or that it
currently thinks are immaterial may also impair its business operations. If any of the following risks actually occur, SJW
Corp.’s business, operating results or financial condition could be materially harmed. In such case, the trading price of SJW
Corp.’s common stock could decline and you may lose all or part of your investment. Investors should also refer to the other
information set forth in this Form 10-K, including the consolidated financial statements and the notes thereto.
Our business is regulated and may be adversely affected by changes to the regulatory environment.
San Jose Water Company and CLWSC are regulated public utilities. The operating revenue of San Jose Water Company
and CLWSC result primarily from the sale of water at rates authorized by the CPUC and the TCEQ, respectively. The CPUC
and TCEQ set rates that are intended to provide revenues sufficient to recover normal operating expenses, provide funds for
replacement of water infrastructure and produce a fair and reasonable return on shareholder common equity. Please refer to Part
I, Item 1, “Regulation and Rates” for a discussion of the most recent regulatory proceedings affecting the rates of San Jose
Water Company and CLWSC. Consequently, our revenue and operating results depend upon the rates which the CPUC and
TCEQ authorize.
In our applications for rate approvals, we rely upon estimates and forecasts to propose rates for approval by the CPUC
or TCEQ. No assurance can be given that our estimates and forecasts will be accurate or that the CPUC or TCEQ will agree
with our estimates and forecasts and approve our proposed rates. To the extent our authorized rates may be too low, revenues
may be insufficient to cover Water Utility Services’ operating expenses, capital requirements and SJW Corp.’s historical
dividend rate. In addition, delays in approving rate increases may negatively affect our operating results and our operating cash
flows.
In addition, policies and regulations promulgated by the regulators govern the recovery of capital expenditures, the
treatment of gains from the sale of real utility property, the offset of production and operating costs, the recovery of the cost of
debt, the optimal equity structure, and the financial and operational flexibility to engage in non-tariffed operations. If the
regulators implement policies and regulations that will not allow San Jose Water Company and CLWSC to accomplish some or
all of the items listed above, Water Utility Services’ future operating results may be adversely affected. Further, from time to
time, the commissioners at the CPUC and the TCEQ change. For example, in California, the Governor appointed three new
commissioners to the CPUC in 2011 and another in 2012. Such changes could lead to changes in policies and regulations.
There can be no assurance that the resulting changes in policies and regulation will not adversely affect our operating results or
financial condition.
Recovery of regulatory assets is subject to adjustment by the regulatory agency and could impact the operating
results of Water Utility Services.
Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as
permitted by FASB ASC Topic 980—“Regulated Operations.” In accordance with ASC Topic 980, Water Utility Services
record deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and
credits will be recovered in the ratemaking process in a period different from when the costs and credits were incurred. Please
refer to Note 1 of the Notes to Consolidated Financial Statements for a summary of net regulatory assets. If the assessment of
the probability of recovery in the ratemaking process is incorrect and the applicable ratemaking body determines that a deferred
cost is not recoverable through future rate increases, the regulatory assets or liabilities would need to be adjusted, which could
have an adverse effect on our financial results.
9
Changes in water supply, water supply costs or the mix of water supply could adversely affect the operating
results and business of Water Utility Services.
San Jose Water Company’s supply of water primarily relies upon three main sources: water purchased from SCVWD,
surface water from its Santa Cruz Mountains watershed, and pumped underground water. Changes and variations in quantities
from each of these three sources affect the overall mix of the water supply, thereby affecting the cost of the water supply.
Surface water is the least costly source of water. If there is an adverse change to the mix of water supply and San Jose Water
Company is not allowed by the CPUC to recover the additional or increased water supply costs, its operating results may be
adversely affected.
SCVWD receives an allotment of water from state and federal water projects. If San Jose Water Company has
difficulties obtaining a high quality water supply from SCVWD due to availability, environmental, legal or other restrictions
(see also Part I, Item 1, “Water Supply”), it may not be able to fully satisfy customer demand in its service area and its
operating results and business may be adversely affected. Additionally, the availability of water from San Jose Water
Company’s Santa Cruz Mountains watershed depends on the weather and fluctuates with each season. In a normal year, surface
water supply provides 6% to 8% of the total water supply of the system. In a season with little rainfall, water supply from
surface water sources may be low, thereby causing San Jose Water Company to increase the amount of water purchased from
outside sources at a higher cost than surface water, thus increasing water production costs.
In addition, San Jose Water Company’s ability to use surface water is subject to regulations regarding water quality and
volume limitations. If new regulations are imposed or existing regulations are changed or given new interpretations, the
availability of surface water may be materially reduced. A reduction in surface water could result in the need to procure more
costly water from other sources, thereby increasing overall water production costs and adversely affecting the operating results
of San Jose Water Company.
Because the extraction of water from the groundwater basin and the operation of the water distribution system require a
significant amount of energy, increases in energy prices could increase operating expenses of San Jose Water Company. In the
aftermath of the attempt to deregulate the California energy market, energy costs in California continue to be in flux, and
therefore San Jose Water Company cannot be certain that it will be able to contain energy costs into the future.
San Jose Water Company continues to utilize Pacific Gas & Electric’s time of use rate schedules to minimize its overall
energy costs primarily for groundwater pumping. Optimization and energy management efficiency is achieved through the
implementation of Supervisory Control and Data Acquisition system software applications that control pumps based on demand
and cost of energy. An increase in demand or a reduction in the availability of surface water or import water could result in the
need to pump more water during peak hours which may adversely affect the operating results of San Jose Water Company.
CLWSC’s primary water supply is 6,700 acre-feet of water which is pumped from Canyon Lake at two lake intakes and
other sources, in accordance with the terms of its contracts with the GBRA, which are long-term take-or-pay contracts. This
supply is supplemented by groundwater pumped from wells. While providing a committed long-term water supply for future
demand, the take-or-pay contract may increase the cost of water for existing customers, and there is no assurance that future
demands up to committed supply volume will occur. Texas, similar to California, faces similar operating challenges as
described above and long-term water supply constraints. (See also Part I, Item 1, “Water Supply”).
Fluctuations in customer demand for water due to seasonality, restrictions of use, weather, and lifestyle can
adversely affect operating results.
Water Utility Services’ operations are seasonal, thus quarterly fluctuation in results of operations may be significant.
Rainfall and other weather conditions also affect the operations of Water Utility Services. Most water consumption occurs
during the third quarter of each year when weather tends to be warm and dry. In drought seasons, if customers are encouraged
or required to conserve water due to a shortage of water supply or restriction of use, revenue tends to be lower. Similarly, in
unusually wet seasons, water supply tends to be higher and customer demand tends to be lower, again resulting in lower
revenues. Furthermore, certain lifestyle choices made by customers can affect demand for water. For example, a significant
portion of residential water use is for outside irrigation of lawns and landscaping. If there is a decreased desire by customers to
maintain landscaping for their homes, residential water demand could decrease, which may result in lower revenues.
Conservation efforts and construction codes, which require the use of low-flow plumbing fixtures, could diminish water
consumption and result in reduced revenue. In addition, water conservation is a regulatory goal and, in time of drought, may
become a political mandate. There is no assurance that Water Utility Services’ will be able to recover the cost of programs
implemented by regulatory or governmental authorities to achieve water conservation objectives. (See also Part I, Item 1,
“Water Supply”).
10
A contamination event or other decline in source water quality could affect the water supply of Water Utility
Services and therefore adversely affect our business and operating results.
Water Utility Services is required under environmental regulations to comply with water quality requirements. Through
water quality compliance programs, Water Utility Services continually monitors for contamination and pollution of its sources
of water. In addition, a watershed management program provides a proactive approach to minimize potential contamination
activities. There can be no assurance that Water Utility Services will continue to comply with all applicable water quality
requirements. In the event a contamination is detected, Water Utility Services must either commence treatment to remove the
contaminant or procure water from an alternative source. Either of these results may be costly, may increase future capital
expenditures and there can be no assurance that the regulators would approve a rate increase to enable us to recover the costs
arising from these remedies. In addition, we could be held liable for consequences arising from hazardous substances in our
water supplies or other environmental damages. Our insurance policies may not cover or may not be sufficient to cover the
costs of these claims.
Water Utility Services is subject to litigation risks concerning water quality and contamination.
Although Water Utility Services has not been and is not a party to any environmental and product-related lawsuits, such
lawsuits against other water utilities have increased in frequency in recent years. If Water Utility Services is subject to an
environmental or product-related lawsuit, they might incur significant legal costs and it is uncertain whether it would be able to
recover the legal costs from ratepayers or other third parties. Although Water Utility Services has liability insurance coverage
for bodily injury and property damage, pollution liability is excluded from this coverage and our excess liability
coverage. A pollution liability policy is in place, but is subject to exclusions and limitations built into the policy. Costs for
defense are included within the limit of insurance on the pollution liability policy.
New or more stringent environmental regulations could increase Water Utility Services’ operating costs and
affect its business.
Water Utility Services’ operations are subject to water quality and pollution control regulations issued by the EPA and
environmental laws and regulations administered by the respective states and local regulatory agencies.
New or more stringent environmental and water quality regulations could increase Water Utility Services’ water quality
compliance costs, hamper Water Utility Services’ available water supplies, and increase future capital expenditure.
Under the federal Safe Drinking Water Act, Water Utility Services 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 standards,
including maximum contaminant levels for drinking water. Water Utility Services is currently in compliance with all of the
primary maximum contaminant levels promulgated to date. Additional or more stringent requirements may be adopted by each
state. There can be no assurance that Water Utility Services will be able to continue to comply with all water quality
requirements.
Water Utility Services has implemented monitoring activities and installed specific water treatment improvements in
order to comply with existing maximum contaminant levels and plan for compliance with future drinking water regulations.
However, the EPA and the respective state agencies have continuing authority to issue additional regulations under the Safe
Drinking Water Act. New or more stringent environmental standards could be imposed that will raise Water Utility Services’
operating costs, including requirements for increased monitoring, additional treatment of underground water supplies,
fluoridation of all supplies, more stringent performance standards for treatment plants and procedures to further reduce levels of
disinfection by-products. There are currently 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.
Water Utility Services rely on information technology and systems that are key to business operations. A system
malfunction or security breach could adversely affect business operations.
Information technology is key to the operation of Water Utility Services, including but not limited to payroll, general
ledger activities, bill remittance processing, providing customer service and the use of Supervisory Control and Data
Acquisition systems to operate our distribution system. Among other things, system malfunctions and security breaches could
prevent us from operating or monitoring our facilities, billing accurately and timely analysis of financial results. Our
profitability and cash flow could be affected negatively in the event these systems do not operate effectively or are breached.
11
The water utility business requires significant capital expenditures that are dependent on our ability to secure
appropriate funding. If SJW Corp. is unable to obtain sufficient capital or if the rates at which we borrow increase,
there would be a negative impact on our results of operations.
The water utility business is capital-intensive. Expenditure levels for renewal and modernization of the system will
grow at an increasing rate as components reach the end of their useful lives. SJW Corp. funds capital expenditures through a
variety of sources, including cash received from operations, funds received from developers as contributions or advances and
borrowings. We cannot provide any assurance that the historical sources of funds for capital expenditures will continue to be
adequate or that the cost of funds will remain at levels permitting us to earn a reasonable rate of return. A significant change in
any of the funding sources could impair the ability of Water Utility Services to fund its capital expenditures, which could
impact our ability to grow our utility asset base and earnings. Any increase in the cost of capital through higher interest rates or
otherwise could adversely affect our results of operations.
Our ability to raise capital through equity or debt may be affected by the economy and condition of the debt and equity
markets. Disruptions in the capital and credit markets or further deteriorations in the strength of financial institutions could
adversely affect SJW Corp.’s ability to draw on its line of credit, issue long-term debt or sell its equity. In addition, government
policies, the state of the credit markets and other factors could result in increased interest rates, which would increase SJW
Corp.’s cost of capital. Furthermore, equity financings may result in dilution to our existing shareholders and debt financings
may contain covenants that restrict the actions of SJW Corp. and its subsidiaries.
We operate in areas subject to natural disasters or that may be the target of terrorist activities.
We operate in areas that are prone to earthquakes, fires and other natural disasters. A significant seismic event in
northern California, where the majority of our operations are concentrated, or other natural disaster in northern California or
Texas could adversely impact our ability to deliver water to our customers and our costs of operations. A major disaster could
damage or destroy substantial capital assets. The CPUC and TCEQ have historically allowed utilities to establish catastrophic
event memorandum accounts as a possible mechanism to recover costs. However, we can give no assurance that the CPUC,
TCEQ, or any other commission would allow any such cost recovery mechanism in the future.
In light of the threats to the nation’s health and security since the September 11, 2001 terrorist attacks, we have taken
steps to increase security measures at our facilities and heighten employee awareness of threats to our water supply. We have
also tightened our security measures regarding the delivery and handling of certain chemicals used in our business. We have
and will continue to bear increased costs for security precautions to protect our facilities, operations and supplies. These costs
may be significant. While some of these costs are likely to be recovered in the form of higher rates, there can be no assurance
that the CPUC will approve a rate increase to recover all or part of such costs and, as a result, the Company’s operating results
and business may be adversely affected. Further, despite these tightened security measures, we may not be in a position to
control the outcome of terrorist events should they occur.
A failure of our reservoirs, storage tanks, mains or distribution networks could result in losses and damages that
may affect our financial condition and reputation.
We distribute water through an extensive network of mains and store water in reservoirs and storage tanks located
across our service areas. A substantial portion of Water Utility Services distribution system was constructed during the period
from 1945 to 1980. A failure of major mains, reservoirs, or tanks could result in injuries and damage to residential and/or
commercial property for which we may be responsible, in whole or in part. The failure of major mains, reservoirs or tanks may
also result in the need to shut down some facilities or parts of our water distribution network in order to conduct repairs. Such
failures and shutdowns may limit our ability to supply water in sufficient quantities to our customers and to meet the water
delivery requirements prescribed by governmental regulators, which could adversely affect our financial condition, results of
operations, cash flow, liquidity and reputation. Any business interruption or other losses might not be covered by insurance
policies or be recoverable in rates, and such losses may make it difficult for us to secure insurance in the future at acceptable
rates.
SJW Land Company has a significant real estate portfolio that is subject to various business and investment
risks.
SJW Land Company owns a diversified real estate portfolio in multiple states. The risks in investing directly in real
estate vary depending on the investment strategy and investment objective and include the following risks:
•
•
Liquidity risk—real estate investment is illiquid. The lag time to build or reduce the real estate portfolio
is long.
Obsolescence risk—real estate property is location specific. Location obsolescence can occur due to a
decline of a particular sub-market or neighborhood. Functional obsolescence can also occur from
physical depreciation, wear and tear, and other architectural and physical features which could be curable
or incurable.
12
•
•
Market and general economic risks—real estate investment is tied to overall domestic economic growth
and, therefore, carries market risk which cannot be eliminated by diversification. Generally, all property
types benefit from national economic growth, though the benefits range according to local factors, such
as local supply and demand and job creation. Because real estate leases are typically staggered and last
for multiple years, there is generally a delayed effect in the performance of real estate in relation to the
overall economy. This delayed effect can insulate or deteriorate the financial impact to SJW Land
Company in a downturn or an improved economic environment.
Vacancy rates can climb and market rents can be impacted and weakened by general economic forces,
therefore affecting income to SJW Land Company.
The value of real estate can drop materially due to a deflationary market, decline in rental income,
market cycle of supply and demand, long lag time in real estate development, legislative and
governmental actions, environmental concerns, increases in rates of returns demanded by investors, and
fluctuation of interest rates, eroding any unrealized capital appreciation and, potentially, invested capital.
A drop in the value of a real estate property or increase in vacancy could result in reduced future cash
flows to amounts below the property’s current carrying value and could result in an impairment charge.
Concentration/Credit risk—the risk of a tenant declaring bankruptcy and seeking relief from its
contractual rental obligation could affect the income and the financial results of SJW Land Company.
Diversification of many tenants across many properties may mitigate the risk, but can never eliminate it.
This risk is most prevalent in a recessionary environment.
The success of SJW Land Company’s real estate investment strategy depends largely on ongoing local, state and federal
land use development activities and regulations, future economic conditions, the development and fluctuations in the sale of the
undeveloped properties, the ability to identify the developer/potential buyer of the available-for-sale real estate, the timing of
the transaction, favorable tax law, and the ability to maintain and manage portfolio properties. There is no guarantee that we
will be able to execute the strategy successfully and failure to do so may aversely affect our operating results and financial
condition.
There can be no assurance that we will continue to pay dividends in the future or, if dividends are paid, that they
will be in amounts similar to past dividends.
Dividends on our common stock will only be paid if and when declared by our Board of Directors. Our earnings,
financial condition, capital requirements, applicable regulations and other factors, including the timeliness and adequacy of rate
increases, will determine both our ability to pay dividends on common stock and the amount of the dividends declared by our
Board of Directors. There can be no assurance that we will continue to pay dividends in the future or, if dividends are paid, that
they will be in amounts similar to past dividends.
Our business strategy, which includes acquiring water systems and expanding non-tariffed services, will expose
us to new risks which could have a material adverse effect on our business.
Our business strategy focuses on the following:
(1) Regional regulated water utility operations;
(2) Regional non-tariffed water utility related services provided in accordance with the guidelines established
by the CPUC in California and the TCEQ in Texas; and
(3) Out-of-region water and utility related services, primarily in the Western United States.
The execution of our business strategy will expose us to different risks than those associated with the current utility
operations. We expect to incur costs in connection with the execution of this strategy and any integration of an acquired
business could involve significant costs and divert management’s time and resources. Any future acquisition we decide to
undertake may impact our ability to finance our business, affect our compliance with regulatory requirements, and impose
additional burdens on our operations. Any businesses we acquire may not achieve sales, customer growth and projected
profitability that would justify the investment. Any difficulties we encounter in the integration process, including the integration
of controls necessary for internal control and financial reporting, could interfere with our operations, reduce our operating
margins and adversely affect our internal controls.
Adverse investment returns and other factors may increase our pension costs and pension plan funding
requirements.
A substantial number of our employees are covered by a defined benefit pension plan. Our pension costs and the funded
status of the plan are affected by a number of factors including the discount rate, mortality rates of plan participants, investment
returns on plan assets, and pension reform legislation. Any change in such factors could result in an increase in future pension
costs and an increase in our pension liability, requiring an increase in plan contributions.
13
Other factors that could affect operating results.
Other factors that could adversely affect our operating results include the following:
•
•
The level of labor and non-labor operating and maintenance expenses as affected by inflationary forces
and collective bargaining power could adversely affect our operating and maintenance expenses.
The City of Cupertino lease operation could be adversely affected by:
(1) the level of capital requirements;
(2) the ability of San Jose Water Company to raise rates through the Cupertino City Council;
and
(3) the level of operating and maintenance expenses.
Item 1B.
Unresolved Staff Comments
None.
Item 2.
Properties
The properties of San Jose Water Company consist of a unified water production system 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 non-developable watershed), impounding reservoirs with a
capacity of approximately 2.256 billion gallons, diversion facilities, wells, distribution storage of approximately 276 million
gallons, and all water facilities, equipment, office buildings 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
practice for a water utility. San Jose Water Company’s groundwater pumping stations have a production capacity of
approximately 277 million gallons per day and the present capacity for taking purchased water is approximately 179 million
gallons per day. The surface water collection system has a physical delivery capacity of approximately 35 million gallons per
day. During 2012, a maximum and average of 184 million gallons and 122 million gallons of water per day, respectively, were
delivered to the system.
CLWSC maintains a service area that covers approximately 240 square miles located in the southern region of the Texas
hill country in Comal and Blanco counties. Our service area surrounds an 8,200 surface acre reservoir (Canyon Lake).
Production wells are located in an unregulated portion of the Trinity aquifer and have the ability to pump a combined 2.8 billion
gallons annually. CLWSC has contracts for 1.9 billion gallons of untreated surface water and 235 million gallons of treated
surface water from the GBRA annually. CLWSC owns and operates two surface water treatment plants with a combined
production capacity of 6.5 million gallons per day. CLWSC has 495 miles of transmission and distribution mains and maintains
67 storage tanks with a total storage capacity of 6.9 million gallons. CLWSC owns and operates three wastewater treatment
plants with a combined capacity of 60,000 gallons per day.
Water Utility Services hold all of its principal properties in fee, subject to current tax and assessment liens, rights-of-
way, easements, and certain minor defects in title which do not materially affect their use.
14
As of December 31, 2012, SJW Land Company owns approximately 85 acres of property in the states of Connecticut,
Texas, Arizona and Tennessee and approximately five undeveloped acres of land and two acres of land with commercial
properties primarily in the San Jose metropolitan area. SJW Land Company owns a 70% limited partnership interest in 444
West Santa Clara Street, L.P. One of our California properties is owned by such partnership. SJW Land Company consolidates
its limited partnership interest in 444 West Santa Clara Street, L.P. as a variable interest entity within the scope of ASC Topic
810. The following table is a summary of SJW Land Company properties described above:
Location
Description
2 Commercial buildings ...................... San Jose, California
Warehouse building * .......................... Windsor, Connecticut
Warehouse building ** ........................ Orlando, Florida
Retail building ..................................... El Paso, Texas
Warehouse building ............................. Phoenix, Arizona
Warehouse building *** ...................... Knoxville, Tennessee
Commercial building *** .................... Knoxville, Tennessee
Undeveloped land................................ Knoxville, Tennessee
Undeveloped land................................ San Jose, California
Acreage
Square Footage
Revenue
Expense
% for Year Ended
December 31, 2012
of SJW Land Company
2
17
8
2
11
30
15
10
5
28,000
170,000
147,000
14,000
176,000
361,500
135,000
N/A
N/A
14%
16%
5%
6%
17%
3%
39%
N/A
N/A
13 %
12 %
(16)%
2 %
13 %
21 %
55 %
N/A
N/A
*
**
***
On February 1, 2013, SJW Land Company closed the sale of its Connecticut warehouse building.
On August 8, 2012, SJW Land Company closed the sale of its Florida warehouse building. Revenue and expense amounts are through the sale
closing date. Expense amount is net of the gain on sale of property.
The Company's warehouse and commercial buildings in Knoxville, Tennessee have been fully leased out. On August 14, 2012, SJW Land Company
entered into a lease with a single tenant for approximately 50,000 square feet of office space and approximately 25,000 square feet of space in the
warehouse building. The lease commences on or about July 1, 2013 and is a modified full service lease with an initial fifteen-year term and four
five-year term options. On October 16, 2012, SJW Land Company entered into a lease agreement for approximately 326,000 square feet of the
warehouse building. The lease commenced on November 1, 2012 and is a modified net lease with an initial five-year and four-month term and two
three-year options.
Item 3.
Legal Proceedings
SJW Corp. is subject to ordinary routine litigation incidental to its business. There are no pending legal proceedings to
which SJW Corp. or any of its subsidiaries is a party, or to which any of its properties is the subject, that are expected to have a
material effect on SJW Corp.’s business, financial position, results of operations or cash flows.
Item 4.
Mine Safety Disclosures
None.
15
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
SJW Corp.’s common stock is traded on the New York Stock Exchange under the symbol SJW. Information as to the
high and low sales prices for SJW Corp.’s common stock for each quarter in the 2012 and 2011 fiscal years is contained in the
section captioned “Market price range of stock” in the tables set forth in Note 14 of “Notes to Consolidated Financial
Statements” in Part II, Item 8.
As of December 31, 2012, there were 466 record holders of SJW Corp.’s common stock.
