1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2000 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 0-8084 Connecticut Water Service, Inc. (Exact name of registrant as specified in its charter) Connecticut 06-0739839 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 93 West Main Street, Clinton, CT 06413-1600 (Address of principal executive offices) (Zip Code) (860) 669-8636 (Registrant's telephone number, including area code) Not Applicable (Former name, address and former fiscal year, if changed since last report) 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 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 X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a count. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 4,843,968 Number of shares of common stock outstanding, March 31, 2000 2 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES Financial Report March 31, 2000 and 1999 TABLE OF CONTENTS PART I, ITEM 1: FINANCIAL STATEMENTS Consolidated Balance Sheets at March 31, 2000 and December 31, 1999 Page 3 Consolidated Statements of Capitalization at March 31, 2000 and December 31, 1999 Page 4 Consolidated Statements of Income for the Three Months Ended March 31, 2000 and 1999 Page 5 Consolidated Statements of Income for the Twelve Months Ended March 31, 2000 and 1999 Page 6 Consolidated Statements of Retained Earnings both the Three and Twelve Months Ended March 31, 2000 and 1999 Page 7 Consolidated Statements of Cash Flows for Three Months Ended March 31, 2000 and 1999 Page 8 Notes to Consolidated Financial Statements Page 9 PART I, ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Page 10 PART II, ITEM 4: Submission of Matters to a Vote of Security Holders Page 11 Signatures Page Page 12 3 Page 3 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2000 AND DECEMBER 31, 1999 (IN THOUSANDS) MARCH 31, 2000 DEC. 31, (UNAUDITED) 1999 ----------- ---------- ASSETS Utility Plant Utility Plant $241,915 $240,122 Construction Work in Progress 4,333 5,804 Utility Plant Acquisition Adjustments (1,273) (1,273) ----------- ---------- 244,975 244,653 Accumulated Provision for Depreciation (64,555) (63,311) ----------- ---------- Net Utility Plant 180,420 181,342 ----------- ---------- Other Property and Investments 2,730 2,747 ----------- ---------- Current Assets Cash 1,027 1,013 Accounts Receivable (Less Allowance, 2000--$352; 1999--$455) 4,758 5,301 Accrued Unbilled Revenues 2,793 2,805 Materials and Supplies, at Average Cost 802 761 Prepayments and Other Current Assets 1,201 237 ----------- ---------- Total Current Assets 10,581 10,117 ----------- ---------- Deferred Charges and Regulatory Assets Unamortized Debt Issuance Expense 5,667 5,722 Unrecovered Income Taxes 8,864 8,843 Postretirement Benefits Other Than Pension 1,083 1,083 Other Costs 992 1,031 ------------ ---------- Total Deferred Charges and Regulatory Assets 16,606 16,679 ----------- ---------- TOTAL ASSETS $210,337 $210,885 =========== ========== CAPITALIZATION AND LIABILITIES Capitalization (See accompanying statements) Common Stockholders' Equity $ 62,605 $ 62,495 Preferred Stock 772 772 Long-Term Debt 65,346 65,399 ----------- ---------- Total Capitalization 128,723 128,666 ----------- ---------- Current Liabilities Current Portion of Long Term Debt 194 194 Interim Bank Loans Payable 3,401 2,411 Accounts Payable and Accrued Taxes and Interest 6,588 8,405 Other 2,748 2,864 ----------- ---------- Total Current Liabilities 12,931 13,874 ----------- ---------- Long-Term Liabilities Advances for Construction 16,111 15,994 Contributions in Aid of Construction 24,150 24,165 Deferred Federal Income Taxes 16,993 16,743 Unfunded Future Income Taxes 8,349 8,349 Unfunded Postretirement Benefits Other Than Pension 1,083 1,083 Unamortized Investment Tax Credits 1,997 2,011 Commitments and Contingencies ----------- ---------- Total Long-Term Liabilities 68,683 68,345 ----------- ---------- TOTAL CAPITALIZATION AND LIABILITIES $210,337 $210,885 =========== ========== The accompanying notes are an integral part of these financial statements. 4 PAGE 4 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CAPITALIZATION AT MARCH 31, 2000 AND DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31, 2000 DEC. 31, (UNAUDITED) 1999 ----------- -------- Common Stockholders' Equity Common Stock Without Par Value Authorized - 7,500,000 Shares: ........... 46,050 46,039 Shares Issued and Outstanding: 2000 - 4,843,968; 1999 - 4,838,794 Stock Issuance Expense................................................. (1,385) (1,385) Retained Earnings...................................................... 17,940 17,841 -------- -------- Total Common Stockholders' Equity.................................. 62,605 62,495 -------- -------- Cumulative Preferred Stock of Connecticut Water Service, Inc. Series A Voting, $20 Par Value; Authorized, Issued and Outstanding 15,000 Shares, Redeemable at $21.00 Per Share.............. 