Company Quick10K Filing
SJW Group
Price59.81 EPS1
Shares29 P/E45
MCap1,708 P/FCF19
Net Debt86 EBIT72
TEV1,794 TEV/EBIT25
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-11
10-K 2019-12-31 Filed 2020-03-02
10-Q 2019-09-30 Filed 2019-11-01
10-Q 2019-06-30 Filed 2019-07-26
10-Q 2019-03-31 Filed 2019-04-26
10-K 2018-12-31 Filed 2019-02-27
10-Q 2018-09-30 Filed 2018-10-26
10-Q 2018-06-30 Filed 2018-07-27
10-Q 2018-03-31 Filed 2018-05-08
10-K 2017-12-31 Filed 2018-02-27
10-Q 2017-09-30 Filed 2017-10-30
10-Q 2017-06-30 Filed 2017-07-31
10-Q 2017-03-31 Filed 2017-05-01
10-K 2016-12-31 Filed 2017-02-28
10-Q 2016-09-30 Filed 2016-10-31
10-Q 2016-06-30 Filed 2016-08-01
10-Q 2016-03-31 Filed 2016-05-02
10-K 2015-12-31 Filed 2016-02-26
10-Q 2015-09-30 Filed 2015-11-02
10-Q 2015-06-30 Filed 2015-08-03
10-Q 2015-03-31 Filed 2015-05-05
10-K 2014-12-31 Filed 2015-02-25
10-Q 2014-09-30 Filed 2014-11-06
10-Q 2014-06-30 Filed 2014-08-06
10-Q 2014-03-31 Filed 2014-05-07
10-K 2013-12-31 Filed 2014-02-28
10-Q 2013-09-30 Filed 2013-11-06
10-Q 2013-06-30 Filed 2013-08-07
10-Q 2013-03-31 Filed 2013-05-01
10-K 2012-12-31 Filed 2013-02-28
10-Q 2012-09-30 Filed 2012-10-31
10-Q 2012-06-30 Filed 2012-08-02
10-Q 2012-03-31 Filed 2012-05-04
10-K 2011-12-31 Filed 2012-02-29
10-Q 2011-09-30 Filed 2011-11-02
10-Q 2011-06-30 Filed 2011-08-08
10-Q 2011-03-31 Filed 2011-05-06
10-K 2010-12-31 Filed 2011-03-01
10-Q 2010-09-30 Filed 2010-11-05
10-Q 2010-06-30 Filed 2010-08-06
10-Q 2010-03-31 Filed 2010-05-07
10-K 2009-12-31 Filed 2010-03-05
8-K 2020-05-19
8-K 2020-05-04
8-K 2020-04-29
8-K 2020-02-26
8-K 2020-01-21
8-K 2019-12-31
8-K 2019-10-30
8-K 2019-10-08
8-K 2019-10-04
8-K 2019-09-27
8-K 2019-09-04
8-K 2019-07-24
8-K 2019-04-24
8-K 2019-03-28
8-K 2019-02-20
8-K 2018-12-03
8-K 2018-11-28
8-K 2018-11-26
8-K 2018-10-24
8-K 2018-08-05
8-K 2018-07-25
8-K 2018-05-30
8-K 2018-04-25
8-K 2018-03-22
8-K 2018-03-14
8-K 2018-02-21
8-K 2018-02-06
8-K 2018-01-04

SJW 10Q Quarterly Report

Part I. Financial Information
Item 1. Financial Statements
Note 1. General
Note 2. Equity Plans
Note 3. Real Estate Investments
Note 4. Defined Benefit Plan
Note 5. Segment and Non - Tariffed Business Reporting
Note 6. Long - Term Liabilities and Bank Borrowings
Note 7. Fair Value Measurement
Note 8. Regulatory Rate Filings
Note 9. Balancing and Memorandum Accounts
Note 10. Regulatory Assets and Liabilities
Note 11. Business Combination
Note 12. Subsequent Events
Note 13. Legal Proceedings
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 5. Other Information
Item 6. Exhibits
EX-10.1 exhibit101-sjwcxcredit.htm
EX-10.2 combined-xjpmsjwcxseco.htm
EX-31.1 sjw-33120xex311.htm
EX-31.2 sjw-33120xex312.htm
EX-32.1 sjw-33120xex321.htm
EX-32.2 sjw-33120xex322.htm

SJW Group Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
2.11.71.30.80.40.02012201420172020
Assets, Equity
0.20.20.10.10.00.02016201720182020
Rev, G Profit, Net Income
0.10.10.0-0.0-0.1-0.12012201420172020
Ops, Inv, Fin

