1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(X) Annual Report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the fiscal year ended
DECEMBER 31, 1996 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
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (860) 669-8636 Securities
registered pursuant to Section 12 (b) of the Act:
Title of each Class Name of each exchange on which registered
NONE NOT APPLICABLE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK
(Title of Class)
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 twelve (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 X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229,405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )
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The aggregate market value of the registrant's voting Common Stock,
computed on the price of such stock at the close of business on February 28,
1997 is $87,376,000.
3,012,981
Number of shares of Common Stock outstanding, February 28, 1997
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Into Which
Document Document is Incorporated
-------- ------------------------
Definitive Proxy Statement, dated Part III
March 19, 1997, for Annual Meeting of
Shareholders to be held on April 25, 1997.
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PART I
ITEM 1. BUSINESS
a. GENERAL DEVELOPMENT OF BUSINESS
The Registrant, Connecticut Water Service, Inc. (the Company), is the
parent company of The Connecticut Water Company (CWC) which supplies water for
residential, commercial, industrial and municipal purposes in various areas in
the State of Connecticut through three operating regions. The Company and CWC
represent the second largest investor-owned water system in Connecticut in terms
of operating revenue and utility plant investment.
The Company was organized in 1956 under the General Statutes of
Connecticut as Suburban Water Service, Inc. and has been engaged in the business
of acquiring and operating water companies through controlling stock ownership.
In addition to operating its core business, CWC offers related services on a
contract basis to other water utilities, communities, and businesses. These
services range from one-time contracts for a particular service to long-term
assignments for system operations and management. In 1975, the Company changed
its name to Connecticut Water Service, Inc. after acquiring all of the
outstanding Common Stock of CWC. CWC's First Mortgage Bonds are held primarily
by institutional investors. The Company is a non-operating company whose income
is derived from the earnings on the Common Stock of CWC.
The profitability of the operations of the water utility industry
generally and of CWC (and hence the Company) is largely dependent on the
timeliness and adequacy of the rates allowed by utility regulatory commissions.
In addition, profitability is dependent on numerous factors over which CWC has
little or no control, such as the quantity of rainfall and temperature in a
given period of time, industrial demand, prevailing rates of interest for short
and long-term borrowings, energy rates, and compliance with environmental and
water quality regulations. In addition, inflation and other factors beyond the
Company's or CWC's control impact the cost of construction, materials and
employee costs. See "Business - Financing", "Business - Rates", and "Business
- -Regulation".
b. GENERAL DESCRIPTION OF BUSINESS
The Company, a Connecticut corporation, owns all of the outstanding
Common Stock of CWC. Substantially all of the Company's revenues and net income
are attributable to the sale and distribution of water by the operating regions
of CWC. See "Business - Consolidated Operating Statistics".
CWC is specially chartered by the General Assembly of the State of
Connecticut as a public service company, and the rates and operations of CWC are
regulated by the Connecticut Department of Public Utility Control (DPUC). The
Company is specifically prohibited from engaging in business or activities which
are not regulated by the DPUC. See "Business - Rates" and "Business Regulation".
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CWC has one subsidiary organized in 1969 to assist in the acquisition
of real estate. The assets and operations of this subsidiary are not
significant.
CWC supplies water and, in most instances, provides fire protection
through three separate operating regions in all or portions of 32 towns in
Connecticut. The service areas have an estimated total population of
approximately 216,000 based on DPUC population estimates of 3.5 people per
average household. During the twelve months ended December 31, 1996,
approximately 64% of the Company's consolidated operating revenues were received
from residential customers, 12% from commercial customers, 5% from industrial
customers, 3% from public authority customers, and 16% from public fire
protection and other customers.
Each of the operating regions serves a separate franchise area. Rates
are the same for all regions. The systems of the three operating regions are not
physically interconnected.
The following table sets forth the percentage of the Company's utility
plant in service at each of CWC's operating regions as of December 31, 1996:
Utility Plant
Regions Dollars Percent
------- ------- -------
Northern $89,268,000 46%
Shoreline 54,655,000 28%
Naugatuck 49,124,000 26%
------------ ----
$193,047,000 100%
============ ====
At December 31, 1996, 61,813 customers were served by CWC. At that
date, all customers were metered except fire protection customers and 380
customers of the Sound View Water System, acquired in 1995. The Company requires
all applicants for new service, other than fire protection, to be metered.
The Company's principal office is located at 93 West Main Street,
Clinton, Connecticut 06413 and its telephone number is 860-669-8636.
The business of CWC is subject to seasonal fluctuations. The demand for
water during the warmer months is generally greater than during the cooler
months due primarily to additional requirements for water in connection with
cooling systems, private and public swimming pools and lawn sprinklers.
Throughout the year, and particularly during the warmer months, demand will vary
with rainfall and temperature levels.
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WATER SUPPLY
The estimated minimum dependable yields of sources of water supply for
each of the operating regions' transmission and distribution systems, as set
forth under "Business - CWC Production Facilities as of December 31, 1996" are
in excess of present average daily consumption. Except for requests for
voluntary conservation in the summers of 1988 and, in the Shoreline Region only,
1995, no restrictions on water use have been required in over 25 years.
Water is secured from both surface and subsurface supplies and supplied
through interconnections with other water systems. In 1996, surface sources
provided approximately 57% of the supply, well supplies provided approximately
41%, and interconnections with other systems supplied 2%. Studies are made
periodically to determine the supply and distribution needs of the regions. A
major study, covering a fifty year planning period required of all water
companies supplying 1,000 or more persons, was completed in 1987 and submitted
to the Connecticut Department of Public Health (DPH) for approval. An updated
plan must be prepared every five years or as requested by the DPH. Updated plans
for each of CWC's water systems have been prepared and approved by DPH.
See "Business - Construction Program", "Business - Rates" and "Business
- - Regulation".
OPERATING REGIONS
NORTHERN
The Northern Region is composed of eight separate systems, not
interconnected, as listed below:
Number of
Customers
System Towns (or Portions Thereof) Served at 12/31/96
------ ---------------------------------- -----------
Western (including Suffield, Windsor Locks, East
the former Tolland Granby, Enfield, East Windsor, South
Aqueduct System) Windsor, Vernon, Ellington, Tolland 28,471
Somers Somers 411
Crescent Lake Enfield 158
Stafford Springs Stafford 1,034
Lakewood/Lakeview Coventry 179
Nathan Hale Coventry 39
Llynwood Bolton, Vernon 76
Reservoir Heights Vernon 22
------
30,390
======
The territory served is primarily residential and commercial with some
industry.
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CWC has entered into an agreement with the State of Connecticut,
Department of Transportation, pursuant to which CWC operates and maintains, as
part of its Western System, the State's water distribution system for Bradley
International Airport located in Windsor Locks, Suffield and East Granby,
Connecticut.
The Western System has three emergency standby interconnections with
the water system of the Metropolitan District Commission (MDC) (a public water
and sewer authority presently serving the City of Hartford and portions of
surrounding towns), one in South Windsor and two in Windsor Locks. The Western
System also has an emergency interconnection with the water system of the
Hazardville Water Company in Enfield. During 1995 an interconnection was
completed between the Somers System and the water system of the Hazardville
Water Company in Somers to provide water to the Hazardville Water Company.
See "Business - Franchises" with respect to proposals that the MDC
expand its operations into the Northern Region and that MDC take over CWC's
operations in South Windsor.
SHORELINE
The Shoreline Region is composed of four separate systems, not
interconnected, as listed below:
Number of
Customers
System Towns (or Portions Thereof) Served at 12/31/96
------ ---------------------------------- -----------
Guilford Guilford, Old Saybrook, Westbrook,
Clinton, Madison 15,665
Chester Chester, Deep River, Essex 2,315
Chester Village West Chester 11
Sound View Old Lyme 380
------
18,371
======
The territory served is primarily residential with some commercial and
industry. In 1996 CWC successfully negotiated the purchase of three small water
companies, all in southeastern Connecticut. CWC expects these acquisitions to be
approved by the DPUC in 1997. These systems will increase revenue approximately
$200,000 and increase the customer base by 525.
NAUGATUCK
The Naugatuck Region is composed of four separate systems, not
interconnected, as listed below:
Number of
Customers
System Towns (or Portions Thereof) Served at 12/31/96
------ ---------------------------------- -----------
Central Naugatuck, City of Waterbury, Beacon
Falls, Bethany, Prospect 8,688
Terryville Plymouth, Thomaston 1,950
Thomaston Thomaston 1,186
Collinsville Canton, Avon, Burlington 1,228
------
13,052
======
The territory served is residential and industrial including a
municipality which represented approximately 7.4% of the region's 1996 revenues.
Water for the Collinsville System is supplied under an agreement with
the MDC from treatment facilities drawing from a large surface water reservoir
owned by the MDC. See "Item 2. Properties" for a description of this agreement.
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Consolidated Operating Statistics
Year Ended December 31,
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Customers (Average)
Residential Metered 55,784 55,107 54,464 53,988 53,509
Commercial Metered 3,953 3,906 3,827 3,797 3,790
Industrial Metered 365 368 364 366 323
Public Authorities Metered 472 470 467 466 429
Fire Protection and Other 1,023 993 960 941 915
------- ------- ------- ------- -------
Total 61,597 60,844 60,082 59,558 58,966
======= ======= ======= ======= =======
Production (Millions of Gallons)
Residential Metered Sales 3,862 3,988 3,874 3,915 3,734
Commercial Metered Sales 904 934 908 918 921
Industrial Metered Sales 441 446 460 438 507
Public Authorities Metered Sales 220 227 179 179 169
------- ------- ------- ------- -------
Total Metered Consumption 5,427 5,595 5,421 5,450 5,331
Fire Protection, Company Use
and Unaccounted For 612 777 808 756 692
------- ------- ------- ------- -------
Total 6,039 6,372 6,229 6,206 6,023
======= ======= ======= ======= =======
Operating Revenues (Thousands of Dollars)
Residential Metered $24,669 $25,345 $24,488 $24,574 $23,541
Commercial Metered 4,716 4,852 4,696 4,745 4,729
Industrial Metered 1,861 1,868 1,922 1,851 2,100
Public Authorities Metered 1,050 1,090 893 903 856
Fire Protection and Other 6,296 6,195 6,130 6,058 5,964
------- ------- ------- ------- -------
Total $38,592 $39,350 $38,129 $38,131 $37,190
======= ======= ======= ======= =======
Average Revenue per 1,000 Gallons
Residential Metered $ 6.39 $ 6.36 $ 6.32 $ 6.28 $ 6.30
Commercial Metered $ 5.22 $ 5.19 $ 5.17 $ 5.17 $ 5.13
Industrial Metered $ 4.22 $ 4.19 $ 4.18 $ 4.23 $ 4.14
Public Authorities Metered $ 4.77 $ 4.80 $ 4.99 $ 5.04 $ 5.07
Miles of Distribution Mains
(End of Period) 980 970 955 950 945
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CONSTRUCTION PROGRAM
The projected capital expenditures of CWC are established annually by
management and are reviewed and revised from time to time to the extent
necessary to meet changing conditions, including adequacy of rate relief,
customer demand, revised construction schedules, water quality requirements,
pollution control requirements and inflation.
The Company currently estimates that CWC's 1997-1999 construction
program, excluding plant financed by customer advances and contributions in aid
of construction and amounts representing an allowance for funds used during
construction (AFUDC), will aggregate approximately $20,830,000 which includes
routine improvements to the water system of approximately $4,250,000 each year,
approximately $900,000 for clean-up of the Reynolds Bridge Well Field (see "Item
3. Legal Proceedings"), and $5,425,000 for construction costs of an interim
alternative to construction of a new Rockville Water Treatment Plant (RWTP),
which has been delayed indefinitely. Said alternative involves modifications to
the existing RWTP and distribution system. The new RWTP will be constructed when
required by increased demand or increased Safe Drinking Water Act (SDWA)
requirements.
The $20,830,000 construction expenditures for 1997 through 1999,
mentioned above, include approximately $6,000,000 for all known costs of studies
and construction of facilities to comply with existing SDWA regulations.
Construction expenditures which may be required in the future to comply with
Federal and State regulations, which have not yet been issued but which are
required under the SDWA, are excluded.
FINANCING
The Company and CWC expect to finance a significant portion of the
anticipated $20,830,000 construction expenditures through 1999 with net funds
generated from operations (net cash provided by operating activities less
dividends paid). Net funds generated from operations were $5,436,000,
$6,070,000, and $6,220,000 for the years 1996, 1995 and 1994, respectively (see
Consolidated Statements of Cash Flows for additional information). Construction
and other expenditures in excess of net funds generated from operations are
expected to be financed through short-term interim bank loans which may be
refinanced through the sale of Preferred Stock and/or long or medium-term
unsecured debt by CWC and/or the Company, and/or the sale of First Mortgage
Bonds by CWC and of Common Stock by the Company when financial market conditions
are considered favorable by management. CWC expects to receive the proceeds of
any such financings by the Company in the form of advances or capital
contributions.
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The Company and CWC currently have lines of credit aggregating
$12,000,000, consisting of conventional lines of credit with four banks, which
management considers adequate at this time. As of December 31, 1996, the Company
had approximately $5,800,000 of borrowings outstanding under these lines of
credit.
Because of changes in the Federal tax laws, the amount of new
tax-exempt debt which may be issued by, or under the authority of, the State of
Connecticut is limited. CWC has not received a tax exempt allocation since 1988.