Dividends
Dividends have been paid on SJW Corp.’s and its predecessor’s common stock for 277 consecutive quarters and the
annual dividend amount has increased in each of the last 45 years. Additional information as to the cash dividends paid on
common stock in 2012 and 2011 is contained in the section captioned “Dividend per share” in the tables set forth in Note 14 of
“Notes to Consolidated Financial Statements” in Part II, Item 8. Future dividends will be determined by the Board of Directors
after consideration of various financial, economic and business factors.
Five-Year Performance Graph
The following performance graph compares the changes in the cumulative shareholder return on SJW Corp.’s common
stock with the cumulative total return on a Water Utility Index and the Standard & Poor’s 500 Index during the last five years
ended December 31, 2012. The comparison assumes $100 was invested on December 31, 2007 in SJW Corp.’s common stock
and in each of the foregoing indices and assumes reinvestment of dividends.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
Among SJW Corp., a Water Utility Index and the S&P 500 Index
The following descriptive data is supplied in accordance with Rule 304(d) of Regulation S-T:
SJW Corp. ........................................................
Water Utility Index...........................................
S&P 500 Index .................................................
100
100
100
88
98
63
69
98
80
83
116
92
76
132
94
88
157
109
2007
2008
2009
2010
2011
2012
The Water Utility Index is the 9 water company Water Utility Index prepared by Wells Fargo Securities, LLC.
16
Item 6.
Selected Financial Data
FIVE YEAR STATISTICAL REVIEW
SJW Corp. and Subsidiaries
CONSOLIDATED RESULTS OF OPERATIONS
(in thousands)
Operating revenue................................................................ $
Operating expense:
Purchased water.................................................................
Power.................................................................................
Groundwater extraction charges........................................
Other production costs.......................................................
Administrative and general................................................
Maintenance ......................................................................
Property taxes and other non-income taxes.......................
Depreciation and amortization ..........................................
Impairment on real estate investment................................
2012
2011
2010
2009
2008
261,547
238,955
215,638
216,097
220,347
66,106
5,796
23,940
11,445
42,812
13,350
9,703
33,098
—
54,317
5,394
20,997
11,345
39,136
13,261
8,921
31,193
—
43,557
6,429
26,614
10,702
38,184
12,242
7,907
28,331
3,597
45,317
6,582
31,635
10,074
35,445
13,172
8,549
25,643
—
48,291
7,559
34,368
9,871
30,207
13,123
6,793
24,043
—
Total operating expense................................................
206,250
184,564
177,563
176,417
174,255
Operating income.................................................................
Interest expense, other income and deductions....................
Income before income taxes ................................................
Provision for income taxes...................................................
Net income ...........................................................................
Dividends paid .....................................................................
CONSOLIDATED PER SHARE DATA (BASIC)
Net income ...........................................................................
Dividends paid .....................................................................
55,297
(17,437)
37,860
15,542
22,318
13,231
1.20
0.71
Shareholders’ equity at year-end..........................................
CONSOLIDATED BALANCE SHEET (in thousands)
Utility plant and intangible assets ........................................ $ 1,216,235
384,675
Less accumulated depreciation and amortization ................
831,560
Net utility plant .............................................................
65,187
Net real estate investment ....................................................
Total assets...........................................................................
1,087,499
Capitalization:
14.74
54,391
(18,947)
35,444
14,566
20,878
12,823
1.12
0.69
14.21
38,075
3,071
41,146
16,740
24,406
12,603
1.32
0.68
13.76
1,112,127
355,914
756,213
78,542
1,038,810
1,036,909
322,102
714,807
80,089
935,362
Shareholders’ equity..........................................................
Long-term debt, less current portion .................................
Total capitalization........................................................ $
274,604
335,598
610,202
264,004
343,848
607,852
255,032
295,704
550,736
39,680
(14,229)
25,451
10,280
15,171
12,202
0.82
0.66
13.67
944,026
298,921
645,105
80,812
878,474
252,756
246,879
499,635
46,092
(10,597)
35,495
14,034
21,461
11,875
1.17
0.65
13.81
878,743
272,562
606,181
82,489
850,877
254,326
216,613
470,939
OTHER STATISTICS—WATER UTILITY
SERVICES
Average revenue per connection.......................................... $
Investment in utility plant per connection ........................... $
Connections at year-end.......................................................
Miles of main at year-end ....................................................
Water production (million gallons)......................................
Maximum daily production (million gallons)......................
Population served (estimate)................................................
1,101
5,119
237,600
2,893
47,655
190
1,071,000
1,010
4,702
236,500
2,915
46,033
181
1,066,000
916
4,407
235,300
2,883
45,493
196
1,060,600
920
4,019
234,900
2,881
47,900
192
1,058,800
914
3,751
234,300
2,814
51,961
204
1,056,100
17
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
(Dollar amounts in thousands, except where otherwise noted)
Description of Business
SJW Corp. is a publicly traded company and is a holding company with four subsidiaries:
San Jose Water Company, a wholly owned subsidiary, is a public utility in the business of providing water service to
approximately 227,000 connections that serve a population of approximately one million people in an area comprising
approximately 138 square miles in the metropolitan San Jose, California area.
SJWTX, Inc., a wholly owned subsidiary of SJW Corp., doing business as Canyon Lake Water Service Company, is a
public utility in the business of providing water service to approximately 10,600 connections that serve approximately 36,000
people. CLWSC’s service area comprises more than 240 square miles in western Comal County and southern Blanco County in
the growing region between San Antonio and Austin, Texas. SJWTX, Inc. has a 25% interest in Acequia Water Supply
Corporation. Acequia has been determined to be a variable interest entity within the scope of ASC Topic 810 with SJWTX, Inc.
as the primary beneficiary. As a result, Acequia has been consolidated with SJWTX, Inc.
The United States water utility industry is largely fragmented and is dominated by municipal-owned water systems. The
water industry is regulated, and provides a life-sustaining product. This makes water utilities subject to lower business cycle
risks than nonregulated industries.
SJW Land Company, a wholly owned subsidiary, owns undeveloped land in the states of California and Tennessee,
owns and operates commercial buildings in the states of California, Connecticut, Texas, Arizona and Tennessee and has a 70%
limited partnership interest in 444 West Santa Clara Street, L.P. As of December 31, 2012, our Connecticut property was
classified as held-for-sale.
Texas Water Alliance Limited, a wholly owned subsidiary of SJW Corp., is undertaking activities that are necessary to
develop a water supply project in Texas. In connection with the project, TWA applied for groundwater production and
transportation permits to meet the future water needs in the Canyon Lake Water Service Company's service area and to the
central Texas hill country communities and utilities adjacent to this area. In January of 2013, TWA's permit was approved
unanimously by the groundwater district in Gonzales County.
Business Strategy for Water Utility Services
SJW Corp. focuses its business initiatives in three strategic areas:
(1)
(2)
Regional regulated water utility operations;
Regional nonregulated water utility related services provided in accordance with the guidelines established by
the CPUC in California and the TCEQ in Texas; and
(3)
Out-of-region water and utility related services, primarily in the Western United States.
Regional Regulated Activities
SJW Corp.’s regulated utility operation is conducted through San Jose Water Company and CLWSC. SJW Corp. plans
and applies a diligent and disciplined approach to maintaining and improving its water system infrastructure. It also seeks to
acquire regulated water systems adjacent to or near its existing service territory.
Regional Nonregulated Activities
Operating in accordance with guidelines established by the CPUC, San Jose Water Company provides nonregulated
services, such as water system operations, maintenance agreements and antenna leases, under agreements with municipalities
and other utilities. CLWSC provides nonregulated wholesale water service to adjacent utilities.
San Jose Water Company also seeks appropriate nonregulated business opportunities that complement its existing
operations or that allow it to extend its core competencies beyond existing operations. San Jose Water Company seeks
opportunities to fully utilize its capabilities and existing capacity by providing services to other regional water systems, which
also will benefit its existing regional customers.
Out-of-Region Opportunities
SJW Corp. also from time to time pursues opportunities to participate in out-of-region water and utility related services,
particularly regulated water businesses, in the Western United States. SJW Corp. evaluates out-of-region and out-of-state
opportunities that meet SJW Corp.’s risk and return profile.
The factors SJW Corp. considers in evaluating such opportunities include:
•
potential profitability;
18
•
•
•
•
•
•
regulatory environment;
additional growth opportunities within the region;
water supply, water quality and environmental issues;
capital requirements;
general economic conditions; and
synergy potential.
As part of its pursuit of the above three strategic areas, the Company considers from time to time opportunities to
acquire businesses and assets. However, SJW Corp. cannot be certain it will be successful in identifying and consummating any
strategic business acquisitions relating to such opportunities. In addition, any transaction will involve numerous risks, including
the possibility of incurring more costs than benefits derived from the acquisition, the assumption of certain known and
unknown liabilities related to the acquired assets, the diversion of management’s attention from day-to-day operations of the
business, the potential for a negative impact on SJW Corp.’s financial position and operating results, entering markets in which
SJW Corp. has no or limited direct prior experience and the potential loss of key employees of any acquired company. SJW
Corp. cannot be certain that any transaction will be successful and will not materially harm its operating results or financial
condition.
Business Strategy for Real Estate Services
SJW Corp.’s real estate investment activity is conducted through SJW Land Company. SJW Land Company owns
undeveloped land and owns and operates a portfolio of commercial buildings in the states of California, Connecticut, Texas,
Arizona and Tennessee. SJW Land Company also owns a limited partnership interest in 444 West Santa Clara Street, L.P. The
partnership owns a commercial building in San Jose, California. SJW Land Company implements its investment strategy by
managing income producing and other properties until such time a determination is made to reinvest proceeds from sale of such
properties. SJW Land Company’s real estate investments diversify SJW Corp.’s asset base.
Critical Accounting Policies
SJW Corp. has identified accounting policies delineated below as the policies critical to its business operations and the
understanding of the results of operations. The preparation of consolidated financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial
statements and revenues and expenses during the reporting period. SJW Corp. bases its estimates on historical experience and
other assumptions that are believed to be reasonable under the circumstances. For a detailed discussion on the application of
these and other accounting policies, see Note 1 of “Notes to Consolidated Financial Statements.” SJW Corp.’s critical
accounting policies are as follows:
Revenue Recognition
SJW Corp. recognizes its regulated and nonregulated revenue when services have been rendered, in accordance with
FASB ASC Topic 605—“Revenue Recognition.”
Metered revenue of Water Utility Services includes billing to customers based on meter readings plus an estimate of
water used between the customers’ last meter reading and the end of the accounting period. Water Utility Services read the
majority of its customers’ meters on a bi-monthly basis and records its revenue based on its meter reading results. Unbilled
revenue from the last meter reading date to the end of the accounting period is estimated based on the most recent usage
patterns, production records and the effective tariff rates. Actual results could differ from those estimates, which may result in
an adjustment to the operating revenue in the period which the revision to Water Utility Services’ estimates is determined. San
Jose Water Company also recognizes balancing and memorandum accounts in its revenue when it is probable that future
recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the ratemaking
process.
Revenues include a surcharge collected from regulated customers that is paid to the CPUC. This surcharge is recorded
both in operating revenues and administrative and general expenses.
SJW Corp. recognizes its nonregulated revenue based on the nature of the nonregulated business activities. Revenue
from San Jose Water Company’s nonregulated utility operations, maintenance agreements or antenna leases are recognized
when services have been rendered. Revenue from SJW Land Company properties is generally recognized ratably over the term
of the leases.
19
Recognition of Regulatory Assets and Liabilities
Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as
permitted by ASC Topic 980. In accordance with ASC Topic 980, Water Utility Services, to the extent applicable, records
deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits
will be recognized in the ratemaking process in a period different from when the costs and credits are incurred. Accounting for
such costs and credits is based on management’s judgment and prior historical ratemaking practices, and it occurs when
management determines that it is probable that these costs and credits will be recognized in the future revenue of Water Utility
Services through the ratemaking process. The regulatory assets and liabilities recorded by Water Utility Services, in particular,
San Jose Water Company, primarily relate to the recognition of deferred income taxes for ratemaking versus tax accounting
purposes, balancing and memorandum accounts, and the postretirement pension benefits, medical costs, accrued benefits for
vacation and asset retirement obligations that have not been passed through in rates. The disallowance of any asset in future
ratemaking, including deferred regulatory assets, would require San Jose Water Company to immediately recognize the impact
of the costs for financial reporting purposes. No disallowances were recognized for the years ending December 31, 2012, 2011
or 2010.
Pension Plan Accounting
San Jose Water Company offers a Pension Plan, an Executive Supplemental Retirement Plan and certain postretirement
benefits other than pensions to employees retiring with a minimum level of service. Accounting for pensions and other
postretirement benefits requires an extensive use of assumptions about the discount rate applied to expected benefit obligations,
expected return on plan assets, the rate of future compensation increases expected to be received by the employees, mortality,
turnover and medical costs. Plan assets are marked to market at each measurement date. See assumptions and disclosures
detailed in Note 10 of “Notes to Consolidated Financial Statements.”
Income Taxes
SJW Corp. estimates its federal and state income taxes as part of the process of preparing consolidated financial
statements. The process involves estimating the actual current tax exposure together with assessing temporary differences
resulting from different treatment of items for tax and accounting purposes, including the evaluation of the treatment acceptable
in the water utility industry and regulatory environment. These differences result in deferred tax assets and liabilities, which are
included on the balance sheet. If actual results, due to changes in the regulatory treatment, or significant changes in tax-related
estimates or assumptions or changes in law, differ materially from these estimates, the provision for income taxes will be
materially impacted.
Balancing and Memorandum Accounts
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. Pursuant to Section 792.5 of the California Public
Utilities Code, a balancing account must be maintained for expense items for which revenue offsets have been authorized.
Balancing accounts are currently being maintained for the following items: purchased water, purchased power and
groundwater extraction charges. The amount in the balancing account varies with the seasonality of the water utility business
such that, during the summer months when the demand for water is at its peak, the account tends to reflect an under-collection
while, during the winter months when demand for water is relatively lower, the account tends to reflect an over-collection. In
addition, San Jose Water Company maintains balancing accounts for pensions and other approved activities.
The Company also maintains memorandum accounts to track revenue impacts due to catastrophic events, unforeseen
water quality expenses related to new federal and state water quality standards, energy efficiency, cost of capital, the revenue
requirement impact of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (if any), and
other approved activities.
Balancing and memorandum accounts are recognized in revenue by San Jose Water Company when it is probable that
future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the
ratemaking process. In assessing the probability criteria for balancing and memorandum accounts between rate cases, the
Company considers evidence that may exist prior to CPUC authorization that would satisfy ASC Topic 980, subtopic 340-25
recognition criteria. Such evidence may include regulatory rules and decisions, past practices, and other facts and circumstances
that would indicate that recovery or refund is probable. When such evidence provides sufficient support for balance recognition,
the balances are recorded in the Company's financial statements.
It is typical for the CPUC to incorporate any over-collected and/or under-collected balances in balancing or
memorandum accounts into customer rates at the time rate decisions are made as part of the Company’s general rate case
proceedings by assessing temporary surcredits and/or surcharges. In the case where the Company’s balancing or memorandum-
20
type accounts that have been authorized by the CPUC reach certain thresholds or have termination dates, the Company can
request the CPUC to recognize the amounts in such accounts in customer rates prior to the next regular general rate case
proceeding by filing an advice letter.
Factors Affecting Our Results of Operations
SJW Corp.’s financial condition and results of operations are influenced by a variety of factors including the following:
•
•
•
•
•
•
•
economic utility regulation;
infrastructure investment;
compliance with environmental, health and safety standards;
production costs;
customer growth;
water usage per customer; and
weather.
Economic Utility Regulation
Water Utility Services is generally subject to economic regulation by their respective state commissions overseeing
public utilities. Regulatory policies vary from state to state and may change over time. In addition, there may be regulatory lag
between the time a capital investment is made, a consumption decrease occurs, or an operating expense increases and when
those items are adjusted in utility rates.
San Jose Water Company employs a forward-looking test year and has been authorized to use several mechanisms to
mitigate risks faced due to regulatory lag and new and changing legislation, policies and regulation. These include
memorandum accounts to track revenue impacts due to catastrophic events, unforeseen water quality expenses related to new
federal and state water quality standards, energy efficiency, cost of capital, the revenue requirement impact of the Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (if any), and other approved activities. Rate recovery
for the balances in these memorandum accounts is generally allowed in a subsequent general rate case. San Jose Water
Company also maintains balancing accounts to track changes in purchased water, purchased power, groundwater extraction
charges and pension costs for later rate recovery.
Regulatory risk is mitigated by use of a forward-looking test year which allows the return on and return of utility plant
on a forecasted basis as it is placed in service, and in some cases interim rate relief is allowed in the event of regulatory lag.
Pursuant to Texas regulation, CLWSC employs a historical test year but requested rates can be placed into effect after
sixty days, which may alleviate regulatory lag. Additionally, rate cases may be filed as necessary, but not more often than once
every 12 months.
Infrastructure Investment
The water utility business is capital-intensive. In 2012 and 2011, Company-funded capital improvements were $99,635
and $62,439, respectively, for additions to, or replacements of, property, plant and equipment for our Water Utility Services. We
plan to spend approximately $104,565 in 2013 and $639,055 over the next five years, subject to CPUC and TCEQ approval.
Included in these amounts is approximately $73,500 related to upgrades to San Jose Water Company's 40-year old Montevina
Water Treatment Plant. SJW Corp. funds these expenditures through a variety of sources, including cash received from
operations, funds received from developers as contributions or advances, equity issuances and borrowings. SJW Corp. relies
upon a line of credit, which will expire on September 1, 2014, to fund capital expenditures in the short term and has historically
issued long-term debt to refinance our short-term debt. While our ability to obtain financing will continue to be a key risk, we
believe that based on our 2012 activities, we will have access to the external funding sources necessary to implement our on-
going capital investment programs in the future.
Compliance with Environmental, Health and Safety Standards
Water Utility Services’ operations are subject to water quality and pollution control regulations issued by the EPA and
environmental laws and regulations administered by the respective states and local regulatory agencies. Under the federal Safe
Drinking Water Act, Water Utility Services 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 standards, including maximum
contaminant levels for drinking water. Water Utility Services has implemented monitoring activities and installed specific water
treatment improvements enabling it to comply with existing maximum contaminant levels and plan for compliance with future
drinking water regulations. However, the EPA and the respective state agencies have continuing authority to issue additional
21
regulations under the Safe Drinking Water Act. We incur substantial costs associated with compliance with environmental,
health and safety and water quality regulation to which our Water Utility Services is subject.
Environmental, health and safety and water quality regulations are complex and change frequently, and the overall trend
has been that they have become more stringent over time. It is possible that new or more stringent environmental standards and
water quality regulations could be imposed that will increase Water Utility Services’ water quality compliance costs, hamper
Water Utility Services’ available water supplies, and increase future capital expenditures. Future drinking water regulations may
require increased monitoring, additional treatment of underground water supplies, fluoridation of all supplies, more stringent
performance standards for treatment plants and procedures to further reduce levels of disinfection by-products. In the past,
Water Utility Services has generally been able to recover expenses associated with compliance related to environmental, health
and safety standards, but future recoveries could be affected by regulatory lag and the corresponding uncertainties surrounding
rate recovery.
Production Costs
Water Utility Services’ operations require significant production inputs which result in significant production costs.
These costs include power, which is used to operate pumps and other equipment, purchased water and groundwater extraction
charges. For 2012, production costs accounted for approximately 52% of our total operating expenses. Price increases
associated with these production inputs would adversely impact our results of operations until rate relief is granted.
Customer Growth
Customer growth in our Water Utility Services is driven by: (i) organic population growth within our authorized service
areas and (ii) the addition of new customers to our regulated customer base by acquiring regulated water systems adjacent to or
near our existing service territory. During 2012, 2011 and 2010, we had cash outflows of $2,280, $4,040 and $3,504,
respectively, for acquisitions and water rights which will allow us to expand our regulated customer base. Before entering new
regulated markets, we evaluate the regulatory environment to ensure that we will have the opportunity to achieve an appropriate
rate of return on our investment while maintaining our high standards for quality, reliability and compliance with
environmental, health and safety and water quality standards.
Change in Water Usage Per Customer
Fluctuations in customer demand for water could be due to seasonality, restrictions of use, weather or lifestyle choices,
all of which could affect Water Utility Services’ results of operations. San Jose Water Company residential usage increased
4.3% and 2.3% from 2011 to 2012 and 2010 to 2011, respectively. San Jose Water Company business usage increased 5.0% and
decreased 1.2% from 2011 to 2012 and 2010 to 2011, respectively. In addition, 2012 residential and business usage was 7.7%
and 2.2%, respectively, lower than the amount authorized in our 2010-2012 general rate case. Residential and business usage in
2011 was 11.6% and 6.8%, respectively, lower than the amount authorized in our 2010-2012 general rate case. CLWSC
residential and business usage decreased 16.7% and increased 23.2% from 2011 to 2012 and 2010 to 2011, respectively.
Water Supply
Our ability to meet the existing and future water demands of our customers depends on an adequate supply of water.
Drought, governmental restrictions, overuse of sources of water, the protection of threatened species or habitats or other factors
may limit the availability of ground and surface water. Also, customer usage of water is affected by weather conditions, in
particular during the warmer months. Our water systems experience higher demand in the summer due to the warmer
temperatures and increased usage by customers for outside irrigation of lawns and landscaping. In drought seasons, if customers
are encouraged and required to conserve water due to a shortage of water supply or restriction of use, revenue tends to be lower.
Similarly, in unusually wet seasons, water supply tends to be higher and customer demand tends to be lower, again resulting in
lower revenues. These restrictions may be imposed at a regional or state level and may affect our service areas regardless of our
readiness to meet unrestricted customer demands. San Jose Water Company believes that its various sources of water supply,
which consists of groundwater from wells, surface water from watershed run-off and diversion, and imported water purchased
from the SCVWD, will be sufficient to meet customer demand for 2013. In addition, San Jose Water Company actively works
with the SCVWD to address California’s long-term water supply challenges by continuing to educate customers on responsible
water use practices and to conduct long-range water supply planning. CLWSC believes that they will also be able to meet
customer demand for 2013 with their water supply which consists of groundwater from wells and purchased raw water from the
GBRA.
22
Results of Operations
Water sales are seasonal in nature and influenced by weather conditions. The timing of precipitation and climatic
conditions can cause seasonal water consumption by customers to vary significantly. Revenue is generally higher in the warm,
dry summer months when water usage and sales are greater and lower in the winter months when cooler temperatures and
increased rainfall curtail water usage and sales.
Overview
SJW Corp.’s consolidated net income for the year ended December 31, 2012 was $22,318, compared to $20,878 for the
same period in 2011. This represents an increase of $1,440 or 7%, from 2011. The increase was primarily attributable to higher
revenues in 2012 due to cumulative rate increases, an increase in usage, and recognition of certain balancing and memorandum
accounts, partially offset by the Mandatory Conservation Revenue Adjustment Memorandum (“MCRAM”) account that was
recognized in 2011. The increase was further offset by increases in water production costs, administrative and general expenses,
and depreciation expense due to increased depreciable assets.
Operating Revenue
Operating revenue by segment was as follows:
Operating Revenue
Water Utility Services ................................................................... $
Real Estate Services ......................................................................
256,555
4,992
$
261,547
234,346
4,609
238,955
212,078
3,560
215,638
2012
2011
2010
The change in consolidated operating revenues was due to the following factors:
2012 vs. 2011
Increase/(decrease)
2011 vs. 2010
Increase/(decrease)
Water Utility Services:
Consumption changes ................................... $
Increase in customers ....................................