Document
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
___________________________________________ 
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
Commission file number 1-8966
SJW GROUP
(Exact name of registrant as specified in its charter)
 
Delaware
 
77-0066628
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
 
 
 
110 West Taylor Street,
San Jose,
CA
 
95110
(Address of principal executive offices)
 
(Zip Code)
(408) 279-7800
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading Symbol(s)
 
Name of each exchange on which registered
Common Stock, par value $0.001 per share
 
SJW
 
New York Stock Exchange LLC
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 whether the registrant has submitted electronically every Interactive Data File required to be submitted 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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer                  Non-accelerated filer      
Accelerated filer                  Smaller reporting company  
Emerging growth company  
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No  x
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April 29, 2020, there were 28,507,411 shares of the registrant’s Common Stock outstanding.
 




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 Group and its subsidiaries that are based on current expectations, estimates, forecasts, and projections about SJW Group and its subsidiaries and the industries in which SJW Group and its subsidiaries operate and the beliefs and assumptions of the management of SJW Group. Some of these forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “estimates,” “projects,” “strategy,” or “anticipates,” or the negative of those words or other comparable terminology. These forward-looking statements are only predictions and are subject to risks, uncertainties and assumptions that are difficult to predict.
The accuracy of such statements is subject to a number of risks, uncertainties and assumptions including, but not limited to, the following factors:
the effect of water, utility, environmental and other governmental policies and regulations, including actions concerning rates, authorized return on equity, authorized debt-to-equity ratios, capital expenditures and other decisions;
changes in demand for water and other services;
the impact of Coronavirus (“COVID-19”) pandemic on our business operation and financial results;
unanticipated weather conditions and changes in seasonality;
climate change and the effects thereof;
the risk that the benefits expected from the merger of SJW Group and Connecticut Water Service, Inc. (the “Merger”) will not be realized;
the risk that the integration of Connecticut Water Service, Inc. will be more difficult, time-consuming or expensive than anticipated;
the outcome of the California Public Utilities Commission’s investigation into the Merger;
unexpected costs, charges or expenses resulting from the Merger or otherwise;
our ability to successfully evaluate investments in new business and growth initiatives;
the risk of work stoppages, strikes and other labor-related actions;
catastrophic events such as fires, earthquakes, explosions, floods, ice storms, tornadoes, hurricanes, terrorist acts, physical attacks, cyber-attacks, or other similar occurrences;
changes in general economic, political, business and financial market conditions;
the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings, changes in interest rates, compliance with regulatory requirements, compliance with the terms and conditions of our outstanding indebtedness and general stock market conditions; and
legislative and general market and economic developments.
Results for a quarter are not indicative of results for a full year due to seasonality and other factors. In addition, actual results are subject to other risks and uncertainties that relate more broadly to our overall business, including those more fully described in our filings with the SEC, including our most recent reports on Form 10-K, Form 10-Q and Form 8-K. Forward-looking statements are not guarantees of performance, and speak only as of the date made, and we undertake no obligation to update or revise any forward-looking statements except as required by law.




2



PART I. FINANCIAL INFORMATION
 
ITEM 1.
FINANCIAL STATEMENTS

SJW Group and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(in thousands, except share and per share data)
 
 
Three months ended March 31,
 
2020
 
2019
REVENUE
$
115,754

 
77,682

OPERATING EXPENSE:
 
 
 
Production Expenses:
 
 
 
Purchased water
15,934

 
13,662

Power
2,725

 
1,160

Groundwater extraction charges
15,028

 
6,863

Other production expenses
10,093

 
5,099

Total production expenses
43,780

 
26,784

Administrative and general
21,262

 
12,291

Maintenance
6,086

 
4,325

Property taxes and other non-income taxes
7,463

 
4,128

Depreciation and amortization
21,382

 
15,145

Merger related expenses
354

 
2,601

Total operating expense
100,327

 
65,274

OPERATING INCOME
15,427

 
12,408

OTHER (EXPENSE) INCOME:
 
 
 
Interest on long-term debt and other interest expense
(13,284
)
 
(5,791
)
Pension non-service cost
(45
)
 
(921
)
Interest income on money market fund

 
1,832

Other, net
757

 
390

Income before income taxes
2,855

 
7,918

Provision for income taxes
438

 
2,045

SJW GROUP NET INCOME
2,417

 
5,873

Other comprehensive income, net of tax:
 
 
 
Unrealized loss on investment, net of tax benefit of $50 in 2020
(135
)
 

