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 June 30, 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. 4,844,133 Number of shares of common stock outstanding, June 30, 2000 2 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES Financial Report June 30, 2000 and 1999 TABLE OF CONTENTS PART I, ITEM 1: FINANCIAL STATEMENTS Consolidated Balance Sheets at June 30, 2000 and December 31, 1999 Page 3 Consolidated Statements of Capitalization at June 30, 2000 and December 31, 1999 Page 4 Consolidated Statements of Income for Three Months Ended June 30, 2000 and 1999 Page 5 Consolidated Statements of Income for Six Months Ended June 30, 2000 and 1999 Page 6 Consolidated Statements of Income for Twelve Months Ended June 30, 2000 and 1999 Page 7 Consolidated Statements of Retained Earnings for Three Months Ended June 30, 2000 and 1999 Page 8 Consolidated Statements of Retained Earnings for Six Months Ended June 30, 2000 and 1999 Page 8 Consolidated Statements of Retained Earnings for Twelve Months Ended June 30, 2000 and 1999 Page 8 Consolidated Statements of Cash Flows for Six Months Ended June 30, 2000 and 1999 Page 9 Notes to Consolidated Financial Statements Page 10 PART I, ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Page 11-12 Signature Page Page 13 3 Page 3 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT JUNE 30, 2000 AND DECEMBER 31, 1999 (IN THOUSANDS) JUNE 30, 2000 DEC. 31, ASSETS (UNAUDITED) 1999 - ------ ----------- ---- Utility Plant Utility Plant $ 243,022 $ 240,122 Construction Work in Progress 5,392 5,804 Utility Plant Acquisition Adjustments (1,256) (1,273) --------- --------- 247,158 244,653 Accumulated Provision for Depreciation (65,728) (63,311) --------- --------- Net Utility Plant 181,430 181,342 --------- --------- Investments 2,754 2,747 --------- --------- Current Assets Cash 40 1,013 Accounts Receivable (Less Allowance, 2000 - $194; 1999 - $455) 5,421 5,301 Accrued Unbilled Revenues 2,900 2,805 Materials and Supplies at Average Cost 798 761 Prepayments and Other Current Assets 155 237 --------- --------- Total Current Assets 9,314 10,117 --------- --------- Deferred Charges and Regulatory Assets Unamortized Debt Issuance Expense 5,612 5,722 Unrecovered Income Taxes 8,886 8,843 Postretirement Benefits Other Than Pension 1,083 1,083 Other Costs 1,128 1,031 --------- --------- Total Deferred Charges and Regulatory Assets 16,709 16,679 --------- --------- TOTAL ASSETS $ 210,207 $ 210,885 ========= ========= CAPITALIZATION AND LIABILITIES Capitalization (See accompanying statements) Common Stockholders' Equity $ 63,056 $ 62,495 Preferred Stock 772 772 Long-Term Debt 65,069 65,399 --------- --------- Total Capitalization 128,897 128,666 --------- --------- Current Liabilities Current Portion Long Term Debt 195 194 Interim Bank Loans Payable 2,431 2,411 Accounts Payable and Accrued Taxes and Interest 6,056 8,405 Other 2,953 2,864 --------- --------- Total Current Liabilities 11,635 13,874 --------- --------- Long-Term Liabilities Advances for Construction 16,869 15,994 Contributions in Aid of Construction 24,148 24,165 Deferred Federal Income Taxes 17,243 16,743 Unfunded Future Income Taxes 8,349 8,349 Unfunded Postretirement Benefits Other Than Pension 1,083 1,083 Unamortized Investment Tax Credits 1,983 2,011 Commitments and Contingencies --------- --------- Total Long-Term Liabilities 69,675 68,345 --------- --------- TOTAL CAPITALIZATION AND LIABILITIES $ 210,207 $ 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 JUNE 30, 2000 AND DECEMBER 31, 1999 (IN THOUSANDS, EXCEPT SHARE DATA) JUNE 30, 2000 DEC. 31, (UNAUDITED) 1999 ----------- ---- Common Stockholders' Equity Common Stock Without Par Value; Authorized - 7,500,000 Shares; Shares Issued and Outstanding: 2000 - 4,844,133; 1999 - 4,838,563 $ 46,083 $ 46,039 Stock Issuance Expense (1,385) (1,385) Retained Earnings 18,358 17,841 --------- --------- Total Common Stockholders' Equity 63,056 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 5.875% Series R, due 2022 14,745 14,800 6.65% Series S, due 2020 8,000 8,000 5.75% 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 --------- --------- 44,345 44,400 --------- --------- Unsecured Water Facilities Revenue Refinancing Bonds 5.05% 1998 Series A, due 2028 9,865 10,000 5.125% 1998 Series B, due 2028 7,965 8,000 --------- --------- 17,830 18,000 --------- --------- Other 5.5% Unsecured Promissory Note 84 103 --------- --------- Total Connecticut Water Company 62,259 62,503 --------- --------- Crystal Water Utilities Corporation 8.0% New London Trust, Due 2017 132 133 --------- --------- 132 133 --------- --------- Crystal Water Company of Danielson 7.82% Connecticut Development Authority, Due 2020 513 518 8.0% New London Trust, Due 2011 2,235 2,298 --------- --------- Total Crystal Water Company 2,748 2,816 --------- --------- Chester Realty 6% Note Payable Due 2006 125 141 --------- --------- 125 141 --------- --------- TOTAL CONNECTICUT WATER SERVICE, INC. 65,264 65,593 --------- --------- Less Current Portion of Long-Term Debt (195) (194) --------- --------- Total Long-Term Debt 65,069 65,399 --------- --------- TOTAL CAPITALIZATION $ 128,897 $ 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 JUNE 30, 2000 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 2000 1999 (UNAUDITED) (UNAUDITED) Operating Revenues $ 10,213 $ 10,233 -------- -------- Operating Expenses Operation and Maintenance 4,189 4,294 Depreciation 1,127 1,090 Federal and State Income Taxes 1,110 1,100 Other Taxes 1,015 1,009 -------- -------- Total Operating Expenses 7,441 7,493 -------- -------- Utility Operating Income 2,772 2,740 -------- -------- Other Income (Deductions) Interest 23 25 Allowance for Funds Used During Construction 104 113 Gain on Sale of Property 65 36 Non-Water Sales Earnings 75 82 Miscellaneous Income (Deductions) (17) (2) Taxes on Other Income (42) (33) -------- -------- Total Other Income (Deductions) 208 221 -------- -------- Interest and Debt Expense Interest on Long-Term Debt 984 991 Other Interest Charges 82 69 Amortization of Debt Expense 55 80 -------- -------- Total Interest and Debt Expense 1,121 1,140 -------- -------- Net Income Before Preferred Dividends 1,859 1,821 Preferred Stock Dividend Requirement 10 10 -------- -------- Net Income Applicable to Common Stockholders $ 1,849 $ 1,811 ======== ======== Weighted Average Common Shares Outstanding 4,844 4,838 ======== ======== Basic and Fully Diluted Earnings Per Average Common Share $ 0.38 $ 0.37 ======== ======== Dividends Per Common Share $ 0.30 $ 0.29 ======== ======== 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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 2000 1999 (UNAUDITED) (UNAUDITED) ----------- ----------- Operating Revenues $ 19,941 $ 19,683 -------- -------- Operating Expenses Operation and Maintenance 8,354 8,400 Depreciation 2,268 2,189 Federal and State Income Taxes 1,998 1,829 Other Taxes 2,102 2,071 -------- -------- Total Operating Expenses 14,722 14,489 -------- -------- Utility Operating Income 5,219 5,194 -------- -------- Other Income (Deductions) Interest 45 47 Allowance for Funds Used During Construction 204 232 Gain on Sale of Property 99 41 Non-Water Sales Earnings 153 132 Miscellaneous Income (Deductions) (20) (5) Taxes on Other Income (76) (50) -------- -------- Total Other Income (Deductions) 405 397 -------- -------- Interest and Debt Expense Interest on Long-Term Debt 1,969 1,978 Other Interest Charges 145 137 Amortization of Debt Expense 110 136 -------- -------- Total Interest and Debt Expense 2,224 2,251 -------- -------- Net Income Before Preferred Dividends 3,400 3,340 Preferred Stock Dividend Requirement 19 19 -------- -------- Net Income Applicable to Common Stockholders $ 3,381 $ 3,321 ======== ======== Weighted Average Common Shares Outstanding 4,845 4,835 ======== ======== Basic and Fully Diluted Earnings Per Average Common Share $ 0.70 $ 0.69 ======== ======== Dividends Per Common Share $ 0.59 $ 0.57 ======== ======== The accompanying notes are an integral part of these financial statements. 