September 19, 2008
VIA EDGAR AND FACSIMILE
Mr. H. Christopher Owings
Ms. Mara Ransom
Mr. Robert W. Erret
Division of Corporate Finance
United States Securities and Exchange Commission
950 Fifth Street, N.W.
Washington, DC 20549-0306
Fax (202) 772-9204
Re: SJW Corp.
Form 10-K for the fiscal year ended December 31, 2007, filed on
March 10, 2008
Proxy Statement on Schedule 14A, filed on March 11, 2008
Form 10-Q for the fiscal quarter ended March 31, 2008, filed on
May 8, 2008
Form 10-Q for fiscal quarter ended June 30, 2008, filed on
August 1, 2008
File No. 001-08966
Dear Messrs. Owings and Erret and Ms. Ransom:
We submit this letter in response to comments from the Staff of the
Securities and Exchange Commission (the "Staff") to SJW Corp. (the "Company")
dated September 5, 2008 (the "Comment Letter") with respect to the Company's
Form 10-K for the fiscal year ended December 31, 2007 ("Form 10-K"), Proxy
Statement on Schedule 14A filed with the Securities and Exchange Commission
on March 11, 2008 ("Proxy Statement"), Form 10-Q for fiscal quarter ended
March 31, 2008 and Form 10-Q for the fiscal quarter ended June 30, 2008, File
No. 001-08966. The numbered paragraphs below restate the numbered paragraphs
in the Comment Letter, and the discussion set out below each such paragraph
is the Company's response to the Staff's comments.
Form 10-K for the Fiscal Year Ended December 31, 2007
Item 1- Business, page 3
Franchises, page 5
1. Please discuss the general duration of the franchises held, any
anticipated expiration of a material franchise, water right, or right of way,
and the overall importance of the franchises, water rights and rights of way
to the operations of SJW Corp. Refer to Item 101(c)(iv) of Regulation S-K.
Franchises granted by local jurisdictions permit San Jose Water Company
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 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. Rights of way are necessary when San Jose Water Company
must install and operate facilities in land that it does not own, and for
which access is not provided by a franchise. As stated on page 4 of the
Company's Form 10-K, 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 Santa Clara Valley Water District
("SCVWD") under the terms of a master contract with SCVWD expiring in 2051.
San Jose Water Company's water rights include certain pre-1914 appropriative
water rights and groundwater rights. San Jose Water Company also controls
certain riparian rights in its service area.
In future filings, we will discuss any anticipated expiration of a
material franchise, water right or right of way.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operation, page 17
2. On page 25 under Maintenance Expense you disclose that your
maintenance expenses have increased 14% and 6% over the past two years.
Also, on page 25 under Other Income and Expense you disclose that your
interest expenses have increased 17% from 2006 to 2007. Please discuss in
reasonable detail whether you expect an increase or decrease in these
expenses going forward and any short and long term actions that you are
taking or have taken to address these expenses. Also, please discuss the
impact of any changes these charges will have on your earnings.
Maintenance expense varies from year to year. The level of maintenance
activity of San Jose Water Company is driven by external factors such as the
age of its infrastructure, weather conditions, the economy and public works
activities performed by the governmental agencies. Maintenance expense
increase and decrease as a result of these factors as well as other factors
such as the cost of commodities. To date in 2008, maintenance expense of San
Jose Water Company has increased from the maintenance expense incurred in
2007 primarily attributable to the increase in the cost of petroleum products
and a higher level of maintenance activity. Uncertainty about the future
price of petroleum makes it difficult for the Company to identify a trend
with respect to future Maintenance Expenses.
As noted on page 26 of the Form 10-K, over the course of 2007, the
Company increased its senior notes and mortgage indebtedness. As a result,
interest expense will be higher in 2008 as compared to 2007 due to the higher
level of borrowings. The Company monitors its overall corporate capital
structure in order to maintain what it believes is an optimal mix of debt and
equity. To the extent the Company increases its indebtedness, higher
interest expense will be incurred. Higher borrowings are incurred to support
the Company's business activities, primarily in providing water service to
its customers. When additional long term indebtedness of San Jose Water
Company and SJWTX, Inc. are reviewed and approved by the appropriate
regulatory agency, higher revenues are expected to be allowed to offset the
higher interest cost.