SJW GROUP COMPREHENSIVE INCOME
$
2,282

 
5,873

SJW GROUP EARNINGS PER SHARE
 
 
 
Basic
$
0.08

 
0.21

Diluted
$
0.08

 
0.21

DIVIDENDS PER SHARE
$
0.32

 
0.30

WEIGHTED AVERAGE SHARES OUTSTANDING
 
 
 
Basic
28,489,357

 
28,423,214

Diluted
28,674,221

 
28,507,738






See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

3



SJW Group and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share data)
 
 
March 31,
2020
 
December 31,
2019
ASSETS
 
 
 
Utility plant:
 
 
 
Land
$
34,697

 
34,395

Depreciable plant and equipment
3,014,589

 
2,988,454

Construction in progress
126,365

 
112,232

Intangible assets
32,775

 
33,424

 
3,208,426

 
3,168,505

Less accumulated depreciation and amortization
983,481

 
962,019

 
2,224,945

 
2,206,486

Real estate investments
57,954

 
57,699

Less accumulated depreciation and amortization
13,899

 
13,597

 
44,055

 
44,102

CURRENT ASSETS:
 
 
 
Cash and cash equivalents:
 
 
 
Cash
28,273

 
12,944

Restricted cash

 
5,000

Accounts receivable:
 
 
 
Customers, net of allowances for uncollectible accounts
34,710

 
36,305

Income tax
7,097

 
8,837

Other
2,036

 
2,833

Accrued unbilled utility revenue
36,996

 
40,102

Current regulatory assets, net
6,129

 
6,472

Other current assets
13,577

 
9,553

 
128,818

 
122,046

OTHER ASSETS:
 
 
 
Net regulatory assets, less current portion
126,149

 
113,945

Investments
13,400

 
12,928

Goodwill
628,287

 
628,287

Other
8,644

 
4,676

 
776,480

 
759,836

 
$
3,174,298

 
3,132,470










See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

4



SJW Group and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands, except share and per share data)
 
 
March 31,
2020
 
December 31,
2019
CAPITALIZATION AND LIABILITIES
 
 
 
CAPITALIZATION:
 
 
 
Stockholders’ equity:
 
 
 
Common stock, $0.001 par value; authorized 70,000,000 shares; issued and outstanding shares 28,497,841 on March 31, 2020 and 28,456,508 on December 31, 2019
$
28

 
28

Additional paid-in capital
507,075

 
506,639

Retained earnings
376,447

 
383,191

Accumulated other comprehensive (loss) income
(9
)
 
126

Total stockholders’ equity
883,541

 
889,984

Long-term debt, less current portion
1,316,996

 
1,283,597

 
2,200,537

 
2,173,581

CURRENT LIABILITIES:
 
 
 
Line of credit
131,402

 
117,209

Current portion of long-term debt
22,311

 
22,272

Accrued groundwater extraction charges, purchased water and power
12,919

 
17,211

Accounts payable
25,214

 
34,886

Accrued interest
18,516

 
13,140

Accrued property taxes and other non-income taxes
3,545

 
2,039

Accrued payroll
9,105

 
11,570

Other current liabilities
15,392

 
16,240

 
238,404

 
234,567

DEFERRED INCOME TAXES
194,823

 
195,598

ADVANCES FOR CONSTRUCTION
117,596

 
112,339

CONTRIBUTIONS IN AID OF CONSTRUCTION
287,802

 
286,035

POSTRETIREMENT BENEFIT PLANS
111,272

 
108,044

OTHER NONCURRENT LIABILITIES
23,864

 
22,306

COMMITMENTS AND CONTINGENCIES

 

 
$
3,174,298

 
3,132,470












See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

5



SJW Group and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
(in thousands, except share and per share data)
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Total
Stockholders’
Equity
Number of
Shares
 
Amount
 
BALANCES, December 31, 2019
28,456,508

 
$
28

 
$
506,639

 
$
383,191

 
$
126

 
$
889,984

Net income

 

 

 
2,417

 

 
2,417

Unrealized loss on investment, net of tax benefit of $50

 

 

 

 
(135
)
 
(135
)
Share-based compensation

 

 
251

 
(43
)
 

 
208

Issuance of restricted and deferred stock units
25,781

 

 
(785
)
 

 

 
(785
)
Employee stock purchase plan
15,552

 

 
970

 

 

 
970

Dividends paid ($0.32 per share)

 

 

 
(9,118
)
 

 
(9,118
)
BALANCES, March 31, 2020
28,497,841

 
28

 
507,075

 
376,447

 
(9
)
 