Rate increases................................................
MCRAM .......................................................
Balancing and memorandum accounts .........
Real Estate Services ........................................
$
5,546
1,265
17,588
(5,740)
3,550
383
22,592
2 % $
1 %
7 %
(2)%
1 %
— %
9 % $
3,429
706
12,393
5,740
—
1,049
23,317
2%
—%
6%
3%
—%
—%
11%
2012 vs. 2011
The revenue increase consists of $22,209 from Water Utility Services and $383 from Real Estate Services.
The revenue increase for Water Utility Services primarily consists of increases in rates approved by the CPUC for an
escalation increase in our 2010-2012 general rate case and an increase intended to offset the SCVWD's increases to purchased
water and groundwater extraction charges. In addition, customer consumption increased primarily due to a drier 2012 through
nine months of the year compared to the same period in 2011. The Company also recognized revenue related to certain
balancing and memorandum accounts as management determined they were probable of recovery or refund in future rates. The
increase is offset by the Mandatory Conservation Revenue Adjustment Memorandum account that was recognized in December
2011.
The revenue increase for Real Estate Services was primarily the result of increased rental income from our Tennessee
property. The current tenant has leased the second floor of the office building for the full year in 2012, compared to only five
months in 2011. The distribution center also has a new tenant which resulted in additional lease income that commenced in
November 2012.
23
2011 vs. 2010
The revenue increase consists of $22,268 from Water Utility Services and $1,049 from Real Estate Services.
The revenue increase for Water Utility Services primarily consists of increases in rates approved by the CPUC for an
escalation increase in our 2010-2012 general rate case and an increase intended to offset the SCVWD's increases to purchased
water and groundwater extraction charges as well as a rate increase for CLWSC. The Company also recognized $5,740 in
revenue related to a Mandatory Conservation Revenue Adjustment Memorandum account upon CPUC approval in December
2011. In addition, customer consumption increased primarily due to a drier 2011 compared to 2010.
The revenue increase for Real Estate Services was primarily the result of increased rental income from our Tennessee
property. The current tenant has leased the first and third floors of the office building for the full year in 2011, compared to only
three months in 2010. In addition, the same tenant began leasing the second floor of the office building in August 2011.
Water Utility Services’ Operating Revenue and Customer Counts
The following tables present operating revenues and number of customers by customer group of Water Utility Services:
Operating Revenue by Customer Group
Residential and business ............................................................... $
Industrial .......................................................................................
Public authorities...........................................................................
Others ............................................................................................
Balancing and memorandum accounts .........................................
2012
2011
2010
234,278
216,747
195,431
1,106
10,706
6,915
3,550
1,086
10,008
6,505
—
1,031
9,306
6,310
—
$
256,555
234,346
212,078
During the fourth quarter of 2011 the CPUC approved the revenue related to the MCRAM. Included in the amounts
above is $5,344 in residential and business, $23 in industrial, $333 in public authorities and $40 in others related to the
MCRAM.
Number of Customers
Residential and business ...............................................................
232,169
231,122
229,933
2012
2011
2010
Industrial .......................................................................................
Public authorities...........................................................................
Others ............................................................................................
78
1,408
3,945
79
1,419
3,880
75
1,447
3,845
237,600
236,500
235,300
Operating Expense
Operating expense by segment was as follows:
Operating Expense
Water Utility Services ................................................................... $
Real Estate Services ......................................................................
All Other .......................................................................................
201,936
3,379
935
$
206,250
179,293
3,240
2,031
184,564
168,115
6,858
2,590
177,563
2012
2011
2010
24
The change in consolidated operating expenses was due to the following factors:
2012 vs. 2011
Increase/(decrease)
2011 vs. 2010
Increase/(decrease)
Water production costs:
Change in surface water supply .................... $
Change in usage and new customers.............
Purchased water and groundwater
extraction charge and energy price increase .
Total water production costs............................
Administrative and general..............................
Maintenance ....................................................
Property taxes and other non-income taxes.....
Depreciation and amortization ........................
Impairment on real estate investment..............
$
Sources of Water Supply
5,338
3,172
6,724
15,234
3,676
89
782
1,905
—
21,686
3% $
2%
4%
9%
2%
—%
—%
1%
—%
12% $
265
743
3,743
4,751
952
1,019
1,014
2,862
(3,597)
7,001
— %
1 %
2 %
3 %
— %
1 %
1 %
1 %
(2)%
4 %
San Jose Water Company's water supply consists of groundwater from wells, surface water from watershed run-off and
diversion, reclaimed water and imported water purchased from the SCVWD under the terms of a master contract with SCVWD
expiring in 2051.
CLWSC's water supply consists of groundwater from wells and purchased raw water from the GBRA. CLWSC has
long-term agreements with GBRA, which expire in 2040, 2044 and 2050. The agreements, which are take-or-pay contracts,
provide CLWSC with 6,700 acre-feet of water per year from Canyon Lake and other sources at prices to be adjusted
periodically by GBRA.
Surface water is the least expensive source of water. The following table presents the change in sources of water supply
for Water Utility Services:
Purchased water ............................................................................
Groundwater..................................................................................
Surface water.................................................................................
Reclaimed water............................................................................
Average water production cost per MG ........................................ $
Source of Water Supply
2012
2011
2010
(million gallons) (MG)
31,230
13,465
2,409
551
47,655
2,251
27,549
13,029
5,059
396
46,033
2,000
22,767
17,125
5,203
398
45,493
1,919
Water production in 2012 for Water Utility Services increased 1,622 million gallons from 2011. Water production in
2011 increased 540 million gallons from 2010. The changes are primarily attributable to changes in consumption by customers
and are consistent with the related water production changes.
The contract water rates for San Jose Water Company are determined by SCVWD. These rates are adjusted periodically
and coincide with SCVWD’s fiscal year, which ends on June 30. The contract water rate for SCVWD’s fiscal years 2013, 2012
and 2011 was $2.2, $2.1 and $1.9 per million gallons, respectively. The contractual cost of the groundwater extraction charge
for water pumped from the ground basin was $1.9, $1.7 and $1.6 per million gallons for SCVWD's fiscal years 2013, 2012 and
2011.
Unaccounted-for water for 2012 and 2011 approximated 5.9% and 6.8%, respectively, as a percentage of production.
The estimate is based on the results of past experience, the trend and efforts in reducing Water Utility Services’ unaccounted-for
water through main replacements and lost water reduction programs.
25
The various components of operating expenses are discussed below.
Water production costs
2012 vs. 2011
Water production costs increased due to $6,724 in net higher per unit costs paid for purchased water, groundwater
extraction and energy charges, $5,338 in increased water supply costs due to decreased availability of surface water supply in
2012 compared to 2011 and an increase in customer usage of $3,172.
2011 vs. 2010
Water production costs increased due to $3,743 in net higher per unit costs paid for purchased water, groundwater
extraction and energy charges, an increase in customer usage of $743 and $265 in increased water supply costs due to decreased
availability of surface water supply in 2011 compared to 2010.
Administrative and General Expense
Administrative and general expenses include payroll related to administrative and general functions, all employee
benefits charged to expense accounts, insurance expenses, legal fees, regulatory utility commissions’ expenses, expenses
associated with being a public company, and general corporate expenses.
2012 vs. 2011
Administrative and general expense increased $3,676 in 2012, or 9%, in comparison to 2011. The increase consisted
primarily of: (1) $2,408 in pension and retirement expenses due to a decreasing discount rate and the decline in return on
pension plan assets, (2) $1,652 in contracted work primarily due to water conservation efforts related to the recycled water
retrofit program, (3) $680 in regulatory fees primarily related to the pass-through surcharge collected from customers that is
paid to the CPUC and an increase in rate case expenses. The surcharge is recorded both in operating revenues and
administrative and general expenses, offset by (4) $370 decrease in legal and accounting fees and (5) $694 decrease in
miscellaneous expenses. SJW Corp. anticipates increases in 2013 for healthcare costs as well as depreciation expense and
property taxes and other non-income taxes due to increases in utility plant.
2011 vs. 2010
Administrative and general expense increased $952 in 2011, or 2%, in comparison to 2010. The increase consisted
primarily of: (1) $806 in contracted work primarily due to water conservation efforts related to the recycled water retrofit
program, (2) $551 in regulatory fees primarily due to an increase in rate case filings, (3) $511 due to the increased cost of health
insurance, (4) $315 due to new hires and salary increases as a result of the three-year collective bargaining agreements reached
with our unions in 2010, offset by (5) $806 decrease in pension and retirement expenses, (6) $256 decrease in legal expenses
and (7) $169 decrease in miscellaneous expenses.
Maintenance Expense
Maintenance expense increased $89 in 2012, or 1%, in comparison to 2011, and increased $1,019 in 2011, or 8%, in
comparison to 2010. The increase in 2012 consisted primarily of: (1) $93 in transportation and fuel expense, (2) $66 in license
and permit fees, (3) $28 in miscellaneous expenses, offset by (4) $98 decrease in salaries, repairs and maintenance due to an
increase in work on capital projects. The increase in 2011 consisted primarily of: (1) $673 increase in contracted work, paving,
and materials and supplies as a result of an increase in main leak repairs, (2) $596 due to salary increases and a decrease in time
charged to capital projects and (3) $250 decrease in miscellaneous expenses. In addition, the level of maintenance expense
varies with the level of public work projects instituted by local government agencies, weather conditions and the timing and
nature of general maintenance as needed for SJW Corp.’s facilities.
Property Taxes and Other Non-income Taxes
Property taxes and other non-income taxes for 2012 and 2011 increased $782 and $1,014 from prior years, respectively.
The increases were primarily a result of increased utility plant.
Depreciation and Amortization
Depreciation and amortization expense increased $1,905 in 2012, or 6%, in comparison to 2011, and increased $2,862
in 2011, or 10%, in comparison to 2010. The increase in both years was due to increases in utility plant.
Other Income and Expense
The change in other (expense) income in 2012 compared to 2011 was primarily due to a gain from the sale of our
Florida warehouse real estate property of $910 and recognition of $912 in income from a non-refundable developer deposit.
Interest expense, including interest on long-term debt and mortgages, increased $510, or 3%, in 2012 compared to 2011. This
26
increase is primarily due to a full year of interest expense on SJW Corp.'s senior note which was issued in June 2011, offset by
a decrease in mortgage interest as a result of the sale of the Florida property and a decrease in interest expense due to decreased
borrowings on the line of credit.
The change in other (expense) income in 2011 compared to 2010 was primarily due to the sale of 907,392 shares of
California Water Service Group stock in 2010. No similar sale occurred in 2011. Interest expense, including interest on long-
term debt and mortgages, increased $1,992, or 11%, in 2011 compared to 2010. In June 2011, SJW Corp. entered into a note
agreement with the Prudential Insurance Company of America, pursuant to which the Company sold an aggregate principal
amount of $50,000 of its 4.35% senior notes. In addition, San Jose Water Company incurred a full year of interest on its
California Pollution Control Financing Authority revenue bonds which were issued in June 2010.
SJW Corp.’s consolidated weighted-average cost of long-term debt, including the mortgages and the amortization of
debt issuance costs was 6.3%, 6.3% and 6.6% for the years ended December 31, 2012, 2011 and 2010, respectively.
Provision for Income Taxes
Income tax expense for 2012 was $15,542, compared to $14,566 in 2011. The effective consolidated income tax rate
was 41% for 2012, 2011 and 2010. Please refer to Note 5, “Income Taxes,” of Notes to Consolidated Financial Statements for
the reconciliation of actual to expected income tax expense.
Other Comprehensive Income (Loss)
Other comprehensive income in 2012 was $36, net of tax, due to an increase in the market value of the investment in
California Water Service Group. Other comprehensive loss in 2011 was $85, net of tax, due to a decrease in the market value of
the investment in California Water Service Group.
Liquidity and Capital Resources
Water Utility Services’ business derives the majority of its revenue directly from residential and business customers.
Water Utility Services bills the majority of its customers’ on a bi-monthly basis. Payments from customers are impacted by the
general economic conditions in the areas where SJW Corp. operates. Payment delinquencies are mitigated by service
interruptions due to non-payment. Because California is a high cost of living state, it is possible that Californians may migrate
to other states with a lower cost of living. As of December 31, 2012, the change in the number of customers has been minimal
and write-offs for uncollectible accounts have been less than 1% of total revenue, unchanged from the prior year. Management
believes it can continue to collect its accounts receivable balances at its historical collection rate.
Funds collected from Water Utility Services’ customers are used to pay for water production costs, in addition to all
costs associated with general operations. Funds were also generated from the sale of SJW Land Company's real estate
investment in Florida and borrowings from the line of credit. From these amounts, SJW Corp. paid cash dividends of
approximately $13,231 and funded its working capital in 2012. The remaining amount is available to fund SJW Corp.’s capital
expenditure program.
The condition of the capital and credit markets or the strength of financial institutions could impact SJW Corp.’s ability
to draw on its line of credit, issue long-term debt or sell its equity. In addition, government policies, the state of the credit
markets and other factors could result in increased interest rates, which would increase SJW Corp.’s cost of capital. While our
ability to obtain financing will continue to be a key risk, we believe that based on our 2012 activities, we will have access to the
external funding sources necessary to implement our on-going capital investment programs in the future.
In 2012, the common dividends declared and paid on SJW Corp.’s common stock represented 59% of net income for
2012. Dividends have been paid on SJW Corp.’s and its predecessor’s common stock for 277 consecutive quarters and the
annual dividend amount has increased in each of the last 45 years. While historically SJW Corp. has paid dividends equal to
approximately 50% to 60% of its net income, SJW Corp. cannot guarantee that trend will continue in the future.
Cash Flow from Operations
In 2012, SJW Corp. generated cash flow from operations of approximately $74,400, compared to $64,200 in 2011 and
$37,200 in 2010. Cash flow from operations is primarily generated by net income from its revenue producing activities,
adjusted for non-cash expenses for depreciation and amortization, deferred income taxes, gains on the sale of assets,
impairment on real estate investments and changes in working capital items. Cash flow from operations increased in 2012 by
approximately $10,200. This increase was caused by a combination of the following factors: (1) net income adjusted for non-
cash items and gains and losses from asset activity decreased $1,900, (2) collections of previously billed and accrued
receivables, including the regulatory asset recorded in other current asset, increased by $13,100, (3) net collection of taxes
receivable was $6,200 more than the prior year, (4) recognition of the balancing and memorandum accounts drove a decrease of
$3,600 and (5) general working capital and postretirement changes caused a $3,600 decrease. The increase in 2011 by
27
approximately $27,000 was caused by a combination of the following factors: (1) net income adjusted for non-cash items and
gains and losses from asset activity increased $23,000, (2) net collection of taxes receivable was $7,400 more than the prior
year, (3) net payments for postretirement benefits drove an increase of $2,500, (4) collections of previously billed and accrued
receivables, including the regulatory asset recorded in other current asset, drove a decrease of $6,000 and (5) general working
capital changes caused a $100 increase.
Cash Flow from Investing Activities
In 2012, SJW Corp. used approximately $99,600 of cash for Company funded capital expenditures, $6,200 for
developer funded capital expenditures, and $2,300 for acquisitions and rights to provide water service. Proceeds from the sale
of SJW Land Company's real estate investment in Florida provided cash proceeds of $5,500. In 2011, SJW Corp. used
approximately $62,400 of cash for Company funded capital expenditures, $7,300 for developer funded capital expenditures,
and $4,000 for acquisitions which primarily related to the accelerated closing of our asset acquisition from Bexar Metropolitan
Water District and rights to provide water service. In 2010, SJW Corp. used approximately $95,500 of cash for Company
funded capital expenditures, $4,400 for developer funded capital expenditures, $4,500 for real estate investments which relate
to the leasehold improvement additions for the office building located in Knoxville, Tennessee, and $3,500 for acquisitions.
These uses were offset by proceeds of $33,900 related to the sale of California Water Service Group stock.
Water Utility Services budgeted capital expenditures for 2013, exclusive of capital expenditures financed by customer
contributions and advances is as follows:
Water treatment........................................................................................................... $
Source of supply .........................................................................................................
Reservoirs and tanks ...................................................................................................
Pump stations and equipment .....................................................................................
Equipment and other...................................................................................................
Recycled water............................................................................................................
Distribution system.....................................................................................................
$
Budgeted Capital
Expenditures
2013
803
8,962
15,459
11,068
7,660
7,379
53,234
104,565
1%
9%
15%
11%
7%
7%
50%
100%
The 2013 capital expenditures budget is concentrated in main replacements. Included in the distribution system
budgeted capital expenditures of $53,234 is approximately $38,710 that is planned to be spent to replace Water Utility Services’
pipes and mains. Historically, amounts have been carried over from previous years’ budgets. Approximately $9,642 has been
carried over from prior years’ budgets and is included in the table above. In addition, $10,000 is included in the table above
related to reinvestment in utility plant associated with the American Taxpayer Relief Act of 2012, which extended bonus
depreciation for property placed in service before January 1, 2014.
Water Utility Services’ capital expenditures are incurred in connection with normal upgrading and expansion of existing
facilities and to comply with environmental regulations. Over the next five years, Water Utility Services expects to incur
approximately $565,555 in capital expenditures, which includes replacement of pipes and mains, and maintaining water
systems. This amount is subject to CPUC and TCEQ approval. In addition, San Jose Water Company requested the CPUC's
approval of upgrades to San Jose Water Company's 40-year old Montevina Water Treatment Plant. The total planned project
cost is $73,500 over the next four years. A decision on the application is now expected in the first half of 2013. Capital
expenditures have the effect of increasing utility plant on which Water Utility Services earns a return. Water Utility Services
actual capital expenditures may vary from their projections 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 as a result of new facilities construction funded with advances from developers and contributions
in aid of construction.
A substantial portion of San Jose Water Company’s distribution system was constructed during the period from 1945 to
1980. Expenditure levels for renewal and modernization of this part of the system will grow at an increasing rate as these
components reach the end of their useful lives. In most cases, replacement cost will significantly exceed the original installation
cost of the retired assets due to increases in the costs of goods and services and increased regulation.
28
Cash Flow from Financing Activities
Net cash provided by financing activities for the year ended December 31, 2012 decreased by approximately $31,000
from the same period in the prior year. The decrease was primarily due to no long-term borrowings in 2012, compared to
$50,000 in SJW Corp. unsecured senior notes issued in 2011. This decrease was offset by an increase in net borrowings on the
line of credit compared to the same period in the prior year. SJW Corp.’s cash management policy is to issue long-term debt to
pay down borrowings on the lines of credit. As such, when long-term borrowings are high, borrowings on the line of credit tend
to be low and when long-term borrowings are low, borrowings on the line of credit tend to be high.
SJW Corp., SJW Land Company and San Jose Water Company have lines of credit totaling $90,000, of which $3,000
has been set aside as security for its California Department of Water Resources’ Safe Drinking Water State Revolving Fund
(“SDWSRF”) loans as of December 31, 2012. Our drawdowns on our lines of credit are restricted by our funded debt not
exceeding a percent of total capitalization as defined in our debt covenants. SJW Corp. expects to periodically draw down on
the lines of credit as dictated by our funding needs and subsequently repay such borrowings with cash from operations and
issuance of long-term debt or equity. See also “Sources of Capital—Water Utility Services” below.
Sources of Capital
Water Utility Services
San Jose Water Company’s ability to finance future construction programs and sustain dividend payments depends on
its ability to maintain or increase internally generated funds and attract external financing. The level of future earnings and the
related cash flow from operations is dependent, in large part, upon the timing and outcome of regulatory proceedings.
San Jose Water Company’s financing activity is designed to achieve a capital structure consistent with regulatory
guidelines of approximately 49% debt and 51% equity. As of December 31, 2012, San Jose Water Company's funded debt and
equity were approximately 48% and 52%, respectively. The average borrowing rate of San Jose Water Company’s long-term
debt was 6.7% as of December 31, 2012.
Funding for San Jose Water Company's future capital expenditure program is expected to be provided primarily through
internally-generated funds, the issuance of new long-term debt, the issuance of equity or the sale of all or part of our investment
in California Water Service Group, all of which will be consistent with the regulator’s guidelines. SJW Corp. filed a Form S-3
for $50,000 in shares of common stock which became effective on December 21, 2012.
SJW Corp. has outstanding a $50,000 unsecured senior note as of December 31, 2012. The senior note has terms and
conditions that restrict SJW Corp. from issuing additional funded debt if: (1) the funded consolidated debt would exceed
66-2/3% of total capitalization, and (2) the minimum net worth of SJW Corp. becomes less than $175,000 plus 30% of Water
Utility Services cumulative net income, since June 30, 2011. As of December 31, 2012, SJW Corp. was not restricted from
issuing future indebtedness as a result of these terms and conditions.
San Jose Water Company has outstanding $200,000 of unsecured senior notes as of December 31, 2012. The senior note
agreements of San Jose Water Company generally have terms and conditions that restrict the Company from issuing additional
funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest
charges for the trailing 12-calendar-month period would be less than 175% of interest charges. As of December 31, 2012, San
Jose Water Company’s funded debt was 48% of total capitalization and the net income available for interest charges was 345%
of interest charges. As of December 31, 2012, San Jose Water Company was not restricted from issuing future indebtedness as a
result of these terms and conditions.
San Jose Water Company has outstanding $50,000 in California Pollution Control Financing Authority revenue bonds
as of December 31, 2012. The loan agreement for the revenue bonds contains affirmative and negative covenants customary for
a loan agreement relating to revenue bonds, including, among other things, complying with certain disclosure obligations and
covenants relating to the tax exempt status of the interest on the bonds and limitations and prohibitions relating to the transfer of
the projects funded by the loan proceeds and the assignment of the loan agreement. As of December 31, 2012, San Jose Water
Company was in compliance with all such covenants.
San Jose Water Company has received two loans in the aggregate principal amount of $3,076 from the California
Department of Water Resources’ SDWSRF for the retrofit of San Jose Water Company’s water treatment plants. Terms of these
loans require semi-annual payments over 20 years of principal and interest at an annual rate of 2.39% and 2.60%. The
outstanding balance as of December 31, 2012 is $2,281.
SJWTX, Inc., doing business as Canyon Lake Water Service Company, has outstanding $15,000 of senior notes as of
December 31, 2012. The senior note agreement has terms and conditions that restrict the Company from issuing additional
funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest
29
charges for the trailing 12-calendar month period would be less than 175% of interest charges. As of December 31, 2012,
SJWTX, Inc. is in compliance with all terms and conditions. In addition, SJW Corp. is a guarantor of SJWTX, Inc.’s senior note
which has terms and conditions that restrict SJW Corp. from issuing additional funded debt if: (1) the funded consolidated debt
would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Corp. becomes less than $125,000 plus
30% of Water Utility Services cumulative net income, since December 31, 2005. As of December 31, 2012, SJW Corp. is not
restricted from issuing future indebtedness as a result of these terms and conditions.
Real Estate Services
As of December 31, 2012, SJW Land Company’s outstanding balance of mortgages related to acquiring properties in
various states totaled $20,556. The mortgages have various payments, interest and amortization terms and all are secured by the
respective properties. The average borrowing rate of SJW Land Company mortgages is 5.77%.
As of December 31, 2012, SJW Land Company also had an outstanding mortgage loan in the amount of $3,153
borrowed by its subsidiary, 444 West Santa Clara Street, L.P. The mortgage loan is due in 2021 and is amortized over 20 years
with an interest rate of 5.68%. The mortgage loan is secured by the partnership’s real property and is non-recourse to SJW Land
Company.
SJW Corp. and its Subsidiaries
SJW Corp. and its subsidiaries consolidated long-term debt was 56% of total capitalization as of December 31, 2012.