300 300 Series $.90 Non-Voting, $16 Par Value; Authorized 50,000 Shares Issued and Outstanding 29,499 Shares, Redeemable at $16.00 Per Share... 472 472 -------- -------- Total Preferred Stock of Connecticut Water Service, Inc. .......... 772 772 -------- -------- Long-Term Debt The Connecticut Water Company First Mortgage Bonds 5 7/8% Series R, due 2022............................................ 14,800 14,800 6.65% Series S, due 2020............................................ 8,000 8,000 5 3/4% Series T, due 2028............................................ 5,000 5,000 5.3% Series U, due 2028............................................ 4,550 4,550 6.94% Series V, due 2029............................................ 12,050 12,050 -------- -------- 44,400 44,400 Unsecured Water Facilities Revenue Refinancing Bonds 5.05% 1998 Series A, due 2028....................................... 10,000 10,000 5.125% 1998 Series B, due 2028....................................... 8,000 8,000 Other 5.5% Unsecured Promissory Note....................................... 82 103 -------- -------- Total Connecticut Water Company.................................... 62,492 62,503 Crystal Water Utilities Corporation 8.0% New London Trust, Due 2017...................................... 133 133 -------- -------- Crystal Water Company of Danielson 7.82% Connecticut Development Authority, Due 2020.................... 515 518 8.0% New London Trust, Due 2011...................................... 2,267 2,298 -------- -------- Total Crystal........................................................ 2,782 2,816 -------- -------- Chester Realty 6% Note Payable, Due 2006............................................ 133 141 -------- -------- Total Connecticut Water Service, Inc. ............................. 65,540 65,593 -------- -------- Less Current Portion............................................... (194) (194) -------- -------- Total Long-Term Debt............................................... 65,346 65,399 -------- -------- TOTAL CAPITALIZATION............................................... $128,723 $128,666 ======== ======== The accompanying notes are an integral part of these financial statements. 5 Page 5 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999 (UNAUDITED) (UNAUDITED) ----------- ----------- Operating Revenues $9,728 $9,450 ------ ------ Operating Expenses Operation and Maintenance 4,205 4,146 Depreciation 1,141 1,099 Federal and State Income Taxes 888 729 Other Taxes 1,087 1,062 ------ ------ Total Operating Expenses 7,321 7,036 ------ ------ Utility Operating Income 2,407 2,414 ------ ------ Other Income (Deductions) Interest 62 62 Allowance for Funds Used During Construction 100 119 Gain on Sale of Property 34 5 Non-Water Sales Earnings 78 50 Miscellaneous Income (Deductions) (3) (3) Taxes on Other Income (34) (17) ------ ------ Total Other Income (Deductions) 237 216 ------ ------ Interest and Debt Expense Interest on Long-Term Debt 985 987 Other Interest Charges 63 68 Amortization of Debt Expense 55 56 ------ ------ Total Interest and Debt Expense 1,103 1,111 ------ ------ Net Income Before Preferred Dividends 1,541 1,519 Preferred Stock Dividend Requirement 9 9 ------ ------ Net Income Applicable to Common Stockholders $1,532 $1,510 ====== ====== Weighted Average Common Shares Outstanding 4,845 4,832 ====== ====== Basic and Fully Diluted Earnings Per Average Common Share $ 0.32 $ 0.31 ====== ====== Dividends Per Common Share $ 0.30 $ 0.28 ====== ====== The accompanying notes are an integral part of these financial statements. 6 Page 6 Connecticut Water Service, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED MARCH 31, 2000 AND 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999 (UNAUDITED) (UNAUDITED) ----------- ----------- Operating Revenues.............................. $42,902 $40,513 ----------- ----------- Operating Expenses Operating and Maintenance...................... 17,871 17,451 Depreciation................................... 4,432 4,227 Federal and State Income Taxes................. 5,167 3,941 Other Taxes.................................... 4,212 4,123 ----------- ----------- Total Operating Expenses.................... 31,682 29,742 ----------- ----------- Utility Operating Income........................ 11,220 10,771 ----------- ----------- Other Income (Deductions) Interest....................................... 135 185 Allowance for Funds Used During Construction... 435 464 Gain on Sale of Property....................... 190 480 Non-Water Sales Earnings....................... 198 250 Miscellaneous Income (Deductions).............. (70) (42) Taxes on Other Income.......................... (74) (279) ----------- ----------- Total Other Income (Deductions)............. 814 1,058 ----------- ----------- Interest and Debt Expense Interest on Long-Term Debt..................... 3,941 3,966 Other Interest Charges......................... 