883,541


 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Stockholders’
Equity
Number of
Shares
 
Amount
 
BALANCES, December 31, 2018
28,404,316

 
$
28

 
$
495,366

 
$
393,918

 
$

 
$
889,312

Net income

 

 

 
5,873

 

 
5,873

Cumulative effect of change in accounting principle, net of tax effect of $33

 

 

 
97

 

 
97

Share-based compensation

 

 
886

 
(16
)
 

 
870

Issuance of restricted and deferred stock units
14,312

 

 
(132
)
 

 

 
(132
)
Employee stock purchase plan
15,932

 

 
811

 

 

 
811

Common stock issuance cost

 

 
(10
)
 

 

 
(10
)
Dividends paid ($0.30 per share)

 

 

 
(8,528
)
 

 
(8,528
)
BALANCES, March 31, 2019
28,434,560

 
28

 
496,921

 
391,344

 

 
$
888,293




























See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

6



SJW Group and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
 
Three months ended March 31,
 
2020
 
2019
OPERATING ACTIVITIES:
 
 
 
Net income
$
2,417

 
5,873

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
22,482

 
15,803

Deferred income taxes
(344
)
 
(1,014
)
Stock-based compensation
251

 
886

Changes in operating assets and liabilities:
 
 
 
Accounts receivable and accrued unbilled utility revenue
5,498

 
6,093

Accounts payable and other current liabilities
(8,755
)
 
456

Accrued groundwater extraction charges, purchased water and power
(4,292
)
 
(6,723
)
Tax payable and receivable, and other accrued taxes
1,875

 
4,851

Postretirement benefits
2,445

 
1,723

Regulatory assets and liability related to balancing and memorandum accounts
(10,158
)
 
2,937

Up-front service concession payment
(5,000
)
 

Other changes, net
1,510

 
(5,692
)
NET CASH PROVIDED BY OPERATING ACTIVITIES
7,929

 
25,193

INVESTING ACTIVITIES:
 
 
 
Additions to utility plant:
 
 
 
Company-funded
(38,314
)
 
(29,575
)
Contributions in aid of construction
(3,629
)
 
(3,273
)
Additions to real estate investments
(255
)
 

Payments to retire utility plant, net of salvage
(271
)
 
(1,525
)
NET CASH USED IN INVESTING ACTIVITIES
(42,469
)
 
(34,373
)
FINANCING ACTIVITIES:
 
 
 
Borrowings on line of credit
47,424

 
38,000

Repayments of line of credit
(33,231
)
 
(106,000
)
Long-term borrowings
35,000

 
80,000

Repayments of long-term borrowings
(1,171
)
 

Debt issuance and broker fee costs

 
(222
)
Dividends paid
(9,118
)
 
(8,529
)
Receipts of advances and contributions in aid of construction
6,416

 
4,835

Refunds of advances for construction
(557
)
 
(555
)
Other changes, net
106

 
592

NET CASH PROVIDED BY FINANCING ACTIVITIES
44,869

 
8,121

NET CHANGE IN CASH AND CASH EQUIVALENTS
10,329

 
(1,059
)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
17,944

 
420,722

CASH AND CASH EQUIVALENTS, END OF PERIOD
$
28,273

 
419,663

 
 
 
 
Cash paid (received) during the period for:
 
 
 
Interest
$
9,373

 
6,304

Income taxes
(50
)
 

Supplemental disclosure of non-cash activities:
 
 
 
Change in accrued payables for construction costs capitalized
(2,601
)
 
(2,884
)
Utility property installed by developers
3,076

 
(168
)








See Accompanying Notes to Unaudited Condensed Consolidated Financial Statements.

7



SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2020
(in thousands, except share and per share data)

Note 1.
General
In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of the results for the interim periods.
The unaudited interim financial information has been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and in accordance with the instructions for Form 10-Q and Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). The Notes to Consolidated Financial Statements in SJW Group’s 2019 Annual Report on Form 10-K should be read with the accompanying unaudited condensed consolidated financial statements.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” and subsequent amendments. Topic 326 requires measurement and recognition of expected credit losses for financial assets held. This was effective for SJW Group in the first quarter of fiscal 2020. The adoption of ASU 2016-13 did not have a material impact on our consolidated financial statements. 
Revenue
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. Due to the seasonal nature of the water business, the operating results for interim periods are not indicative of the operating results for a 12-month period. 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 precipitation curtail water usage and sales.
The major streams of revenue for SJW Group are as follows:
 