In future filings, we will discuss any emerging trends in operating
expenses.
Liquidity and Capital Resources, page 26
3. Please provide a discussion of cash flows from operating, investing
and financing activities for the full three-year period covered by the
financial statements. Refer to Instruction 1-5 to Item 303(a) of Regulation
S-K.
Cash Flow from Operating Activities:
SJW Corp. generated relatively stable operating cash flow from net
income, non-cash expenses for depreciation and amortization and deferred
income taxes.
Cash Flow from Investing Activities:
SJW Corp. incurred $73,217,000, $58,028,000 and $46,445,000 in capital
expenditure primarily due to higher investment in utility plant in 2007, 2006
and 2005, respectively. In 2007, the Company invested approximately
$47,625,000 in real property which amount was funded with proceeds from
another real property sale in 2006 and a $13,500,000 mortgage loan obtained
by SJW Land Company.
Cash Flow from Financing Activities:
Cash flow from financing activities in 2007 was primarily generated from
the issuance of $40,000,000 in two series of senior notes by San Jose Water
Company, a $13,500,000 mortgage loan obtained by SJW Land Company, short-term
borrowings on the Company's line of credit and receipt of advances and
contributions in aid of construction. In 2006, SJWTX, Inc. issued a senior
note in the amount of $15,000,000 in connection with its purchase of
substantially all the assets of Canyon Lake Water Supply Corporation on May
31, 2006 and retired approximately $19,951,000 in bonds for Canyon Lake Water
Supply Corporation. The increase in dividend payment is attributable to
higher dividends declared by the Board.
In future filings, we will expand our discussion on cash flows from
operating, investing and financial activities, as set forth above.
SJW Corp. and its Subsidiaries, page 28
4. You stated that an unused short-term bank line of credit of
$30,000,000 is available to you, but the line of credit expired on June 1,
2008. Please discuss if you intend to renew this line of credit, obtain a
new line of credit, or discontinue the line of credit. If you are unable to
renew this line of credit or obtain a new line of credit, please discuss how
this may effect your operations.
The line of credit was renewed and will now expire on June 1, 2010, as
disclosed on page 25 of the Company's Form 10-Q for the quarter ended June
30, 2008. In future filings, we will endeavor to discuss the status of any
material borrowings that are subject to renewal within the succeeding twelve
months.
Item 9A. Controls and Procedures, page 61
5. We note your disclosure indicates that you "believe that a control
system, no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the control system are met..." In future
filings, please revise your disclosure to state clearly, if true, that your
disclosure controls and procedures are designed to provide reasonable
assurance of achieving their objectives and that your principal executive
officer and principal financial officer concluded that your disclosure
controls and procedures are effective at that reasonable assurance level. In
the alternative, please remove the reference to the level of assurance of
your disclosure controls and procedures. Please refer to Section II.F.4 of
Management's Reports on Internal Control Over Financial Reporting and
Certification of Disclosure in Exchange Act Periodic Reports, SEC Release No.
33-8238.
We respectfully refer you to the second sentence of the disclosure on
page 61 under Item 9. Controls and Procedures, which stated as follows
(emphasis added):
"Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Corporation'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 the Corporation 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."
We believe that the foregoing sentence is consistent with the guidance
set forth in SEC Release No. 33-8238.
Item 15 - Exhibits, page 65
Exhibits 31.1 and 31.2
6. We note that in the certifications you provided under Item 601(31)
of Regulation S-K that you omitted the parenthetical phrase "(the
registrant's fourth fiscal quarter in the case of an annual report)" from
paragraph 4(d). We also note that you used the word "weakness" instead of
"weaknesses" in paragraph five (a). In all future filings, your
certification should appear exactly as set forth in Item 601(b)(31) of
Regulation S-K.
