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 September 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. 4,844,275 Number of shares of common stock outstanding, September 30, 2000 2 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES Financial Report September 30, 2000 and 1999 TABLE OF CONTENTS PART I, ITEM 1: FINANCIAL STATEMENTS Consolidated Balance Sheets at September 30, 2000 and December 31, 1999 Page 3 Consolidated Statements of Capitalization at September 30, 2000 and December 31, 1999 Page 4 Consolidated Statements of Income for Three Months Ended September 30, 2000 and 1999 Page 5 Consolidated Statements of Income for Nine Months Ended September 30, 2000 and 1999 Page 6 Consolidated Statements of Income for Twelve Months Ended September 30, 2000 and 1999 Page 7 Consolidated Statements of Retained Earnings for Three Months Ended September 30, 2000 and 1999 Page 8 Consolidated Statements of Retained Earnings for Nine Months Ended September 30, 2000 and 1999 Page 8 Consolidated Statements of Retained Earnings for Twelve Months Ended September 30, 2000 and 1999 Page 8 Consolidated Statements of Cash Flows for Nine Months Ended September 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 11-13 Signature Page Page 14 3 Page 3 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS At September 30, 2000 and December 31, 1999 (In thousands) SEPTEMBER 30, 2000 DEC. 31, (UNAUDITED) 1999 --------- --------- ASSETS Utility Plant Utility Plant $ 244,701 $ 240,122 Construction Work in Progress 6,400 5,804 Utility Plant Acquisition Adjustments (1,256) (1,273) --------- --------- 249,845 244,653 Accumulated Provision for Depreciation (66,811) (63,311) --------- --------- Net Utility Plant 183,034 181,342 --------- --------- Investments 2,771 2,747 --------- --------- Current Assets Cash 57 1,013 Accounts Receivable (Less Allowance, 2000- $160; 1999 - $455) 5,601 5,301 Accrued Unbilled Revenues 3,264 2,805 Materials and Supplies at Average Cost 825 761 Prepayments and Other Current Assets 875 237 --------- --------- Total Current Assets 10,622 10,117 --------- --------- Deferred Charges and Regulatory Assets Unamortized Debt Issuance Expense 5,557 5,722 Unrecovered Income Taxes 8,907 8,843 Postretirement Benefits Other Than Pension 1,083 1,083 Other Costs 1,075 1,031 --------- --------- Total Deferred Charges and Regulatory Assets 16,622 16,679 --------- --------- TOTAL ASSETS $ 213,049 $ 210,885 ========= ========= CAPITALIZATION AND LIABILITIES Capitalization (See accompanying statements) Common Stockholders' Equity $ 64,396 $ 62,495 Preferred Stock 772 772 Long-Term Debt 64,825 65,399 --------- --------- Total Capitalization 129,993 128,666 --------- --------- Current Liabilities Current Portion Long Term Debt 194 194 Interim Bank Loans Payable 1,931 2,411 Accounts Payable and Accrued Taxes and Interest 7,726 8,405 Other 3,043 2,864 --------- --------- Total Current Liabilities 12,894 13,874 --------- --------- Long-Term Liabilities Advances for Construction 17,093 15,994 Contributions in Aid of Construction 24,415 24,165 Deferred Federal Income Taxes 17,253 16,743 Unfunded Future Income Taxes 8,349 8,349 Unfunded Postretirement Benefits Other Than Pension 1,083 1,083 Unamortized Investment Tax Credits 1,969 2,011 Commitments and Contingencies --------- --------- Total Long-Term Liabilities 70,162 68,345 --------- --------- TOTAL CAPITALIZATION AND LIABILITIES $ 213,049 $ 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 September 30, 2000 and December 31, 1999 (In thousands, except share data) SEPTEMBER 30, 2000 DEC. 31, (UNAUDITED) 1999 --------- --------- Common Stockholders' Equity Common Stock Without Par Value; Authorized - 7,500,000 Shares; Shares Issued and Outstanding: 2000 - 4,844,275; 1999 - 4,838,688 $ 46,194 $ 46,039 Stock Issuance Expense (1,385) (1,385) Retained Earnings 19,587 17,841 --------- --------- Total Common Stockholders' Equity 64,396 