7 Page 7 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 (IN THOUSANDS, EXCEPT SHARE DATA) 2000 1999 (UNAUDITED) (UNAUDITED) Operating Revenues $ 42,882 $ 41,363 -------- -------- Operating Expenses Operation and Maintenance 17,783 17,331 Depreciation 4,469 4,312 Federal and State Income Taxes 5,177 4,471 Other Taxes 4,218 4,103 -------- -------- Total Operating Expenses 31,647 30,217 -------- -------- Utility Operating Income 11,235 11,146 -------- -------- Other Income (Deductions) Interest 150 138 Allowance for Funds Used During Construction 426 459 Gain on Sale of Property 219 309 Non-Water Sales Earnings 191 260 Miscellaneous Income (Deductions) (85) (35) Taxes on Other Income (83) (203) -------- -------- Total Other Income (Deductions) 818 928 -------- -------- Interest and Debt Expense Interest on Long-Term Debt 3,934 3,962 Other Interest Charges 345 320 Amortization of Debt Expense 220 247 -------- -------- Total Interest and Debt Expense 4,499 4,529 -------- -------- Net Income Before Preferred Dividend 7,554 7,545 Preferred Stock Dividend Requirement 38 38 -------- -------- Net Income Applicable to Common Stockholders $ 7,516 $ 7,507 ======== ======== Weighted Average Common Shares Outstanding 4,842 4,832 ======== ======== Basic and Fully Diluted Earnings Per Average Common Share $ 1.55 $ 1.55 ======== ======== Dividends Per Common Share $ 1.17 $ 1.13 ======== ======== The accompanying notes are an integral part of these financial statements. 8 Page 8 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (IN THOUSANDS, EXCEPT SHARE DATA) FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999 2000 1999 (UNAUDITED) (UNAUDITED) ----------- ----------- Balance at Beginning of Period $17,940 $16,103 Net Income 1,859 1,821 ----------- ----------- 19,799 17,924 ----------- ----------- Dividends Declared: Cumulative Preferred, Class A, $.20 per share 3 3 Cumulative Preferred, Series $.90, $.225 per share 6 6 Common Stock - 2000 $0.30 per share; 1999 $0.29 per share 1,432 1,418 ----------- ----------- 1,441 1,427 ----------- ----------- Balance at End of Period $18,358 $16,497 =========== =========== FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 Balance at Beginning of Period $17,841 $15,923 Net Income 3,400 3,340 ----------- ----------- 21,241 19,263 ----------- ----------- Dividends Declared: Cumulative Preferred, Class A, $.40 per share 6 6 Cumulative Preferred, Series $.90, $.45 per share 13 13 Common Stock - 2000 $0.59 per share; 1999 $0.57 per share 2,864 2,747 ----------- ----------- 2,883 2,766 ----------- ----------- Balance at End of Period $18,358 $16,497 =========== =========== FOR THE TWELVE MONTHS ENDED JUNE 30, 2000 AND 1999 Balance at Beginning of Period $16,497 $14,452 Net Income 7,554 7,545 ----------- ----------- 24,051 21,997 ----------- ----------- 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 $1.13 per share 5,655 5,462 ----------- ----------- 5,693 5,500 ----------- ----------- Balance at End of Period $18,358 $16,497 =========== =========== The accompanying notes are an integral part of these financial statements. 9 Page 9 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999 (IN THOUSANDS) 2000 1999 (UNAUDITED) (UNAUDITED) Operating Activities: Net Income Before Preferred Dividends $ 3,400 $ 3,340 ------- ------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation (including $75 in 2000, $61 in 1999 charged to other accounts) 2,343 2,251 Change in Assets and Liabilities: (Increase) Decrease in Accounts Receivable and Accrued Unbilled Revenues (215) 309 (Increase) Decrease in Other Current Assets 45 9 (Increase) Decrease in Other Non-Current Items (37) (144) Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Current Liabilities (2,260) (1,822) Increase (Decrease) in Deferred Federal Income Taxes and Investment Tax Credits, Net 472 455 ------- ------- Total Adjustments 348 1,058 ------- ------- Net Cash Provided by (Used for) Operating Activities 3,748 4,398 ------- ------- Investing Activities: Gross Additions to Utility Plant (including Allowance for Funds Used During Construction of $204 in 2000 and $232 in 1999) (2,431) (3,250) ------- ------- Financing Activities: Proceeds from Interim Bank Loans 2,431 4,546 Repayment of Interim Bank Loans (2,411) (1,895) Proceeds from Issuance of Common Stock 44 79 Repayment of Long-Term Debt (329) (362) Advances, Contributions and Funds From Others for Construction, Net 858 317 Cash Dividends Paid (2,883) (2,766) ------- ------- Net Cash Provided by (Used for) Financing Activities (2,290) (81) ------- ------- Net Increase (Decrease) in Cash (973) 1,067 Cash at Beginning of Year 1,013 372 ------- ------- $ 40 $ 1,439 ======= ======= Cash at End of Period Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (Net of Amounts Capitalized) $ 2,368 $ 2,243 Income Taxes $ 2,075 $ 1,770 The accompanying notes are an integral part of these financial statements. 