Thursday, May 7, 2009

San Jose Water Company Annual Meeting (2009)

SJW Corp (SJW), otherwise known as San Jose Water Company, held its annual shareholder meeting on May 6, 2009 at its local headquarters. A plate of cookies, coffee, water, and a selection of moist cake slices were offered. About ten shareholders attended, but most of the room was filled with company employees. Most of the shareholders were senior citizens who had probably bought SJW for its consistent dividend. (SJW currently yields 2.8%.)

Norm Mineta, San Jose's former mayor, is on SJW's Board of Directors. It was a pleasure meeting him. If you're ever in downtown San Jose, go to City Hall and go to the second floor (same floor as the Council Chambers). Right outside the elevator is a wall with pictures of San Jose mayors. Mr. Mineta's picture is on the wall of mayors, and it's a fantastic picture, because he looks so young. Mr. Mineta was one of the few government officials who spoke out against racial profiling post-9-11. As a result, many San Joseans--a very diverse lot--are forever grateful to him.

SJW has an enviable business model: one, a captive customer base; two, a product everyone needs, no matter what the business climate; and reasonable government cooperation. With banks and car companies failing left and right, many investors are looking for a stable business. It's worth noting that San Jose Water Company has been around since 1866.

There are some problems, however. The pension is underfunded by around $38 million (See 10K: page 56). With only 324 employees (10K: page 52), that means the pension has a gap of $111,111 per employee. The CFO indicated the pension is less than 80% funded, triggering various IRS rules which activate after various thresholds have been breached. Also, the company is top-heavy--with only 324 employees, it has 101 "executive, administrative or supervisory personnel" (10K: page 53).

The company's CFO addressed some of these issues: first, the $38 million number does not include recent stock market gains; and second, the company recently modified its pension plan, "replacing a defined benefit pension formula with a more portable cash balance formula" (See attachments to letter to shareholders).

I asked whether the company had insurance in case a natural disaster affected operations. The company does not buy insurance--it's too expensive--but has been given permission to set up a fund into which customers will pay for disaster damage through rate increases. SJW's "insurance" is basically its customer base.

I asked whether the company has preferred shares. It does not.

Another shareholder asked why the company was expanding in Texas. (A Board member, Kathleen Armstrong, has been added to assist the company with Texas operations.) The company indicated that Texas was a growing state with a better political climate.

Another shareholder asked whether SJW employees get free water. The company responded that employees within the service district receive discounted--not free--water, and the company only had 324 employees.

Another shareholder talked about accounting problems at a southern California water company. SJW did not want to comment on another company's issues.

It was a short, amiable meeting. I will attend next year to see if I can take a picture with Norman Mineta. I will ask him if the fabled "baseball bat" stories are true. ("Damn government took my bat again" has got to be one of the best quotes ever by a public official.) If SJW has some initiative, it may want to buy a Louisville Slugger and have Mr. Mineta sign it every year at the shareholder meeting. Most companies should be creative when it comes to their shareholder meetings. With a distinguished citizen like Mr. Mineta on its Board, why waste an opportunity to boost company morale?

For more SJW's Q1 2009 earnings call transcript, click here.

Disclosure: I own fewer than 10 SJW shares.

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