Although CWC has been able to refund all of its approximately $42,000,000 of
existing tax-exempt borrowings with tax-exempt refunding borrowings since 1990,
it is uncertain whether future tax-exempt allocations from the State will be
available to CWC or the Company. The unavailability of tax-exempt financings
will require the Company and/or CWC to issue traditional taxable debt securities
and will increase the cost of long-term debt financing. During the period 1979
through 1988 approximately $43,000,000 of tax-exempt long-term debt was issued
by CWC to finance construction expenditures.
The Company has no legal restrictions on the issuance of its debt. The
ability of CWC to issue additional long or medium-term secured debt to finance
future construction expenditures depends in part on meeting the applicable
provisions of CWC's First Mortgage Indenture with respect to the coverage of
earnings over interest requirements. These provisions require, for the issuance
of additional First Mortgage Bonds, minimum earnings coverage before income
taxes of two times pro forma annual interest charges on such mortgage debt. The
interest coverage under this formula at year end has been: 1996 - 4.28 times
interest charges, 1995 - 4.29 times, 1994 - 4.12 times, 1993 - 4.17 times, and
1992 - 3.97 times.
CWC's coverage of interest charges on all long-term debt at year end
has been: 1996 - 4.28 times interest charges, 1995 - 4.29 times, 1994 - 4.12
times, 1993 - 4.17 times, and 1992 - 3.56 times.
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CWC'S TIMES COVERAGE OF ANNUAL INTEREST
ON LONG-TERM INDEBTEDNESS
Year Ended December 31,
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Thousands of Dollars)
Utility Operating Income (a) $ 10,161 $ 10,053 $ 9,690 $ 10,018 $ 10,066
Federal and State Income Tax 4,812 4,950 4,756 4,673 4,050
State Income Tax -
Capitalization (b) (157) (150) (150) (140) (140)
-------- -------- -------- -------- --------
Net Operating Earnings $ 14,816 $ 14,853 $ 14,296 $ 14,551 $ 13,976
======== ======== ======== ======== ========
Annual Interest on First
Mortgage Bonds (c) $ 3,458 $ 3,460 $ 3,468 $ 3,492 $ 3,524
======== ======== ======== ======== ========
Times Interest Coverage (d) 4.28 4.29 4.12 4.17 3.97
======== ======== ======== ======== ========
Annual Interest on Unsecured
Promissory Notes (c) -- -- -- -- 404
-------- -------- -------- -------- --------
Annual Interest on Long-Term
Debt $ 3,458 $ 3,460 $ 3,468 $ 3,492 $ 3,928
======== ======== ======== ======== ========
Times Interest Coverage (e) 4.28 4.29 4.12 4.17 3.56
======== ======== ======== ======== ========
(a) Connecticut Water Service, Inc.'s utility operating income for the
years 1996 to 1992 is $10,128, $10,022, $9,655, $9,983, and $10,033,
respectively.
(b) Amount of minimum State income tax based on the capitalization method.
(c) Includes interest on current portion payable.
(d) Net Operating Earnings divided by Annual Interest on First Mortgage
Bonds per provisions of CWC's First Mortgage Indenture.
(e) Net Operating Earnings divided by Annual Interest on Long-Term Debt per
provisions of CWC's First Mortgage Indenture.
During 1980 and 1981 the interest costs of long-term debt increased
more rapidly than earnings so that the coverage requirements prevented CWC from
effecting a planned issue of Bonds in mid 1981. Similar circumstances may in the
future prevent the issue of, or require a reduction in the amount of, bonds CWC
otherwise would have issued or will issue. As a consequence, the Company may be
required to meet an increased portion of its financing needs through sales of
unsecured funded debt or of additional shares of Common Stock. Sales of Common
Stock would result in a dilution of the voting power and relative equity
interests of the holders of Common Stock then outstanding.
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During the past five years CWC has sold the following issues of
long-term debt:
- During August, 1992, CWC issued a $15,000,000, 5.875%, Series R,
First Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding
Bonds maturing in 2022, the proceeds of which refunded CWC's 8%, $15,000,000,
Promissory Note.
- During June, 1993, CWC issued a $5,000,000, 5.75%, Series T, First
Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding Bonds
maturing in 2028, the proceeds of which refunded CWC's 8.1%, $5,000,000,
Promissory Note.
- During September, 1993, CWC issued a $4,550,000, 5.30%, Series U,
First Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding
Bonds maturing in 2028, the proceeds of which refunded CWC's 7.25%, $5,000,000,
Series M, First Mortgage Bond.
- During October, 1993, CWC issued a $8,000,000, 6.65%, Series S, First
Mortgage Bond, which secures tax exempt Water Facilities Revenue Refunding Bonds
maturing in 2020. The proceeds from this transaction were used to refund CWC's
8.375% (plus 1% Letter of Credit fee), Series N, $8,000,000, First Mortgage
Bond.
- On January 4, 1994, CWC issued a $4,050,000, 6.94%, Series V, First
Mortgage Bond, maturing in 2029, the proceeds of which refunded CWC's 9.375%,
Series L and 8.5%, Series O, First Mortgage Bonds. During March, 1994, an
additional $8,000,000, 6.94% Series V, First Mortgage Bond was issued. The
proceeds of this transaction were used to redeem CWC's $5,000,000, 10%, Series
P, First Mortgage Bonds as well as all 30,000 shares of CWC's $100 par, 9.5%
Preferred Stock.
The Company has no restriction with respect to the issuance of
additional shares of its Preferred Stock.
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CWC'S TIMES COVERAGE OF ANNUAL INTEREST AND
ANNUAL PREFERRED STOCK DIVIDENDS
IN ACCORDANCE WITH ARTICLES OF GENERAL PREFERENCE
Year Ended December 31,
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(Thousands of Dollars)
Utility Operating Income $10,161 $10,053 $ 9,690 $10,018 $10,066
Other Income (a) 161 243 155 193 187
------- ------- ------- ------- -------
Gross Earnings Available for
Coverage $10,322 $10,296 $ 9,845 $10,211 $10,253
======= ======= ======= ======= =======
Annual Interest on Funded
Debt (b) $ 3,458 $ 3,460 $ 3,468 $ 3,492 $ 3,928
Annual Dividend on Preferred
Stock (c) -- -- 2 288 294
------- ------- ------- ------- -------
Total Charges $ 3,458 $ 3,460 $ 3,470 $ 3,780 $ 4,222
======= ======= ======= ======= =======
Times Interest Coverage 2.98 2.97 2.83 2.70 2.43
======= ======= ======= ======= =======
(a) Other income, as defined by the Articles of General Preference,
includes merchandising and jobbing income, interest and dividend income
and miscellaneous rental income less applicable taxes.
(b) Includes interest on current portion payable.
(c) Includes dividends on currently redeemable shares.
The Company's issuance of Common Stock over the past five years are as
detailed below. The $7,350,000 net proceeds from these sales were invested in
CWC in the form of capital contributions.
- The Company issued 1,769 shares of Common Stock during 1993, 2,468 shares
during 1994, 2,022 shares during 1995, and 3,505 shares during 1996, pursuant to
the Company's Employee Savings 401- K Match Plan.
- The Company issued 2,338 shares of Common Stock during 1992, 3,074 shares
during 1993, 4,061 shares during 1994, 6,369 shares during 1995, and 4,907
shares during 1996, pursuant to the Company's Performance Stock Program.
- The Company issued 37,868 shares of Common Stock during 1992, 33,803 during
1993, 74,053 during 1994, 87,807 during 1995, and 36,914 shares during 1996,
pursuant to its Dividend Reinvestment and Common Stock Purchase Plan (DRIP).
There are currently no legal limits on the amount of short-term
borrowings which may be incurred by the Company or CWC. Should construction
expenditures exceed management's current expectations, the Company will continue
to be dependent upon its ability to issue and sell additional amounts of Common
Stock, mortgage bonds of CWC and (either through the Company or CWC) Preferred
Stock and long or medium-term debt to limit short-term borrowing to appropriate
levels. However, the availability of these methods of financing cannot be
assured. The Company believes that the sale of such additional securities will
continue to depend primarily on the adequacy and timeliness of regulatory action
on future rate applications of CWC, on general conditions in securities markets
and on favorable market appraisal of the securities of the Company and CWC,
including the Company's Common Stock.
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RATES
The rates of CWC have been established under the jurisdiction of, and
approved by, the DPUC. It is the Company's policy to seek rate relief as
necessary to enable CWC to achieve an adequate rate of return.
CWC has not applied for a rate increase during the last six years.
CWC's last rate increase was requested in 1990, became effective March
25, 1991, and was based upon an allowed rate of return of 12.7% on Common Stock
equity and 10.74% on rate base.
In 1979, the DPUC approved a surcharge to be applied to rates charged
by water utilities in order to provide a current cash return on the major
portion of a water utility's Construction Work In Progress (CWIP) applicable to
facilities required by SDWA facilities. CWC has consistently been allowed to
collect such a surcharge. CWC expects to apply for the application of similar
surcharges with respect to any major future construction projects which may be
required by the SDWA. There is no assurance that any future surcharges will be
permitted.
Under certain circumstances the DPUC, in consultation with the DPH, can
order a water company with good managerial and technical resources to acquire
the water system of another company to assure the availability and potability of
water for customers of the company to be acquired. In 1989 the DPUC promulgated
regulations permitting the DPUC to approve a surcharge to be applied to rates
charged by water utilities in order to cover the costs incurred to acquire the
other system and to make improvements as required. CWC expects to apply for the
application of such a surcharge with respect to any mandated water system
acquisition. Although there is no assurance that any other such surcharge will
be permitted such a surcharge was permitted in 1995 when the DPUC and DPH
ordered CWC to acquire the assets and facilities of the Sound View Water Company
in Old Lyme.
In 1993 the DPUC approved regulations which would permit a water
company to apply for a limited rate adjustment to compensate for the effect of
changes in certain costs. These costs include rate changes related to the cost
of purchased water, energy, and taxes. CWC expects to apply for the application
of this type of adjustment in the future when appropriate. There is no assurance
that any such rate adjustment will be permitted.
See also "Franchises and Competition" below for a discussion of 1994
Connecticut legislation dealing with the competitiveness of water rates.
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FRANCHISES AND COMPETITION
MDC's water rates are substantially lower than those of CWC, primarily
because MDC is a tax-exempt entity, generally serving a denser population with
older facilities. Legislation was proposed in the Connecticut General Assembly
in 1987 which was intended to have the effect of permitting MDC to purchase the
water company operations of CWC in South Windsor, a town which is presently
served by both MDC and CWC. The Company opposed this legislation vigorously. The
Connecticut General Assembly established a Task Force to report on various
issues relating to towns served by both a privately-owned water company and a
publicly-owned water company. The Task Force voted not to recommend legislation
which would authorize such towns to hold referenda on consolidation and empower
towns to force an investor-owned water company to sell its water system within
that town to a governmentally-owned entity. It is not clear at this time whether
such a proposal or similar legislation may be re-introduced and adopted by the
Connecticut General Assembly. Further, even if such legislation were adopted,
the amount of the compensation to be received by CWC for its assets in South
Windsor, or the disposition of any such compensation, cannot be determined at
this time. It is also possible that any legislation in this area could be
written in a manner which would permit a similar acquisition of CWC's water
operations in towns other than South Windsor. The Company has opposed, and will
continue to oppose vigorously, any such proposed legislation.
Legislation was passed in 1994 by the Connecticut General Assembly that
required the DPUC to adopt regulations regarding whether the rates that have
been charged by a water company for a period of five consecutive years are so
excessive in comparison to the rates charged by other water companies providing
the same or similar service as to inhibit the economic development of the area
serviced by the water company or impose an unreasonable cost to the customers of
such company. If the DPUC makes such a finding and also concludes that the water
company is unable or unwilling to provide service at a reasonable cost to
customers, it may order the provision of such service or revoke the franchise
held by such company. In 1995, the DPUC adopted regulations that require a
petition on a form provided by the DPUC to be signed by 50% of the residents of
a town or other political subdivision served by the company, or by 500 customers
of the company, before the DPUC would hold a hearing thereon. CWC believes that,
in light of the tax and other advantages of governmentally-owned entities which
are not available to the Company, its rates are not excessive and would
vigorously oppose any such petition.
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In 1976, the Connecticut General Assembly created a study commission to
evaluate the feasibility of expanding the water supply services of the MDC to
include the towns of East Granby, East Windsor, Enfield, Somers, Suffield and
Windsor Locks. These towns are in the service areas of and are served in part by
CWC's Northern Region. On February 1, 1978, the study commission reported to the
Governor and the General Assembly that the expansion was feasible and
recommended that the General Assembly authorize the towns of East Granby,
Suffield and Windsor Locks to take immediate steps to acquire water services
from the MDC. It further recommended that the enabling legislation provide a
mechanism for the towns of Enfield, East Windsor and Somers, after adequate
technical, financial and institutional studies, to take the steps necessary to
acquire water services from the MDC. The study commission made no recommendation
in its report with respect to the method of implementation of any MDC expansion
and did not discuss CWC's status or that of its water facilities should MDC
provide such service. The General Assembly has not taken any action on the
report. In 1990, CWC agreed, pursuant to the Connecticut Plan (see "Business -
Regulation") that MDC would have the exclusive right to serve that part of East
Granby which is not adjacent to Bradley International Airport and which is not
presently being served by CWC. Legislation passed in the 1994 General Assembly
provided a mechanism for water utility customers to petition to the DPUC to
determine if the rates of the public service company are comparably excessive in
consideration of the economic development in the area within which the company
is located and in comparison to other similar companies. To date there have not
been any such petitions filed with the DPUC pertaining to CWC. Legislation that
would have had the effect of enabling the DPUC to order a transfer to MDC of
CWC's service territory in South Windsor was introduced in the 1996 General
Assembly but did not pass. The Company has opposed, and will continue to oppose,
vigorously any extension of MDC water operations within its service areas and
any effort to permit the takeover by any municipal or other authority of any
significant portion of CWC's service areas.