Management believes that SJW Corp. is capable of obtaining future long-term capital to fund regulated and nonregulated
growth opportunities and capital expenditure requirements.
As of December 31, 2012, SJW Corp. and its subsidiaries had unsecured bank lines of credit, allowing aggregate short-
term borrowings of up to $90,000, of which $15,000 was available to SJW Corp. and SJW Land Company under a single line of
credit and $75,000 was available to San Jose Water Company under another line of credit. $3,000 under the San Jose Water
Company line of credit is set aside as security for its SDWSRF loans. At December 31, 2012, SJW Corp. and its subsidiaries
had available unused short-term bank lines of credit of $71,700. These lines of credit bear interest at variable rates. They will
expire on September 1, 2014. The cost of borrowing on SJW Corp.’s short-term credit facilities averaged 1.44% for 2012. SJW
Corp., on a consolidated basis, has the following affirmative covenants on its unsecured bank line of credit: (1) the funded debt
cannot exceed 66-2/3% of total capitalization, and (2) net income available for interest charges for the trailing 12-calendar-
month period cannot be less than 175% of interest charges. As of December 31, 2012, SJW Corp’s funded debt was 56% of
total capitalization and the net income available for interest charges was 288% of interest charges. As of December 31, 2012,
SJW Corp. was in compliance with all covenants. San Jose Water Company’s unsecured bank line of credit has the following
affirmative covenants: (1) the funded debt cannot exceed 66-2/3% of total capitalization, and (2) net income available for
interest charges for the trailing 12-calendar-month period cannot be less than 175% of interest charges. As of December 31,
2012, San Jose Water Company was in compliance with all covenants.
Off-Balance Sheet Arrangement/Contractual Obligations
SJW Corp. has no significant contractual obligations not fully recorded on its Consolidated Balance Sheet or not fully
disclosed in the Notes to Consolidated Financial Statements.
30
SJW Corp.’s contractual obligations and commitments as of December 31, 2012 are as follows:
Senior notes, Water Utility Services............................ $
SJW Land Company mortgages...................................
Advances for construction, San Jose Water Company
SDWSRF loan, San Jose Water Company...................
444 West Santa Clara Street, L.P. long-term debt
(non-recourse to SJW Land Company)........................
California Pollution Control Financing Authority
Revenue Bonds, San Jose Water Company .................
Senior note, SJW Corp.................................................
Total contractual cash obligation ................................. $
Total interest on contractual obligations...................... $
Total
215,000
20,556
68,277
2,281
3,153
50,000
50,000
409,267
346,257
Contractual Obligations Due in
Less than
1 Year
1-3
Years
3-5
Years
After
5 Years
—
5,199
2,326
97
100
—
—
7,722
20,839
—
725
4,651
290
218
—
—
5,884
41,348
—
215,000
14,632
4,651
304
245
—
—
19,832
40,446
—
56,649
1,590
2,590
50,000
50,000
375,829
243,624
In addition to the obligations listed above, San Jose Water Company issued two standby letters of credit with a
commercial bank in the amounts of $2,000 and $1,000 in support of its $1,456 and $871 SDWSRF loans which were funded in
2005 and 2008. The letters of credit automatically renew for one year each December and the amount of coverage can be
reduced as the loan principal balance decreases.
In regards to uncertain tax positions, we are unable to predict the timing of tax settlements as tax audits can involve
complex issues and the resolution of those issues may span multiple years, particularly if subject to negotiation or litigation.
San Jose Water Company purchases water from SCVWD under terms of a master contract expiring in 2051. Delivery
schedules for purchased water are based on a contract year beginning July 1, and are negotiated every three years under terms
of the master contract with SCVWD. For the years ended December 31, 2012, 2011 and 2010, San Jose Water Company
purchased from SCVWD 22,800 million gallons ($48,800), 21,900 million gallons ($43,500) and 21,200 million gallons
($40,300), respectively, of contract water. Based on current prices and estimated deliveries, San Jose Water Company expects to
purchase from SCVWD a minimum of 90% of the delivery schedule, or 20,800 million gallons ($46,000) of water at the current
contract water rate of $2.2 per million gallons in the year ending December 31, 2013. Additionally, San Jose Water Company
purchases non-contract water from SCVWD on an “as needed” basis if the water supply is available. The contract water rates
for San Jose Water Company are determined by SCVWD. These rates are adjusted periodically and coincide with SCVWD’s
fiscal year, which ends on June 30. The contract water rate for SCVWD’s fiscal years 2013, 2012 and 2011 was $2.2, $2.1 and
$1.9 per million gallons, respectively.
San Jose Water Company also pumps water from the local groundwater basin. There are no delivery schedules or
contractual obligations associated with the purchase of groundwater. SCVWD determines the groundwater extraction charge
and it is applied on a per unit basis. In addition to the SCVWD groundwater extraction charge, San Jose Water Company also
incurs power costs to pump the groundwater from the basin.
San Jose Water Company sponsors a noncontributory defined benefit pension plan and provides health care and life
insurance benefits for retired employees. In 2012, San Jose Water Company contributed $9,766 and $596 to the pension plan
and other post retirement benefit plan, respectively. In 2013, San Jose Water Company expects to make required and
discretionary cash contributions of up to $10,300 to the pension plan and other post retirement benefit plan. The amount of
required contributions for years thereafter is not actuarially determinable.
San Jose Water Company’s other benefit obligations include employees’ and directors’ postretirement benefits, an
Executive Supplemental Retirement Plan and a Special Deferral Election Plan. Under these benefit plans, San Jose Water
Company is committed to pay approximately $655 annually to former officers and directors. Future payments may fluctuate
depending on the life span of the retirees and as current officers and executives retire.
CLWSC purchases water from GBRA under terms of agreements expiring in 2040, 2044 and 2050. The agreements,
which are take-or-pay contracts, provide CLWSC with 6,700 acre-feet per year of water supply from Canyon Lake and other
sources. The water rate may be adjusted by GBRA at any time, provided they give CLWSC a 60 day written notice on the
proposed adjustment.
31
444 West Santa Clara Street, L.P.
SJW Land Company owns a 70% limited partnership interest in 444 West Santa Clara Street, L.P., a real estate limited
partnership. A real estate development firm owns the remaining 30% limited partnership interest. A commercial building was
constructed on the property of 444 West Santa Clara Street, L.P. and is leased to an international real estate firm. The lease
expires in August 2019. SJW Land Company consolidates its limited partnership interest in 444 West Santa Clara Street, L.P. as
a variable interest entity within the scope of ASC Topic 810.
Impact of Recent Accounting Pronouncements
In July 2012, the FASB issued guidance regarding indefinite-lived intangibles impairment tests. The new guidance
states that a “qualitative” assessment may be performed to determine whether further impairment testing is necessary. The new
guidance would be effective for our first quarter of fiscal year 2013 and early adoption is permitted. The Company early
adopted this guidance in the fourth quarter of fiscal year 2012. The guidance did not have any impact on the Company's
financial position, results of operations or cash flows.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
SJW Corp. is subject to market risks in the normal course of business, including changes in interest rates, pension plan
asset values and equity prices. The exposure to changes in interest rates can result from the issuance of debt and short-term
funds obtained through the Company’s variable rate lines of credit. San Jose Water Company sponsors a noncontributory
pension plan for its employees. Pension costs and the funded status of the plan are affected by a number of factors including the
discount rate and investment returns on plan assets. SJW Corp. also owns 385,120 shares of common stock of California Water
Service Group as of December 31, 2012, which is listed on the New York Stock Exchange, and is therefore exposed to the risk
of fluctuations and changes in equity prices.
SJW Corp. has no derivative financial instruments, financial instruments with significant off-balance sheet risks, or
financial instruments with concentrations of credit risk.
32
Item 8.
Financial Statements and Supplementary Data
Report of Independent Registered Public Accounting Firm
The Shareholders and Board of Directors
SJW Corp.:
We have audited the accompanying consolidated balance sheets of SJW Corp. and subsidiaries (the Company) as of
December 31, 2012 and 2011, and the related consolidated statements of comprehensive income, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended December 31, 2012. In connection with our audits of
the consolidated financial statements, we have also audited the related financial statement schedule listed in Item 15. We also
have audited the Company's internal control over financial reporting as of December 31, 2012, based on criteria established in
Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company's management is responsible for these consolidated financial statements, for the financial statement
schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial
Reporting appearing under Item 9A. Our responsibility is to express an opinion on these consolidated financial statements and
financial statement schedule and an opinion on the Company's internal control over financial reporting based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement and whether effective internal control over financial reporting was maintained in
all material respects. Our audits of the consolidated financial statements included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over
financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our opinions.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company's internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions
and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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, 2012 and 2011, and the results of its operations and its
cash flows for each of the years in the three-year period ended December 31, 2012, in conformity with U.S. 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.
Also in our opinion, SJW Corp. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2012, based on criteria established in Internal Control - Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
/s/ KPMG LLP
Santa Clara, California
February 28, 2013
33
SJW Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
Assets
Utility plant:
Land...................................................................................................................................... $
Depreciable plant and equipment .........................................................................................
Construction in progress.......................................................................................................
Intangible assets ...................................................................................................................
Less accumulated depreciation and amortization.................................................................
Real estate investment ..........................................................................................................
Less accumulated depreciation and amortization ...................................................................
December 31,
2012
2011
10,156
1,166,220
24,298
15,561
8,852
1,070,016
18,527
14,732
1,216,235
1,112,127
384,675
831,560
74,232
9,045
65,187
355,914
756,213
89,099
10,557
78,542
Current assets:
Cash and cash equivalents....................................................................................................
2,522
26,734
Accounts receivable:
Customers, net of allowances for uncollectible accounts of $225 in 2012 and 2011......
Income tax .......................................................................................................................
Other ................................................................................................................................
Accrued unbilled utility revenue ..........................................................................................
Long-lived assets held-for-sale ............................................................................................
Materials and supplies ..........................................................................................................
Prepaid expenses ..................................................................................................................
Other current asset................................................................................................................
Other assets:
Investment in California Water Service Group....................................................................
Unamortized debt issuance, broker and reacquisition costs.................................................
Regulatory assets, net ...........................................................................................................
Other.....................................................................................................................................
12,317
489
854
16,284
7,768
1,088
1,589
—
42,911
7,067
5,226
130,488
5,060
147,841
12,541
5,248
746
15,318
—
991
1,598
5,739
68,915
7,032
4,865
119,248
3,995
135,140
$
1,087,499
1,038,810
See Accompanying Notes to Consolidated Financial Statements.
34
SJW Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS (Continued)
(in thousands, except share and per share data)
December 31,
2012
2011
Capitalization and Liabilities
Capitalization:
Shareholders’ equity:
Common stock, $0.521 par value; authorized 36,000,000 shares; issued and
outstanding 18,670,566 shares in 2012 and 18,592,827 shares in 2011.......................... $
Additional paid-in capital ................................................................................................
Retained earnings ............................................................................................................
Accumulated other comprehensive income.....................................................................
Total shareholders’ equity ....................................................................................................
Long-term debt, less current portion ....................................................................................
Current liabilities:
Line of credit ........................................................................................................................
Current portion of long-term debt ........................................................................................
Accrued groundwater extraction charges and purchased water ...........................................
Purchased power ..................................................................................................................
Accounts payable .................................................................................................................
Accrued interest....................................................................................................................
Accrued property taxes and other non-income taxes ...........................................................
Accrued payroll ....................................................................................................................
Other current liabilities.........................................................................................................
Deferred income taxes ..........................................................................................................
Unamortized investment tax credits ...................................................................................
Advances for construction ...................................................................................................
Contributions in aid of construction ...................................................................................
Deferred revenue...................................................................................................................
Postretirement benefit plans................................................................................................
Other noncurrent liabilities .................................................................................................
Commitments and contingencies.........................................................................................
9,724
26,117
236,453
2,310
274,604
335,598
610,202
15,300
5,392
4,755
317
8,481
5,355
1,465
3,069
4,973
49,107
147,579
1,434
68,277
128,466
1,137
73,425
7,872
—
9,684
24,552
227,494
2,274
264,004
343,848
607,852
—
838
5,789
423
7,417
5,376
1,298
2,744
4,403
28,288
133,541
1,495
67,333
123,335
1,070
68,855
7,041
—
$
1,087,499
1,038,810
See Accompanying Notes to Consolidated Financial Statements.
35
SJW Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31 (in thousands, except share and per share data)
2012
2011
2010
261,547
238,955
215,638
Operating revenue................................................................................... $
Operating expense:
Production Costs:
Purchased water .................................................................................
Power .................................................................................................
Groundwater extraction charges ........................................................
Other production costs .......................................................................
Total production costs.............................................................................
Administrative and general.....................................................................
Maintenance............................................................................................
Property taxes and other non-income taxes ............................................
Depreciation and amortization................................................................
Impairment on real estate investment .....................................................
Total operating expense...................................................................
Operating income ....................................................................................
Other (expense) income:
Interest on long-term debt.......................................................................
Mortgage and other interest expense ......................................................
Gain on sale of California Water Service Group stock...........................
Gain on sale of real estate investment ....................................................
Dividend income.....................................................................................
Other, net ................................................................................................
Income before income taxes ...................................................................
Provision for income taxes .....................................................................
Net income ........................................................................................ $
Other comprehensive income (loss):
Unrealized income (loss) on investment, net of taxes of $0 in 2012,
$59 in 2011 and $30 in 2010 ..................................................................
Reclassification adjustment for gain realized on investment, net of tax
of $7,494 in 2010....................................................................................
66,106
5,796
23,940
11,445
107,287
42,812
13,350
9,703
33,098
—
206,250
55,297
(18,662)
(1,523)
—
910
243
1,595
37,860
15,542
22,318
36
—
54,317
5,394
20,997
11,345
92,053
39,136
13,261
8,921
31,193
—
184,564
54,391
(17,799)
(1,876)
—
—
238
490
35,444
14,566
20,878
43,557
6,429
26,614
10,702
87,302
38,184
12,242
7,907
28,331
3,597
177,563
38,075
(15,676)
(2,007)
18,966
—
1,185
603
41,146
16,740
24,406
(85)
(44)
—
20,793
1.12
1.11
(10,784)
13,578
1.32
1.30
Comprehensive income............................................................... $
22,354
Earnings per share
—Basic ................................................................................................... $
—Diluted ................................................................................................ $
1.20
1.18
Weighted average shares outstanding
—Basic ...................................................................................................
—Diluted ................................................................................................
18,635,206
18,839,231
18,581,762
18,794,066
18,531,458
18,742,315
See Accompanying Notes to Consolidated Financial Statements.
36
SJW Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands, except share and per share data)
Common Stock
Number of
Shares
Amount
Additional
Paid-in
Capital
Balances, December 31, 2009........ 18,499,602
—
Net income ....................................
Unrealized loss on investment,
net of tax effect of $30 ..................
Reclassification adjustment for
gain realized on investment, net
of tax effect of $7,494 ...................
Share-based compensation ............
Exercise of stock options and
similar instruments ........................
Employee stock purchase plan ......
—
—
—
26,078
25,860
Dividends paid ($0.68 per share) ..
—
Balances, December 31, 2010........ 18,551,540
—
Net income ....................................
Unrealized loss on investment,
net of tax effect of $59 ..................
Share-based compensation ............
Exercise of stock options and
similar instruments ........................
Employee stock purchase plan ......
Dividend reinvestment and stock
purchase plan.................................
—
—
13,896
25,712
1,679
Dividends paid ($0.69 per share) ..
—
Balances, December 31, 2011........ 18,592,827
—
Net income ....................................
Unrealized income on investment,
net of tax effect of $0 ....................
Share-based compensation ............
Exercise of stock options and
similar instruments ........................
Employee stock purchase plan ......
Dividend reinvestment and stock
purchase plan.................................
—
—
29,468
44,784
3,487
Dividends paid ($0.71 per share) ..
—
Balances, December 31, 2012........ 18,670,566
9,635
22,046
—
—
—
—
14
13
—
—
—
—
812
86
499
—
9,662
23,443
—
—
—
7
14
1
—
—
—
651
(91)
511
38
—
9,684
24,552
—
—
—
23
15
2
—
—
—
564
347
573
81
—
9,724
26,117
Retained
Earnings
207,888
24,406
Accumulated
Other
Comprehensive
Income
13,187
—
Total
Shareholders’
Equity
252,756
24,406
—
(44)
(44)
—
(123)
(10,784)
—
—
—
(12,603)
219,568
20,878
—
(129)
—
—
—
(12,823)
227,494
22,318
—
(128)
—
—
—
(13,231)
236,453
—
—
—
2,359
—
(85)
—
—
—
—
—
2,274
—
36
—
—
—
—
—
2,310
(10,784)
689
100
512
(12,603)
255,032
20,878
(85)
522
(84)
525
39
(12,823)
264,004
22,318
36
436
370
588
83
(13,231)
274,604
See Accompanying Notes to Consolidated Financial Statements.
37
SJW Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31 (in thousands)
2012
2011
2010
Operating activities:
Net income .......................................................................................................................... $
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................................................
Deferred income taxes ..................................................................................................
Share-based compensation............................................................................................
Gain on sale of California Water Service Group stock.................................................
Impairment of real estate investment............................................................................
Gain on sale of real estate investment...........................................................................
Loss on sale of utility property .....................................................................................
Changes in operating assets and liabilities:
Accounts receivable and accrued unbilled utility revenue ...........................................
Accounts payable, purchased power and other current liabilities.................................
Accrued groundwater extraction charges and purchased water....................................
Tax receivable and accrued taxes..................................................................................
Other current asset ........................................................................................................
Postretirement benefits..................................................................................................
Regulatory asset related to balancing and memorandum accounts ..............................
Other noncurrent assets and noncurrent liabilities........................................................
Other changes, net.........................................................................................................
Net cash provided by operating activities..........................................................................
Investing activities:
Additions to utility plant:
Company-funded...........................................................................................................
Contributions in aid of construction .............................................................................
Additions to real estate investment .....................................................................................
Payments for business/asset acquisition and water rights...................................................
Cost to retire utility plant, net of salvage............................................................................
Proceeds from sale of California Water Service Group stock ............................................
Proceeds from sale of real estate investment ......................................................................
Proceeds from sale of utility property.................................................................................
Net cash used in investing activities ...................................................................................
Financing activities:
Borrowings from line of credit ...........................................................................................
Repayments of line of credit ...............................................................................................
Long-term borrowings ........................................................................................................
Repayments of long-term borrowings ................................................................................
Debt issuance costs .............................................................................................................
Dividends paid ....................................................................................................................
Exercise of stock options and similar instruments..............................................................
Tax benefits realized from share options exercised............................................................
Receipts of advances and contributions in aid of construction...........................................
Refunds of advances for construction.................................................................................
Net cash provided by financing activities ..........................................................................
Net change in cash and cash equivalents ...........................................................................
Cash and cash equivalents, beginning of year...................................................................
Cash and cash equivalents, end of year ............................................................................. $
Cash paid (received) during the year for:
Interest................................................................................................................................. $
Income taxes ....................................................................................................................... $
Supplemental disclosure of non-cash activities:
Increase (decrease) in accrued payables for construction costs capitalized ....................... $
Utility property installed by developers.............................................................................. $
Obligations relieved related to acquisition of certain water service assets......................... $
22,318
34,629
12,235
564
—
—
(910)
—
(800)
933
(1,034)
5,093
5,740
77
(3,550)
(1,503)
575
74,367
(99,635)
(6,199)
(678)
(2,280)
(922)
—
5,517
—
(104,197)
16,300
(1,000)
—
(3,696)
(33)
(13,231)
989
97
8,407
(2,215)
5,618
(24,212)
26,734
2,522
21,206
(1,445)
355
4,073
—
See Accompanying Notes to Consolidated Financial Statements.
38
20,878
32,709
16,458
651
—
—
—
23
(2,470)
(133)
1,430
(1,102)
(5,740)
(37)
—
1,855
(318)
64,204
(62,439)
(7,311)
(156)
(4,040)
(1,816)
—
—
43
(75,719)
17,600
(21,600)
50,000
(1,094)
(87)
(12,823)
564
7
6,149
(2,197)
36,519
25,004
1,730
26,734
20,307
(2,930)
1,971
567
(726)
24,406
29,756
8,077
812
(18,966)
3,597
—
—
(2,197)
887
(137)
(8,528)
—
(2,566)
—
1,166
860
37,167
(95,536)
(4,364)
(4,540)
(3,504)
(757)
33,938
—
—
(74,763)
62,300
(64,100)
50,000
(790)
(856)
(12,603)
692
41
5,428
(2,202)
37,910
314
1,416
1,730
18,070
15,326
(1,389)
341
—
SJW CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 2012, 2011 and 2010
(Dollars in thousands, except share and per share data)
Note 1.
Summary of Significant Accounting Policies
The accompanying consolidated financial statements include the accounts of SJW Corp., its wholly owned subsidiaries,
and two variable interest entities in which SJW Corp. is the primary beneficiary. All intercompany transactions and balances
have been eliminated in consolidation.
SJW Corp.’s principal subsidiary, San Jose Water Company, is a regulated California water utility providing water
service to approximately one million people in the greater metropolitan San Jose area. San Jose Water Company’s accounting
policies comply with the applicable uniform system of accounts prescribed by the CPUC and conform to generally accepted
accounting principles for rate-regulated public utilities. Approximately 91% of San Jose Water Company’s revenues are derived
from the sale of water to residential and business customers.
SJWTX, Inc., a wholly owned subsidiary of SJW Corp., is incorporated in the State of Texas and is doing business as
Canyon Lake Water Service Company (“CLWSC”). CLWSC is a public utility in the business of providing water service to
approximately 36,000 people. CLWSC’s service area comprises more than 240 square miles in western Comal County and
southern Blanco County in the growing region between San Antonio and Austin, Texas. SJWTX, Inc. has a 25% interest in
Acequia Water Supply Corporation. Acequia has been determined to be a variable interest entity within the scope of ASC Topic
810 with SJWTX, Inc. as the primary beneficiary. As a result, Acequia has been consolidated with SJWTX, Inc.
SJW Land Company owns commercial properties, several undeveloped real estate properties, and warehouse properties
in the states of California, Connecticut, Arizona, Texas and Tennessee and holds a 70% limited partnership interest in 444 West
Santa Clara Street, L.P. 444 West Santa Clara Street, L.P. has been determined to be a variable interest entity within the scope
of ASC Topic 810 with SJW Land Company as the primary beneficiary. As a result, 444 West Santa Clara Street L.P. has been
consolidated with SJW Land Company (see Note 9). As of December 31, 2012, the Connecticut property was classified as held-
for-sale.
Texas Water Alliance Limited, a wholly owned subsidiary of SJW Corp., is undertaking activities that are necessary to
develop a water supply project in Texas. In connection with the project, TWA applied for groundwater production and
transportation permits to meet the future water needs in the Canyon Lake Water Service Company's service area and to the
central Texas hill country communities and utilities adjacent to this area. In January of 2013, TWA's permit was approved
unanimously by the groundwater district in Gonzales County.
Use of Estimates
The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in
the United States of America 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
2012, 2011 and 2010 was $913, $699 and $555, respectively. Construction in progress was $24,298 and $18,527 at
December 31, 2012 and 2011, respectively.
The major components of depreciable plant and equipment as of December 31, 2012 and 2011 are as follows:
Equipment................................................................................................................... $
Transmission and distribution.....................................................................................
Office buildings and other structures..........................................................................