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 14,715 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 --------- --------- 44,315 44,400 --------- --------- Unsecured Water Facilities Revenue Refinancing Bonds 5.05% 1998 Series A, due 2028 9,780 10,000 5.125% 1998 Series B, due 2028 7,880 8,000 --------- --------- 17,660 18,000 --------- --------- Other 5.5% Unsecured Promissory Note 76 103 --------- --------- Total Connecticut Water Company 62,051 62,503 --------- --------- Crystal Water Utilities Corporation 8.0% New London Trust, Due 2017 131 133 --------- --------- 131 133 --------- --------- Crystal Water Company of Danielson 7.82% Connecticut Development Authority, Due 2020 510 518 8.0% New London Trust, Due 2011 2,203 2,298 --------- --------- Total Crystal Water Company 2,713 2,816 --------- --------- Chester Realty 6% Note Payable Due 2006 124 141 --------- --------- 124 141 --------- --------- TOTAL CONNECTICUT WATER SERVICE, INC. 65,019 65,593 --------- --------- Less Current Portion of Long-Term Debt (194) (194) --------- --------- Total Long-Term Debt 64,825 65,399 --------- --------- TOTAL CAPITALIZATION $ 129,993 $ 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 September 30, 2000 and 1999 (In thousands, except share data) 2000 1999 (UNAUDITED) (UNAUDITED) -------- -------- Operating Revenues $ 11,532 $ 12,892 -------- -------- Operating Expenses Operation and Maintenance 3,965 4,681 Depreciation 1,133 1,133 Federal and State Income Taxes 1,607 2,222 Other Taxes 1,182 1,093 -------- -------- Total Operating Expenses 7,887 9,129 -------- -------- Utility Operating Income 3,645 3,763 -------- -------- Other Income (Deductions) Interest 22 15 Allowance for Funds Used During Construction 118 84 Gain on Sale of Property 0 53 Non-Water Sales Earnings 104 0 Miscellaneous Income (Deductions) (8) (8) Taxes on Other Income (37) (14) -------- -------- Total Other Income (Deductions) 199 130 -------- -------- Interest and Debt Expense Interest on Long-Term Debt 980 984 Other Interest Charges 122 128 Amortization of Debt Expense 55 55 -------- -------- Total Interest and Debt Expense 1,157 1,167 -------- -------- Net Income Before Preferred Dividends 2,687 2,726 Preferred Stock Dividend Requirement 10 10 -------- -------- Net Income Applicable to Common Stockholders $ 2,677 $ 2,716 ======== ======== Weighted Average Common Shares Outstanding: Basic 4,844 4,839 Diluted 4,865 4,858 -------- -------- Earnings Per Average Common Share: Basic $ 0.55 $ 0.56 Diluted $ 0.55 $ 0.56 -------- -------- 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 Nine Months Ended September 30, 2000 and 1999 (In thousands, except share data) 2000 1999 (UNAUDITED) (UNAUDITED) -------- -------- Operating Revenues $ 31,473 $ 32,575 -------- -------- Operating Expenses Operation and Maintenance 12,319 13,096 Depreciation 3,401 3,322 Federal and State Income Taxes 3,605 4,051 Other Taxes 3,284 3,164 -------- -------- Total Operating Expenses 22,609 23,633 -------- -------- Utility Operating Income 8,864 8,942 -------- -------- Other Income (Deductions) Interest 67 77 Allowance for Funds Used During Construction 322 316 Gain on Sale of Property 99 94 Non-Water Sales Earnings 257 132 Miscellaneous Income (Deductions) (28) (13) Taxes on Other Income (113) (64) -------- -------- Total Other Income (Deductions) 604 542 -------- -------- Interest and Debt Expense Interest on Long-Term Debt 2,949 2,962 Other Interest Charges 267 265 Amortization of Debt Expense 165 191 -------- -------- Total Interest and Debt Expense 3,381 3,418 -------- -------- Net Income Before Preferred Dividends 6,087 6,066 Preferred Stock Dividend Requirement 29 29 -------- -------- Net Income Applicable to Common Stockholders $ 6,058 $ 6,037 ======== ======== Weighted Average Common Shares Outstanding: Basic 4,844 4,836 Diluted 4,858 4,836 -------- -------- Earnings Per Average Common Share Basic $ 1.25 $ 1.25 Diluted $ 