It is not possible at this time to assess the likelihood of any
legislation being enacted to implement these or similar recommendations or the
impact of any such legislation on CWC and the Company, but such impact could be
substantial. There can be no assurance that the Connecticut General Assembly
will not take action to authorize such a takeover. As of December 31, 1996,
CWC's Northern Region, which includes customers in the towns mentioned above,
represented 46% of the Company's consolidated utility plant.
In common with most water companies in Connecticut, CWC derives its
rights and franchises to operate from special acts of the Connecticut General
Assembly, which are subject to alteration, amendment or repeal by the General
Assembly and which do not grant exclusive rights to CWC in its service areas.
Subject to such power of alteration, amendment or repeal by the
Connecticut General Assembly and subject to certain approvals, permits and
consents of public authority and others prescribed by statute and by its
charter, CWC has, with minor exceptions, valid franchises free from burdensome
restrictions and unlimited as to time, and is authorized to sell potable water
in the towns (or parts thereof) in which water is now being supplied by CWC.
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Page 16
In addition to the right to sell water as set forth above, the
franchises of CWC include rights and powers to erect and maintain certain
facilities on public highways and grounds, all subject to such consents and
approvals of public authority and others as may be required by law. Under the
Connecticut General Statutes, CWC, upon payment of compensation, may (subject to
the various requirements described under "Business - Regulation") take and use
such lands, springs, streams or ponds, or such rights or interests therein as
the Connecticut Superior Court, upon application, may determine is necessary to
enable CWC to supply potable water for public or domestic use in its franchise
areas.
CWC faces competition, presently not material, from a few private water
systems operated within, or adjacent to, its franchise areas and from municipal
and public authority systems whose service areas in some cases overlap portions
of CWC's franchise areas. At the present time, except as noted above, there are
no publicly owned utilities, cooperatives or other private utility companies
competing with CWC in the areas now served, although within certain areas there
are wells owned by individuals or private industries.
See also "Business - Regulation" for a description of the so-called
Connecticut Plan which is intended, among other things, to eliminate competition
among water systems.
17
Page 17
REGULATION
DEPARTMENT OF PUBLIC UTILITY CONTROL (DPUC)
CWC is subject to regulation by the DPUC, which has jurisdiction over
rates, standards of service, accounting procedures, issuance of securities,
disposition of utility properties and related matters. The DPUC consists of five
Commissioners, appointed by the Governor of Connecticut with the advice and
consent of both houses of the Connecticut legislature.
The DPUC is required by law to institute management audits, to be
conducted periodically, of companies such as CWC. Such audits might result in
the DPUC ordering implementation of new management practices or procedures. The
DPUC has not conducted any such audit of CWC.
The Company, which is not an operating utility company, is not a
"public service company" within the meaning of the Connecticut General Statutes
and is not generally subject to regulation by the DPUC. DPUC approval is
necessary, however, before the Company may acquire or exercise control over any
public service company. In connection with the affiliation with CWC, the Company
amended its Certificate of Incorporation to prohibit the Company and any
subsidiary of the Company from engaging, unless approved by the DPUC, in any
business or activity which is not subject to regulation by the DPUC. The Company
has no present intention of engaging, either directly or through any subsidiary,
in any business or activity which is not subject to regulation by the DPUC. The
Company is currently providing management and/or operating services to other
water supply or waste water systems through CWC. If the Company were to
determine it appropriate to provide any of these services through a new
subsidiary of the Company, DPUC approval would be required.
DEPARTMENT OF ENVIRONMENTAL PROTECTION (DEP)
While the construction of dams, reservoirs and other facilities
necessary to the impounding, storage and withdrawal of water in connection with
public water supplies is a permitted use under the Connecticut Inland Wetlands
and Water Courses Act, CWC is required, pursuant to other statutory provisions,
to obtain permits from the Connecticut Commissioner of Environmental Protection
(Commissioner) for the location, construction or alteration of any dam or
reservoir and to secure the approval of the Commissioner for the diversion and
use of water from any river or underground source for public use. Various
criteria must be satisfied under the respective statutes and regulations of the
Connecticut Department of Environmental Protection (DEP) in order to obtain such
permits or approvals and the Commissioner has the power to impose such
conditions as he deems reasonably necessary in connection with such permits or
approvals in order to assure compliance with such statutes. CWC has obtained,
and complied with the terms of, all such requisite permits or approvals.
18
Page 18
Legislation was adopted in 1982 conferring upon the DEP authority to
require a permit for any new diversion of water, including both surface and
ground water, within the State of Connecticut. Any water diversion which might
be effected by CWC in the future would require compliance by CWC with a lengthy
permit application process and approval by the Commissioner. CWC has several
potential well sites which are subject to this legislation and the DEP
regulations thereunder. Such legislation requires the registration with the
Commissioner of all diversions of water maintained prior to July 1, 1982. All of
CWC diversions have been registered. Although the legislation provides that
registered diversions are not subject to the permit requirement, DEP regulations
adopted in March, 1990 are being used by DEP, on a case by case basis, to
require compliance with the permit application process before some registered
diversions can be used as a source of water supply. It is not possible at this
time to fully assess the impact of DEP's application of this legislation and the
DEP regulations on CWC and its operations, but such impact may be substantial,
particularly on sources held for future use.
The Federal Clean Water Act requires permits for discharges of
effluents into navigable waters and requires that all discharges of pollutants
comply with federally approved state water quality standards. The DEP has
adopted, and the federal government has approved, water quality standards of
receiving waters. A joint Federal and State permit system has been established
to ensure that applicable effluent limitations and water quality standards are
met in connection with the construction and operation of facilities which affect
or discharge into state or interstate waters. CWC has received all such
requisite permits. A new general permit and permit renewal program for water
treatment waste water discharges was adopted by DEP in 1995. Although the new
program has some stricter monitoring and reporting requirements, CWC is in
compliance with the new program and the additional costs, while increased from
the period before the program was adopted, are not substantial.
In 1984, all CWC's dams were registered with DEP as required under
Public Act 83-38. DEP is required to investigate and periodically inspect most
registered dams to ensure they are safely maintained. CWC was also subject to
the requirements of the National Dam Inspection Act which required the United
States Army Corps of Engineers to inspect certain dams. These inspections were
completed in 1981 and the Army Corps' participation ended. Six of said dams have
been inspected and, although certain modifications and further studies have been
required, no material problems with respect to these dams have been reported.
While the Company recognizes that a certain degree of risk is attached to CWC's
ownership of dams in connection with its water collection system, the Company
believes that all of CWC's dams are well maintained and are structurally stable.
CWC has completed any necessary modifications to all but one of the six dams.
CWC believes that the future cost of such compliance at that dam will be less
than $2,000,000. These costs are considered in CWC's projected capital
expenditures (see "Construction Program".)
19
Page 19
The DEP has promulgated regulations requiring that certain minimum
flows be maintained in various waterways within the State of Connecticut.
Pursuant to said regulations, CWC is exempt from compliance at certain of its
facilities. However, DEP is considering making changes in the regulations. The
Company cannot predict either the substance of those changes or their impact on
the Company. However, it is possible that such changes could reduce the safe
yield of CWC's sources. The cost to CWC to restore the lost safe yield is not
now determinable but could be substantial.
DEPARTMENT OF PUBLIC HEALTH (DPH)
CWC is also subject to regulation by the Connecticut DPH with respect
to water quality matters. Plans for new water supply systems or enlargement of
existing water supply systems also must be submitted to the DPH for approval.
In 1985 the Connecticut General Assembly enacted comprehensive
legislation (the so-called Connecticut Plan) designed to maximize the efficient
and effective development of the state's public water supply systems. This
legislation authorized DPH to administer procedures designed to coordinate the
comprehensive planning of public water systems. The legislation mandates the
establishment of public water supply management areas, with each such area
having a water utility coordinating committee comprised of representatives of
the various public water systems and regional planning agencies in the area.
Each such committee is required to establish exclusive service areas for each
public water system in the area, after taking into consideration a number of
factors including existing water service areas, land use plans, etc., optimum
utilization of existing water supplies and existing franchise rights of water
companies. DPH is authorized to resolve any disagreements among members of the
respective committees. This legislation is intended not only to promote
cooperation among various water suppliers in each management area, but also to
provide (through DPH's role) for the centralized planning of water supply. In
implementing this legislation, DPH has created seven water supply management
areas and is in the process of implementing the creation of the appropriate
water utility coordinating committees. The operations of CWC, which cover many
areas of the state, fall within five of the seven management areas. CWC is
actively involved with the planning process in two of these management areas at
this time. The remaining three areas of the Company's interest are expected to
begin the planning process within the next several years. It is not possible at
this time to predict the impact on the Company of the above described
legislation, regulations and procedures, but the Company was an active
participant in moving for the adoption of this scheme, and is presently hopeful
that such centralized and cooperative planning will have a beneficial impact on
its future water supply and water supply operations.
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SAFE DRINKING WATER ACT (SDWA)
CWC is subject to regulation of water quality under the SDWA. The SDWA
provides for the establishment of uniform minimum national quality standards by
the Federal Environmental Protection Agency (EPA), as well as governmental
authority to specify the type of treatment process to be used for public
drinking water. The EPA regulations, pursuant to the SDWA, set limits, among
other things, on certain organic and inorganic chemical contaminants,
pesticides, turbidity, microbiological contaminants, and radioactivity. The DPH
has adopted regulations which are in some cases more stringent than the Federal
regulations.
1986 Amendments -
The 1986 SDWA amendments dictate that 83 new primary drinking water standards be
established within three years of enactment. These new standards supersede the
22 interim standards which EPA established between 1977 and 1986. In addition to
the 83 primary standards, the SDWA amendments require that EPA publish a list
every three years of an additional 25 contaminants which it intends to regulate
in drinking water.
Although unable to meet the three year timetable required by the SDWA
amendments, EPA has actively developed the 83 drinking water standards in six
phases. Phase I, volatile organic chemicals, was promulgated in 1987 and initial
and continued monitoring of sources has taken place. Phase II, which contains 26
synthetic organic chemicals including pesticides and seven inorganic chemicals,
was promulgated in 1991 with initial monitoring for systems serving more than
500 people beginning in 1993. Phase IIB, the aldicarbs and derivatives, was
promulgated in 1992 but implementation is currently delayed by court order. Lead
and copper, which were originally included in Phase II, were promulgated in 1991
and monitoring for large systems (serving more than 50,000 people) and medium
systems (serving 3,301 to 50,000 people) began in 1992, small system monitoring
(serving 3,300 people or less) began in July, 1993. Phase III, radionuclides,
including radon, has been proposed but promulgation has been delayed by law and
is now expected to be delayed for several more years. Phase IV, the Surface
Water Treatment Rule, was promulgated in 1989 and became effective June 29,
1993. Phase V, other synthetic organic chemicals and inorganic chemicals, was
promulgated in 1992 and monitoring was implemented at the same time as Phase II.
Phase VIA, disinfectants and disinfection by-products, is EPA's first list of 25
additional compounds to be regulated. Phase VIA was scheduled for promulgation
in 1996. Phase VIB, additional organic and inorganic compounds, is no longer
required.
21
Page 21
1996 Amendments -
In 1996 the Safe Drinking Water Act was reauthorized by Congress and
signed into law. Several of the schedules for implementation of various
regulations have been changed. The new law eliminated the requirement to
regulate 25 new contaminants every three years and replaced it with a
requirement that the EPA consider five new contaminants for regulation every
five years. Accordingly, Phase VIB, Organic and Inorganic chemicals, will not be
scheduled for regulation, although some contaminants included in Phase VIB will
be considered for regulation in future years.
EPA's Phase VIA, Disinfectant and Disinfection Byproducts, which was
proposed in 1994 to be implemented in two stages, is presently scheduled to be
promulgated by November 1998 for Stage 1. The Interim Enhanced Surface Water
Treatment Role is expected to be promulgated at the same time. Stage II of
Disinfectant and Disinfectant Byproducts and the final ESWTR will not be
promulgated until at least 2002.
Radionuclides, formerly Phase II, are expected to be promulgated in
late 2000 or early 2001. The Ground Water Disinfection Rule can be issued at any
time after August 6, 1999, but not later than the promulgation of the Stage II
D/DBP rule. Arsenic must be proposed by January 2000 and promulgated by January
2001. Aldicarb and derivatives, formerly Phase 11B, may be withdrawn and
reproposed. Finally, a decision to regulate sulfate must be made by 2001. If the
decision is to regulate, the final rule must be complete by 2005.
The 1996 law also requires that the EPA, in proposing any new drinking
water regulations, show that such regulations will improve public health. In
addition, such regulations must be subjected to a cost-benefit analysis.
The SDWA amendments also require EPA to establish criteria and rules
which provide for filtration of surface water supplies and disinfection of all
public water supplies. The Surface Water Treatment Rule mandates filtration for
surface supplies which do not meet stringent requirements and establishes
performance criteria for the operation of filtration plants. This rule also
establishes guidelines which may redefine some public water supplies which have
traditionally been considered groundwater as surface supplies subject to the
provisions of the rule. The Company has tested its groundwater supplies.
Determination by the State as to which groundwater supplies are considered to be
under the direct influence of surface water, and therefore subject to the
Surface Water Treatment Rule, has been completed. CWC has no groundwater
supplies so determined to be under the direct influence of surface water.