332 378 Amortization of Debt Expense................... 245 223 ----------- ----------- Total Interest and Debt Expense............. 4,518 4,567 ----------- ----------- Net Income Before Preferred Dividends........... 7,516 7,262 Preferred Stock Dividend Requirement............ 38 38 ----------- ----------- Net Income Applicable to Common Stockholders.... $ 7,478 $ 7,224 =========== =========== Weighted Average Common Shares Outstanding...... 4,840 4,829 =========== =========== Basic and Fully Diluted Earnings Per Average Common Share.................................. $ 1.55 $ 1.49 =========== =========== Dividends Per Common Share $ 1.17 $ 1.12 =========== =========== The accompanying notes are an integral part of these financial statements. 7 Page 7 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999 (UNAUDITED) (UNAUDITED) ----------- ----------- Balance at Beginning of Period $17,841 $15,923 Net Income Before Preferred Dividends 1,541 1,519 ----------- ----------- 19,382 17,442 ----------- ----------- Dividends Declared: Cumulative Preferred, Class A, $.20 per share 3 3 Cumulative Preferred, Series $.90, $.225 per share 6 6 Common Stock -- 2000 $.30 per share; 1999 $.28 per share 1,433 1,330 ----------- ----------- 1,442 1,339 ----------- ----------- Balance at End of Period $17,940 $16,103 =========== =========== CONSOLIDATED STATEMENTS OF RETAINED EARNINGS FOR THE TWELVE MONTHS ENDED MARCH 31, 2000 AND 1999 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999 (UNAUDITED) (UNAUDITED) ----------- ----------- Balance at Beginning of Period $16,103 $14,295 Net Income Before Preferred Dividends 7,516 7,262 ----------- ----------- 23,619 21,557 ----------- ----------- Dividends Declared: Cumulative Preferred, Class A, $.80 per share 12 12 Cumulative Preferred, Series $.90, $.90 per share 26 26 Common Stock -- 2000 $1.17 per share; 1999 $1.12 per share 5,641 5,416 ----------- ----------- 5,679 5,454 ----------- ----------- Balance at End of Period $17,940 $16,103 =========== =========== The accompanying notes are an integral part of these financial statements. 8 Page 8 Connecticut Water Service, Inc. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999 (IN THOUSANDS) 2000 1999 (UNAUDITED) (UNAUDITED) ----------- ----------- Operating Activities: Net Income Before Preferred Dividends $1,541 $1,519 ------ ------ Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation (including $30 in 2000, $31 in 1999 charged to other accounts) 1,171 1,130 Change in Assets and Liabilities: (Increase) Decrease in Accounts Receivable and Accrued Unbilled Revenues 555 833 (Increase) Decrease in Other Current Assets (1,005) (764) (Increase) Decrease in Other Non-Current Items 90 5 Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Current Liabilities (1,933) (1,564) Increase (Decrease) in Deferred Federal Income Taxes and Investment Tax Credits, Net 236 221 ------ ------ Total Adjustments (886) (139) ------ ------ Net Cash Provided by (Used for) Operating Activities 655 1,380 ------ ------ Investing Activities: Gross Additions to Utility Plant (including Allowance for Funds Used During Construction of $100 in 2000 and $119 in 1999) (249) (966) ------ ------ Financing Activities: Proceeds from Interim Bank Loans 3,401 3,724 Repayment of Interim Bank Loans (2,411) (1,895) Proceeds from Issuance of Common Stock 11 (90) Net Proceeds from Issuance of Long-Term Debt 0 0 Repayment of Long-Term Debt (53) (53) Advances, Contributions and Funds From Others for Construction, Net 102 335 Costs Incurred to Issue Long-Term Debt, Preferred Stock, and Common Stock 0 0 Cash Dividends Paid (1,442) (1,339) ------ ------ Net Cash Provided by (Used in) Financing Activities (392) 682 ------ ------ Net Increase (Decrease) in Cash 14 1,096 Cash at Beginning of Year 1,013 372 ------ ------ Cash at End of Period $1,027 $1,468 ====== ====== Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (Net of Amounts Capitalized) $1,026 $1,129 State and Federal Income Taxes $215 $300 The accompanying notes are an integral part of these financial statements. 9 Page 9 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements included herein have been prepared by CONNECTICUT WATER SERVICE, INC. (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for interim periods. Certain information and footnote disclosures have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. The results for interim periods are not necessarily indicative of results to be expected for the year since the consolidated earnings are subject to seasonal factors. 