1.25 $ 1.25 -------- -------- Dividends Per Common Share $ 0.89 $ 0.85 ======== ======== 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 September 30, 2000 and 1999 (In thousands, except share data) 2000 1999 (UNAUDITED) (UNAUDITED) -------- -------- Operating Revenues $ 41,522 $ 42,235 -------- -------- Operating Expenses Operation and Maintenance 17,053 17,537 Depreciation 4,469 4,440 Federal and State Income Taxes 4,562 4,772 Other Taxes 4,305 4,190 -------- -------- Total Operating Expenses 30,389 30,939 -------- -------- Utility Operating Income 11,133 11,296 -------- -------- Other Income (Deductions) Interest 142 129 Allowance for Funds Used During Construction 460 435 Gain on Sale of Property 166 316 Non-Water Sales Earnings 295 253 Miscellaneous Income (Deductions) (85) (27) Taxes on Other Income (105) (202) -------- -------- Total Other Income (Deductions) 873 904 -------- -------- Interest and Debt Expense Interest on Long-Term Debt 3,931 3,953 Other Interest Charges 339 394 Amortization of Debt Expense 219 247 -------- -------- Total Interest and Debt Expense 4,489 4,594 -------- -------- Net Income Before Preferred Dividend 7,517 7,606 Preferred Stock Dividend Requirement 38 38 -------- -------- Net Income Applicable to Common Stockholders $ 7,479 $ 7,568 ======== ======== Weighted Average Common Shares Outstanding: Basic 4,843 4,834 Diluted 4,858 4,834 -------- -------- Earnings Per Average Common Share: Basic $ 1.54 $ 1.57 Diluted $ 1.54 $ 1.57 -------- -------- Dividends Per Common Share $ 1.19 $ 1.14 ======== ======== 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) 2000 1999 (UNAUDITED) (UNAUDITED) ------- ------- FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Balance at Beginning of Period $18,358 $16,569 Net Income 2,687 2,726 ------- ------- 21,045 19,295 ------- ------- Dividends Declared: Cumulative Preferred, Class A, $.20 per share 3 3 Cumulative Preferred, Series $.90, $.225 per share 7 7 Common Stock - 2000 $0.30 per share; 1999 $0.28 per share 1,448 1,432 ------- ------- 1,458 1,442 ------- ------- Balance at End of Period $19,587 $17,853 ======= ======= FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Balance at Beginning of Period $17,841 $15,923 Net Income 6,087 6,066 ------- ------- 23,928 21,989 ------- ------- Dividends Declared: Cumulative Preferred, Class A, $.60 per share 9 9 Cumulative Preferred, Series $.90, $.675 per share 20 20 Common Stock - 2000 $0.89 per share; 1999 $0.85 per share 4,312 4,107 ------- ------- 4,341 4,136 ------- ------- Balance at End of Period $19,587 $17,853 ======= ======= FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 Balance at Beginning of Period $17,853 $15,781 Net Income 7,517 7,606 ------- ------- 25,370 23,387 ------- ------- Dividends Declared: Cumulative Preferred, Class A, $.80 per share 12 12 Cumulative Preferred, Series $.90, $.90 per share 26 26 Common Stock - 2000 $1.19 per share; 1999 $1.14 per share 5,745 5,496 ------- ------- 5,783 5,534 ------- ------- Balance at End of Period $19,587 $17,853 ======= ======= 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 Nine Months Ended September 30, 2000 and 1999 (In thousands) 2000 1999 (UNAUDITED) (UNAUDITED) ------- ------- Operating Activities: Net Income Before Preferred Dividends $ 6,087 $ 6,066 ------- ------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation (including $112 in 2000, $93 in 1999 charged to other accounts) 3,513 3,415 Change in Assets and Liabilities: (Increase) Decrease in Accounts Receivable and Accrued Unbilled Revenues (759) (1,736) (Increase) Decrease in Other Current Assets (702) (778) (Increase) Decrease in Other Non-Current Items 33 99 Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Current Liabilities (500) (513) Increase (Decrease) in Deferred Federal Income Taxes and Investment Tax Credits, Net 468 441 ------- ------- Total Adjustments 2,053 928 ------- ------- Net Cash Provided by (Used for) Operating Activities 8,140 6,994 ------- ------- Investing Activities: Gross Additions to Utility Plant (including Allowance for Funds Used During Construction of $322 in 2000 and $316 in 1999) (5,214) (6,156) ------- ------- Financing Activities: Proceeds from Interim Bank Loans 1,931 5,410 Repayment of Interim Bank Loans (2,411) (1,895) Proceeds from Issuance of Common Stock 155 182 Repayment of Long-Term Debt (574) (384) Advances, Contributions and Funds From Others for Construction, Net 1,358 1,585 Costs Incurred to Issue Long-Term Debt, Preferred Stock, and Common Stock 0 (36) Cash Dividends Paid (4,341) (4,136) ------- ------- Net Cash Provided by (Used for) Financing Activities (3,882) 726 ------- ------- Net Increase (Decrease) in Cash (956) 1,564 Cash at Beginning of Year 1,013 372 ------- ------- Cash at End of Period $ 57 $ 1,936 ======= ======= Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (Net of Amounts Capitalized) $ 3,460 $ 2,912 Income Taxes $ 2,740 $ 2,723 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. AND SUBSIDIARIES (Connecticut Water or 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 or 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: CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 3 Months Ended 12 Months Ended ------------------------ -------------------------------------- 9/30/00 9/30/99 9/30/00 9/30/99 12/31/99 ---------- ---------- ---------- ---------- ---------- Common Shares Outstanding: January 1, 1999 -- -- -- -- 4,828,619 October 1, 1999 & 1998 respectively -- 4,838,688 4,828,147 -- July 1, 2000 & 1999 respectively 4,844,133 4,838,563 -- -- -- Common Shares Issued: To CSE - December 15, 1998 -- -- -- 81 -- To 401-K - 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 To CSE - September 15, 1999 -- 125 -- 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 -- -- To CSE - September 15, 2000 142 -- 142 -- -- --------- --------- --------- --------- --------- Common Shares Outstanding: September 30, 2000 & 1999 respectively 4,844,275 4,838,688 4,844,275 4,838,688 ========= ========= ========= ========= December 31, 1999 4,838,794 ========= Weighted Average Common Shares Outstanding: Days outstanding basis Basic 4,844,158 4,838,585 4,842,991 4,834,294 4,836,951 ========= ========= ========= ========= ========= Fully Diluted 4,865,469 4,857,943 4,858,360 4,838,780 4,839,210 ========= ========= ========= ========= ========= 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 LAND DONATIONS On October 2, 2000 the Connecticut Department of Utility Control approved The Connecticut Water Company's request to donate 134 acres of land to the Town of Middlebury, Connecticut and 104 acres of land to the Borough of Naugatuck. The land to be donated has a total fair market value of $2,675,000. Primarily, as a result of recent Connecticut tax legislation granting tax credits for the donation of land for open space purposes, these donations will result in an after tax gain of approximately $1,500,000. The Company expects that the donations will be made in two phases, the Naugatuck donation in the 4th quarter of 2000 and the Middlebury donation in the 1st quarter of 2001. ACQUISITION In November 2000, the Company acquired Pugliese Construction Co. a.k.a. Howie's Water Company ("Howie's Water") in a stock for stock transaction. Howie's Water is based in Burlington, Connecticut and is the state's largest provider of emergency drinking water and pool water via tanker truck. The acquisition of Howie's Water is a key component of the Company's continuing efforts to be a full service provider for all drinking water needs throughout the state. HOWIE'S WATER On November 9, 2000, the Company issued 8,237 shares of its common stock in exchange for all the outstanding common stock of Howie's Water. The acquired company was renamed Connecticut Water Emergency Services, Inc. at the time of the merger. The merger qualifies as a tax-free