Connecticut has adopted the Surface Water Treatment Rule into its regulations
and does not allow for exceptions to the filtration requirement. The draft
Ground Water Disinfection Rule was published in 1992 and is not expected to be
proposed for several more years. This rule may require disinfection and
increased disinfection contact time to be added to groundwater supplies.
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Page 22
Through December 31, 1996, the Company has expended approximately
$41,970,000 in constructing facilities and conducting aquifer mapping necessary
to comply with the requirements of the SDWA. CWC believes that it is in
substantial compliance with regulations promulgated by the EPA and DPH, as
currently applied, although portions of the costs involved in modifying the RWTP
are required to enable CWC to continue to meet SDWA requirements. Connecticut's
aquifer protection legislation not only requires aquifer mapping, but also
requires DEP, in consultation with DPH and DPUC, to prepare guidelines for
acquisition by water companies of lands surrounding public water supply
wellfields. The extent to which those guidelines, not yet prepared, might lead
to regulations requiring the Company to purchase additional land around its
wellfields is not known at this time. The Company anticipates spending an
additional $1,750,000 on required aquifer mapping. Although the Company cannot
predict either the substance of the regulations required by the 1996 SDWA
amendments which have not yet been promulgated or their impact on CWC, the
primary impact on CWC is expected to be in the area of increased monitoring and
reporting although it is possible that such regulations may require
modifications to existing filtration facilities. Construction of new facilities
may be required for certain groundwater sources. It is possible that costs of
compliance by CWC could be substantial.
DISPOSITION OF PROPERTY
Connecticut law presently imposes the following restrictions upon the
disposition of property owned by water companies: (a) no property may be sold or
otherwise transferred without the prior approval of the DPUC; (b) the sale,
transfer and change in the use of watershed land (lands draining into a public
water supply) and certain non-watershed lands which are contiguous to reservoirs
and their tributaries are subject to regulation by the DPH; (c) when a water
company intends to transfer or dispose of an interest in any present, potential
or abandoned water supply source, other water companies which might reasonably
be expected to utilize the source are given the opportunity through the DPH to
seek to acquire such source; (d) subject to such acquisition opportunities by
other water companies as to water supply sources, when a water company intends
to transfer or dispose of an interest in three or more contiguous acres of its
unimproved real property, the municipality in which such property is located,
the State of Connecticut and private, nonprofit land-holding organizations have
prior options to acquire such interest in the context of priorities based on
intended use, with open space use being favored; (e) if the municipality or the
State chooses to exercise its option, and the purchase price cannot be
established by agreement, the acquisition may be accomplished by eminent domain
(f) the proceeds from the sale of water company land must generally be
reinvested in utility improvements or land necessary to protect water supply
sources; and (g) land may be sold only if consistent with the utility's water
supply plan. Legislation enacted in 1988 provides that the DPUC use an
accounting treatment which equitably allocates between the utility's ratepayers
and its stockholders the economic benefits of the net proceeds from the sales of
land which has ever been in the utility's rate base. Although CWC has plans to
sell various, relatively small, discrete parcels of land over the next several
years, CWC has no significant amounts of excess land which it presently expects
to sell or otherwise dispose of.
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GENERAL
Federal and State regulations and controls concerning water quality,
pollution and the effluent from treatment facilities are still in the process of
being developed and it is not possible to predict the scope or enforceability of
regulations or standards which may be established in the future, or the cost and
affect of existing and potential regulations and legislation upon any of the
existing and proposed facilities and operations of CWC. Further, recent and
possible future developments with respect to the identification and measurement
of various elements in water supplies and concern with respect to the impact of
one or more of such elements on public health may in the future require CWC to
replace or modify all or portions of its various water supplies, to develop
replacement supplies and/or to implement new treatment techniques. In addition,
CWC anticipates that threatened and actual contamination of its water sources
will become an increasing problem in the future. CWC has expended and will in
the future be required to expend substantial amounts to prevent or remove said
contamination or to develop alternative water supplies. See "Legal Proceedings"
for a discussion of a recent contamination problem. Any of the aforesaid
developments may significantly increase CWC's operating costs and capital
requirements. Since the DPUC's rate setting methodology permits a utility to
recover through rates prudently incurred expenses and investments in plant,
based upon past DPUC practice, the Company expects that such expenditures and
costs should ultimately be recoverable through rates for water service.
EMPLOYEES
As of December 31, 1996, CWC employed 162 full-time and part-time
employees. The Company has no employees other than its officers, who are also
officers of CWC and whose compensation is paid by CWC. All full-time employees
of CWC who meet specified age and length of service requirements participate in
an Employee's Retirement Plan which is a non-contributory trusteed pension plan
and provides for a monthly income for employees at retirement. None of the
employees is covered by a collective bargaining agreement. Management believes
that its relationship with its employees is satisfactory.
In the first quarter of 1997 CWC offered an early retirement plan to
its employees who will be 55 or older as of July 1, 1997. This offer covers 18
current employees who must notify the company of their decision to accept or
reject the offer by May 7, 1997. CWC does not know at this time the number of
employees that will choose to accept this offer.
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ITEM 2. PROPERTIES
The properties of CWC consist of land, easements, rights (including
water rights), buildings, reservoirs, standpipes, dams, wells, supply lines,
treatment plants, pumping plants, transmission and distribution mains and
conduits, mains and other facilities and equipment used for the collection,
purification, storage and distribution of water. CWC owns its principal
properties in fee, except that the Collinsville System's principal source of
water supply is a water supply contract with the MDC. (See below for description
of this contract.) The Company believes that CWC's properties are in good
operating condition. Water mains are located, for the most part, in public
streets and, in a few instances, are located on land owned by CWC in fee and
land occupied under easements, most of which are perpetual and valid and
sufficient for the purpose for which they are held. Although it is impractical
to investigate the validity of the title to some of the easements held by CWC
for distribution mains or to clear title in the cases where such distribution
easement titles have been found defective, any such irregularities or defects in
title which may exist do not materially impair the use of such properties in the
business of CWC. Substantially all of CWC's property is subject to the lien of
its Mortgage Indenture to secure CWC's First Mortgage Bonds.
CWC owns ten water filtration treatment plants. Information about these
facilities is contained in the following table.
Year Treatment Capacity
Placed in (in million
Filtration Plant Operation Region gallons per day)
---------------- --------- ------ ----------------
Guilford Well 1965 Shoreline 0.70
Rockville 1970 Northern 5.00
Westbrook Well 1975 Shoreline 0.23
Hunt Well Field 1976 Northern 2.50
MacKenzie 1980 Shoreline 4.00
Williams 1981 Shoreline 1.00
Stafford Springs 1984 Northern 1.00
Reynolds Bridge 1986 Naugatuck 1.00
Stewart 1989 Naugatuck 6.00
O'Bready Well 1994 Northern 0.50
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Page 25
CWC has an agreement with the MDC, to provide, among other things, the
operation and maintenance by MDC of a filtration plant (completed in 1990) to
supply treated water for substantially all of CWC's Collinsville System, with a
capacity of 650,000 gallons per day, and the provision by MDC to CWC's
Collinsville System of up to 650,000 gallons per day of water from this plant
meeting all applicable Federal and State requirements. CWC has paid 40% of the
cost of construction of this plant and pays MDC an appropriate rate for water
used by CWC in excess of 400,000 gallons per day.
As of December 31, 1996, the transmission and distribution systems of
CWC consisted of approximately 980 miles of main, of which approximately 40
miles have been laid in the past five years. On that date, approximately 75% of
CWC's mains were eight-inch diameter or larger. Substantially all new main
installations are cement-lined ductile iron pipe of eight-inch diameter or
larger. Approximately 100 miles of the Company's pipelines are asbestos cement.
From January 1, 1992 through December 31, 1996, CWC added $36,643,000
of gross plant additions (including plant financed by customer advances and
contributions in aid of construction, allowance for funds used during
construction and expenditures by CWC reimbursed by any other sources), and
retired or sold property having a book value of $2,137,000, resulting in net
additions during the period of $34,506,000.
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CWC PRODUCTION FACILITIES AS OF DECEMBER 31, 1996
Total Dependable Greatest 1996
Storage Yield (1) Avg. Daily Avg. Daily
Capacity (thousands Delivery Delivery
(thousands of gallons (thousands (thousands
of gallons) per day) of gallons) of gallons)
---------------- ------------------ ------------------ -------------
Northern Region:
Western System
Enfield-East Windsor System Wells 7,200
Suffield System Wells 200
South Windsor Wells 720
Ellsworth Wells 100
Lake Shenipsit 5,050,000 11,200
Talcottville Well 300
Vernon Wells 690
Windsor Locks Wells 300
Tolland Aqueduct Wells (16) 42
-----------------
20,752 9,026 (2) 8,028
----------------- ------------ ----------
Somers System Wells 390 120 (7) 114
----------------- ------------ ----------
Crescent Lake System (4) -- 32 (7) 32
----------------- ------------ ----------
Reservoir Heights (6) -- 5 (7) 4
----------------- ------------ ----------
Stafford Springs System
#4 Reservoir 51,000 ]
#3 Reservoir 15,000 ] 700
#2 Reservoir 60,000 ]
-----------------
700 629 (8) 480
----------------- ------------ ----------
Llynwood System Wells 30 13 (3) 9
----------------- ------------ ----------
Lakewood/Lakeview System Wells 49 30 (5) 24
----------------- ------------ ----------
Nathan Hale System Wells 20 9 (8) 5
----------------- ------------ ----------
Shoreline Region:
Guilford System
Killingworth & Kelseytown Reservoirs 273,000 2,300
Wells 4,540
-----------------
6,840 3,676 (9) 3,240
----------------- ------------- -----------
Chester System
Upper and Lower Reservoirs 176,000 ]
Turkey Hill Reservoir - Haddam 149,000 ] 1,200
Wilcox Reservoir - Chester 65,000 ]
Deuse Pond - Chester 4,800 ]
Well 190
-----------------
1,390 900 (10) 590
----------------- ------------ ----------
Chester Village West Wells 30 13 (17) 13
----------------- ------------ ----------
Sound View System Wells 124 42 (17) 42
----------------- ------------ ----------
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CWC PRODUCTION FACILITIES AS OF DECEMBER 31, 1996
Total Dependable Greatest 1996
Storage Yield (1) Avg. Daily Avg. Daily
Capacity (thousands Delivery Delivery
(thousands of gallons (thousands (thousands
of gallons) per day) of gallons) of gallons)
------------- --------------- --------------- -------------
Naugatuck Region:
Central System
Long Hill Reservoir 506,000 ]
Twitchell Reservoir 1,000 ]
Candee Reservoirs (11) 7,000 ] 3,600
W. H. Moody Reservoir 335,000 ]
Straitsville Reservoir 7,000 ]
Mulberry Reservoir 50,000 ]
Beacon Valley Brook Supply -- ]
Meshaddock Brook Supply 300
Wells 1,000
-------
4,900 4,970 (13) 2,753
------- ------ -------
Terryville System
Harwinton Ave. Reservoir (11) 14,800 50
Wells 910
-------
960 498 (2) 478
------- ------ -------
Thomaston System
Thomaston Reservoir (11) 93,000 310
Wells 0
Waterbury Interconnection (12) 864
-------
1,174 852 (14) 347
------- ------ -------
Collinsville System
Water Acquired by Contract (15) 650
Reservoir (distribution) 100
-------
650 391 (3) 354
------- ------ -------
(1) Dependable yield is the maximum continuous rate of withdrawal available
from a source of supply without seriously depleting the source.
Dependable yield is based on long-term (99% dry year) rainfall records,
storage capacity and watershed area.
(2) Occurred in 1988.
(3) Occurred in 1989.
(4) Supplied by water purchased from the Town of East Longmeadow,
Massachusetts.
(5) Occurred in 1994.
(6) Supplied by water purchased from the Town of Manchester.
(7) Occurred in 1995
(8) Occurred in 1990.
(9) Occurred in 1987.
(10) Occurred in 1969.
(11) Reservoir held in reserve and used for emergencies only.
(12) Generally used for emergencies. However, see "Item 3. Legal
Proceedings" for a discussion of the contamination of the Thomaston
Wells. CWC presently uses the Waterbury emergency water connection to
purchase substantially all of its water supply requirements for the
Thomaston System from the Waterbury Municipal Water Department.
(13) Occurred in 1964.
(14) Occurred in 1966.
(15) The Collinsville System has a right to up to 650,000 gallons per day
through agreement with MDC. The source is Nepaug Reservoir with a
storage capacity of 9.5 billion gallons. See "Item 2. Properties" for a
description of this agreement.
(16) Connected to Northern Region, Western System on August 9, 1995.
(17) Occurred in 1996.