2. Earnings per average common share are calculated by dividing net income applicable to common stock by the average number of shares of common stock outstanding during the respective periods as detailed: 3 Months Ended 12 Months Ended --------------------------- ------------------------------------------- 3/31/00 3/31/99 3/31/00 3/31/99 12/31/99 --------- --------- --------- --------- --------- Common Shares Outstanding: January 1, 1999 -- -- -- -- 4,828,619 April 1, 1999 & 1998 respectively -- 4,838,424 4,827,583 -- January 1, 2000 & 1999 respectively 4,838,794 4,828,619 -- -- -- Common Shares Issued: To CSE - June 15, 1998 -- -- -- 95 -- To 401-K - June 30, 1998 -- -- -- 446 -- Liquidation of Fractional Shares -- -- -- (587) -- To CSE - September 15, 1998 -- -- -- 82 -- To 401-K - September 30, 1998 -- -- -- 528 -- To CSE - December 15, 1998 -- -- -- 81 -- To 401-K - December 31, 1998 -- -- -- 391 -- To PSP- March 1, 1999 -- 9,658 -- 9,658 9,658 To CSE - March 15, 1999 -- 147 -- 147 147 To CSE - June 15, 1999 -- -- 139 -- 139 To CSE - September 15, 1999 -- -- 125 -- 125 To CSE - December 15, 1999 -- -- 106 -- 106 To PSP - January 13, 2000 10,099 -- 5,029 -- -- To PSP - February 17, 2000 (5,070) -- 5,029 -- -- To CSE - March 15, 2000 145 -- 145 -- -- --------- --------- --------- --------- --------- Common Shares Outstanding: March 31, 2000 & 1999 respectively 4,843,968 4,838,424 4,843,968 4,838,424 ========== ========== ========== ========== December 31, 1999 4,838,794 ========== Weighted Average Common Shares Outstanding: Days outstanding basis* 4,845,137 4,831,972 4,840,031 4,828,938 4,836,951 ========== ========== ========== ========== ========== * Basic and Fully diluted are the same PSP = Performance Stock Program 401-K = Company contribution to employees' 401-K savings plan CSE = Common Stock Equivalents 10 Page 10 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES PART I, ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CORPORATE RESOURCES The Company has a total of $9,000,000 in lines of credit provided by three banks. The available lines of credit as of March 31, 2000 was $5,345,000. In addition to the $3,401,000 of interim borrowing against these lines of credit, an additional $254,000 has been allocated to secure a Letter of Credit for one of the Company's real estate development projects. RESULT OF OPERATIONS THE FOLLOWING FACTORS HAD A SIGNIFICANT EFFECT UPON THE COMPANY'S NET INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2000 AS COMPARED WITH THE NET INCOME FOR THE SAME PERIOD LAST YEAR. Net income applicable to common stock for the three months ended March 31, 2000 increased from that of March 31, 1999 by $22,000, or $.01 per average common share. The increase in net income resulted in part from a $278,000, or 2.9% increase in operating revenues. The higher revenues were primarily driven by customer growth. Partially offsetting the revenue increase were the normal increases in operating expenses. The largest contributing factor to the Company's 1.4% increase in Operation and Maintenance expense was a $81,000 increase in wage and salary expense due to the regular annual wage increase granted to all our employees on January 1, 2000. FORWARD LOOKING INFORMATION This report, including management's discussion and analysis, contains certain forward looking statements regarding the Company's results of operations and financial position. These forward looking statements are based on current information and expectations, and are subject to risks and uncertainties, which could cause the Company's actual results to differ materially from expected results. 11 Page 11 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES PART II, ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 28, 2000, at its annual meeting, the stockholders of Connecticut Water Service, Inc. elected the following directors for, a three year term until 2003: Number of Common Shares Cast --------------------------------------------------------- Abstentions Affirmative Negative and Non-Votes ----------- -------- ------------- Roger Engle 4,069,619 0 36,077 Lisa J. Thibdaue 4,061,588 0 44,108 Donald B. Wilbur 4,070,014 0 35,682 Preferred Series A stockholders cast 6,246 affirmative votes for each of the Directors listed above. There were no abstentions for each of the Directors listed above. Directors whose term of office continue until 2001 are Marcia L. Hincks, Marshall T. Chiaraluce, and Robert F. Neal. Directors whose term of office continue until 2002 are Harold E. Bigler, Mary Ann Hanley, and Ronald D. Lengyel. The other matter voted on at the annual meeting was the appointment of Arthur Andersen LLP as independent auditor. Number of Shares Cast -------------------------------------------------------- Abstentions Arthur Andersen LLP Affirmative Negative and Non-Votes - ------------------- ----------- -------- ------------- Common Stock 4,018,027 49,016 38,653 Preferred Series A Stock 6,021 100 125 12 Page 12 SIGNATURES PAGE Pursuant to the requirements 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. Connecticut Water Service, Inc. (Registrant) Date: May 10, 2000 By /s/ David C. Benoit ------------------- David C. Benoit Vice President - Finance Date: May 10, 2000 By: /s/ Peter J. Bancroft --------------------- Peter J. Bancroft Assistant Treasurer