214,670
892,957
58,593
202,181
811,332
56,503
Total depreciable plant and equipment..................................................................... $
1,166,220
1,070,016
2012
2011
39
Depreciation is computed using the straight-line method over the estimated service lives of the assets, ranging from 5 to
75 years. The estimated service lives of depreciable plant and equipment are as follows:
Equipment ................................................................................................................................................
Transmission and distribution plant .........................................................................................................
Office buildings and other structures .......................................................................................................
Useful Lives
5 to 35 years
35 to 75 years
7 to 50 years
For the years 2012, 2011 and 2010, depreciation expense was approximately 3.5% of the beginning of the year balance
of depreciable plant for all years. A portion of depreciation expense is allocated to administrative and general expense. For the
years 2012, 2011 and 2010, the amounts allocated to administrative and general expense were $1,531, $1,516 and $1,425,
respectively. Depreciation expense for utility plant for the years ended December 31, 2012, 2011 and 2010 was $31,005,
$29,141 and $26,331, respectively. The cost of utility plant retired, including retirement costs (less salvage), is charged to
accumulated depreciation and no gain or loss is recognized.
Utility Plant Intangible Assets
All intangible assets are recorded at cost and are amortized using the straight-line method over the legal or estimated
economic life of the asset, ranging from 5 to 70 years (see Note 6).
Real Estate Investments
Real estate investments are recorded at cost and consist primarily of land and buildings. Net gains and losses from the
sale of real estate investments are recorded as a component of other (expense) income in the Consolidated Statements of
Comprehensive Income. Nonutility property in Water Utility Services is also classified in real estate investments and not
separately disclosed on the balance sheet based on the immateriality of the amount. Nonutility property is property that is
neither used nor useful in providing water utility services to customers and is excluded from the rate base for rate-setting
purposes. San Jose Water Company recognizes gain/loss on disposition of nonutility property in accordance with CPUC Code
Section 790, whereby the net proceeds are reinvested back into property that is useful in providing water utility services to
customers. There is no depreciation associated with nonutility property as it is all land. The major components of real estate
investments as of December 31, 2012 and 2011 are as follows:
Land ............................................................................................................................ $
Buildings and improvements ......................................................................................
Intangibles...................................................................................................................
Total real estate investment ................................................................................. $
18,892
55,011
329
74,232
21,312
67,487
300
89,099
2012
2011
Depreciation on real estate investments is computed using the straight-line method over the estimated useful lives of the
assets, ranging from 5 to 39 years.
On August 8, 2012, SJW Land Company sold its warehouse building located in Orlando, Florida for $5,821. The
Company recognized a pre-tax gain on the sale of real estate investment of $910, after selling expenses of $304.
During the third quarter of 2012, management decided to sell its warehouse building located in Windsor, Connecticut.
As a result, the Company reclassified the Connecticut warehouse building from held-and-used to held-for-sale at December 31,
2012. The Company determined that reclassifying the Connecticut property as held-for-sale represents a change in
circumstances in the intended use of such facility and reviewed the asset for impairment. The Company performed a
recoverability test of estimated sale proceeds less cost to sell from the property to determine if the asset was impaired in
accordance with FASB ASC Topic 360 - “Property, Plant and Equipment.” On December 5, 2012, the Company entered into a
purchase and sale agreement for $9,200, with the sale closing escrow on February 1, 2013. The purchase and sale agreement
represents a strong, observable market indicator of fair value defined in FASB ASC Topic 820 - “Fair Value Measurements and
Disclosures” as the price that would be received to sell the asset in an orderly transaction between market participants. The
Company determined that the carrying value was recoverable through estimated sale proceeds less cost to sell from the
purchase and sale agreement and as such, no impairment existed.
40
The Connecticut warehouse building is included in the Company’s “Real Estate Services” reportable segment as
disclosed in Note 12. Depreciation expense on the building was $167, $223 and $223 for the years ended December 31, 2012,
2011 and 2010, respectively. The following represents the major components of the Connecticut warehouse building recorded
in long-lived assets held-for-sale on the Company’s Consolidated Balance Sheet as of December 31, 2012.
Land ................................................................................................................................................... $
Buildings and improvements .............................................................................................................
Subtotal .......................................................................................................................................
Less: accumulated depreciation and amortization .............................................................................
Total............................................................................................................................................ $
1,200
8,684
9,884
2,116
7,768
December 31, 2012
Land, buildings and improvements of $72,838 and $87,704 as of December 31, 2012 and 2011, respectively, represent
assets that are leased or available for lease. Note that land, building and improvements as of December 31, 2012 excludes the
Connecticut warehouse building as it has been reclassified as held-for-sale. The following schedule shows the future minimum
rental payments to be received from third parties under operating leases that have remaining noncancelable lease terms in
excess of one year as of December 31, 2012:
Year ending December 31:
2013.......................................................................................................................................................... $
2014..........................................................................................................................................................
2015..........................................................................................................................................................
2016..........................................................................................................................................................
2017..........................................................................................................................................................
Thereafter .................................................................................................................................................
Rental Revenue
4,767
5,355
5,470
5,626
5,723
34,931
Impairment of Long-Lived Assets
In accordance with the requirements of FASB ASC Topic 360—“Property, Plant and Equipment,” the long-lived assets
of SJW Corp. are reviewed for impairment when changes in circumstances or events require adjustments to the carrying values
of the assets. When such changes in circumstances or events occur, the Company assesses recoverability by determining
whether the carrying value of such assets will be recovered through the undiscounted expected future cash flows. To the extent
an impairment exists, the asset is written down to its estimated fair value with a corresponding charge to operations in the
period in which the impairment is identified. Long-lived assets consist primarily of utility plant in service, real estate
investments, intangible assets, and regulatory assets. In addition, the Company tests unamortized intangible assets, which
primarily relate to water rights, at least annually or more frequently if events or changes in circumstances indicate that this asset
may be impaired. The Company first performs a qualitative assessment to determine whether it is necessary to perform the
quantitative impairment test. In assessing the qualitative factors, the Company considers the impact of these key factors:
change in industry and competitive environment, financial performance, and other relevant Company-specific events. If the
Company determines that as a result of the qualitative assessment it is more likely than not (> 50% likelihood) that the fair
value is less than its carrying amount, then the quantitative test is performed. No impairments occurred during 2012 or 2011.
Financial Instruments
The following instruments are not measured at fair value on the Company's consolidated balance sheets but require
disclosure of their fair values: cash and cash equivalents, accounts receivable and accounts payable. The estimated fair value of
such instruments approximates their carrying value as reported on the consolidated balance sheets. The fair value of such
financial instruments are determined using the income approach based on the present value of estimated future cash flows. The
fair value of these instruments would be categorized as Level 2 in the fair value hierarchy, with the exception of cash and cash
equivalents, which would be categorized as Level 1. The fair value of long-term debt is discussed in Note 4, pension plan assets
in Note 10 and investment in California Water Service Group in Note 13.
Other Current Asset
Other current asset at December 31, 2011 represents the amount to be billed to customers associated with the Mandatory
Conservation Revenue Adjustment Memorandum account. San Jose Water Company filed an advice letter on June 2, 2010, with
41
the CPUC requesting authorization to increase revenues by $5,740, or approximately 2.61%, of authorized revenue at the time
of the filing. This increase was intended to recover the accumulated balance in the MCRAM, which was in effect from
August 3, 2009 to May 1, 2010. The CPUC-authorized MCRAM was intended to track the revenue impact of mandatory
conservation upon San Jose Water Company’s quantity revenue resulting from mandatory conservation instituted by the
SCVWD. As directed by the CPUC’s Division of Water and Audits, the MCRAM would be recovered via a surcharge on the
existing quantity rate for a period of 12 months following final approval by the CPUC. Resolution W-4885 authorizing the
recovery was adopted by the Commission on December 15, 2011. The surcharge to begin recovering the balance was
subsequently implemented on December 27, 2011. All revenue was recognized immediately upon final approval by the CPUC.
Investment in California Water Service Group
SJW Corp.’s investment in California Water Service Group is accounted for under FASB ASC Topic 320—“Investments
—Debt and Equity Securities,” as an available-for-sale marketable security. The investment is recorded on the Consolidated
Balance Sheet at its quoted market price with the change in unrealized gain or loss reported, net of tax, as a component of other
comprehensive income (loss) (see Note 13).
Regulatory Assets and Liabilities
Generally accepted accounting principles for water utilities include the recognition of regulatory assets and liabilities as
permitted by ASC Topic 980. In accordance with ASC Topic 980, Water Utility Services, to the extent applicable, records
deferred costs and credits on the balance sheet as regulatory assets and liabilities when it is probable that these costs and credits
will be recognized in the ratemaking process in a period different from when the costs and credits are incurred. Accounting for
such costs and credits is based on management's judgment and prior historical ratemaking practices, and it occurs when
management determines that it is probable that these costs and credits will be recognized in the future revenue of Water Utility
Services through the ratemaking process. The regulatory assets and liabilities recorded by Water Utility Services, in particular,
San Jose Water Company, primarily relate to the recognition of deferred income taxes for ratemaking versus tax accounting
purposes, balancing and memorandum accounts, and the postretirement pension benefits, medical costs, accrued benefits for
vacation and asset retirement obligations that have not been passed through in rates. The Company expects to recover the
income tax temporary differences over average plant depreciation lives of 5 to 75 years.
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. San Jose Water Company continually evaluates the recoverability of
regulatory assets by assessing whether the amortization of the balance over the remaining life can be recovered through
expected and undiscounted future cash flows.
Regulatory liabilities reflect balancing and memorandum accounts, temporary differences provided at higher than the
current tax rate for utility plant which will flow through to future ratepayers, and unamortized investment tax credits.
Regulatory assets and liabilities are comprised of the following as of December 31:
Regulatory assets:
Income tax temporary differences............................................................................ $
Postretirement pensions and other medical benefits ................................................
Pension balancing account .......................................................................................
Other.........................................................................................................................
Total regulatory assets ................................................................................................ $
Regulatory liabilities:
Cost of capital memorandum account ...................................................................... $
Water supply balancing accounts .............................................................................
Future tax benefits to ratepayers ..............................................................................
Total regulatory liabilities........................................................................................... $
Net regulatory assets included in Consolidated Balance Sheets ................................ $
2012
2011
8,712
113,633
6,671
5,927
134,943
2,295
1,594
566
4,455
9,295
105,988
—
4,676
119,959
—
—
711
711
130,488
119,248
Regulatory Rate Filings
On January 3, 2012, San Jose Water Company filed a general rate case application requesting rate increases of $47,400,
or 21.51% in 2013, $13,000, or 4.87% in 2014 and $34,800, or 12.59% in 2015. This general rate case filing also includes: (1)
42
recovery of the under-collected balance of $2,600 in the balancing account, (2) disbursement of the over-collected balance of
$700 accrued in various memorandum accounts and (3) implementation of a full revenue decoupling Water Revenue
Adjustment Mechanism (“WRAM”) and associated Modified Cost Balancing Account (“MCBA”). The WRAM de-couples San
Jose Water Company's revenue requirement from ratepayer usage. Under the WRAM, San Jose Water Company would recover
the full quantity revenue amounts authorized by the CPUC by using advice letter filings for any unbilled quantity revenue
amounts or refunds for over-collection, regardless of customer usage volumes. A MCBA similarly provides for recovery/refund
for changes in water supply mix from amounts authorized by the CPUC. A general rate case is a year-long proceeding before
the CPUC that involves a discovery phase led by the CPUC's Division of Ratepayer Advocates and customer intervenors that
are assigned party status, settlement meetings, as well as possible evidentiary hearings. Parties to the proceeding filed opening
briefs on July 20, 2012 and reply briefs on August 7, 2012. On September 26, 2012, San Jose Water Company filed a motion for
interim rate relief so that if a decision was not reached by the end of 2012, San Jose Water Company would be allowed to adopt
interim rates, effective January 1, 2013, until a decision is adopted. To date, a decision has not been adopted and interim rates
are currently in effect. Interim rates were set equal to fiscal year-end 2012 rates. Any difference between interim rates and
approved rates will be tracked in a memorandum account and will be submitted for recovery or refund in the Company's next
general rate case. On January 29, 2013, the administrative law judge issued a notice to reopen the record for the limited purpose
of receiving and evaluating new information related to security and safety issues. On the same day, San Jose Water Company
filed a motion to move the security and safety consideration to a second phase of the general rate case, which would provide for
a more prompt resolution to the issues regarding revenue requirement. A pre-hearing conference regarding this matter was held
on February 19, 2013, but an administrative law judge ruling regarding the bifurcation and scheduling related to the security
and safety issues was not issued.
On August 27, 2010, CLWSC filed a rate case with the TCEQ. The filing contained a request for an immediate increase
in revenue of 38% and a total increase of 71%. The new rates (38%) became effective on October 27, 2010, and prior to
approval by the TCEQ, is subject to adjustment and refund. The Company has recognized the increase in accordance with ASC
Topic 980 which provides that a regulated entity is permitted to bill requested rate increases before the regulator has ruled on
the request. If information becomes available that indicates it is probable that any of the 38% rate increase will need to be
refunded and the amount of refund can be reasonably estimated, a loss contingency shall be accrued. CLWSC has determined
that it is not probable any of the 38% rate increase will need to be refunded. CLWSC is also requesting the TCEQ for a rate
base determination. A rate base determination entails verification of plant to be included in rate base by TCEQ staff.
Evidentiary hearings on these matters were concluded in March and August of 2012, and a TCEQ decision is expected
sometime in the first quarter of 2013.
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
current tax rates in effect. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that
includes the enactment date.
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
In California, advances for construction received after 1981 are refunded ratably over 40 years. Estimated refunds for
the next five years and thereafter are shown below:
2013........................................................................................................................................................ $
2014........................................................................................................................................................
2015........................................................................................................................................................
2016........................................................................................................................................................
2017........................................................................................................................................................
Thereafter ...............................................................................................................................................
2,326
2,325
2,326
2,325
2,326
56,649
Estimated Refunds
43
Contributions in aid of construction represent funds received from developers that are not refundable under applicable
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, unless specifically prescribed under treasury regulations.
Advances and contributions received subsequent to 1991 and prior to 1997 are included in California state taxable
income.
Asset Retirement Obligation
SJW Corp.’s asset retirement obligation is recorded as a liability included in other non-current liabilities. It reflects
principally the retirement costs of wells and other anticipated clean-up costs, which by law, must be remediated upon
retirement. Retirement costs have historically been recovered through rates at the time of retirement. As a result, the liability is
offset by a regulatory asset. For the years ended December 31, 2012 and 2011, the asset retirement obligation is as follows:
Retirement obligation ................................................................................................. $
Discount rate...............................................................................................................
Present value, recorded as a liability ..........................................................................
Deferred tax ................................................................................................................
Regulatory asset.......................................................................................................... $
4,650
6%
1,807
1,242
3,049
4,296
6%
1,481
1,019
2,500
2012
2011
Revenue
SJW Corp. recognizes its regulated and nonregulated revenue when services have been rendered, in accordance with
ASC Topic 605.
Metered revenue of Water Utility Services includes billing to customers based on meter readings plus an estimate of
water used between the customers’ last meter reading and the end of the accounting period. Water Utility Services read the
majority of its customers’ meters on a bi-monthly basis and records its revenue based on its meter reading results. Unbilled
revenue from the last meter reading date to the end of the accounting period is estimated based on the most recent usage
patterns, production records and the effective tariff rates. Actual results could differ from those estimates, which may result in
an adjustment to the operating revenue in the period which the revision to Water Utility Services’ estimates are determined.
Revenues also include a surcharge collected from regulated customers that is paid to the CPUC. This surcharge is
recorded both in operating revenues and administrative and general expenses. For the years ended December 31, 2012, 2011
and 2010, the surcharge was $3,862, $3,272 and $3,046, respectively.
Revenue from San Jose Water Company’s nonregulated utility operations, maintenance agreements or antenna leases
are recognized when services have been rendered. Nonregulated operating revenue in 2012, 2011 and 2010 includes $5,523,
$4,935 and $4,646, respectively, from the operation of the City of Cupertino municipal water system. Revenue from SJW Land
Company is recognized ratably over the term of the leases.
Balancing and Memorandum Accounts
For California, the CPUC has established a balancing account mechanism for the purpose of tracking the under-
collection or over-collection associated with expense changes and the revenue authorized by the CPUC to offset those expense
changes. The Company also maintains memorandum accounts to track revenue impacts due to catastrophic events, unforeseen
water quality expenses related to new federal and state water quality standards, energy efficiency, cost of capital, the revenue
requirement impact of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (if any), and
other approved activities. As of December 31, 2012, the total balance in San Jose Water Company’s balancing and
memorandum accounts, including interest, was a net under-collection of $4,828.
Balancing and memorandum accounts are recognized in revenue by San Jose Water Company when it is probable that
future recovery of previously incurred costs or future refunds that are to be credited to customers will occur through the
44
ratemaking process. In assessing the probability criteria for balancing and memorandum accounts between rate cases, the
Company considers evidence that may exist prior to CPUC authorization that would satisfy ASC Topic 980, subtopic 340-25
recognition criteria. Such evidence may include regulatory rules and decisions, past practices, and other facts and circumstances
that would indicate that recovery or refund is probable. When such evidence provides sufficient support for balance recognition,
the balances are recorded in the Company's financial statements.
The Company met the recognition requirements in ASC Topic 980, sub-topic 340-25 for certain of its balancing and
memorandum accounts and recorded revenue and regulatory assets totaling $3,550 out of the $4,828 total net balance in the
fourth quarter of 2012.
Share-Based Payment
SJW Corp. utilizes the Black-Scholes option-pricing model, which requires the use of subjective assumptions, to
compute the fair value of options at the grant date, and the basis for the share-based compensation for financial reporting
purposes. In addition, SJW Corp. estimates forfeitures for share-based awards that are not expected to vest.
SJW Corp. utilizes the Monte Carlo valuation model, which requires the use of subjective assumptions, to compute the
fair value of market performance-vesting restricted stock units.
The compensation cost charged to income is recognized on a straight-line basis over the requisite service period, which
is the vesting period.
Maintenance Expense
Planned major maintenance projects are charged to expense as incurred. SJW Corp. does not accrue maintenance costs
prior to periods in which they are incurred.
Earnings per Share
Basic earnings per share is calculated using income available to common shareholders, divided by the weighted average
number of shares outstanding during the year. The two-class method in computing basic earnings per share is not used because
the number of participating securities as defined in FASB ASC Topic 260—“Earnings Per Share” is not significant. (The two-
class method is an earnings allocation formula that determines earnings per share for each class of common stock and
participating security.) Diluted earnings per share is calculated using income available to common shareholders divided by the
weighted average number of shares of common stock including both shares outstanding and shares potentially issuable in
connection with stock options, deferred restricted common stock awards under SJW Corp.’s Long-Term Incentive Plan and
shares potentially issuable under the Employee Stock Purchase Plan. Restricted common stock units and stock options of 6,557,
4,243 and 3,201 as of December 31, 2012, 2011 and 2010, respectively, were excluded from the dilutive earnings per share
calculation as their effect would have been anti-dilutive.
Note 2.
Capitalization
SJW Corp. is authorized to issue 36,000,000 shares of common stock of $0.521 par value per share. At December 31,
2012 and 2011, 18,670,566 and 18,592,827, respectively, shares of common stock were issued and outstanding.
At December 31, 2012 and 2011, 176,407 shares of preferred stock of $25 par value per share were authorized and none
were outstanding.
Note 3.
Lines of Credit
On March 1, 2012, SJW Corp., SJW Land Company and Wells Fargo Bank, National Association (“Wells Fargo”)
entered into a credit agreement which provides for an unsecured revolving credit facility in an aggregate amount of $15,000.
This credit agreement expanded and replaced SJW Corp.’s and SJW Land Company’s existing credit facility with Wells Fargo.
In addition, San Jose Water Company and Wells Fargo entered into a credit agreement which provides for an unsecured
revolving credit facility in an aggregate amount of $75,000. This credit agreement replaced San Jose Water Company’s existing
credit facility with Wells Fargo.
On January 11, 2013, SJW Corp., SJW Land Company, San Jose Water Company and Wells Fargo amended their
respective credit agreements dated March 1, 2012, to clarify defined terms in the funded debt and interest coverage ratio
covenants.
As of December 31, 2012, SJW Corp. and its subsidiaries had unsecured bank lines of credit, allowing aggregate short-
term borrowings of up to $90,000. San Jose Water Company has issued two standby letters of credit with a commercial bank in
the amount of $3,000 in support of its SDWSRF loans which were funded in 2005 and 2008. The letters of credit automatically
renew for one year each December unless the issuing bank elects not to renew it, and the amount of coverage can be reduced as
45
the loan principal balance decreases. As of December 31, 2012, $3,000 under the San Jose Water Company line of credit is set
aside as security for its SDWSRF loans. The lines of credit bear interest at variable rates, and will expire on September 1, 2014.
As of December 31, 2012 and 2011, SJW Corp. has an outstanding balance on the lines of credit of $15,300 and $0,
respectively. Cost of borrowing on the lines of credit averaged 1.44% and 1.64% as of December 31, 2012 and 2011,
respectively.
SJW Corp., on a consolidated basis, and San Jose Water Company have the following affirmative covenants on their
unsecured bank lines of credit: (1) the funded debt cannot exceed 66-2/3% of total capitalization, and (2) net income available
for interest charges for the trailing 12-calendar-month period cannot be less than 175% of interest charges. As of December 31,
2012, SJW Corp. and San Jose Water Company, respectively, were in compliance with the unsecured bank line of credit
affirmative covenants.
Note 4.
Long-Term Debt
Long-term debt as of December 31 was as follows:
Description
Senior notes, San Jose Water Company:
Series A 8.58%...........................................................................
Series B 7.37% ...........................................................................
Series C 9.45% ...........................................................................
Series D 7.15%...........................................................................
Series E 6.81% ...........................................................................
Series F 7.20% ...........................................................................
Series G 5.93%...........................................................................
Series H 5.71%...........................................................................
Series I 5.93% ............................................................................
Series J 6.54% ............................................................................
Series K 6.75%...........................................................................
SJWTX, Inc. Series A 6.27%........................................................
SJW Corp. Series A 4.35%............................................................
Total senior notes ..............................................................
Mortgage loans 5.61% - 6.09%.....................................................
444 West Santa Clara Street, L.P. 5.68% (non-recourse to
SJW Land Company) ....................................................................
California Pollution Control Financing Authority Revenue
Bonds 5.10%, San Jose Water Company ......................................
SDWSRF loans 2.39% and 2.60%, San Jose Water Company.....
Total debt ....................................................................................
Less: Current portion ..................................................................
Total long-term debt, less current portion...................................
Due Date
2012
2011
2022
2024
2020
2026
2028
2031
2033
2037
2037
2024
2039
2036
2021
2013
2016
2017
2021
2040
2027
$
20,000
30,000
10,000
15,000
15,000
20,000
20,000
20,000
20,000
10,000
20,000
15,000
50,000
$
265,000
4,867
3,314
12,375
3,153
50,000
2,281
340,990
5,392
335,598
$
$
20,000
30,000
10,000
15,000
15,000
20,000
20,000
20,000
20,000
10,000
20,000
15,000
50,000
265,000
7,973
3,407
12,594
3,248
50,000
2,464
344,686
838
343,848
Senior notes held by institutional investors are unsecured obligations of San Jose Water Company and SJWTX, Inc. and
require interest-only payments until maturity. To minimize issuance costs, all of the companies’ debt has historically been
placed privately.