Three months ended March 31,
 
2020
 
2019
Revenue from contracts with customers
$
105,136

 
78,926

Alternative revenue programs, net
504

 
(1,979
)
Other balancing and memorandum accounts revenue, net
8,744

 
(631
)
Rental income
1,370

 
1,366

 
$
115,754

 
77,682


Earnings per Share
Basic earnings per share is calculated using income available to common stockholders, divided by the weighted average number of shares outstanding during the period. Diluted earnings per share is calculated using income available to common stockholders divided by the weighted average number of shares of common stock including both shares outstanding and shares potentially issuable in connection with restricted common stock awards under SJW Group’s Long-Term Incentive Plan (as amended, the “Incentive Plan”) and under the performance stock plans assumed through the business combination with Connecticut Water Service, Inc. (“CTWS”) and shares potentially issuable under the Employee Stock Purchase Plan (“ESPP”). For the three months ended March 31, 2020 and 2019, 17,573 and 7,417 anti-dilutive restricted common stock units were excluded from the dilutive earnings per share calculation, respectively.
Utility Plant Depreciation
A portion of depreciation expense is allocated to administrative and general expense. For the three months ended March 31, 2020, and 2019, the amounts allocated to administrative and general expense were $1,098 and $657, respectively.


8


SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
March 31, 2020
(in thousands, except share and per share data)


Note 2.
Equity Plans
SJW Group accounts for stock-based compensation based on the grant date fair value of awards issued to employees in accordance with FASB ASC Topic 718 - “Compensation - Stock Compensation,” which requires the measurement and recognition of compensation expense based on the estimated fair value of stock-based payment awards.
The Incentive Plan allows SJW Group to provide employees, non-employee board members or the board of directors of any parent or 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 Group. The types of awards included in the Incentive Plan are restricted stock awards, restricted stock units, performance shares, or other share-based awards. As of March 31, 2020, 184,130 shares are issuable upon the exercise of outstanding restricted stock units and deferred restricted stock units and an additional 759,976 shares are available for award issuances under the Incentive Plan. In addition, shares are issued to employees under the company’s ESPP.
In connection with the merger with CTWS on October 9, 2019, SJW Group assumed outstanding awards of restricted stock units and deferred share units under the following stock plans: CTWS 2014 Performance Stock Program, CTWS 2004 Performance Stock Program and CTWS 1994 Performance Stock Program (collectively, the “CTWS Plan”). As of March 31, 2020, approximately 101,647 shares are issuable upon the exercise of outstanding restricted stock units and deferred restricted stock units under the CTWS Plan.
Stock compensation costs charged to income are recognized on a straight-line basis over the requisite service period. A summary of compensation costs charged to income and proceeds from the exercise of any restricted stock and similar instruments that are recorded to additional paid-in capital and common stock, by award type, are presented below for the three months ended March 31, 2020, and 2019.
 
Three months ended March 31,
 
2020
 
2019
Adjustments to additional paid-in capital and common stock for:
 
 
 
Compensation costs charged to income:
 
 
 
   ESPP
$
171

 
143

   Restricted stock and deferred restricted stock
80

 
743

Total compensation costs charged to income
$
251

 
886

ESPP proceeds
$
970

 
811


Stock, Restricted Stock and Deferred Restricted Stock
For the three months ended March 31, 2020 and 2019, SJW Group granted under the Incentive Plan 28,367 and 17,451, respectively, three year service-based restricted stock awards with a weighted-average grant date fair value of $65.89 and $51.28, respectively, per unit.
Performance-based and market-based restricted stock awards granted for the three months ended March 31, 2020 and 2019 were 24,581 and 30,401 target units with a weighted-average grant date fair value of $73.85 and $60.46 respectively, per unit. Based upon actual attainment relative to the target performance metric, the number of shares issuable can range between 0% to 150% of the target number of shares for performance-based restricted stock awards, or between 0% and 200% of the target number of shares for market-based restricted stock awards.
As of March 31, 2020, the total unrecognized compensation costs related to restricted and deferred restricted stock plans amounted to $6,113. This cost is expected to be recognized over a weighted-average period of 2.33 years.
Employee Stock Purchase Plan
The ESPP allows eligible employees to purchase shares of SJW Group’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 400,000 shares of common stock have been reserved for issuance under the ESPP.

9


SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
March 31, 2020
(in thousands, except share and per share data)


SJW Group’s recorded expenses were $86 and $76 for the three months ended March 31, 2020 and 2019, related to the ESPP. The total unrecognized compensation costs related to the semi-annual offering period that ends July 31, 2020, for the ESPP is approximately $102. This cost is expected to be recognized during the second and third quarters of 2020.