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ITEM 3. LEGAL PROCEEDINGS
During the latter part of 1992 it was discovered that the CWC's Reynolds Bridge
well field in Thomaston, Connecticut, was contaminated with methyl tertiary
butyl ether ("MTBE"), a gasoline additive. At this time CWC and a responsible
party are implementing an appropriate remediation program to clean up the well
site. In 1994 legal action was initiated against the two parties deemed
responsible for such contamination in order to obtain recovery of CWC's
investigation, clean-up and water treatment and supply costs. The lawsuit is
still in the discovery stage. The magnitude of such costs is presently estimated
to be $5,400,000, or more, of which approximately $2,350,000 has been incurred
at December 31, 1996, and $300,000 is expected to be incurred in 1997. The
clean-up process may take ten years or more to complete. The Company has
reflected the total estimated clean-up costs as a deferred asset in the
accompanying consolidated balance sheets representing costs which management
believes will be recoverable from third parties or future rates. A related
liability has been recorded representing expected future clean-up costs. CWC is
presently purchasing water from a public water supply system to provide service
to its customers at normal levels. Based upon existing DPUC precedent, the
Company and its legal counsel presently believe that any such costs which are
not recovered from third parties should be allowed to be recovered through rates
charged for water service and that the ultimate resolution of this matter will
not have a material impact on the results of operations or financial condition
of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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ITEM 4.1 EXECUTIVE OFFICERS OF THE COMPANY
Period Held or Term of Office
Name Age Office Prior Position Expires
------ --- -------- -------------- --------
M. T. Chiaraluce 54 President and Held position of 1997 Annual
Chief Executive President since Meeting
Officer January, 1992 and
Chief Executive
Officer position
with the Company
since July, 1992
W. F. Guillaume 64 Vice President - Held current 1997 Annual
Engineering and position or other Meeting
Planning executive position
with the Company
since April, 1970
D. C. Benoit 39 Vice President - Held current 1997 Annual
Finance, position or other Meeting
Accounting and executive position
Treasurer with the Company
since April, 1996
J. R. McQueen 54 Vice President - Held current 1997 Annual
Customer Service position or other Meeting
and Government management or
Affairs engineering
position with the
Company since
October, 1965
K. W. Kells 53 Vice President - Held current 1997 Annual
Design and position or other Meeting
Construction engineering
position with the
Company since June,
1970
V. F. Susco, Jr. 45 Vice President - Held current 1997 Annual
Administration position or Meeting
and Secretary engineering
position with the
Company since May,
1978
T. P. O'Neill 43 Vice President - Held current 1997 Annual
Operations position or other Meeting
engineering
position with the
Company since
February, 1980
P. J. Bancroft 47 Assistant Held current 1997 Annual
Treasurer and position or other Meeting
Controller accounting position
with the Company
since October, 1979
There are no family relationships between any of the Directors and
Executive Officers of the Company.
30
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Part II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market
under the symbol CTWS and is included in the NASDAQ National Market System. The
following table sets forth, for the periods indicated, the high and low last
sale prices of the Company's Common Stock in the over-the-counter market and the
dividends paid by the Company during the two most recent calendar years. The
quotations represent actual sales prices, but the sales reflected may be
inter-dealer transactions which do not reflect retail mark-up, mark-down or
commission. NASDAQ is the source of the quotations for all periods. Since its
affiliation with CWC in 1975, the Company has paid quarterly cash dividends on
its Common Stock.
Price
------------------ Dividends
Period High Low Paid
------ ---- --- ----
1996:
First Quarter $28.25 $26.25 $ .42
Second Quarter 27.00 25.00 .42
Third Quarter 29.50 24.75 .43
Fourth Quarter 30.50 28.50 .43
1995:
First Quarter 24.75 22.75 .42
Second Quarter 25.75 23.75 .42
Third Quarter 27.00 24.75 .42
Fourth Quarter 28.25 26.00 .42
As of March 1, 1997 there were approximately 5,600 holders of record of
the Company's Common Stock.
Holders of Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors from funds legally available therefor.
Future dividends of the Company will be dependent upon timely and adequate rate
relief, consolidated and parent company net income, availability of cash to the
Company and CWC, the financial condition of the Company and CWC, the ability of
the Company and CWC to sell their securities, the requirements of the
construction program of CWC and other conditions existing at the time.
The Company is not permitted to pay any dividends on its Common Stock
unless full cumulative dividends to the last preceding dividend date for all
outstanding shares of Cumulative Preferred Stock of the Company have been paid
or set aside for payment.
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The income of the Company is derived mainly from earnings on its equity
investment in CWC. At December 31, 1996, the retained earnings of CWC aggregated
$12,339,000. As a result of dividend restrictions contained in CWC's mortgage
indenture and Preferred Stock provisions, the amount of cash dividends payable
on CWC's common equity capital out of CWC's retained earnings was limited to
$12,089,000.
The Company has a Dividend Reinvestment and Common Stock Purchase Plan.
Under the plan, customers and employees of CWC and holders of Common Stock who
elect to participate may automatically reinvest all or specified percentages of
their dividends in additional shares of Common Stock and may also make optional
cash payments of up to $1,000 per month to purchase additional shares of Common
Stock. The Company may issue authorized but unissued shares of Common Stock to
meet the requirements of the plan, or buy the shares on the open market at its
discretion. 1,500,000 shares have been registered with the Securities and
Exchange Commission for that purpose. Under the plan, approximately 780,000
shares had been issued by the Company as of December 31, 1996.
The Company has a Performance Stock Program that provides for an
aggregate maximum of up to 50,000 shares of Common Stock of the Company to be
issued as awards of restricted stock to eligible employees of CWC, conditioned
on the attainment of performance goals established by the Salary Committee.
Under the plan approximately 20,750 shares, 6,350 of which are restricted, had
been issued by the Company as of December 31, 1996.
The Company has an Employee Savings 401-K Match Plan. Under the Plan
approximately 9,750 shares of Common Stock had been issued by the Company as of
December 31, 1996.
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CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
SUPPLEMENTAL INFORMATION (UNAUDITED)
SELECTED FINANCIAL DATA
(Thousands of dollars except where indicated)
Years Ended December 31, 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
INCOME
Operating Revenues $ 38,592 $ 39,350 $ 38,129 $ 38,131 $ 37,190
Operating Expenses $ 28,464 $ 29,328 $ 28,474 $ 28,148 $ 27,157
Operating Income $ 10,128 $ 10,022 $ 9,655 $ 9,983 $ 10,033
Interest and Debt Expense $ 3,967 $ 3,946 $ 3,940 $ 4,338 $ 4,872
Net Income Applicable to Common Stock $ 6,565 $ 6,325 $ 5,842 $ 5,529 $ 5,111
Weighted Average Common Shares Outstanding 2,997,337 2,918,417 2,812,456 2,769,347 2,728,573
Earnings Per Average Common Share $ 2.19 $ 2.17 $ 2.08 $ 2.00 $ 1.87
Number of Shares Outstanding at Year End 3,012,083 2,966,757 2,870,559 2,789,977 2,751,331
ROE on Year End Common Equity 12.1% 12.2% 12.2% 12.2% 11.8%
Cash Dividends Paid Per Common Share $ 1.70 $ 1.68 $ 1.65 $ 1.64 $ 1.61
Dividend Payout Ratio 77.6% 77.4% 79.3% 82.0% 86.1%
BALANCE SHEET
Common Stockholders' Equity $ 54,395 $ 51,788 $ 47,983 $ 45,160 $ 43,138
Long-Term Debt $ 54,430 $ 54,460 $ 54,600 $ 51,600 $ 51,600
Preferred Stock (Consolidated, Excluding Current Maturities) $ 772 $ 772 $ 772 $ 3,748 $ 3,772
- ----------------------------------------------------------------------------------------------------------------------------
Total Capitalization $ 109,597 $ 107,020 $ 103,355 $ 100,508 $ 98,510
Stockholders' Equity (Includes Preferred Stock) 50% 49% 47% 49% 48%
Long-Term Debt 50% 51% 53% 51% 52%
Net Utility Plant $ 153,898 $ 146,536 $ 140,784 $ 137,568 $ 135,697
Book Value - Per Common Share $ 18.06 $ 17.46 $ 16.72 $ 16.19 $ 15.68
* 1987 includes $1,004 net income, $.48 per average common share, related to
cumulative effect of Change in Method of Accounting for unbilled revenues.
OPERATING DATA
(Thousands of dollars) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
REVENUE CLASS
Residential $ 24,669 $ 25,345 $ 24,488 $ 24,574 $ 23,541
Commercial 4,640 4,852 4,696 4,745 4,729
Industrial 1,861 1,868 1,922 1,851 2,100
Public Authority 1,050 1,090 893 903 856
Fire Protection 6,227 6,129 6,021 5,967 5,881
Other 145 66 109 91 83
- ----------------------------------------------------------------------------------------------------------------------------
Total Operating Revenues $ 38,592 $ 39,350 $ 38,129 $ 38,131 $ 37,190
============================================================================================================================
Number of Customers (Average) 61,597 60,844 60,082 59,558 58,966
Billed Consumption (Millions of Gallons) 5,427 5,595 5,421 5,450 5,331
Number of Employees 162 163 164 168 179
33
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the notes thereto.
LIQUIDITY AND CAPITAL RESOURCES - During the first two quarters of 1996 the
Dividend Reinvestment and Common Stock Purchase Plan (DRIP) provided over
$900,000 of new equity capital, increasing the common stock equity component of
the Company's capitalization to 50%, up from 48% in 1995. To assist the Company
in maintaining a 50/50 Equity to Debt ratio, the Company modified its DRIP to
give the Company increased financial flexibility through the option of being
able to provide DRIP shares through open market purchases and negotiated
transactions, in addition to the previous method of issuing new shares. To meet
the DRIP requirements in the second half of 1996 the Company chose to purchase
shares on the open market. These purchases allowed the Company to maintain the
50/50 Equity to Debt ratio, and have been financed with short-term debt, a less
expensive form of financing than issuance of equity for the Company at this
time.
Utility plant additions were financed through cash provided by operating
activities, funds received from others, funds provided by the DRIP, and through
interim bank borrowings. Seasonal cash requirements were provided through
interim bank borrowings.
Interim bank loans payable at year end were $5,795,000, approximately $3,000,000
higher than the same time the prior year. This increase is due to the changes to
the DRIP, as well as the decrease in cash flows from operations stemming
primarily from the extreme weather differences between 1996 and 1995. Management
considers the current $12,000,000 line of credit with four banks adequate to
finance expected short-term borrowing requirements that may arise from
operations during 1997. Interest expense charged on interim bank loans will
fluctuate subject to financial market conditions experienced during the year.
1996 was the fourth consecutive year that interest coverage, the ratio of
utility operating income plus Federal and State income taxes to annualized
interest expense on outstanding long-term debt, exceeded 4.0 times coverage.
The Board of Directors has approved a $11,400,000 construction budget for 1997.
Funds provided by operating activities, given normal weather patterns and
related operating revenue billings and contributions from developers and others,
are expected to finance approximately 70% of this construction program. Refer to
Note 10, Utility Plant and Construction Program, in Notes to Consolidated
Financial Statements for additional discussion of the Subsidiary's future
construction program. The remainder of the construction program is expected to
be financed through interim bank loans.
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REGULATORY MATTERS AND INFLATION - The Subsidiary's last rate increase was
effective March 25, 1991. That rate decision included a 12.7% allowed return on
common equity and a 10.74% allowed return on rate base. Future economic and
financial market conditions, coupled with governmental regulations and fiscal
policy, plus other factors which are unpredictable and often beyond the control
of the Subsidiary, will influence when the Subsidiary requests a revised
schedule of rates from the DPUC. Construction expenditures mandated to comply
with the amendments to the Safe Drinking Water Act (SDWA) will, when and if
required, also affect water rates charged to customers.
The Company, like all other businesses, is affected by inflation, most notably
by the continually increasing costs required to maintain, improve, and expand
its service capability. The cumulative effect of inflation results in
significantly higher facility replacement costs which must be recovered from
future cash flow. The ability of the Subsidiary to recover this increased
investment in facilities is dependent upon future revenue increases which are
subject to approval by the Connecticut Department of Public Utility Control
(DPUC).
Management does not presently plan to petition the DPUC for an increase in
permanent rates in 1997.
OUTLOOK FOR 1997 - The Company's profitability is primarily attributable to the
sale and distribution of water, the amount of which is dependent on seasonal
weather fluctuations, particularly during the summer months when water demand
will vary with rainfall and temperature levels.
Through December 31, 1996, the Company has expended approximately $2,350,000 in
its effort to remediate the Reynolds Bridge Well Field (RBWF) contaminated with
MTBE, a gasoline additive. These costs have been deferred. Additional
expenditures of approximately $300,000 related to this remediation effort are
expected to be incurred in 1997, and will also be deferred as management expects
that these costs and future related costs will be recovered from the responsible
parties, or through rates charged to customers. Refer to Note 9, Recoverable
Clean-Up Costs, for additional discussion of RBWF clean-up costs.
RESULTS OF OPERATIONS -
1996 COMPARED WITH 1995
Net income applicable to common stock for 1996 increased from that of 1995 by
$240,000, or $0.02 per average common share, on an increased number of common
shares outstanding due primarily to the following:
- - Operating income increased $106,000 as a result of a $758,000 decrease
in operating revenues offset by a $864,000 decrease in operating
expense.
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- - The 1.9% decrease in operating revenues is primarily due to the extreme
differences in the 1996 and 1995 summer weather. The 1996 summer was
wet and cool causing customer water usage to decline, as opposed to the
1995 summer that was extraordinarily hot and dry.
- - The 2.9% decrease in operating expenses is primarily due to
the following:
- a reduction in operation expense due to lower production,
treatment, and distribution expenses associated with the
decline in the volume of water sold
- a reduction in administrative expenses and a postponement
of non-critical maintenance expenses in response to the
decline in revenues due to the wet and cool summer
- a greater percentage of the Subsidiary's overall labor
activity being directed to capital-related projects
- a lower effective tax rate in 1996 primarily associated
with the flow-through adjustment related to pension costs
- - Other income increased $155,000 due primarily to increased AFUDC on the
Subsidiary's continuing investment in utility plant.