reorganization and will be accounted for as a pooling-of-interests. These financial statements as of September 30, 2000 have not been restated for this transaction. Condensed Statements of Income and Condensed Balance Sheets of Connecticut Water Emergency Services, Inc. are as follows: 12 Page 12 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES Connecticut Water Emergency Services, Inc. (a.k.a. Howie's Water Company) Condensed Statements of Income (In thousands, except share amounts) Unaudited --------- Twelve Months Ended December 31, 1999 1998 ---- ---- Operating Revenues $ 492 $ 258 Net Income Applicable to Common Shareholders $ 33 $ 23 CWS Common Stock Shares Issued relating to acquisition 8,237 8,237 Earnings Per Share on CWS Shares Issued relating to acquisition $4.01 $2.79 Connecticut Water Emergency Services, Inc. (a.k.a. Howie's Water Company) Condensed Balance Sheets (In thousands) Unaudited --------- December 31, 1999 1998 ---- ---- ASSETS Current Assets $ 139 $ 83 Net Fixed Assets 3 3 Other Assets 3 3 ----- ----- Total Assets $ 145 $ 89 ===== ===== CAPITALIZATION AND LIABILITIES Shareholders' Equity $ 80 $ 47 Current Liabilities 65 42 ----- ----- Total Capitalization and Liabilities $ 145 $ 89 ===== ===== LIQUIDITY AND CORPORATE RESOURCES At September 30, 2000 the Company had $7,069,000 of unused lines of interim bank loan credit available. At September 30, 2000 there were no Letters of Credit being secured by the lines of credit. 13 Page 13 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES RESULT OF OPERATIONS THE FOLLOWING FACTORS HAD A SIGNIFICANT EFFECT UPON THE COMPANY'S NET INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED WITH THE NET INCOME FOR THE SAME PERIOD LAST YEAR. Net income applicable to common stock for the three months ended September 30, 2000 decreased from that of September 30, 1999 by $39,000, or $.01, per average common share. The decrease in net income resulted from a $118,000 decrease in operating income, partially offset by a $69,000 increase in other income and a $10,000 decrease in interest and debt expense. The decrease in operating income is due to a $1,360,000 decrease in operating revenues, partially offset by a $1,242,000 decrease in operating expenses. The revenue decline is primarily due to the hot, dry weather last year which caused last year's operating revenue to be unusually high. The decrease in operating expense is primarily due to our cost containment efforts in operation and maintenance expense. The increase in other income is primarily due to an increase in the Allowance for Funds Used During Construction and an increase in Non-water Sales Earnings. THE FOLLOWING FACTORS HAD A SIGNIFICANT EFFECT UPON THE COMPANY'S NET INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AS COMPARED WITH THE NET INCOME FOR THE SAME PERIOD LAST YEAR. Net income applicable to common stock for the nine months ended September 30, 2000 increased from that of September 30, 1999 by $21,000. The increase in net income resulted from a $62,000 increase in other income and a $37,000 decrease in interest and debt expense partially offset by a $78,000 decrease in operating income. The increase in other income is primarily due to increases in non-water sales earnings in 2000 as compared to 1999. 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 operating income is primarily due to a $1,102,000 reduction in operating revenues partially offset by a $1,024,000 reduction in operating expenses. The reasons for the decline in operating income are the same as stated above in the three month narrative. 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. 14 Page 14 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: November 9, 2000 By /s/ David C. Benoit -- ---------------------- David C. Benoit Vice President - Finance Date: November 9, 2000 By: /s/ Peter J. Bancroft --- ---------------------- Peter J. Bancroft Assistant Treasurer