In future filings, the certifications provided by SJW Corp. under Item
601(b)(31) of Regulation S-K will be exactly as set forth in Item 601(b)(31)
of Regulation S-K.
Definitive Proxy Statement on Schedule 14A
Executive Compensation and Related Information, page 44
Annual Bonus, page 48
7. You indicated that the Executive Compensation Committee approved an
additional $13,000 bonus award for Ms. Yip in recognition of her leadership
in achieving effective cost control measures in 2007. Please discuss the
elements and factors that the Executive Compensation Committee used in
evaluating the $13,000 bonus award.
As described in the Proxy Statement, the Executive Compensation
Committee is authorized to award to the named executive officers, other than
the CEO, annual cash bonuses ranging from 0 percent to 200 percent of the
targets established at the beginning of each calendar year. At their
December 6, 2007 meeting, the Committee awarded annual bonuses at 80 percent
of target to all of the named executive officers.
The Proxy Statement on page 48 describes the specific factors that the
Committee considered in establishing the 2007 bonus awards. One of the
primary factors, "Achievement of 10.13 percent authorized ROE for San Jose
Water Company", could not be determined until after closing the books for the
fourth quarter of 2007. The Committee at their January 30, 2008 meeting
determined that the objective had been achieved. Although all of the named
executive officers had contributed to the cost control and other strategies
that resulted in the achievement of the objective, the Committee determined
that the Ms. Yip, as the Chief Financial Officer, had been largely
responsible for guiding this activity. Ms. Yip was also recognized for
significantly contributing to analyses and execution of other strategic
initiatives including the analyses of certain acquisition prospects,
resolution of IRS Code Section 162 (m) compensation issues, analyses of cost
of capital issues, and other strategic activities. Based on these
contributions, the Committee determined that Ms. Yip should be awarded an
additional $13,000 bringing her total 2007 cash bonus award to $45,000, or
112.5% of target.
Certain Relationships and Related Transactions, page 74
8. Please expand your discussion of the audit committee's review
process of related party transactions. For example, please discuss the
standards applied to related party transactions pursuant to your corporate
policies and procedures. Refer to Item 404(b)(1)(i-iv) of Regulation S-K.
In future filings, we will expand our discussion regarding the audit
committee's review process for related party transactions so that it reads
substantially as follows. For your convenience, we have underlined the
additional disclosure:
The Audit Committee reviews and approves related party
transactions as such term is defined under Item 404(a) of Regulation S-K
pursuant to the Corporation's Audit Committee Charter. In addition, SJW
Corp.'s written Related Party Transactions Policy provides that any request
for approval submitted to the Audit Committee must describe the material
terms of the proposed transaction and the related party's interest. Such
policy further provides that when approval for a related party transaction is
required between regular Audit Committee Meetings, the Audit Committee may
provide approval at a special telephonic committee meeting or by written
consent (including by email). When our audit committee reviews and considers
approving a proposed related party transaction, it considers whether the
transaction is in, or is not inconsistent with, the best interests of the
Company and its shareholders.
In connection with the above responses to your comments, we hereby
acknowledge that:
o The Company is responsible for the adequacy and accuracy of the
disclosure in the filings;
o Staff comments or changes to disclosure in response to Staff comments
do not foreclose the Commission from taking action with respect to the
filings; and
o The Company may not assert Staff comments as a defense in any
proceeding initiated by the Commission or any person under the federal
securities laws of the United States.
We would greatly appreciate any assistance the Staff can provide in
obtaining an expeditious review of this response letter. Please contact the
undersigned at (408) 279-7960 with any questions regarding the foregoing.
Very truly yours,
/s/ ANGELA YIP
Angela Yip
Executive Vice President of Finance
cc: Charles J. Toeniskoetter, Chairman of the Board
W. Richard Roth, President and Chief Executive Officer
David A. Green, Chief Financial Officer and Treasurer