Note 3.
Real Estate Investments
The major components of real estate investments as of March 31, 2020, and December 31, 2019, are as follows: 
 
March 31,
2020
 
December 31,
2019
Land
$
14,168

 
14,168

Buildings and improvements
43,786

 
43,531

Subtotal
57,954

 
57,699

Less: accumulated depreciation and amortization
13,899

 
13,597

Total
$
44,055

 
44,102


Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, ranging from 7 to 39 years. Substantially all of the real estate investments relate to assets that are currently subject to operating leases.

Note 4.
Defined Benefit Plan
SJW Group maintains noncontributory defined benefit pension plans for its eligible employees. SJWC and CTWS employees hired before March 31, 2008, and January 1, 2009, respectively, are entitled to benefits under the pension plans based on the employee’s years of service and compensation. Certain employees hired before March 1, 2012, and covered by a plan merged into the CTWS plan in 2013 are also entitled to benefit based on the employee’s years of service and compensation. For SJWC 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. CTWS employees hired on or after January 1, 2009, are entitled to an additional 1.5% of eligible compensation to their company sponsored savings plan. SJW Group does not have multi-employer plans.
In addition, senior management hired before March 31, 2008, for SJWC and January 1, 2009, for CTWS are eligible to receive additional retirement benefits under the supplemental executive retirement plans and retirement contracts. SJWC’s senior management hired on or after March 31, 2008, are eligible to receive additional retirement benefits under SJWC’s Cash Balance Executive Supplemental Retirement Plan. Both of the plans are non-qualified plans in which only senior management and other designated members of management may participate. SJW Group also provides health care and life insurance benefits for retired employees under employer-sponsored postretirement benefits other than pension plans.
The components of net periodic benefit costs for the defined benefit plans and other postretirement benefits for the three months ended March 31, 2020, and 2019 are as follows:
 
Three months ended March 31,
 
2020

2019
Service cost
$
2,443

 
1,479

Interest cost
2,904

 
2,112

Other cost
1,499

 
1,118

Expected return on assets
(4,120
)
 
(2,309
)
 
$
2,726

 
2,400



10


SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
March 31, 2020
(in thousands, except share and per share data)


The following tables summarize the fair values of plan assets by major categories as of March 31, 2020, and December 31, 2019: 
 
Fair Value Measurements at March 31, 2020
 
 
 
Quoted
Prices in
Active
Markets for
Identical
Assets
 
Significant
Observable
Inputs
 
Significant
Unobservable
Inputs
Asset Category
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Cash and cash equivalents
$
6,115

 
$
6,115

 
$

 
$

Equity securities (a)
122,326

 
116,326

 
6,000

 

Fixed income (b)
92,218

 
28,516

 
63,702

 

Total
$
220,659

 
$
150,957

 
$
69,702

 
$

______________________________________
(a)
Actively managed portfolio of equity securities with the goal to exceed the benchmark performance
(b)
Actively managed portfolio of fixed income securities with the goal to exceed the benchmark performance
 
Fair Value Measurements at December 31, 2019
 
 
 
Quoted
Prices in
Active
Markets for
Identical
Assets
 
Significant
Observable
Inputs
 
Significant
Unobservable
Inputs
Asset Category
Total
 
(Level 1)
 
(Level 2)
 
(Level 3)
Cash and cash equivalents
$
11,801

 
$
11,801

 
$

 
$

Equity securities (a)
157,050

 
149,265

 
7,785

 

Fixed income (b)
91,896

 
31,686

 
60,210

 

Total
$
260,747

 
$
192,752

 
$
67,995

 
$


______________________________________
(a)
Actively managed portfolio of equity securities with the goal to exceed the benchmark performance
(b)
Actively managed portfolio of fixed income securities with the goal to exceed the benchmark performance
In 2020, SJW Group expects to make required and discretionary cash contributions of up to $9,238 to the pension plans and Social Welfare Plan. For the three months ended March 31, 2020, SJW Group has made no contributions to such plans.