The senior note agreements of San Jose Water Company generally have terms and conditions that restrict the Company
from issuing additional funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income
available for interest charges for the trailing 12-calendar-month period would be less than 175% of interest charges. As of
December 31, 2012, San Jose Water Company was not restricted from issuing future indebtedness as a result of these terms and
conditions.
46
The senior note agreement of SJWTX, Inc. has terms and conditions that restrict SJWTX, Inc. from issuing additional
funded debt if: (1) the funded debt would exceed 66-2/3% of total capitalization, and (2) net income available for interest
charges for the trailing 12-calendar month period would be less than 175% of interest charges. As of December 31, 2012,
SJWTX, Inc. is in compliance with all terms and conditions. In addition, SJW Corp. is a guarantor of SJWTX, Inc.’s senior note
which has terms and conditions that restrict SJW Corp. from issuing additional funded debt if: (1) the funded consolidated debt
would exceed 66-2/3% of total capitalization, and (2) the minimum net worth of SJW Corp. becomes less than $125,000 plus
30% of Water Utility Services cumulative net income, since December 31, 2005. As of December 31, 2012, SJW Corp. is not
restricted from issuing future indebtedness as a result of these terms and conditions.
The senior note agreement of SJW Corp. has terms and conditions that restrict SJW Corp. from issuing additional
funded debt if: (1) the funded consolidated debt would exceed 66-2/3% of total capitalization, and (2) the minimum net worth
of SJW Corp. becomes less than $175,000 plus 30% of Water Utility Services cumulative net income, since June 30, 2011. As
of December 31, 2012, SJW Corp. was not restricted from issuing future indebtedness as a result of these terms and conditions.
The mortgage loans, which are the obligations of SJW Land Company, are due in 2013, 2016 and 2017. These loans
amortize over 25 years, are secured by three leased properties and carry a fixed interest rate with 120 monthly principal and
interest payments. The loan agreements generally restrict the Company from prepayment in the first three years and require
submission of periodic financial reports as part of the loan covenants. An amortization schedule of the mortgage loans is as
follows:
Year
2013...............................................................................................
2014...............................................................................................
2015...............................................................................................
2016...............................................................................................
2017...............................................................................................
Amortization Schedule
Total Payment
Interest
Principal
6,216
1,229
1,229
4,034
11,470
1,017
877
856
762
110
5,199
352
373
3,272
11,360
444 West Santa Clara Street, L.P., in which SJW Land Company owns a 70% limited partnership interest, has a
mortgage loan in the outstanding amount of $3,153 as of December 31, 2012. The mortgage loan is due in 2021 and is
amortized over 20 years with an interest rate of 5.68%. The mortgage loan is secured by the partnership’s real property and is
non-recourse to SJW Land Company. An amortization schedule of the mortgage loan with 444 West Santa Clara Street, L.P. is
as follows:
Year
2013...............................................................................................
2014...............................................................................................
2015...............................................................................................
2016...............................................................................................
2017...............................................................................................
Thereafter ......................................................................................
Amortization Schedule
Total Payment
Interest
Principal
276
276
275
276
276
3,038
176
170
163
157
150
448
100
106
112
119
126
2,590
San Jose Water Company has outstanding $50,000 in California Pollution Control Financing Authority revenue bonds
as of December 31, 2012. The loan agreement for the revenue bonds contains affirmative and negative covenants customary for
a loan agreement relating to revenue bonds, including, among other things, complying with certain disclosure obligations and
covenants relating to the tax exempt status of the interest on the bonds and limitations and prohibitions relating to the transfer of
the projects funded by the loan proceeds and the assignment of the loan agreement. As of December 31, 2012, San Jose Water
Company was in compliance with all such covenants.
47
San Jose Water Company has two loans from the SDWSRF at a rate of 2.39% and 2.60%. The outstanding loan
balances as of December 31, 2012 is $2,281. San Jose Water Company issued standby letters of credit with a commercial bank
in the amount of $3,000 in support of these loans. The letters of credit automatically renew for one year each December unless
the issuing bank elects not to renew it. The amount of coverage can be reduced as the principal balances decrease. An
amortization schedule of the SDWSRF loans is as follows:
Year
2013...............................................................................................
2014...............................................................................................
2015...............................................................................................
2016...............................................................................................
2017...............................................................................................
Thereafter ......................................................................................
Amortization Schedule
Total Payment
Interest
Principal
153
196
196
195
196
1,783
56
53
49
45
42
193
97
143
147
150
154
1,590
The fair value of long-term debt as of December 31, 2012 and 2011 was approximately $455,042 and $433,873,
respectively, and was determined using a discounted cash flow analysis, based on the current rates for similar financial
instruments of the same duration and creditworthiness of the Company. The fair value of long-term debt would be categorized
as Level 2 of the fair value hierarchy.
Note 5.
Income Taxes
The components of income tax expense were:
Current:
Federal ........................................................................................ $
State ............................................................................................
Deferred:
Federal ........................................................................................
State ............................................................................................
$
2012
2011
2010
—
3,305
12,114
123
15,542
(4,894)
3,002
16,560
(102)
14,566
3,738
4,925
10,694
(2,617)
16,740
The following table reconciles income tax expense to the amount computed by applying the federal statutory rate to
income before income taxes of $37,860, $35,444 and $41,146 in 2012, 2011 and 2010:
“Expected” federal income tax...................................................... $
Increase (decrease) in taxes attributable to:
2012
2011
2010
13,251
12,405
14,026
State taxes, net of federal income tax benefit .............................
Dividend received deduction ......................................................
Other items, net...........................................................................
2,108
(59)
242
$
15,542
1,934
(58)
285
14,566
2,397
(282)
599
16,740
48
The components of the net deferred tax liability as of December 31 was as follows:
Deferred tax assets:
Advances and contributions ..................................................................................... $
Unamortized investment tax credit ..........................................................................
Pensions and postretirement benefits .......................................................................
California franchise tax ............................................................................................
Net operating loss.....................................................................................................
Other.........................................................................................................................
Total deferred tax assets.............................................................................................. $
Deferred tax liabilities:
Utility plant .............................................................................................................. $
Pension and postretirement benefits.........................................................................
Investment in stock...................................................................................................
Deferred gain and other-property related .................................................................
Debt reacquisition costs ...........................................................................................
Other.........................................................................................................................
Total deferred tax liabilities........................................................................................ $
Net deferred tax liabilities .......................................................................................... $
2012
2011
15,214
14,954
773
4,757
1,193
6,439
1,272
805
4,644
1,429
2,495
1,181
29,648
25,508
110,983
46,315
2,487
14,440
545
2,457
177,227
147,579
96,349
43,199
2,488
15,287
595
1,131
159,049
133,541
Management evaluates the realizability of our deferred tax assets based on all available evidence, both positive and
negative. The realization of deferred tax assets is dependent on our ability to generate sufficient future taxable income during
periods in which the deferred tax assets are expected to reverse. Based on all available evidence, management believes it is
more likely than not that SJW Corp. will realize the benefits of these deferred tax assets.
As of December 31, 2012, the Company has a federal net operating loss carry forward of $18,397, which will expire in
fiscal year 2031.
The total amount of unrecognized tax benefits, before the impact of deductions for state taxes, excluding interest and
penalties was $2,130 and $1,874 as of December 31, 2012 and 2011, respectively. The amount of tax benefits, net of any federal
benefits for state taxes and inclusive of interest that would impact the effective rate, if recognized, is approximately $109 and
$61 as of December 31, 2012 and 2011, respectively.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at December 31, 2011................................................................................................................. $
Additions based on tax position related to the current year, including interest .......................................
Reductions related to tax positions taken in a prior year, including interest............................................
Balance at December 31, 2012................................................................................................................. $
1,978
546
(208)
2,316
SJW Corp.’s policy is to classify interest and penalties associated with unrecognized tax benefits, if any, in tax expense.
Accrued interest expense, net of the benefit of tax deductions which would be available on the payment of such interest, is
approximately $109 as of December 31, 2012. SJW Corp. has not accrued any penalties for unrecognized tax benefits.
SJW Corp. anticipates that its unrecognized tax benefits balance will be reduced by approximately $12 within the next
12 months following December 31, 2012 due to lapsing statutes of limitations. Through December 31, 2012, since the adoption
of FASB ASC Topic 740—“Income Taxes”, a cumulative reduction of $1,455 was recorded to unrecognized tax benefits as a
result of a lapse of the applicable statute of limitations.
The Company is currently undergoing an income tax examination by the Internal Revenue Service for its fiscal years
2008, 2009, 2010 and 2011. While management believes that the Company has adequately provided for all tax positions,
49
amounts asserted by tax authorities could be greater or less than the Company's current position. Accordingly, the Company's
provisions on federal tax related matters to be recorded in the future may change as revised estimates are made or the
underlying matters are settled or otherwise resolved. The Company does not expect its unrecognized tax benefits to change
materially over the next 12 months.
SJW Corp. files U.S. federal income tax returns and income tax returns in various states. The open tax years for the
jurisdictions in which SJW Corp. files are as follows:
Jurisdiction
Federal ..........................................................................................................................................
California......................................................................................................................................
Arizona .........................................................................................................................................
Connecticut...................................................................................................................................
Florida ..........................................................................................................................................
Tennessee......................................................................................................................................
Texas.............................................................................................................................................
Years Open
2008 - 2011
2008 - 2011
2008 - 2011
2009 - 2011
2009 - 2011
2009 - 2011
2008 - 2011
Note 6.
Intangible Assets
Intangible assets consist of a concession fee paid to the City of Cupertino of $6,800 for operating the City of Cupertino
municipal water system and other intangibles of $8,761. Other intangibles consists of $7,362 which was paid for service area
and water rights related to our subsidiaries in Texas, $1,040 incurred in conjunction with Santa Clara Valley Water District
water contracts related to the operation of San Jose Water Company and $359 in other miscellaneous intangibles. All intangible
assets are recorded at cost and are amortized using the straight-line method over the legal or estimated economic life of the
asset ranging from 5 to 70 years.
Amortization expense for the intangible assets was $340 for the years ended December 31, 2012 and 2011, and $335 for
the year ended December 31, 2010. Amortization expense for 2013, 2014, 2015, 2016 and 2017 is anticipated to be $340 per
year.
The costs of intangible assets as of December 31, 2012 and 2011 are as follows:
Concession fees .......................................................................................................... $
Other intangibles.........................................................................................................
Intangible assets..........................................................................................................
Less: Accumulated amortization
Concession fees ........................................................................................................
Other intangibles ......................................................................................................
Net intangible assets ................................................................................................... $
6,800
8,761
15,561
4,148
712
10,701
6,800
7,932
14,732
3,876
643
10,213
2012
2011
Note 7.
Commitments
San Jose Water Company purchases water from SCVWD under terms of a master contract expiring in 2051. Delivery
schedules for purchased water are based on a contract year beginning July 1, and are negotiated every three years under terms
of the master contract with SCVWD. For the years ended December 31, 2012, 2011 and 2010, San Jose Water Company
purchased from SCVWD 22,800 million gallons ($48,800), 21,900 million gallons ($43,500) and 21,200 million gallons
($40,300), respectively, of contract water. Based on current prices and estimated deliveries, San Jose Water Company is
committed to purchase from SCVWD a minimum of 90% of the delivery schedule, or 20,800 million gallons ($46,000) of
water at the current contract water rate of $2.2 per million gallons in the year ending December 31, 2013. Additionally, San Jose
Water Company purchases non-contract water from SCVWD on an “as needed” basis if the water supply is available.
In 1997, San Jose Water Company entered into a 25-year contract agreement with the City of Cupertino to operate the
City’s municipal water system. San Jose Water Company paid a one-time, up-front concession fee of $6,800 to the City of
Cupertino which is amortized over the contract term. Under the terms of the contract agreement, San Jose Water Company
50
assumed responsibility for all maintenance, operating and capital costs, while receiving all payments for water service. Water
service rates are subject to approval by the Cupertino City Council.
CLWSC has long-term contracts with the GBRA. The terms of the agreements expire in 2040, 2044 and 2050. The
agreements, which are take-or-pay contracts, provide CLWSC with 6,700 acre-feet per year of water supply from Canyon Lake
and other sources. The water rate may be adjusted by GBRA at any time, provided they give CLWSC a 60 day written notice on
the proposed adjustment.
As of December 31, 2012, San Jose Water Company had 344 employees, of whom 107 were executive, administrative
or supervisory personnel, and of whom 237 were members of unions. On November 23, 2010, San Jose Water Company
reached a three-year collective bargaining agreement with the Utility Workers of America, representing the majority of all
employees, and the International Union of Operating Engineers, representing certain employees in the engineering department,
covering the period from January 1, 2011 through December 31, 2013. The agreements include a 2% wage increase in 2011, 2%
in 2012 and 3% in 2013 for union workers as well as increases in medical co-pays and dental deductibles.
Note 8.
Contingencies
SJW Corp. is subject to ordinary routine litigation incidental to its business. There are no pending legal proceedings to
which SJW Corp. or any of its subsidiaries is a party, or to which any of its properties is the subject, that are expected to have a
material effect on SJW Corp.’s business, financial position, results of operations or cash flows.
Note 9.
Partnership Interest
In September 1999, SJW Land Company formed 444 West Santa Clara Street, L.P., a limited partnership, with a real
estate development firm whereby SJW Land Company contributed real property in exchange for a 70% limited partnership
interest. A commercial building was constructed on the partnership property and is leased to an unrelated international real
estate firm under a long-term lease expiring in August 2019.
The consolidated financial statements of SJW Corp. at December 31, 2012 and 2011 include the operating results of 444
West Santa Clara Street, L.P. Intercompany balances and transactions have been eliminated. Results of operations and balances
of the non-controlling interest are not material to the consolidated financial statements.
Note 10.
Benefit Plans
Pension Plans
San Jose Water Company sponsors a noncontributory defined benefit pension plan (the “Pension Plan”) for its eligible
union and nonunion employees. Employees hired before March 31, 2008 are entitled to receive retirement benefits using a
formula based on the employee’s three highest years of compensation (whether or not consecutive). For employees hired on or
after March 31, 2008, benefits are determined using a cash balance formula based upon compensation credits and interest
credits for each employee.
The Pension Plan is administered by a committee that is composed of an equal number of Company and union
representatives (the “Committee”). The Committee has retained an investment consultant, presently Wells Fargo Advisors
Financial Network, LLC, to assist it with, among other things, asset allocation strategy, investment policy advice, performance
monitoring, and manager due diligence. Investment decisions have been delegated by the Committee to investment managers.
Investment guidelines provided in the Investment Policy Statement require that at least 25% of plan assets be invested in fixed
income securities. As of December 31, 2012, the plan assets consist of approximately 45% bonds, 8% cash equivalents, and
47% equities. Furthermore, equities are to be diversified by industry groups and selected to achieve a balance of long-term
growth and income combined with a goal of long-term preservation of capital. Except as provided for in the prospectus of any
co-mingled investments, investment managers may not invest in commodities and futures contracts, private placements,
options, letter stock, speculative securities, nor may they hold more than 5% of assets of any one private corporation. Except as
provided for in the prospectus of any co-mingled investments, fixed income assets may only be invested in bonds, commercial
paper, and money market funds with acceptable ratings by Moody’s or Standard & Poor’s as defined by the Investment Policy
Statement. The investment manager performance is reviewed regularly by the investment consultant who provides quarterly
reports to the Committee for review.
Plan assets are marked to market at each measurement date, resulting in unrealized actuarial gains or losses. Unrealized
actuarial gains and losses on pension assets are amortized over the expected future working lifetime of participants of 12.45
years for actuarial expense calculation purposes. Market losses in 2011 increased pension expense by approximately $649 in
2012 and market gains in 2010 decreased pension expense by approximately $303 in 2011.
51
Since the Pension Plan’s inception in 1984, the plan has achieved an 11.1% return on its investments while the
applicable benchmark was 10.3% for the same period. The applicable benchmark is a weighted-average of returns for those
benchmarks shown in the table below. For the 2012 fiscal year, the investment managers, following the required investment
guidelines, achieved a 12.6% return on their investments, while the applicable benchmark was 11.5% for the same period.
Generally, it is expected of the investment managers that the performance of the assets held in the Pension Plan,
computed on a total annual rate of return basis, should meet or exceed specific performance standards over a three-to-five-year
period and/or full market cycle. These standards include a specific absolute and risk-adjusted performance standards over a
three-to-five-year period and/or full market cycle.
San Jose Water Company calculates the market-related value of our defined benefit pension plan assets, which is
defined under FASB ASC Topic 715—“Compensation—Retirement Benefits” as a balance used to calculate the expected return
on plan assets, using fair value. Fair value for San Jose Water Company is based on quoted prices in active markets for identical
assets and significant observable inputs.
San Jose Water Company has an Executive Supplemental Retirement Plan, which is a defined benefit plan under which
San Jose Water 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 $13,130 and $11,726 as of December 31, 2012 and
2011, respectively, and net periodic pension cost of $1,386, $1,241 and $1,209 for 2012, 2011 and 2010, 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. The plan is a flat dollar plan which is unaffected by variations in health care costs.
Flexible Spending Plan
Effective February 1, 2004, San Jose Water Company established a Flexible Spending Account for its employees for the
purpose of providing eligible employees with the opportunity to choose from among the fringe benefits available under the
plan. The flexible spending plan is intended to qualify as a cafeteria plan under the provisions of the Internal Revenue Code
Section 125. The flexible spending plan allows employees to save pre-tax income in a Health Care Spending Account
(“HCSA”) and/or a Dependent Care Spending Account (“DCSA”) to help defray the cost of out-of-pocket medical and
dependent care expenses. The annual maximum limit under the HCSA and DCSA plans is $2.5 and $5, respectively.
Medicare
In December 2003, federal legislation was passed reforming Medicare and introducing the Medicare Part D prescription
drug program. San Jose Water Company determined that the legislation had no impact on its postretirement benefit plan under
ASC Topic 715. Because San Jose Water Company has a union contract with its employees whereby San Jose Water Company
provides medical benefits at a fixed cost to its retirees, San Jose Water Company’s medical costs for postretirement benefits is
not affected by cost fluctuations resulting from the Medicare Part D prescription drug program.
Deferral Plan
San Jose Water Company sponsors a salary deferral plan that allows employees to defer and contribute a portion of their
earnings to the plan. Contributions, not to exceed set limits, are matched by San Jose Water Company. San Jose Water Company
contributions were $1,044, $1,001 and $962 in 2012, 2011 and 2010, respectively.
Special Deferral Election Plan and Deferral Election Program
SJW Corp. maintains a Special Deferral Election Plan allowing certain executives and a Deferral Election Program
allowing non-employee directors to defer a portion of their earnings each year and to realize an investment return on those
funds during the deferral period. Executives and non-employee directors have to make an election on the distribution and
payment method of the deferrals before services are rendered. San Jose Water Company records the investment return on the
deferred funds as compensation expense once the deferrals are made. Executives and non-employee directors had deferred
$2,501, $2,306 and $2,103 to the plan as of December 31, 2012, 2011 and 2010, respectively. San Jose Water Company
recorded an investment return of $88, $117 and $98 as of December 31, 2012, 2011 and 2010, respectively, on the deferred
funds as compensation expense.
52
Assumptions Utilized on Actuarial Calculations
Net periodic cost for the defined benefit plans and other postretirement benefits was calculated using the following
weighted-average assumptions:
Discount rate..............................................................
Expected return on plan assets ..................................
Rate of compensation increase ..................................
Pension Benefits
Other Benefits
2012
%
4.34
7.00
4.00
2011
%
5.48
7.00
2010
%
5.92/5.51
8.00/7.00
*
*
4.00
4.00
2012
%
4.25
7.00
N/A
2011
%
5.40
7.00
N/A
2010
%
5.83
8.00
N/A
* San Jose Water Company updated its expected return on plan assets assumption in November 2010 to reflect the approved redistribution of investments
held between equity and fixed income securities in the plan asset portfolio. As a result, San Jose Water Company remeasured the plan assets and benefit
obligation as of that date and the discount rate applied was updated accordingly.
The expected rate of return on plan assets was determined based on a review of historical returns, both for the Pension
Plan and for medium- to large-sized defined benefit pension funds with similar asset allocations. This review generated separate
expected returns for each asset class. These expected future returns were then blended based on the Pension Plan's target asset
allocation.
Benefit obligations for the defined benefit plans and other postretirement benefits were calculated using the following
weighted-average assumptions as of December 31:
Discount rate ....................................................
Rate of compensation increase .........................
Pension Benefits
Other Benefits
2012
%
3.92
4.00
2011
%
4.34
4.00
2012
%
3.80
N/A
2011
%
4.25
N/A
San Jose Water Company utilized each plan's projected benefit stream in conjunction with the Citigroup Pension
Discount Curve in determining the discount rate used in calculating the pension and other postretirement benefits liabilities at
the measurement date.
Net Periodic Pension Costs
Net periodic costs for the defined benefit plans and other postretirement benefits for the years ended December 31 was
as follows:
Pension Benefits
Other Benefits
2012
2011
2010
2012
2011
2010
Components of net periodic benefit
cost
Service cost ........................................ $
Interest cost ........................................
Expected return on assets...................
Amortization of transition obligation.
Amortization of prior service cost .....
Recognized actuarial loss...................
Net periodic benefit cost .................... $
4,288
5,349
(4,442)
—
414
3,857
9,466
3,171
$
5,231
(3,599)
—
470
2,129
339
452
(151)
1
197
195
7,402
$
1,033
273
467
(129)
57
197
96
961
229
433
(130)
57
197
48
834
3,516
5,313
(4,289)
—
450
2,147
7,137
53
Reconciliation of Funded Status
For the defined benefit plans and other postretirement benefits, the benefit obligation is the projected benefit obligation
and the accumulated benefit obligation, respectively. 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
2012
2011
2012
2011
Change in benefit obligation
Benefit obligation at beginning of year......... $
Service cost ...................................................
Interest cost ...................................................
Actuarial loss.................................................
Benefits paid .................................................
Benefit obligation at end of year................... $
Change in plan assets
Fair value of assets at beginning of year....... $
Actual return on plan assets ..........................
Employer contributions.................................
Benefits paid .................................................
Fair value of plan assets at end of year .........
Funded status at end of year.......................... $
123,904
4,288
5,349
11,090
(3,632)
140,999
62,763
6,645
9,766
(3,632)
75,542
(65,457)
102,783
$
10,796
3,516
5,313
15,732
(3,440)
123,904
$
$
58,761
(27)
7,469
(3,440)
62,763
(61,141) $
339
452
994
(338)
12,243
2,321
838
596
(277)
3,478
(8,765)
8,731
273
467
1,641
(316)
10,796
1,993
(20)
567
(219)
2,321
(8,475)
The amounts recognized on the balance sheet as of December 31 were as follows:
Current liabilities ............................................. $
Noncurrent liabilities .......................................
$
Pension Benefits
Other Benefits
2012
2011
2012
2011
737
64,720
65,457
705
60,436
61,141
$
$
60
8,705
8,765
56
8,419
8,475
San Jose Water Company recorded a regulatory asset, including a gross-up for taxes, on the projected benefit obligation
of the postretirement benefit plans as follows:
Funded status of obligation......................................................................................... $
Accrued benefit cost ...................................................................................................
Amount to be recovered in future rates ......................................................................
Tax gross-up................................................................................................................
Regulatory asset.......................................................................................................... $
2012
2011
74,222
(6,904)
67,318
46,315
69,616
(6,827)
62,789
43,199
113,633
105,988
The estimated amortization for the year ended December 31, 2013 is as follows:
Amortization of prior service cost .............................................................................. $
Amortization of loss ...................................................................................................