10 Page 10 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 below: 3 Months Ended 12 Months Ended -------------- --------------- 6/30/00 6/30/99 6/30/00 6/30/99 12/31/99 ------- ------- ------- ------- -------- Common Shares Outstanding: January 1, 1999 -- -- -- -- 4,828,619 July 1, 1999 & 1998 respectively -- -- 4,838,563 4,828,124 -- April 1, 2000 & 1999 respectively 4,843,968 4,838,424 -- -- -- Common Shares Issued: Liquidation of Fractional Shares -- -- -- (587) -- To CSE - September 15, 1998 -- -- -- 82 -- To 401K - September 30, 1998 -- -- -- 528 -- To CSE - December 15, 1998 -- -- -- 81 -- To 401K - December 31, 1998 -- -- -- 391 -- To PSP - March 1, 1999 -- -- -- 9,658 9,658 To CSE - March 15, 1999 -- -- -- 147 147 To CSE - June 15, 1999 -- 139 -- 139 139 To CSE - September 15, 1999 -- -- 125 -- 125 To CSE - December 15, 1999 -- -- 106 -- 106 To PSP - January 13, 2000 -- -- 10,099 -- -- To PSP - February 17, 2000 -- -- (5,070) -- -- To CSE - March 15, 2000 -- -- 145 -- -- To CSE - June 15, 2000 165 -- 165 -- -- --------- --------- --------- --------- --------- Common Shares Outstanding: June 30, 2000 & 1999 respectively 4,844,133 4,838,563 4,844,133 4,838,563 ========= ========= ========= ========= December 31, 1999 4,838,794 ========= Weighted Average Common Shares Outstanding: Days outstanding basis* 4,843,997 4,838,448 4,841,590 4,831,641 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 11 Page 11 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 two banks. The available lines of credit as of June 30, 2000 was $6,314,582. In addition to the $2,431,418 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 JUNE 30, 2000 AS COMPARED TO THE NET INCOME FOR THE SAME PERIOD LAST YEAR. Net income applicable to common stock for the three months ended June 30, 2000 increased from that of June 30, 1999 by $38,000, or $.01, per average common share. The increase in net income resulted from a $32,000 increase in operating income and a $19,000 decrease in interest and debt expense, partially offset by a $13,000 decrease in other income. The increase in operating income is primarily due to a $52,000 reduction in operating expenses partially offset by a $20,000 reduction in operating revenues. The decrease in operating expenses is primarily due to our cost containment efforts in operation and maintenance expense. The revenue decline is primarily due to the hot, dry weather last year which caused last year's operating revenues to be unusually high. The decrease in interest and debt expense is primarily due to the write-off of unamortized debt expense related to the early redemption of Gallup Water Service's long term debt that occurred when we acquired this company in April 1999. The decrease in other income is primarily due to a gain on property sales during 2000 being offset by a decrease in the Allowance for Funds Used During Construction and slightly lower Non-water Sales Earnings due to the startup costs related to new non-utility services the Company is beginning to offer. THE FOLLOWING FACTORS HAD A SIGNIFICANT EFFECT UPON THE COMPANY'S NET INCOME FOR THE SIX MONTHS ENDED JUNE 30, 2000 AS COMPARED TO THE NET INCOME FOR THE SAME PERIOD LAST YEAR. Net income applicable to common stock for the six months ended June 30, 2000 increased from that of June 30, 1999 by 60,000 or $.01, per average common share. The increase in net income resulted from a $25,000 increase in operating income, a $8,000 increase in other income and a $27,000 decrease in interest and debt expense. The increase in operating income is primarily due to a decrease in operation and maintenance expenses as a result of our cost containment efforts. The increase in other income is primarily due to increases in real estate sales and non-water sales earnings in 2000 as compared to 1999. 12 Page 12 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES The decrease in interest and debt expense is primarily due to the write-off of unamortized debt expense related to the early redemption of Gallup Water Service's long term debt that occurred when we acquired this company in April 1999. 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. 13 Page 13 SIGNATURES 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: August 8, 2000 By /s/ David C. Benoit ------------------------------- David C. Benoit Vice President - Finance Date: August 8, 2000 By: /s/ Peter J. Bancroft ------------------------------- Peter J. Bancroft Assistant Treasurer