1995 COMPARED WITH 1994
1995 net income applicable to common stock increased from that of 1994 by
$483,000, or $.09 per average common share, on an increased number of average
common shares due primarily to the following:
- - Operating revenues increased by 3.2%, or $1,221,000, primarily due to
the higher residential, commercial, and public authority consumption in
1995 reflecting the hot and dry summer.
- - Operating expenses increased by 3.0% primarily due to the
following:
- increased gross earnings and income taxes related to the
higher revenues and taxable income
- increased operation costs due to higher production,
treatment, and distribution expenses associated with the
higher volume of water sold
- Increased depreciation expense relating to increased
plant in service
- increased maintenance expense
- increased employee fringe benefit costs
- - Other income increased $122,000 due primarily to a reduction in
preferred stock dividends accomplished by the refinancing of the 9.5%
Series Cumulative Preferred Stock of the Subsidiary in March, 1994.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Connecticut Water Service, Inc.:
We have audited the accompanying consolidated balance sheets of Connecticut
Water Service, Inc. (a Connecticut corporation) and Subsidiary as of December
31, 1996 and 1995, and the related consolidated statements of income and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Connecticut Water
Service, Inc. and Subsidiary as of December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
Hartford, Connecticut
February 14, 1997
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CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
(In thousands except per share amounts) 1996 1995 1994
- ----------------------------------------------------------------------------------------------
Operating Revenues $ 38,592 $ 39,350 $ 38,129
- ----------------------------------------------------------------------------------------------
Operating Expenses
Operation 12,964 13,404 12,929
Maintenance 1,664 2,026 1,970
Depreciation 3,315 3,158 3,086
Federal Income Taxes 3,878 3,925 3,769
Connecticut Corporation Business Taxes 934 1,025 987
Taxes Other Than Income Taxes 5,709 5,790 5,733
- ----------------------------------------------------------------------------------------------
Total Operating Expenses 28,464 29,328 28,474
- ----------------------------------------------------------------------------------------------
Utility Operating Income 10,128 10,022 9,655
- ----------------------------------------------------------------------------------------------
Other Income (Deductions)
Interest 179 156 100
Allowance for Funds Used During Construction 337 52 89
Preferred Stock Dividends of Subsidiary -- -- (73)
Other (53) 112 23
Taxes on Other Income (21) (33) 26
- ----------------------------------------------------------------------------------------------
Total Other Income (Deductions) 442 287 165
- ----------------------------------------------------------------------------------------------
Interest and Debt Expenses
Interest on Long-Term Debt 3,460 3,462 3,457
Other Interest Charges 319 296 295
Amortization of Debt Expense 188 188 188
- ----------------------------------------------------------------------------------------------
Total Interest and Debt Expenses 3,967 3,946 3,940
- ----------------------------------------------------------------------------------------------
Net Income Before Preferred Dividends 6,603 6,363 5,880
Preferred Stock Dividend Requirement 38 38 38
- ----------------------------------------------------------------------------------------------
Net Income Applicable to Common Stockholders $ 6,565 $ 6,325 $ 5,842
==============================================================================================
Weighted Average Common Shares Outstanding 2,997 2,918 2,812
==============================================================================================
Earnings Per Average Common Share $ 2.19 $ 2.17 $ 2.08
==============================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, (Thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
Operating Activities:
Net Income Before Preferred Dividends of Parent $ 6,603 $ 6,363 $ 5,880
- ------------------------------------------------------------------------------------------------------------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation (including $105 in 1996, $124 in 1995,
and $150 in 1994 charged to other accounts) 3,420 3,282 3,236
Change in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable and
Accrued Unbilled Revenues 235 (403) (176)
(Increase) Decrease in Other Current Assets (32) 811 (579)
(Increase) Decrease in Other Non-Current Items (612) (442) (870)
Increase (Decrease) in Accounts Payable, Accrued
Expenses and Other Current Liabilities (97) 391 2,324
Increase (Decrease) in Deferred Income Taxes and
Investment Tax Credits, Net 1,051 1,003 1,080
- ------------------------------------------------------------------------------------------------------------
Total Adjustments 3,965 4,642 5,015
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 10,568 11,005 10,895
- ------------------------------------------------------------------------------------------------------------
Investing Activities:
Gross Additions to Utility Plant (including
Allowance For Funds Used During Construction of
$337 in 1996, $52 in 1995 and $89 in 1994) (10,971) (9,198) (6,514)
- ------------------------------------------------------------------------------------------------------------
Financing Activities:
Proceeds from Interim Bank Loans 5,795 2,646 2,700
Repayment of Interim Bank Loans (2,646) (2,700) (3,950)
Proceeds from Issuance of Long-Term Debt -- -- 12,050
Reduction of Long-Term Debt Including Current Portion (30) (140) (9,050)
Proceeds from Issuance of Common Stock 1,136 2,410 1,908
Retirement of Preferred Stock -- (30) (3,030)
Charges Related to Redemption of
9.5% Series Preferred Stock -- -- (257)
Advances, Contributions and Funds from
Others for Construction, Net 1,191 1,081 594
Costs Incurred to Issue Long-Term Debt, Preferred Stock,
and Common Stock -- (33) (697)
Cash Dividends Paid (5,132) (4,935) (4,675)
- ------------------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities 314 (1,701) (4,407)
- ------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash (89) 106 (26)
Cash at Beginning of Year 124 18 44
- ------------------------------------------------------------------------------------------------------------
Cash at End of Year $ 35 $ 124 $ 18
============================================================================================================
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest (Net of Amounts Capitalized) $ 3,773 $ 3,759 $ 3,698
State and Federal Income Taxes $ 3,715 $ 4,635 $ 3,480
The accompanying notes are an integral part of these consolidated financial
statements.
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CONSOLIDATED BALANCE SHEETS
December 31, (Thousands of dollars) 1996 1995
- -------------------------------------------------------------------------------------------------
ASSETS
Utility Plant
Utility Plant $ 195,223 $ 186,907
Construction Work in Progress 8,940 6,399
Utility Plant Acquisition Adjustments (1,206) (1,206)
- -------------------------------------------------------------------------------------------------
202,957 192,100
Accumulated Provision for Depreciation (49,059) (45,564)
- -------------------------------------------------------------------------------------------------
Net Utility Plant 153,898 146,536
- -------------------------------------------------------------------------------------------------
Investments
Unconsolidated Subsidiary at Underlying Equity 38 35
Other 1,252 1,061
- -------------------------------------------------------------------------------------------------
Total Investments 1,290 1,096
- -------------------------------------------------------------------------------------------------
Current Assets
Cash 35 124
Accounts Receivable (Less Allowance, 1996 - $140; 1995 - $164) 3,736 3,987
Accrued Unbilled Revenues 2,830 2,814
Materials and Supplies, at Average Cost 628 588
Prepayments and Other Current Assets 108 116
- -------------------------------------------------------------------------------------------------
Total Current Assets 7,337 7,629
- -------------------------------------------------------------------------------------------------
Deferred Charges
Unamortized Debt Issuance Expense 5,212 5,399
Costs Recoverable Through Future Rates:
Income Taxes 9,000 9,000
Postretirement Benefits Other Than Pension 1,036 932
Recoverable Clean-Up Costs 5,400 4,500
Prepaid Income Taxes on Contributions in Aid of Construction 528 530
Other Costs 939 837
- -------------------------------------------------------------------------------------------------
Total Deferred Charges 22,115 21,198
- -------------------------------------------------------------------------------------------------
Total Assets $ 184,640 $ 176,459
=================================================================================================
The accompanying notes are an integral part of these consolidated financial
statements.
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December 31, (Thousands of dollars) 1996 1995
- ----------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
Capitalization
Common Stockholders' Equity:
Common Stock $ 42,456 $ 41,320
Retained Earnings 11,939 10,468
Preferred Stock 772 772
Long-Term Debt 54,430 54,460
- ----------------------------------------------------------------------------------
Total Capitalization 109,597 107,020
- ----------------------------------------------------------------------------------
Current Liabilities
Interim Bank Loans Payable 5,795 2,646
Accounts Payable 4,375 4,609
Accrued Taxes 1,536 1,530
Accrued Interest 1,255 1,249
Current Portion of Accrued Clean-Up Costs 300 450
Other 1,951 1,826
- ----------------------------------------------------------------------------------
Total Current Liabilities 15,212 12,310
- ----------------------------------------------------------------------------------
Accrued Clean-Up Costs 2,757 2,212
- ----------------------------------------------------------------------------------
Advances for Construction 13,600 12,610
- ----------------------------------------------------------------------------------
Contributions in Aid of Construction 18,563 18,551
- ----------------------------------------------------------------------------------
Deferred Federal Income Taxes 12,717 11,608
- ----------------------------------------------------------------------------------
Unfunded Future Income Taxes 9,000 9,000
- ----------------------------------------------------------------------------------
Unfunded Postretirement Benefits Other Than Pensions 1,036 932
- ----------------------------------------------------------------------------------
Unamortized Investment Tax Credits 2,158 2,216
- ----------------------------------------------------------------------------------
Total Capitalization and Liabilities $184,640 $176,459
==================================================================================
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - Connecticut Water Service, Inc. (the Company) is the parent
company of The Connecticut Water Company (the Subsidiary). Intercompany accounts
and transactions have been eliminated in the accompanying consolidated financial
statements.
PUBLIC UTILITY REGULATION - The Subsidiary is subject to regulation for rates
and other matters by the Connecticut Department of Public Utility Control (DPUC)
and follows accounting policies prescribed by the DPUC. The Company prepares its
financial statements in accordance with generally accepted accounting principles
which includes the provisions of Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation," (FAS 71). FAS
71 requires a cost-based, rate-regulated enterprise such as the Subsidiary to
reflect the impact of regulatory decisions in its financial statements. The
DPUC, through the rate regulation process, can create regulatory assets that
result when costs are allowed for ratemaking purposes in a period other than the
period in which the costs would be charged to expense by an unregulated
enterprise.
In accordance with FAS 71, the Subsidiary has recorded regulatory assets or
liabilities as appropriate primarily related to income taxes and postretirement
benefits costs. The specific amounts related to these items are disclosed in the
consolidated balance sheets.
The Subsidiary continues to be subject to cost-of-service based rate regulation
by the DPUC. Based upon current regulation and recent regulatory decisions, the
Company believes that its use of regulatory accounting is appropriate and in
accordance with the provisions of FAS 71.
FAS 121, which became effective for 1996, establishes accounting standards for
the impairment of long-lived assets. FAS 121 also requires that regulatory
assets which are no longer probable of recovery through future revenues be
charged to earnings. The adoption of FAS 121 did not have an impact on the
financial position or results of operations.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from these estimates.
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REVENUES - The Subsidiary accrues an estimate for the amount of revenues
relating to sales unbilled at the end of each quarter. Generally, all customers
are billed quarterly, except larger commercial and industrial customers, and
public fire protection customers, who are billed monthly. Substantially all
customers, except fire protection customers, are metered. Public fire protection
charges are based on the length and diameter of the water main and number of
hydrants in service. Private fire protection charges are based on the diameter
of the connection to the water main.
UTILITY PLANT - Utility plant is stated at original cost of such property when
first devoted to public service. The difference between the original cost and
the cost to the Subsidiary is charged or credited to utility plant acquisition
adjustments. Utility plant accounts are charged with the cost of improvements
and replacements of property including an allowance for funds used during
construction. Retired or disposed of depreciable plant is charged to accumulated
provision for depreciation together with any costs applicable to retirement,
less any salvage received. Maintenance of utility plant is charged to expense.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION - Allowance for funds used during
construction (AFUDC) generally represents the cost of funds used to finance the
construction of the Subsidiary's utility plant. Generally, utility plant under
construction is not recognized as part of the Subsidiary's rate base for
ratemaking purposes until facilities are placed into service, and accordingly,
the Subsidiary charges AFUDC to the construction cost of utility plant.
Capitalized AFUDC, which does not represent current cash income, is recovered
through rates over the service lives of the facilities.
In order for certain acquisitions of failing water systems not to degrade the
Subsidiary's earnings, the Subsidiary has requested that the DPUC allow it to
record AFUDC on its investments in these systems. The 1995 DPUC decision which
approved the Subsidiary's acquisition of the Sound View Water System allowed the
Subsidiary to capitalize financing costs, amounting to $155,000 in 1996, until
its next general rate proceeding.
The Subsidiary's allowed rate of return on rate base is used to calculate AFUDC.
DEPRECIATION - Depreciation is computed on a straight line basis at various
rates, approved by the DPUC, estimated to be sufficient to provide for the
recovery of the investment in utility plant over its useful life. Water
treatment facilities are depreciated using a 2.5% composite rate, while most
other utility plant is depreciated at a composite rate of 1.6%. The depreciation
rates, based on the average balance of depreciable property, were 1.9% for 1996,
1995 and 1994.
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CUSTOMERS' ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION -
Under the terms of construction contracts with real estate developers and
others, the Subsidiary receives advances for the costs of new main
installations. Refunds are made, without interest, as services are connected to
the main, over periods not exceeding fifteen years and not in excess of the
original advance. Unrefunded balances, at the end of the contract period, are
credited to contributions in aid of construction (CIAC) and are no longer
refundable.
INCOME TAXES - The Company provided deferred taxes for all temporary book-tax
differences using the liability method. Under the liability method, deferred
income taxes are recognized at currently enacted income tax rates to reflect the
tax effect of temporary differences between the financial reporting and tax
bases of assets and liabilities. Such temporary differences are the result of
provisions in the income tax law that either require or permit certain items to
be reported on the income tax return in a different period than they are
reported in the financial statements. To the extent such income taxes increase
or decrease future rates, an offsetting regulatory asset and liability have been
recorded in the accompanying consolidated balance sheets.