Total............................................................................................................................ $
376
3,920
4,296
197
219
416
Pension Benefits
Other Benefits
54
Plan Assets
Plan assets for the years ended December 31 were as follows:
Fair value of assets at end of year:
Debt securities ................................................. $
Equity securities ..............................................
Cash and equivalents .......................................
Pension Benefits
Other Benefits
2012
2011
2012
2011
33,922
45%
35,352
47%
6,268
8%
26,271
$
1,168
42%
32,653
52%
3,839
6%
33%
1,522
44%
788
23%
938
40%
921
40%
462
20%
Total................................................................. $
75,542
62,763
$
3,478
2,321
The following tables summarize the fair values of plan assets by major categories as of December 31, 2012 and 2011:
Fair Value Measurements at December 31, 2012
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Benchmark
Total
Asset Category
Cash and cash equivalents .......
Actively Managed (a):
U.S. Large Cap Equity ..........
U.S. Mid Cap Equity.............
U.S. Small Cap Equity ..........
Russell 1000, Russell 1000
Growth, Russell 1000 Value
Russell Mid Cap,
Russell Mid Cap Growth,
Russell Mid Cap Value
Russell 2000, Russell 2000
Growth, Russell 2000 Value
Non-U.S. Large Cap Equity ..
MSCI EAFE
REIT......................................
NAREIT—Equity REIT’s
Fixed Income (b) .....................
Total..................................
(b)
$
7,056
$
7,056
$
— $
22,749
22,749
3,989
2,174
4,169
3,792
35,091
3,989
2,174
4,169
—
—
—
—
—
—
3,792
35,091
$
79,020
$
40,137
$
38,883
$
—
—
—
—
—
—
—
—
___________________________________
The Plan has a current target allocation of 55% invested in a diversified array of equity securities to provide long-term capital appreciation and 45% invested in
a diversified array of fixed income securities to provide preservation of capital plus generation of income.
(a)
(b)
Actively managed portfolio of securities with the goal to exceed the stated benchmark performance.
Actively managed portfolio of fixed income securities with the goal to exceed the Barclays 1-5 Year Government/Credit, Barclays Intermediate
Government/Credit, and Merrill Lynch Preferred Stock Fixed Rate.
55
Fair Value Measurements at December 31, 2011
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Benchmark
Total
Asset Category
Cash and cash equivalents .......
Actively Managed (a):
U.S. Large Cap Equity ..........
Russell 1000 Growth
U.S. Small Mid Cap Equity ..
U.S. Small Cap Equity ..........
Emerging Market Equity.......
Non-U.S. Large Cap Equity ..
Passive Index Fund ETFs (b):
Russell 2500
Russell 2000
MSCI Emerging
Markets Net
MSCI EAFE Net
U.S. Large Cap Equity .......... S&P 500/Russell 1000 Growth
U.S. Mid Cap Equity.............
U.S. Small Mid Cap Equity ..
U.S. Small Cap Equity ..........
Non-U.S. Large Cap Equity ..
Russell Mid Cap
Russell 2500
Russell 2000
MSCI EAFE Net
REIT......................................
Nareit—Equity REITS
Fixed Income (c)......................
Total..................................
(c)
$
4,301
$
4,301
$
— $
3,716
1,814
6,303
3,547
4,271
5,525
69
617
143
4,356
3,213
27,209
3,716
1,814
6,303
3,547
4,271
5,525
69
617
143
4,356
—
—
—
—
—
—
—
—
—
—
—
—
3,213
27,209
$
65,084
$
34,662
$
30,422
$
—
—
—
—
—
—
—
—
—
—
—
—
—
—
___________________________________
The Plan has a current target allocation of 55% invested in a diversified array of equity securities to provide long-term capital appreciation and 45% invested in
a diversified array of fixed income securities to provide preservation of capital plus generation of income.
(a)
(b)
(c)
Actively managed portfolio of securities with the goal to exceed the stated benchmark performance.
Open-ended fund of securities with the goal to track the stated benchmark performance.
Actively managed portfolio of fixed income securities with the goal to exceed the Barclays Capital Aggregate Bond, Barclays Capital 1-3 Year
Government/Credit, and Merrill Lynch High Yield Master II performance.
In 2013, San Jose Water Company expects to make required and discretionary cash contributions of up to $10,300 to the
pension plan and other post retirement benefit plan.
Benefits expected to be paid in the next five years and in the aggregate for the five years thereafter are:
Pension Plan
Other Postretirement
Benefit Plan
2013.................................................................................................................. $
2014..................................................................................................................
2015..................................................................................................................
2016..................................................................................................................
2017..................................................................................................................
2018 - 2022 .........................................................................................................
4,523
$
4,697
4,914
5,185
5,458
31,438
416
441
475
511
544
3,193
Note 11.
Equity Plans
Common Stock
SJW Corp. has a Long-Term Stock Incentive Plan (the “Plan”), which has 1,800,000 shares of common stock reserved
for issuance. The Plan was initially adopted by the Board of Directors on March 6, 2002. The Plan was subsequently amended,
and the amended and restated Plan was adopted by the Board on January 30, 2008 and became effective on April 30, 2008. The
Plan allows SJW Corp. to provide employees, non-employee Board members or the board of directors of any parent or
56
subsidiary, consultants, and other independent advisors who provide services to the Company or any parent or subsidiary the
opportunity to acquire an equity interest in SJW Corp.
A participant in the Plan generally may not receive Plan awards covering an aggregate of more than 600,000 shares of
common stock in any calendar year. Additionally, awards granted under the Plan may be conditioned upon the attainment of
specified Company performance goals. The types of awards included in the Plan are restricted stock awards, restricted stock
units, performance shares, or other share-based awards. The Board of Directors adopted an amended and restated Plan on
January 30, 2013. Such amended and restated Plan will become effective upon shareholder approval. In addition, shares are
issued to employees under the Employee Stock Purchase Plan (“ESPP”). SJW Corp. also has a Dividend Reinvestment and
Stock Purchase Plan (“DRSPP”) which allows eligible participants to buy shares and reinvest cash dividends in SJW Corp.
common stock.
As of December 31, 2012, 2011 and 2010, 287,534, 235,473 and 213,207 shares have been issued pursuant to the Plan,
and 327,093, 363,700 and 378,903 shares are issuable upon the exercise of outstanding options, restricted stock units, and
deferred restricted stock units for the years ended 2012, 2011 and 2010, respectively. The remaining shares available for
issuance under the Plan are 1,185,373, 1,200,827 and 1,207,890 for the years ended 2012, 2011 and 2010, respectively. The
compensation costs charged to income is recognized on a straight-line basis over the requisite service period. A summary of
compensation costs charged to income, proceeds from the exercise of stock options and similar instruments and the tax benefit
realized from stock options and similar instruments exercised, that are recorded to additional paid-in capital and common stock,
by award type, are presented below for the years ended December 31:
2012
2011
2010
Compensation costs charged to income:
ESPP ....................................................................................................... $
Restricted stock and deferred restricted stock ........................................
Total compensation costs charged to income............................................ $
Proceeds from the exercise of stock options and similar instruments:
Stock options .......................................................................................... $
ESPP .......................................................................................................
DRSPP ....................................................................................................
Total proceeds from the exercise of stock options and similar
instruments ................................................................................................ $
Excess tax benefits realized from share options exercised and stock
issuance:
Stock options .......................................................................................... $
Restricted stock and deferred restricted stock ........................................
Total excess tax benefits realized from share options exercised and
stock issuance............................................................................................ $
104
460
564
318
588
83
989
61
36
97
92
559
651
—
525
39
564
—
7
7
90
722
812
180
512
—
692
41
—
41
Stock Options
SJW Corp. applies FASB ASC Topic 718—“Compensation—Stock Compensation,” for all existing and new share-
based compensation plans. To estimate the fair value of options at grant date as the basis for the share-based compensation
awards, SJW Corp. utilizes the Black-Scholes option-pricing model, which requires the use of subjective assumptions. Further,
as required under ASC Topic 718, SJW Corp. estimates forfeitures for the share-based awards that are not expected to vest.
Changes in these inputs and assumptions can affect the measure of estimated fair value of our share based compensation and the
amount and timing of expense recognition.
Awards in the form of stock options under the Plan allow executives to purchase common shares at a specified price.
Options are granted at an exercise price that is not less than the per share market price on the date of the grant. Options vest at a
25% rate on each annual date over four years and have a contractual term of 10 years.
57
As of December 31, 2012, all outstanding options were fully vested. A summary of SJW Corp.’s stock option awards as
of December 31, 2012, and changes during the year ended December 31, 2012, is presented below:
Shares
Weighted-
Average Exercise
Price
Weighted
Average
Remaining
Life in Years
Aggregate
Intrinsic
Value
Outstanding as of January 1, 2012 ..............................
85,526
$
Granted......................................................................
Exercised ...................................................................
Forfeited or expired...................................................
Outstanding as of December 31, 2012 ........................
Options exercisable at December 31, 2012 .................
—
(20,982)
—
64,544
64,544
$
$
18.24
—
15.18
—
19.24
19.24
2.73
$
—
—
—
1.92
1.92
$
$
518
—
210
—
490
490
The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010, was $210, $0,
and $133, respectively.
As of December 31, 2012, there are no unrecognized compensation costs related to stock options.
Restricted Stock and Deferred Restricted Stock
Under SJW Corp.’s Amended and Restated Deferred Restricted Stock Program (the “Deferred Restricted Stock
Program”), SJW Corp. granted deferred restricted stock units to non-employee Board members. This program was amended
effective January 1, 2008. As a result of that amendment, no new awards of deferred restricted stock units will be made under
the Deferred Restricted Stock Program with respect to Board service after December 31, 2007.
A summary of SJW Corp.’s restricted and deferred restricted stock awards as of December 31, 2012, and changes
during the year ended December 31, 2012, is presented below:
Outstanding as of January 1, 2012..............................................................................
Issued........................................................................................................................
Exercised ..................................................................................................................
Forfeited or expired ..................................................................................................
Outstanding as of December 31, 2012........................................................................
Shares vested as of December 31, 2012 .....................................................................
Units
Weighted
Average Grant-
Date Fair Value
247,917
$
21,991
$
(28,888) $
(11,998) $
$
229,022
152,814
$
16.04
21.74
20.90
17.32
16.65
17.12
A summary of the status of SJW Corp.’s nonvested restricted and deferred restricted stock awards as of December 31,
2012, and changes during the year ended December 31, 2012, is presented below:
Nonvested as of January 1, 2012 ................................................................................
Granted .....................................................................................................................
Vested.......................................................................................................................
Forfeited ...................................................................................................................
Nonvested as of December 31, 2012 ..........................................................................
Units
Weighted Grant-
Date Fair Value
85,268
$
$
21,991
(19,048) $
(11,998) $
$
76,213
15.95
21.74
23.76
17.32
15.45
As of December 31, 2012, the total unrecognized compensation costs related to restricted and deferred restricted stock
plans amounted to $622. This cost is expected to be recognized over a weighted-average period of 1.39 years.
58
Dividend Equivalent Rights
Under the Plan, certain holders of options, restricted stock and deferred restricted stock awards may have the right to
receive dividend equivalent rights (“DERs”) each time a dividend is paid on common stock after the grant date. Stock
compensation on DERs is recognized as a liability and recorded against retained earnings on the date dividends are issued.
The Deferred Restricted Stock and Deferral Election Programs for non-employee Board members were amended
effective January 1, 2008, to allow the DERs’ with respect to the deferred shares to remain in effect only through December 31,
2017. Accordingly, the last DERs’ conversion into deferred restricted stock units will occur on the first business day in
January 2018. Previously, no such time limitation was placed in the Deferred Restricted Stock and Deferral Election Program.
As of December 31, 2012, 2011 and 2010, a cumulative of 56,349, 50,888 and 45,731 dividend equivalent rights were
converted, since inception, to deferred restricted stock awards, respectively. For the years ended December 31, 2012, 2011 and
2010, $128, $129 and $123 related to dividend equivalent rights were recorded against retained earnings and were accrued as a
liability.
Employee Stock Purchase Plan
The ESPP allows eligible employees to purchase shares of SJW Corp.’s common stock at 85% of the fair value of
shares on the purchase date. Under the ESPP, employees can designate up to a maximum of 10% of their base compensation for
the purchase of shares of common stock, subject to certain restrictions. A total of 270,400 shares of common stock have been
reserved for issuance under the ESPP.
Since its inception, there have been thirteen purchase intervals. As of December 31, 2012, 2011 and 2010, a total of
29,468, 25,712 and 25,860 shares, respectively, have been issued under the ESPP. The ESPP has no look-back provisions. As of
December 31, 2012, 2011 and 2010, cash received from employees towards the ESPP amounted to $627, $548 and $512,
respectively.
After considering estimated employee terminations or withdrawals from the plan before the purchase date, for the years
ended December 31, 2012, 2011 and 2010, SJW Corp.’s recorded expenses were $110, $96 and $90 related to the ESPP.
The total unrecognized compensation costs related to the semi-annual offering period that ends January 31, 2013 for the
ESPP is approximately $52. This cost is expected to be recognized during the first quarter of 2013.
Dividend Reinvestment and Stock Purchase Plan
SJW Corp. adopted the DRSPP effective April 19, 2011. The DRSPP offers shareholders the ability to reinvest cash
dividends in SJW Corp. common stock and also purchase additional shares of SJW Corp. common stock. A total of 3,000,000
shares of common stock have been reserved for issuance under the DRSPP. For the years ended December 31, 2012 and 2011,
3,487 and 1,679 shares, respectively, have been issued under the DRSPP.
Note 12.
Segment and Nonregulated Businesses Reporting
SJW Corp. is a holding company with four subsidiaries: (i) San Jose Water Company, a water utility operation with both
regulated and nonregulated businesses, (ii) SJW Land Company and its consolidated variable interest entity, 444 West Santa
Clara Street, L.P., operate commercial building rentals, (iii) SJWTX, Inc. which is doing business as Canyon Lake Water
Service Company, a regulated water utility located in Canyon Lake, Texas, and its consolidated nonregulated variable interest
entity, Acequia Water Supply Corporation, and (iv) Texas Water Alliance Limited, a nonregulated water utility operation which
is undertaking activities that are necessary to develop a water supply project in Texas. In accordance with FASB ASC Topic 280
—“Segment Reporting,” SJW Corp. has determined that it has two reportable business segments. The first segment is that of
providing water utility and utility-related services to its customers through SJW Corp.’s subsidiaries, San Jose Water Company,
Canyon Lake Water Service Company and Texas Water Alliance, together referred to as “Water Utility Services”. The second
segment is property management and investment activity conducted by SJW Land Company, referred to as “Real Estate
Services.”
SJW Corp.’s reportable segments have been determined based on information used by the chief operating decision
maker. SJW Corp.’s chief operating decision maker is its President and Chief Executive Officer (“CEO”). The CEO reviews
financial information presented on a consolidated basis that is accompanied by disaggregated information about operating
revenue, net income and total assets, by subsidiaries.
The tables below set forth information relating to SJW Corp.’s reportable segments and distribution of regulated and
nonregulated business activities within the reportable segments. Certain allocated assets, revenue and expenses have been
included in the reportable segment amounts. Other business activity of SJW Corp. not included in the reportable segments is
included in the “All Other” category.
59
Water Utility Services
Regulated
Non
regulated
For year ended December 31, 2012
Real
Estate
Services
Non
regulated
All Other (1)
Non
regulated
4,992
3,379
1,613
244
1,653
—
935
(935)
(1,444)
—
SJW Corp.
Non
regulated
10,515
8,357
2,158
(493)
2,013
Regulated
251,032
197,893
53,139
22,811
31,085
Total
261,547
206,250
55,297
22,318
33,098
1,511
2,175
16,499
3,686
20,185
581
13,245
374
74,903
(1,091)
7,485
15,678
991,866
(136)
95,633
15,542
1,087,499
Operating revenue.......................
Operating expense ......................
Operating income (loss)..............
Net income (loss)........................
Depreciation and amortization....
Senior note, mortgage and other
interest expense...........................
Income tax expense (benefit) in
net income...................................
Assets..........................................
251,032
197,893
53,139
22,811
31,085
16,499
15,678
991,866
Water Utility Services
Regulated
Non
regulated
Operating revenue.......................
Operating expense ......................
Operating income (loss)..............
Net income (loss)........................
Depreciation and amortization....
Senior note, mortgage and other
interest expense...........................
Income tax expense (benefit) in
net income...................................
Assets..........................................
229,411
175,812
53,599
21,970
29,136
16,741
15,387
917,580
For year ended December 31, 2011
Real
Estate
Services
Non
regulated
All Other (1)
Non
regulated
4,609
3,240
1,369
(407)
1,697
—
2,031
(2,031)
(1,450)
—
SJW Corp.
Non
regulated
9,544
8,752
792
(1,092)
2,057
Regulated
229,411
175,812
53,599
21,970
29,136
Total
238,955
184,564
54,391
20,878
31,193
1,833
1,101
16,741
2,934
19,675
571
11,668
(296)
80,097
(1,096)
29,465
15,387
917,580
(821)
121,230
14,566
1,038,810
For year ended December 31, 2010
5,523
4,043
1,480
707
360
—
4,935
3,481
1,454
765
360
—
Water Utility Services
Regulated
Non
regulated
Real
Estate
Services
Non
regulated
All Other (1)
Non
regulated
Operating revenue.......................
Operating expense ......................
Operating income (loss)..............
Net income (loss)........................
Depreciation and amortization....
Senior note, mortgage and other
interest expense...........................
Income tax expense (benefit) in
net income...................................
Assets..........................................
207,432
164,976
42,456
16,818
26,319
15,917
11,496
844,364
4,646
3,139
1,507
846
347
—
600
9,849
3,560
6,858
(3,298)
(3,166)
1,665
1,760
(2,176)
81,361
____________________
(1)
The “All Other” category is SJW Corp., on a stand-alone basis.
60
SJW Corp.
Non
regulated
8,206
12,587
(4,381)
7,588
2,012
Regulated
207,432
164,976
42,456
16,818
26,319
Total
215,638
177,563
38,075
24,406
28,331
15,917
1,766
17,683
—
2,590
(2,590)
9,908
—
6
6,820
(212)
11,496
844,364
5,244
90,998
16,740
935,362
Note 13.
California Water Service Group Stock
During the year ended December 31, 2010, SJW Corp. sold 907,392 shares of California Water Service Group for
$33,938, before fees of $273. SJW Corp. recognized a gross gain on the sale of the stock of approximately $18,966, tax expense
of approximately $7,776, for a net gain of $11,190. The unrealized holding gain associated with the shares sold, that was
reclassified out of accumulated other comprehensive income was $10,784 and was based on the fair value of the stock as of
June 30, 2010 and September 30, 2010. No sales of California Water Service Group stock occurred during the same period in
2012 or 2011.
SJW Corp. classifies its remaining investment in California Water Service Group as available-for-sale. The stock is
carried at the quoted market price with the changes in unrealized gain or loss reported, net of tax, as a component of other
comprehensive income. As of December 31, 2012, SJW Corp. held 385,120 shares of California Water Service Group. The
following table summarizes the fair value of the Company's investment in California Water Service Group as of December 31,
2012 and 2011:
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Balance as of
December 31, 2012
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Investment in California Water Service Group... $
7,067
$
7,067
—
—
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
Balance as of
December 31, 2011
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets:
Investment in California Water Service Group... $
7,032
$
7,032
—
—
61
Note 14.
Unaudited Quarterly Financial Data
Summarized quarterly financial data is as follows:
March
June
September
December (1)
2012 Quarter Ended
Operating revenue ....................................................... $
Operating income ........................................................
Net income...................................................................
Comprehensive income ...............................................
Earnings per share:
—Basic......................................................................
—Diluted...................................................................
Market price range of stock:
—High.......................................................................
—Low .......................................................................
Dividend per share.......................................................
51,149
6,725
1,109
1,098
0.06
0.06
24.91
22.96
0.18
65,575
13,585
5,201
5,260
0.28
0.28
24.34
22.81
0.18
82,374
20,877
10,084
10,125
0.54
0.53
25.64
22.95
0.18
62,449
14,110
5,924
5,871
0.32
0.31
26.62
22.69
0.18
March
June
September
December (1)
2011 Quarter Ended
Operating revenue ....................................................... $
Operating income ........................................................
Net income...................................................................
Comprehensive income ...............................................
Earnings per share:
—Basic......................................................................
—Diluted...................................................................
Market price range of stock:
—High.......................................................................
—Low .......................................................................
Dividend per share.......................................................
43,696
5,601
610
599
0.03
0.03
26.40
22.48
0.17
59,007
13,784
5,451
5,479
0.29
0.29
24.24
21.99
0.17
73,914
18,486
8,215
7,988
0.44
0.44
24.80
21.16
0.17
62,338
16,520
6,602
6,727
0.36
0.35
24.93
21.10
0.17
(1)
During the quarter ended December 31, 2012, the Company recorded revenues of $3,550 related to the recognition of certain San Jose Water
Company balancing and memorandum accounts as the Company concluded that it was probable that these amounts would be collected. Of this
amount, $240 represents a net over-collection of revenues generated during the quarter ended December 31, 2012 and $3,790 represents a net-under-
collection of revenues which should have been recognized as revenue during the quarter ended September 30, 2012. See Note 1 of the Notes to the
Consolidated Financial Statements for further discussion on balancing and memorandum accounts. During the quarter ended December 31, 2011,
the Company recorded revenues of $5,740 related to the recognition of San Jose Water Company's MCRAM which was authorized for recovery by
the CPUC on December 27, 2011.
62
SJW CORP.
FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years ended December 31, 2012, 2011 and 2010
(in thousands)
Schedule II
Description
Allowance for doubtful accounts:
Balance, beginning of period...................................................... $
Charged to expense.....................................................................
Accounts written off ...................................................................
Recoveries of accounts written off .............................................
Balance, end of period ................................................................ $
Reserve for litigation and claims:
Balance, beginning of period...................................................... $
Charged to expense.....................................................................
Revision to accrual, due to settlements.......................................
Payments.....................................................................................
Balance, end of period ................................................................ $
2012
2011
2010
225
449
(526)
77
225
240
118
(38)
(39)
281
235
327
(422)
85
225
449
121
(182)
(148)
240
285
301
(472)
121
235
417
538
(245)
(261)
449
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation of Disclosure Control and Procedures
SJW Corp.’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated
the effectiveness of SJW Corp.’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, the “Exchange Act”), as of the end of the period covered by this report. Based on
that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that SJW Corp.’s disclosure controls and
procedures as of the end of the period covered by this report have been designed and are functioning effectively to provide
reasonable assurance that the information required to be disclosed by SJW Corp. in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms,
and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief
Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure. SJW Corp. believes that a control system, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within a company have been detected.
Management’s Report on Internal Control over Financial Reporting
SJW Corp.’s management is responsible for establishing and maintaining an adequate internal control structure over
financial reporting and for an assessment of the effectiveness of internal control over financial reporting, as such items are
defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act.
Management has utilized the criteria established in “Internal Control-Integrated Framework” issued by the Committee
of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of internal control over financial
reporting.
SJW Corp.’s management has performed an assessment of the effectiveness of internal control over financial reporting
as of December 31, 2012. Based on this assessment, management has concluded SJW Corp.’s internal control over financial
reporting as of December 31, 2012 is effective.
63
KPMG LLP has audited the effectiveness of the Company’s internal control over financial reporting as of December 31,
2012. Its report is included in Item 8 of this report.
Changes in Internal Controls
There has been no change in internal control over financial reporting during the fourth fiscal quarter of 2012 that has
materially affected, or is reasonably likely to materially affect, the internal controls over financial reporting of SJW Corp.