Note 5.
Segment and Non-Tariffed Business Reporting
SJW Group is a holding company with four subsidiaries: (i) SJWC, a water utility operation with both regulated and non-tariffed businesses, (ii) SJWTX, Inc. which is doing business as Canyon Lake Water Service Company (“CLWSC”), a regulated water utility located in Canyon Lake, Texas, and its consolidated non-tariffed variable interest entity, Acequia Water Supply Corporation, (iii) SJW Land Company and its consolidated variable interest entity, 444 West Santa Clara Street, L.P., which operated commercial building rentals, and (iv) as of October 9, 2019, SJWNE LLC a holding company for CTWS and its subsidiaries, The Connecticut Water Company (“Connecticut Water”), The Maine Water Company (“Maine Water”), The Heritage Village Water Company (“HVWC”), The Avon Water Company (“Avon Water”), New England Water Utility Services (“NEWUS”), Inc. and Chester Realty, Inc. In accordance with FASB ASC Topic 280 - “Segment Reporting,” The chief operating decision maker of SJW Group 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 Group’s subsidiaries, SJWC, Connecticut Water, CLWSC, Maine Water, HVWC, Avon Water, and NEWUS together referred to as “Water Utility Services.” The second segment is property management and investment activity conducted by SJW Land Company and Chester Realty, Inc., referred to as “Real Estate Services.”
SJW Group’s reportable segments have been determined based on information used by the chief operating decision maker. SJW Group’s chief operating decision maker includes the Chairman, President and Chief Executive Officer, and his executive staff.

11


SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
March 31, 2020
(in thousands, except share and per share data)


The following tables set forth information relating to SJW Group’s reportable segments and distribution of regulated and non-tariffed business activities within the reportable segments. Certain allocated assets, such as goodwill, and revenue and expenses have been included in the reportable segment amounts. Other business activity of SJW Group not included in the reportable segments is included in the “All Other” category.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For Three Months Ended March 31, 2020
 
Water Utility Services
 
Real Estate Services
 
All Other*
 
SJW Group
 
Regulated
 
Non-tariffed
 
Non-tariffed
 
Non-tariffed
 
Regulated
 
Non-tariffed
 
Total
Operating revenue
$
111,367

 
3,017

 
1,370

 

 
111,367

 
4,387

 
115,754

Operating expense
96,017

 
1,361

 
831

 
2,118

 
96,017

 
4,310

 
100,327

Operating income (loss)
15,350

 
1,656

 
539

 
(2,118
)
 
15,350

 
77

 
15,427

Net income (loss)
5,828

 
1,470

 
388

 
(5,269
)
 
5,828

 
(3,411
)
 
2,417

Depreciation and amortization
20,749

 
108

 
302

 
223

 
20,749

 
633

 
21,382

Senior note and other interest expense
8,174

 

 

 
5,110

 
8,174

 
5,110

 
13,284

Income tax expense (benefit) in net income
1,202

 
470

 
132

 
(1,366
)
 
1,202

 
(764
)
 
438

Assets
$
3,054,474

 
9,170

 
46,436

 
64,218

 
3,054,474

 
119,824

 
3,174,298

 
For Three Months Ended March 31, 2019
 
Water Utility Services
 
Real Estate Services
 
All Other*
 
SJW Group
 
Regulated
 
Non-tariffed
 
Non-tariffed
 
Non-tariffed
 
Regulated
 
Non-tariffed
 
Total
Operating revenue
$
75,147

 
1,169

 
1,366

 

 
75,147

 
2,535

 
77,682

Operating expense
60,585

 
841

 
891

 
2,957

 
60,585

 
4,689

 
65,274

Operating income (loss)
14,562

 
328

 
475

 
(2,957
)
 
14,562

 
(2,154
)
 
12,408

Net income (loss)
6,100

 
236

 
318

 
(781
)
 
6,100

 
(227
)
 
5,873

Depreciation and amortization
14,749

 
97

 
299

 

 
14,749

 
396

 
15,145

Senior note and other interest expense
5,220

 

 

 
571

 
5,220

 
571

 
5,791

Income tax expense (benefit) in net income
2,076

 
92

 
130

 
(253
)
 
2,076

 
(31
)
 
2,045

Assets
$
1,492,643

 
5,825

 
46,862

 
413,477

 
1,492,643

 
466,164

 
1,958,807


 * The “All Other” category for the three months ended March 31, 2020, includes the accounts of SJW Group, SJWNE LLC and CTWS on a stand-alone basis. For the three months ended March 31, 2019, the “All Other” category includes the accounts of SJW Group and Hydro Sub, Inc. on a stand-alone basis. For the three months ended March 31, 2019, Hydro Sub, Inc. had no recorded revenue or expenses and as of March 31, 2019 held no assets and has incurred no liabilities. Hydro Sub. Inc. was a subsidiary created solely to facilitate the merger with CTWS and was dissolved following the completion of merger in October 2019.