The Company believes that all deferred income tax assets will be realized in the
future. Approximately $1,000,000, of the December 31, 1996 and 1995 unfunded
future income taxes is related to deferred Federal income taxes. The remaining
balance of the unfunded future income taxes is related to deferred State income
taxes.
Deferred Federal income taxes consists primarily of amounts that have been
provided for accelerated depreciation subsequent to 1981, as required by Federal
income tax regulations. Deferred taxes have also been provided for temporary
differences in the recognition of certain expenses for tax and financial
statement purposes as allowed by DPUC ratemaking policies.
Connecticut Corporation Business Taxes have been reflected primarily using the
flow-through method of accounting for temporary differences in accordance with
required DPUC ratemaking policies.
MUNICIPAL TAXES - Municipal taxes are expensed over the 12 month period
beginning on July 1 following the lien date, corresponding with the period in
which the municipal services are provided.
OTHER DEFERRED COSTS - In accordance with DPUC ratemaking procedures, costs
which benefit future periods, such as tank painting, are expensed over the
periods they benefit.
UNAMORTIZED DEBT ISSUANCE EXPENSE - The issuance costs of long-term debt,
including the remaining balance of issuance costs on long-term debt issues that
have been refinanced prior to maturity and related call premiums, are amortized
over the respective lives of the outstanding debt, as approved by the DPUC.
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NOTE 2: INCOME TAX EXPENSE
Income Tax Expense is comprised of the following:
(Thousands of dollars) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
Federal Classified as Operating Expense $ 3,878 $ 3,925 $ 3,769
Federal Classified as Other Income 30 (13) (39)
- -----------------------------------------------------------------------------------------------------------
Total Federal Income Tax Expense 3,908 3,912 3,730
- -----------------------------------------------------------------------------------------------------------
State Classified as Operating Expense 934 1,025 987
State Classified as Other Income (27) 10 --
- -----------------------------------------------------------------------------------------------------------
Total State Income Tax Expense 907 1,035 987
- -----------------------------------------------------------------------------------------------------------
Total Income Tax Expense $ 4,815 $ 4,947 $ 4,717
===========================================================================================================
The components of the Federal and State income tax provisions are:
Current:
Federal $ 2,833 $ 2,880 $ 2,563
State 907 1,035 987
- -----------------------------------------------------------------------------------------------------------
Total Current 3,740 3, 915 3,550
- -----------------------------------------------------------------------------------------------------------
Deferred Income Taxes, Net:
Federal
Investment Tax Credit (59) (59) (59)
Capitalized Interest 38 24 24
Depreciation 1,071 1,037 1,115
Advances and CIAC 25 30 87
- -----------------------------------------------------------------------------------------------------------
Total Deferred Income Taxes, Net 1,075 1,032 1,167
- -----------------------------------------------------------------------------------------------------------
Total $ 4,815 $ 4,947 $ 4,717
===========================================================================================================
The calculation of Pre-Tax Income is as follows:
Pre-Tax Income
Net Income Before Preferred Dividends of Parent $ 6,603 $ 6,363 $ 5,880
Income Taxes 4,815 4,947 4,717
Preferred Dividends of Subsidiary -- -- 73
- -----------------------------------------------------------------------------------------------------------
Total Pre-Tax Income $11,418 $11,310 $10,670
===========================================================================================================
In accordance with required regulatory treatment, deferred income taxes are not
provided for certain timing differences. This treatment, along with other items,
causes differences between the statutory income tax rate and the effective
income tax rate. The differences between the effective income tax rate recorded
by the Company and the statutory Federal tax rate are as follows:
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
Federal Statutory Income Tax Rate 34.0% 34.0% 34.0%
Tax Effect of Differences:
State Income Taxes Net of Federal Benefit 5.3% 6.0% 6.1%
Depreciation 1.5% 1.5% 1.5%
Pension Costs .6% 1.0% 1.4%
Debt Issuance Expense .2% .2% (.2%)
Other .6% 1.0% 1.4%
- -----------------------------------------------------------------------------------------------------------
Effective Income Tax Rate 42.2% 43.7% 44.2%
===========================================================================================================
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NOTE 3: COMMON STOCK
The Company has 7,500,000 authorized shares of common stock, no par value. A
summary of the changes in the common stock accounts for the period January 1,
1994 through December 31, 1996, appears below:
Issuance
(Thousands of dollars except share amounts) Shares Amount Expense Total
- ---------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1994 2,789,977 $38,218 $(1,150) $37,068
Stock issued through Dividend Reinvestment Plan 74,053 1,728 (33) 1,695
Stock issued through Performance Stock Program 4,061 120 -- 120
Stock issued to Employee Savings 401-K Match Plan 2,468 60 -- 60
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 2,870,559 40,126 (1,183) 38,943
Stock issued through Dividend Reinvestment Plan 87,807 2,199 (33) 2,166
Stock issued through Performance Stock Program 6,369 160 -- 160
Stock issued to Employee Savings 401-K Match Plan 2,022 51 -- 51
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 2,966,757 42,536 (1,216) 41,320
Stock issued through Dividend Reinvestment Plan 36,914 940 -- 940
Stock issued through Performance Stock Program 4,907 100 -- 100
Stock issued to Employee Savings 401-K Match Plan 3,505 96 -- 96
- ---------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 (1) 3,012,083 $43,672 $(1,216) $42,456
===========================================================================================================================
(1) Includes 6,346 restricted shares issued through the Performance Stock
Program.
In 1988 the Board of Directors authorized a dividend distribution of one right
to purchase Common Stock (Right) for each outstanding share of Common Stock.
Each Right entitles the registered holder under certain circumstances to
purchase from the Company one share of Common Stock (or substitute equity or
debt securities) at an exercise price (subject to antidilution adjustments) of
$50 per share, or under other circumstances, common stock or other securities or
assets of an acquiring entity or of the Company.
The Rights are not currently exercisable or separately transferable apart from
the Common Stock. The Rights can be redeemed by the Board of Directors under
certain circumstances at a price of $.01 per Right. The agreement pursuant to
which the Rights were issued may be amended by the Board of Directors under
certain circumstances. The Rights expire on October 11, 1998.
The Company may not pay any dividends on its Common Stock unless full cumulative
dividends to the preceding dividend date for all outstanding shares of Preferred
Stock of the Company have been paid or set aside for payment. All such preferred
stock dividends have been paid.
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NOTE 4: ANALYSIS OF RETAINED EARNINGS
The summary of the changes in Retained Earnings for the period January 1, 1994
through December 31, 1996, appears below:
(Thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
Balance at Beginning of Year $10,468 $ 9,040 $ 8,092
Income Before Preferred Stock Dividends
of Company 6,603 6,363 5,880
- -------------------------------------------------------------------------------------------------------
17,071 15,403 13,972
- -------------------------------------------------------------------------------------------------------
Charges Related to Redemption of Subsidiary's
9.5% Series Preferred Stock -- -- 257
- -------------------------------------------------------------------------------------------------------
Dividends Declared:
Cumulative Preferred, Series A, $.80 Per Share 12 12 12
Cumulative Preferred, Series $.90, $.90 Per Share 26 26 26
Common Stock:
1996 $1.70 Per Share 5,094 -- --
1995 $1.68 Per Share -- 4,897 --
1994 $1.65 Per Share -- -- 4,637
- -------------------------------------------------------------------------------------------------------
5,132 4,935 4,675
- -------------------------------------------------------------------------------------------------------
Balance at End of Year $11,939 $10,468 $ 9,040
=======================================================================================================
NOTE 5: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each of the following financial instruments.
CASH - The carrying amount approximates fair value.
FIRST MORTGAGE BONDS - The fair value of the Company's fixed rate long-term debt
is based upon borrowing rates currently available to the Company. As of December
31, 1996 and 1995, the estimated fair value of the Company's long-term debt was
$55,800,000 and $58,400,000, respectively, as compared to the carrying amounts
of $54,430,000 and $54,460,000, respectively.
The fair values shown above have been reported to meet the disclosure
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Values of Financial Instruments" and do not purport to
represent the amounts at which those obligations would be settled.
NOTE 6: LONG-TERM DEBT
Long-Term Debt at December 31, consisted of the following:
(Thousands of dollars) 1996 1995
- -------------------------------------------------------------------------------------
The Connecticut Water Company First Mortgage Bonds:
6.9% Series Q, Due 2021 $10,000 $10,000
5.875% Series R, Due 2022 14,830 14,860
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
- -------------------------------------------------------------------------------------
Total Long-Term Debt $54,430 $54,460
=====================================================================================
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Substantially all utility plant is pledged as collateral for the Subsidiary's
long-term debt.
There are no mandatory sinking fund payments required on the outstanding First
Mortgage Bonds at December 31, 1996. However, the Series Q and R First Mortgage
Bonds provide for an estate redemption right whereby the estate of deceased
bondholders or surviving joint owners may submit bonds to the Trustee for
redemption at par subject to a $25,000 per individual holder and a 3% annual
aggregate limitation.
Outstanding bonds may be initially called for redemption by the Company at the
following dates and prices - Series Q - August 1, 1996 and Series R, September
1, 1997 at 103%; Series S, December 15, 2003 at 102%; Series T, July 1, 2003 and
Series U, September 1, 2003 at 100% plus accrued interest to the date of
redemption; Series V, January 1, 2004 at 103.5%.
NOTE 7: PREFERRED STOCK
Preferred Stock at December 31, consisted of the following:
(Thousands of dollars) 1996 1995
- ---------------------------------------------------------------------------------
Cumulative Series A Voting, $20 Par Value; Authorized
Issued and Outstanding 15,000 Shares $300 $300
Cumulative Series $.90 Non-Voting, $16 Par Value;
Authorized 50,000 Shares, Issued and Outstanding
29,499 Shares 472 472
- ---------------------------------------------------------------------------------
Total $772 $772
=================================================================================
All or any part of any series of either class of the Company's issued Preferred
Stock may be called for redemption by the Company at any time. The per share
redemption prices of the Series A and Series $.90 Preferred Stock, if called by
the Company, are $21.00 and $16.00, respectively.
The Company is authorized to issue 400,000 shares of an additional class of
Preferred Stock, $25 par value, the general preferences, voting powers,
restrictions and qualifications of which are similar to the Company's existing
Preferred Stock. No shares of the $25 par value Preferred Stock have been
issued.
The Company is also authorized to issue 1,000,000 shares of $1 par value
preference stock, junior to the Company's existing Preferred Stock in rights to
dividends and upon liquidation of the Company. No shares of the preference stock
have been issued.
NOTE 8: BANK LINES OF CREDIT
A $12,000,000 line of credit is provided by four banks. Bank commitment fees of
approximately $15,000, $12,000, and $14,000 were paid in 1996, 1995, and 1994,
respectively, on the lines of credit.
At December 31, 1996 and 1995, the weighted average interest rates on short-term
borrowings outstanding were 5.85% and 6.02%, respectively.
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NOTE 9: RECOVERABLE CLEAN-UP COSTS
During the latter part of 1992 it was discovered that the Subsidiary's Reynolds
Bridge well field in Thomaston, Connecticut, was contaminated with methyl
tertiary butyl ether (MTBE), a gasoline additive. At this time the Subsidiary
and a responsible party are implementing an appropriate remediation program to
clean up the well site. In 1994, legal action was initiated by the Company
against the two parties deemed responsible for such contamination in order to
obtain recovery of the Subsidiary's investigation, clean-up and water treatment
and supply costs. The lawsuit is still in the discovery stage. The magnitude of
such costs is presently estimated to be $5,400,000, or more, of which
approximately $2,350,000 has been incurred at December 31, 1996 and $300,000 is
expected to be incurred in 1997. The clean-up process may take ten years or more
to complete. The Company has reflected the total estimated clean-up costs as a
deferred asset in the accompanying consolidated balance sheets representing
costs which management believes will be recoverable from third parties or
through future rates. A related liability has been recorded representing
expected future clean-up costs. The Subsidiary is presently purchasing water
from a public water supply system to provide service to its customers at normal
levels. The Company and its legal counsel presently believe that any such costs
which are not recovered from third parties should be allowed to be recovered
through rates charged for water service and that the ultimate resolution of this
matter will not have a material impact on the results of operations or financial
condition of the Company.
NOTE 10: UTILITY PLANT AND CONSTRUCTION PROGRAM
The components of utility plant and equipment at December 31, are as follows:
(Thousands of dollars) 1996 1995
- ------------------------------------------------------------------
Source of Supply $ 15,710 $ 15,197
Pumping 11,080 10,351
Water Treatment 35,548 35,023
Transmission and Distribution 120,244 114,901
General (including intangible) 10,465 9,259
Held for Future Use 2,176 2,176
- ------------------------------------------------------------------
Total $195,223 $186,907
==================================================================
The amounts of depreciable plant at December 31, 1996 and 1995, included in
total plant were $180,101,000 and $172,819,000, respectively.
The Subsidiary is engaged in a continuous construction program. The Subsidiary's
estimated annual capital expenditures, net of amounts financed by customer
advances and contributions in aid of construction, are expected to be
$10,400,000 during 1997, $5,500,000 during 1998, and $6,500,000 in 1999. These
projections include costs of refurbishing the Rockville Water Treatment Plant of
$4,550,000 in 1997 and $1,425,000 in 1998. The projections also include $535,000
in 1997 to make improvements to the Sound View Water System that the Subsidiary
acquired in 1995. During the period 2000 to 2001, construction expenditures for
routine improvements to the water distribution system are expected to be
approximately $5,000,000 each year.