Item 9B.
Other Information
None.
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
The information required by this item is contained in part under the caption “Officers of the Registrant” in Part I,
Item 1, of this report, and in SJW Corp.’s Proxy Statement for its 2013 Annual Meeting of Shareholders to be held on April 24,
2013 (the “2013 Proxy Statement”) under the captions “Proposal 1—Election of Directors” and “Section 16(a) Beneficial
Ownership Reporting Compliance,” and is incorporated herein by reference.
Code of Ethics
SJW Corp. has adopted a code of ethics that applies to SJW Corp.’s Chief Executive Officer, Chief Financial Officer
and Chief Accounting Officer. The text of the code of ethics is available, free of charge, at the Company’s website at http://
www.sjwcorp.com. SJW Corp. intends to satisfy the disclosure requirements under Item 5.05 of Form 8-K regarding an
amendment to, or a waiver from, a provision of its code of ethics by posting such information on its website.
Corporate Governance Policies and Board Committee Charters
The Corporate Governance Policies and the charters for the board committees—the Audit Committee, Executive
Compensation Committee, Real Estate Committee, and Nominating & Governance Committee—are available at the Company’s
website at http://www.sjwcorp.com. Shareholders may also request a free hard copy of the Corporate Governance Policies and
the charters from the following address and phone number:
SJW Corp.
110 West Taylor Street
San Jose, CA 95110
Attn: Corporate Secretary
Phone: 800-250-5147
Item 11.
Executive Compensation
The information required by this item is contained in the 2013 Proxy Statement under the captions “Compensation of
Directors,” “Executive Compensation and Related Information,” “Compensation Committee Interlocks and Insider
Participation,” and “Committee Reports” and is incorporated herein by reference.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item is contained in the 2013 Proxy Statement under the captions “Security Ownership
of Certain Beneficial Owners and Management” and “Securities Authorized for Issuance under Equity Compensation Plans”
and is incorporated herein by reference.
Item 13.
Certain Relationships and Related Transaction, and Director Independence
The information required by this item is contained in the 2013 Proxy Statement under the caption “Certain
Relationships and Related Transactions” and “Independent Directors” and is incorporated herein by reference.
Item 14.
Principal Accountant Fees and Services
The information required by this item is contained in the 2013 Proxy Statement under the caption “Principal
Independent Accountants’ Fees and Services” and is incorporated herein by reference.
64
Item 15.
Exhibits and Financial Statement Schedules
PART IV
(a)(1) Financial Statements
Report of Independent Registered Public Accounting Firm ................................................................................
Consolidated Balance Sheets as of December 31, 2012 and 2011.......................................................................
Consolidated Statements of Comprehensive Income for the years ended December 31, 2012, 2011 and 2010
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2012, 2011
and 2010 ...............................................................................................................................................................
Consolidated Statements of Cash Flows for the years ended December 31, 2012, 2011 and 2010.....................
Notes to Consolidated Financial Statements ........................................................................................................
(a)(2) Financial Statement Schedule
Valuation and Qualifying Accounts and Reserves, Years ended December 31, 2012, 2011 and 2010................
Page
33
34
36
37
38
39
63
All other schedules are omitted as the required information is inapplicable or the information is presented in the
consolidated financial statements or related notes.
(a)(3) Exhibits required to be filed by Item 601 of Regulation S-K.
See Exhibit Index located immediately following this Item 15.
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.
65
EXHIBIT INDEX
Exhibit No.
Description
3.1
3.2
3.3
4
4.1
4.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
Restated Articles of Incorporation of SJW Corp. Incorporated by reference to Exhibit 3.1 to
Form 10-K for year ended December 31, 2001.
Certificate of Amendment of the Restated Articles of Incorporation of SJW Corp., as filed with
the Secretary of State of the State of California on February 22, 2006. Incorporated by reference
to Exhibit 3.1 to Form 8-K filed on February 27, 2006.
By-Laws of SJW Corp., as amended on July 28, 2010. Incorporated by reference to Exhibit 3.1
to Form 8-K filed on July 29, 2010.
Instruments Defining the Rights of Security Holders, including Indentures: No current issue of
the registrant’s long-term debt exceeds 10 percent of its total assets. SJW Corp. 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.
Indenture dated as of June 1, 2010 between San Jose Water Company and Wells Fargo Bank,
National Association. Incorporated by reference to Exhibit 4.1 to Form 10-Q for the quarter
ended June 30, 2010.
4.35% Senior Notes due June 30, 2021. SJW Corp. agrees to furnish a copy of such Senior
Notes to the Commission upon request.
Water Supply Contract dated January 27, 1981, between San Jose Water Works and the Santa
Clara Valley Water District, as amended. Incorporated by reference to Exhibit 10.1 to Form 10-K
for the year ended December 31, 2001.
Limited Partnership Agreement of 444 West Santa Clara Street, L.P., entered into as of
September 2, 1999, between SJW Land Company and Toeniskoetter & Breeding, Inc.
Development. Incorporated by reference to Exhibit 10.18 to Form 10-Q for the quarter ended
September 30, 1999.
Asset Purchase Agreement by and between SJWTX, Inc. to purchase the assets of Canyon Lake
Water Supply Corporation, a Texas nonprofit water supply corporation, dated October 4, 2005.
Incorporated by reference to Exhibit 10.1 to Form 10-Q for quarter ending September 30, 2005.
Grantor Trust Agreement by and between San Jose Water Company and Wells Fargo Bank,
National Association dated November 2, 2012. (1)
Credit Agreement dated as of May 27, 2010 by and between SJW Corp., SJW Land Company
and Wells Fargo Bank, National Association. Incorporated by reference to Exhibit 10.1 to Form
8-K filed on May 28, 2010.
First Amendment to Credit Agreement by and between SJW Corp., SJW Land Company and
Wells Fargo Bank, National Association dated December 16, 2010 and First Modification to
Promissory Note dated December 16, 2010. Incorporated by reference to Exhibit 10.1 to Form
8-K filed on December 17, 2010.
Second Amendment to Credit Agreement by and between SJW Corp., SJW Land Company and
Wells Fargo Bank, National Association dated July 1, 2011 and Second Modification to
Promissory Note dated July 1, 2011. Incorporated by reference as Exhibit 10.1 to Form 8-K filed
on July 7, 2011.
Third Modification to Promissory Note dated August 1, 2011 by and between SJW Corp., SJW
Land Company and Wells Fargo Bank, National Association. Incorporated by reference as
Exhibit 10.3 to Form 10-Q for the quarter ended September 30, 2011.
Credit Agreement dated March 1, 2012 by and between SJW Corp., SJW Land Company and
Wells Fargo Bank, National Association and Promissory Note dated March 1, 2012.
Incorporated by reference as Exhibit 10.1 to Form 8-K filed on March 7, 2012.
10.10
First Amendment to Credit Agreement by and between SJW Corp., SJW Land Company and
Wells Fargo Bank, National Association dated January 11, 2013. (1)
66
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
Credit Agreement dated as of May 27, 2010 by and between San Jose Water Company and Wells
Fargo Bank, National Association. Incorporated by reference to Exhibit 10.2 to Form 8-K filed
on May 28, 2010.
First Amendment to Credit Agreement by and between San Jose Water Company and Wells
Fargo Bank, National Association dated December 16, 2010 and First Modification to
Promissory Note dated December 16, 2010. Incorporated by reference to Exhibit 10.1 to Form
8-K filed on December 17, 2010.
Second Amendment to Credit Agreement by and between San Jose Water Company and Wells
Fargo Bank, National Association dated July 1, 2011 and Second Modification to Promissory
Note dated July 1, 2011. Incorporated by reference as Exhibit 10.2 to Form 8-K filed on July 7,
2011.
Third Modification to Promissory Note dated July 27, 2011 by and between San Jose Water
Company and Wells Fargo Bank, National Association. Incorporated by reference as Exhibit
10.4 to Form 10-Q for the quarter ended September 30, 2011.
Credit Agreement dated March 1, 2012 by and between San Jose Water Company and Wells
Fargo Bank, National Association and Promissory Note dated March 1, 2012. Incorporated by
reference as Exhibit 10.2 to Form 8-K filed on March 7, 2012.
First Amendment to Credit Agreement by and between San Jose Water Company and Wells
Fargo Bank, National Association dated January 11, 2013. (1)
Loan Agreement dated as of June 1, 2010 between the California Pollution Control Financing
Authority and San Jose Water Company. Incorporated by reference to Exhibit 10.3 to Form 10-Q
for the quarter ended June 30, 2010.
Bond Purchase agreement dated June 9, 2010 among Goldman, Sachs & Co., the Treasurer of
the State of California and the California Pollution Control Financing Authority and approved by
San Jose Water Company. Incorporated by reference to Exhibit 10.4 to Form 10-Q for the
quarter ended June 30, 2010.
Note Agreement between SJW Corp. and the Prudential Insurance Company of America, dated
June 30, 2011. Incorporated by reference as Exhibit 10.3 to Form 8-K filed on July 7, 2011.
Form of Letter Amendment to SJW Corp. Director Pension Plan. Incorporated by reference as
Exhibit 10.25 to Form 10-K for the year ended December 31, 2007. (2)
San Jose Water Company Executive Supplemental Retirement Plan, as amended and restated
effective October 28, 2009. Incorporated by reference to Exhibit 10.5 to Form 10-K for the year
ended December 31, 2009. (2)
Plan Amendment No. 1 to San Jose Water Company Executive Supplemental Retirement Plan as
amended and restated effective October 28, 2009. Incorporated by reference as Exhibit 10.1 to
Form 8-K filed on January 29, 2010. (2)
Amended and Restated Exhibit A to SJW Corp. Executive Supplemental Retirement Plan
effective January 26, 2011. Incorporated by reference as Exhibit 10.3 to Form 10-Q for the
quarter ended March 31, 2011. (2)
Plan Amendment to San Jose Water Company Executive Supplemental Retirement Plan
effective January 1, 2011. Incorporated by reference as Exhibit 10.5 to Form 10-Q for the
quarter ended September 30, 2011. (2)
San Jose Water Company Executive Supplemental Retirement Plan, as amended and restated
effective January 1, 2012. Incorporated by reference as Exhibit 10.20 to Form 10-K for the year
ended December 31, 2011. (2)
San Jose Water Company Cash Balance Executive Supplemental Retirement Plan as amended
and restated effective January 1, 2012. Incorporated by reference as Exhibit 10.23 to Form 10-K
for the year ended December 31, 2011. (2)
SJW Corp. Long-Term Incentive Plan, as amended and restated January 30, 2008. Incorporated
by reference as Exhibit 10.1 to Form 8-K filed on May 1, 2008. (2)
67
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
Chief Executive Officer Employment Agreement amended and restated, effective January 1,
2008. Incorporated by reference to Exhibit 10.9 to Form 10-K for the year ended December 31,
2008. (2)
First Amendment, effective as of January 1, 2010, to the Chief Executive Officer Employment
Agreement amended and restated effective January 1, 2008. Incorporated by reference to
Exhibit 10.1 to Form 8-K filed on December 18, 2009. (2)
Second Amendment dated January 26, 2010 to the Chief Executive Officer Employment
Agreement amended and restated effective January 1, 2008. Incorporated by reference to Exhibit
10.11 to Form 10-K for the year ended December 31, 2009. (2)
Offer Letter to Mr. James P. Lynch dated September 22, 2010 and accepted September 27, 2010.
Incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 1, 2010. (2)
Standard Form of Stock Option Agreement, as adopted by SJW Corp. Board of Directors on
April 29, 2003. Incorporated by reference to Exhibit 10.22 to Form 10-Q for the quarter ended
June 30, 2003. (2)
SJW Corp. Executive Officer Short-Term Incentive Plan, effective as of April 30, 2008.
Incorporated by reference to Exhibit 10.2 to Form 8-K filed on May 1, 2008. (2)
SJW Corp. Executive Severance Plan, as amended and restated, effective January 1, 2010 and
amended effective October 26, 2010. Incorporated by reference as Exhibit 10.23 to Form 10-K
for the year ended December 31, 2010. (2)
San Jose Water Company Special Deferral Election Plan, as amended and restated, effective
January 1, 2012. Incorporated by reference as Exhibit 10.33 to Form 10-K for the year ended
December 31, 2011. (2)
San Jose Water Company Special Deferral Election Plan, as amended and restated, effective
January 1, 2013. (1) (2)
SJW Corp. Amended and Restated Deferred Restricted Stock Program, effective January 1,
2008. Incorporated by reference as Exhibit 10.1 to Form 10-Q for the quarter ended March 31,
2008. (2)
SJW Corp. Deferral Election Program for Non-Employee Board Members, as amended and
restated, effective January 1, 2008. Incorporated by reference as Exhibit 10.22 to Form 10-K for
the year ended December 31, 2007. (2)
SJW Corp. Director Compensation and Expense Reimbursement Policies, amended and restated,
effective as of July 29, 2009. Incorporated by reference as Exhibit 10.1 to Form 10-Q for the
quarter ended September 30, 2009. (2)
Form of Stock Option Dividend Equivalent Rights Agreement, effective as of January 1, 2008.
Incorporated by reference as Exhibit 10.18 to Form 10-K for the year ended December 31, 2008.
(2)
Chief Operating Officer Stock Option Dividend Equivalent Rights Agreement, as amended and
restated effective as of January 1, 2008. Incorporated by reference as Exhibit 10.19 to Form 10-
K for the year ended December 31, 2008. (2)
Restricted Stock Unit Issuance Agreement, amended and restated, effective as of July 1, 2008.
Incorporated by reference as Exhibit 10.2 to Form 10-Q for the quarter ended September 30,
2008. (2)
Deferred Restricted Stock Award Agreement, amended and restated, as of October 22, 2008.
Incorporated by reference as Exhibit 10.21 to Form 10-K for the year ended December 31, 2008.
(2)
Chief Executive Officer Restricted Stock Unit Issuance Agreement, amended and restated
effective October 22, 2008. Incorporated by reference as Exhibit 10.22 to Form 10-K for the
year ended December 31, 2008. (2)
68
10.45
10.46
10.47
10.48
10.49
10.50
10.51
10.52
10.53
10.54
10.55
10.56
10.57
10.58
10.59
10.60
10.61
10.62
10.63
10.64
Chief Executive Officer Restricted Stock Unit Issuance Agreement, amended and restated
effective October 22, 2008. Incorporated by reference as Exhibit 10.23 to Form 10-K for the
year ended December 31, 2008. (2)
Chief Executive Officer Restricted Stock Unit Issuance Agreement, amended and restated,
effective October 22, 2008. Incorporated by reference as Exhibit 10.24 to Form 10-K for the
year ended December 31, 2008. (2)
Chief Executive Officer Restricted Stock Unit Issuance Agreement, amended and restated
effective October 22, 2008. Incorporated by reference as Exhibit 10.25 to Form 10-K for the
year ended December 31, 2008. (2)
Chief Executive Officer Restricted Stock Unit Issuance Agreement, amended and restated,
effective October 22, 2008. Incorporated by reference as Exhibit 10.26 to Form 10-K for the
year ended December 31, 2008. (2)
Chief Executive Officer Restricted Stock Unit Issuance Agreement, amended and restated,
effective October 22, 2008. Incorporated by reference as Exhibit 10.27 to Form 10-K for the
year ended December 31, 2008. (2)
Form of Chief Executive Officer Restricted Stock Unit Issuance Agreement. Incorporated by
reference as Exhibit 10.30 to Form 10-K for the year ended December 31, 2009. (2)
Form of Chief Executive Officer Restricted Stock Unit Issuance Agreement. Incorporated by
reference as Exhibit 10.31 to Form 10-K for the year ended December 31, 2009. (2)
Form of Chief Executive Officer Restricted Stock Unit Issuance Agreement. Incorporated by
reference as Exhibit 10.49 to Form 10-K for the year ended December 31, 2011. (2)
Form of Restricted Stock Unit Issuance Agreement Award, amended and restated, effective
October 22, 2008. Incorporated by reference as Exhibit 10.28 to Form 10-K for the year ended
December 31, 2008. (2)
Form of Restricted Stock Unit Issuance Agreement, amended and restated, effective October 22,
2008. Incorporated by reference as Exhibit 10.29 to Form 10-K for the year ended December 31,
2008. (2)
Form of Restricted Stock Unit Issuance Agreement. Incorporated by reference as Exhibit 10.34
to Form 10-K for the year ended December 31, 2009. (2)
Form of Restricted Stock Unit Issuance Agreement. Incorporated by reference as Exhibit 10.53
to Form 10-K for the year ended December 31, 2011. (2)
Performance Goals for the Chief Executive Officer 2009 Fiscal Year Bonus. Incorporated by
reference as Exhibit 10.1 to Form 10-Q for the quarter ended March 31, 2009. (2)
Performance Goals for the Chief Executive Officer 2010 Fiscal Year Bonus. Incorporated by
reference as Exhibit 10.36 to Form 10-K for the year ended December 31, 2009. (2)
Performance Goals for the Chief Executive Officer 2011 Fiscal Year Bonus. Incorporated by
reference as Exhibit 10.45 to Form 10-K for the year ended December 31, 2010. (2)
Performance Goals for the Chief Executive Officer 2012 Fiscal Year Bonus. Incorporated by
reference as Exhibit 10.57 to Form 10-K for the year ended December 31, 2011. (2)
Performance Goals for the Chief Executive Officer 2013 Fiscal Year Bonus. (1) (2)
Form of Indemnification Agreement between SJW Corp. and officers. Incorporated by reference
as Exhibit 10.37 to Form 10-K for the year ended December 31, 2009. (2)
Form of Indemnification Agreement between SJW Corp. and Board members. Incorporated by
reference as Exhibit 10.38 to Form 10-K for the year ended December 31, 2009. (2)
Form of Separation Agreement and Release by and between Angela Yip and San Jose Water
Company. Incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 10, 2010.
(2)
69
10.65
10.66
21.1
23
31.1
31.2
32.1
32.2
Form of Separation Agreement and Release dated September 30, 2010 by and between David A.
Green and San Jose Water Company. Incorporated by reference as Exhibit 10.49 to Form 10-K
for the year ended December 31, 2010. (2)
Separation Agreement and Release by and between George J. Belhumeur and San Jose Water
Company, dated as of May 25, 2012. Incorporated by reference as Exhibit 10.1 to Form 10-Q
for period ended June 30, 2012. (2)
Subsidiaries of SJW Corp. filed as Exhibit 21.1 to Form 10-K for the year ended December 31,
2009.
Consent of Independent Registered Public Accounting Firm. (1)
Certification Pursuant to Rule 13a-14(a)/15d-14(a) by President and Chief Executive Officer. (1)
Certification Pursuant to Rule 13a-14(a)/15d-14(a) by Chief Financial Officer and Treasurer. (1)
Certification Pursuant to 18 U.S.C. Section 1350 by President and Chief Executive Officer, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)
Certification Pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer and Treasurer, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (1)
(1) Filed currently herewith.
(2) Management contract or compensatory plan or agreement.
70
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.
SIGNATURES
Date: February 28, 2013
By
/s/ W. Richard Roth
SJW CORP.
W. RICHARD ROTH,
President, Chief Executive Officer
and Chairman of the Board of Directors
(Principal executive officer)
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: February 28, 2013
Date: February 28, 2013
Date: February 28, 2013
Date: February 28, 2013
Date: February 28, 2013
Date: February 28, 2013
Date: February 28, 2013
Date: February 28, 2013
Date: February 28, 2013
Date: February 28, 2013
/s/ W. Richard Roth
W. RICHARD ROTH,
President, Chief Executive Officer
and Chairman of the Board of Directors
(Principal executive officer)
/s/ James P. Lynch
JAMES P. LYNCH,
Chief Financial Officer and Treasurer
(Principal financial officer)
/s/ Wendy Avila-Walker
WENDY AVILA-WALKER,
Controller
(Principal accounting officer)
/s/ Katharine Armstrong
KATHARINE ARMSTRONG,
Member, Board of Directors
/s/ Walter J. Bishop
WALTER J. BISHOP,
Member, Board of Directors
/s/ Mark L. Cali
MARK L. CALI,
Member, Board of Directors
/s/ Douglas R. King
DOUGLAS R. KING,
Member, Board of Directors
/s/ Ronald B. Moskovitz
RONALD B. MOSKOVITZ,
Member, Board of Directors
/s/ George E. Moss
GEORGE E. MOSS,
Member, Board of Directors
/s/ Robert A. Van Valer
ROBERT A. VAN VALER,
Member, Board of Directors
By
By
By
By
By
By
By
By
By
By
71
Consent of Independent Registered Public Accounting Firm
Exhibit 23
The Shareholders and Board of Directors
SJW Corp.:
We consent to the incorporation by reference in the registration statements (Nos. 333-105010 and 333-127383) on
Form S-8 and in the registration statements (No. 333-172048 and 333-184984) on Form S-3 of SJW Corp. of our
report dated February 28, 2013, with respect to the consolidated balance sheets of SJW Corp. and subsidiaries as of
December 31, 2012 and 2011, and the related consolidated statements of comprehensive income, changes in
shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2012, and the
related financial statement schedule, and the effectiveness of internal control over financial reporting as of
December 31, 2012, which report appears in the December 31, 2012 annual report on Form 10-K of SJW Corp.
/s/ KPMG LLP
Santa Clara, California
February 28, 2013
CERTIFICATIONS
Exhibit 31.1
I, W. Richard Roth, certify that:
1. I have reviewed this Annual Report on Form 10-K of SJW Corp. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 28, 2013
/s/ W. Richard Roth
W. RICHARD ROTH
President, Chief Executive Officer and
Chairman of the Board
(Principal executive officer)
CERTIFICATIONS
Exhibit 31.2
I, James P. Lynch, certify that:
1. I have reviewed this Annual Report on Form 10-K of SJW Corp. (the “registrant”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the
periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being
prepared;
b) designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting.
Date: February 28, 2013
/s/ James P. Lynch
JAMES P. LYNCH
Chief Financial Officer and Treasurer
(Principal financial officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of SJW Corp. (the “Company”) on Form 10-K for the year ended December 31,
2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, W. Richard Roth, President
and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that to my knowledge on the date hereof:
(1)
(2)
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ W. Richard Roth
W. RICHARD ROTH
President, Chief Executive Officer and
Chairman of the Board
(Principal executive officer)
February 28, 2013
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
In connection with the Annual Report of SJW Corp. (the “Company”) on Form 10-K for the year ended December 31,
2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James P. Lynch, Chief
Financial Officer and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge on the date hereof:
(1)
(2)
the Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of
1934; and
the information contained in the Report fairly presents, in all material respects, the financial condition and
results of operations of the Company.
/s/ James P. Lynch
JAMES P. LYNCH
Chief Financial Officer and Treasurer
(Principal financial officer)
February 28, 2013
SJW Corp.
Annual Report 2012
SJW Corp. Mission
• Maximize shareholder value by achieving strong earnings, sustainable
growth, and competitive total returns.
• Provide high quality, low cost water and exceptional service to customers.
• Capitalize on water sector growth opportunities through constructive
business partnerships, disciplined management, and innovative applications
of technology.
• Foster a dynamic work environment that encourages personal and professional
growth, embraces diversity, and promotes mutual trust and respect.
• Conduct business with strict adherence to responsible corporate governance
and high ethical standards.
• Be a committed corporate citizen through community involvement, steadfast
environmental stewardship, and an enduring dedication to excellence.
SJW Corp.
110 W. Taylor Street, San Jose CA 95110 | 408 918 7231 | www.sjwcorp.com
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