Note 6.
Long-Term Liabilities and Bank Borrowings
SJW Group’s contractual obligations and commitments include senior notes, bank term loans, revenue bonds, state revolving fund loans, mortgages, and other obligations. Water Utility Services have received advance deposit payments from its customers on certain construction projects and the refunds of the advance deposit payments constitute an obligation to the respective subsidiaries.
On March 12, 2020 Connecticut Water entered into a note purchase agreement with the purchasers listed in the agreement, pursuant to which Connecticut Water sold an aggregate principal amount of $35,000 of its 3.51% Senior Notes, due March 12, 2050. The notes are unsecured obligations of Connecticut Water. Interest is payable semi-annually in arrears on March 12th and September 12th of each year. The note purchase agreement contains customary representations and warranties. Under the note purchase agreement, Connecticut Water is required to comply with certain customary affirmative and negative covenants for as long as the notes are outstanding. The notes are also subject to customary events of default, the occurrence of which may

12


SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
March 31, 2020
(in thousands, except share and per share data)


result in all of the notes then outstanding becoming immediately due and payable. The notes have terms and conditions that restrict Connecticut Water from issuing additional debt or paying a dividend to CTWS if such debt or distribution would trigger an event of default. The senior note agreement also requires Connecticut Water to maintain a debt to capitalization ratio of not more than 60% and an interest coverage ratio at each fiscal quarter end of no less than three-to-one. As of March 31, 2020, Connecticut Water was in compliance with all financial ratio and operational covenants under this agreement. The closing occurred simultaneously with the signing of the note purchase agreement.
On December 19, 2019, Maine Water issued $5,000 of Series S First Mortgage Bonds to the Maine Municipal Bond Bank through the State Safe Drinking Water Revolving Loan Fund. The Series S bonds mature on October 1, 2039 and carry 1% interest. The Series S First Mortgage Bond covenants are the same as all other First Mortgage Bonds. The proceeds were held as restricted cash by a trustee to be used for pre-approved projects primarily related to preliminary engineering and design work of a water treatment plant in Maine’s Biddeford and Saco division. Proceeds were held by a trustee for the bond and until conditions were met. On February 3, 2020 and March 11, 2020, the trustee released proceeds of $4,114 and $886, respectively, from the bond. The associated bond indentures and loan agreements contain customary affirmative and negative covenants, including a prohibition on the issuance of indebtedness secured by assets or revenue of Maine Water where the lien is senior to the lien of the bond trustee under the above bonds except as permitted by the bond indentures and related loan and security agreements, a requirement to maintain a debt to capitalization ratio of not more than 65%, required compliance with various financial and operational covenants, and a provision for maturity acceleration upon the occurrence of stated events of default.

Note 7.
Fair Value Measurement
The following instruments are not measured at fair value on SJW Group’s condensed consolidated balance sheets as of March 31, 2020, but require disclosure of their fair values: cash and cash equivalents, a money market fund, accounts receivable and accounts payable. The estimated fair value of such instruments as of March 31, 2020, approximates their carrying value as reported on the condensed 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. There have been no changes in valuation techniques during the three months ended March 31, 2020. 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 pension plan assets is discussed in Note 4.
SJW Group has investments in company owned life insurance which are valued at cash surrender value of the policies as reported by the insurer. These contracts are based principally on a referenced pool of investment funds that actively redeem shares, are observable and measurable, and are presented in “Investments” on SJW Group’s consolidated balance sheets. As of March 31, 2020, the value of the company owned life insurance was $7,207 of which $3,650 was related to assets to fund CTWS’s supplemental retirement plan agreements. As of December 31, 2019, the value of the company owned life insurance was $7,086 of which $3,829 was related to assets to fund CTWS’s supplemental retirement plan agreements. In addition to life insurance contracts, CTWS’s supplemental retirement plan agreements are also funded with a Rabbi Trust.
The following tables summarize the fair values of the Rabbi Trust investment assets to fund CTWS’s additional retirement benefits under the supplemental executive retirement plans and retirement contracts by major categories as of March 31, 2020, and December 31, 2019: 
 
 
 
 
Fair Value Measurements at March 31, 2020
Asset Category
 
Total
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Money market funds
 
$
132

 
132

 

 

Mutual funds
 
1,802

 
1,802

 

 

Fixed income
 
672

 
672

 

 

Total
 
$
2,606

 
2,606

 

 


13


SJW GROUP AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
March 31, 2020
(in thousands, except share and per share data)


 
 
 
 
Fair Value Measurements at December 31, 2019
Asset Category
 
Total
 
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level 1)
 
Significant
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Money market funds
 
$
20