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NOTE 11: TAXES OTHER THAN INCOME TAXES
Taxes Other than Income Taxes consist of the following:
(Thousands of dollars) 1996 1995 1994
- ------------------------------------------------------------------------------
Municipal Property Taxes $3,284 $3,284 $3,331
Payroll Taxes 495 539 496
Connecticut Gross Earnings Tax 1,930 1,967 1,906
- ------------------------------------------------------------------------------
Total $5,709 $5,790 $5,733
==============================================================================
NOTE 12: PENSION AND OTHER EMPLOYEE BENEFITS
PENSION - The Subsidiary has a trusteed, non-contributory defined benefit
retirement plan (the Pension Plan) which covers all employees who have completed
one year of service. Benefits under the Pension Plan are based on credited years
of service and "average earnings", as defined in the Pension Plan. The
Subsidiary's policy is to fund accrued pension costs as permitted by Federal
income tax regulations. Fundings of $153,000 and $396,000 were made for 1996 and
1995 respectively.
The table below sets forth the Pension Plan's funded status and amounts
recognized in the Company's year end Balance Sheets.
(Thousands of dollars) 1996 1995
- ---------------------------------------------------------------------------------------
Actuarial Present Value of Benefit Obligations:
Vested Benefit Obligation $ 7,243 $ 7,811
Accumulated Benefit Obligation 7,500 8,146
Projected Benefit Obligation 9,414 11,029
Pension Plan Assets at Fair Value, Primarily
Equity Securities and U.S. Bonds 12,681 10,866
Projected Benefit Obligation (9,414) (11,029)
- ---------------------------------------------------------------------------------------
Pension Plan Assets in Excess of (Under) Projected
Benefit Obligation 3,267 (163)
Add (Deduct):
Unrecognized Net Gain From Past Experience
Different From That Assumed and Effects
of Changes in Assumptions (4,465) (1,209)
Unrecognized Net Transition Asset at January 1,
1986 Being Recognized Over 15 Years (162) (194)
Unrecognized Prior Service Cost 282 315
- ---------------------------------------------------------------------------------------
Prepaid (Accrued) Pension Cost as of December 31 $ (1,078) $ (1,251)
=======================================================================================
Net periodic pension cost included the following components:
(Thousands of dollars) 1996 1995 1994
- -------------------------------------------------------------------------------------------------
Service Cost-Benefits Earned During the Period $ 463 $ 383 $ 469
Interest Cost on Projected Benefit Obligation 737 668 631
Actual Return on Pension Plan Assets (1,718) (2,493) 144
Deferred Investment Gain (Loss) 958 1,801 (813)
Amortization of:
Unrecognized Net Transition Asset (32) (32) (32)
Unrecognized Net (Gain) Loss 32 (114) 14
Unrecognized Prior Service Cost (64) 32 32
- -------------------------------------------------------------------------------------------------
Net Periodic Pension Cost $ 376 $ 245 $ 445
=================================================================================================
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The actuarial present value of the projected benefit obligation was determined
based on the following assumptions:
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------
Weighted Average Discount Rate 7.75% 7.25% 7.75%
Rate of Increase in Future Compensation Levels 4.5% 5.3% 5.3%
The Long-Term Expected Rate of Return on Plan Assets
Used in the Determination of Pension Costs 8.0% 8.0% 8.0%
The weighted average discount rate assumption is based on the return provided by
high quality fixed income investments at year end. This rate of return
assumption will likely change annually. The wage rate assumption and the rate of
return on plan assets are more long-term assumptions which may be revised to
reflect changes in economic conditions.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN - The Subsidiary provides additional
pension benefits to senior management through a supplemental executive
retirement plan. At December 31, 1996 the actuarial present value of the
projected benefit obligation was $533,000. Expense associated with this plan was
$115,000 for 1996, $181,000 for 1995, and $72,000 for 1994.
POSTRETIREMENT BENEFITS OTHER THAN PENSION (PBOP) - In addition to providing
pension benefits, the Subsidiary provides certain medical, dental and life
insurance benefits to retired employees partially funded by a 501(c)(9)
Voluntary Employee Beneficiary Association Trust (VEBA) that has been approved
by the DPUC. Substantially all of the Subsidiary's employees may become eligible
for these benefits if they retire from the Company on or after age 55 with 10
years of service with the Subsidiary. The contributions for calendar years 1996,
1995, and 1994 were $265,000, $250,000, and $250,000, respectively.
A deferred regulatory asset has been recorded to reflect the amount which
represents the future operating revenues expected to be collected in customer
rates when the associated liabilities become payable, including appropriate
income and gross earnings taxes. The Company believes that the deferred asset
recorded from the adoption of this statement will be recovered in the future
through the ratemaking process as the DPUC has issued decisions for other water
companies authorizing such rate recovery and has allowed the recording of a
regulatory asset for the portion of the costs to be recovered through future
rates.
The Company has elected to recognize the transition obligation on a delayed
basis over a period equal to the plan participants' 21.6 years of average future
service.
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The table below sets forth the PBOP plans' funded status and unfunded amounts
recognized in the Company's 1996 and 1995 year end Balance Sheets.
(Thousands of dollars) 1996 1995
- ----------------------------------------------------------------------------------------
Accumulated Postretirement Benefit Obligation (APBO):
Current Retirees $(1,928) $(2,453)
Active Employees Fully Eligible for Benefits (704) (616)
Other Active Employees (565) (790)
- ----------------------------------------------------------------------------------------
Total (3,197) (3,859)
Fair Value of Assets 1,290 1,092
- ----------------------------------------------------------------------------------------
APBO in Excess of Fair Value of Assets (1,907) (2,767)
- ----------------------------------------------------------------------------------------
Unrecognized Amounts:
Transition Obligation 2,638 2,803
Net Loss (Gain) (1,767) (968)
- ----------------------------------------------------------------------------------------
Total 871 1,835
- ----------------------------------------------------------------------------------------
Unfunded PBOP at December 31 $ 1,036 $ 932
========================================================================================
Net periodic PBOP costs include the following components:
(Thousands of dollars) 1996 1995 1994
- --------------------------------------------------------------------------------------------
Service Cost - Benefits Attributed to Service
During the Period $ 175 $ 150 $ 158
Interest Cost 235 249 209
Actual Return on Assets (133) (182) (9)
Amortization of Transition Obligation 165 165 165
Amortization of Losses (Gains) (133) (97) (128)
Deferral of Asset (Loss) Gain During the Year 87 140 (29)
- --------------------------------------------------------------------------------------------
Net Periodic PBOP Costs $ 396 $ 425 $ 366
============================================================================================
The actuarial present value of the projected benefit obligation was determined
based on the following assumptions:
1996 1995 1994
- -------------------------------------------------------------------------------------------------------
Weighted Average Discount Rate 7.75% 7.25% 7.75%
Expected Long-Term After Tax Return on PBOP Assets 5.0% 5.0% 5.0%
In determining the accumulated postretirement benefit obligation, two sets of
medical cost trend rates were used; for retired employees prior to age 65 and
for retirees age 65 and over. Health care cost trends of 9% and 8%,
respectively, were assumed for 1996, grading down over the years to 5.5% in 1999
and after.
Health care cost trend rates have a significant effect on the accumulated
postretirement benefit obligation and net periodic cost. A one-percentage-point
increase in the assumed health care cost trend rates would increase the
accumulated postretirement benefit obligation at December 31, 1996 by $384,000
and would increase the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year then ended by $62,000.
Accordingly, subsequent changes would increase or decrease the regulatory assets
and liabilities discussed above.
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SAVINGS PLAN - The Subsidiary maintains an employee savings plan which allows
participants to contribute from 1% to 10% of pre-tax compensation. The
Subsidiary matches either 25 or 50 cents for each dollar contributed by the
employee up to 3% of the employees' compensation depending on the Company's
earnings per average common share (EPS). If EPS in the prior year exceeds 110%
of dividends paid per common share, the applicable percentage is 50%; otherwise,
the match is 25%. The Subsidiary's contribution charged to expense in 1996, 1995
and 1994 was $78,000, $71,000 and $60,000, respectively, in each case based on a
50% match.
PERFORMANCE STOCK PROGRAM - The Company has a Performance Stock Program whereby
restricted shares of Common Stock may be awarded annually to Officers of the
Subsidiary. When the goals established by the Compensation Committee have been
attained, the restrictions on the stock are removed. Amounts charged to expense
pursuant to this plan were $100,000, $160,000 and $120,000 for 1996, 1995 and
1994, respectively.
NOTE 13: QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the years ended December 31, 1996 and 1995
appears below:
Net Income Earnings
Utility Applicable to Per Average
Operating Revenues Operating Income Common Stock Common Share
- --------------------------------------------------------------------------------------------------------------------------
(Thousands of dollars
except per share amounts) 1996 1995 1996 1995 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------------
First Quarter $ 9,087 $ 8,819 $ 2,070 $ 2,085 $1,178 $1,137 $ 0.40 $ 0.39
Second Quarter 9,276 9,179 2,085 2,089 1,215 1,167 0.41 0.40
Third Quarter 10,981 12,221 3,425 3,798 2,533 2,910 0.84 0.99
Fourth Quarter 9,248 9,131 2,548 2,050 1,639 1,111 0.54 0.39
- --------------------------------------------------------------------------------------------------------------------------
Year $38,592 $39,350 $10,128 $10,022 $6,565 $6,325 $ 2.19 $ 2.17
==========================================================================================================================
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), the information called for by
Items 10, (except for information concerning the executive officers of the
Company) 11, 12, and 13 is hereby incorporated by reference from the Company's
definitive proxy statement filed by EDGAR on or about March 19, 1997.
Information concerning the executive officers of the Company is included as Item
4.1 of this report.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(A) Documents filed as part of this report:
(1) Consolidated Financial Statements:
Page Number
in this Report
--------------
Report to Independent Auditors ............... 36
Consolidated Statements of Income -
December 31, 1996, 1995 and 1994 .... 37
Consolidated Statements of Cash Flows -
December 31, 1996, 1995 and 1994 .... 38
Consolidated Balance Sheets -
December 31, 1996 and 1995 .......... 39-40
Notes to Consolidated Financial Statements ... 41-52
(2) Financial Statement Schedules for the years ended December 31,
1996, 1995 and 1994:
Report of Independent Public Accountants on Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules provided for in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because of the absence of conditions under which they are required or
because the required information is set forth in the financial
statements or notes thereto.
(3) Exhibits:
Exhibits heretofore filed with the Securities and Exchange Commission
as indicated below are incorporated herein by reference and made a part
hereof as if filed herewith. Exhibits marked by asterisk (*) are being
filed herewith.
55
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EXHIBIT
NUMBER DESCRIPTION
3.1 Certificate of Incorporation of Connecticut Water
Service, Inc. amended and restated September 15,
1988.(Exhibit 3.1 to Form 10-K for year ended December
31, 1989)
3.2 Certificate Amending Certificate of Incorporation of
Connecticut Water Service, Inc. creating $25 par value
Preferred Stock dated September 5, 1989. (Exhibit 3.1a
to Form 10-K for year ended December 31, 1989)
3.3 By-Laws, as amended, of Connecticut Water Service, Inc.
as amended January 18, 1995. (Exhibit 3.3 to Form 10-K
for year ended December 31, 1994)
3.4 Charter of The Connecticut Water Company and amendments
thereto (Certificate of Incorporation) through November
13, 1960. (Exhibit 3.2 to Registration Statement
No. 2-61843)
3.5 Articles of General Preferences, Voting Powers,
Restrictions and Qualifications of the Preferred Stock of
The Connecticut Water Company. (Exhibit 3.3 to
Registration Statement No. 2-61843)
3.6 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company effective May 4, 1970
increasing authorized Preferred Stock. (Exhibit 3.4 to
Registration Statement No. 2-61843)
3.7 Resolutions of stockholders of The Connecticut Water
Company adopted November 14, 1960 creating Preferred
Stock, 5 7/8% Series. (Exhibit 3.5 to Registration
Statement No. 2-61843)
3.8 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company dated May 8, 1965 creating
Preferred Stock, 4 3/4% Series. (Exhibit 3.6 to
Registration Statement No. 2-61843)
3.9 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company dated June 20, 1968 creating
Preferred Stock, 7% Series. (Exhibit 3.6 to
Registration Statement No. 2-61843)
3.10 Purchase Agreement dated May 20 1968 with respect to sale
of Preferred Stock, 7% Series, including Common Stock
dividend restriction in Section 6(e) thereof of The
Connecticut Water Company (Exhibit 3.8 to Registration
Statement No. 2-61843)
3.11 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company dated April 10, 1975. (Exhibit
3.9 to Registration Statement No. 2-54353)
56
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3.12 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company dated December 22, 1980,
creating Preferred Stock, 12 1/2% Series. (Exhibit 2(k)
to Form 10-K for the year ended December 31, 1980)
3.13 Purchase Agreement dated December 1, 1980 with respect to
sale of Preferred Stock, 12 1/2% Series. (Exhibit 2(1)
to Form 10-K for the year ended December 31, 1980)
3.14 Resolution of The Connecticut Water Company Board of
Directors creating Preferred Stock, 9 1/2% Series dated
March 30, 1989. (Exhibit 3.13 to Form 10-K for year
ended December 31, 1989)
3.15 Purchase Agreement with respect to sale of Preferred
Stock, 9 1/2% Series dated March 1, 1989. (Exhibit 3.14
to Form 10-K for year ended December 31, 1989)
3.16 Certificate Amending Certificate of Incorporation by
Action of Board of Directors and Shareholders of The
Connecticut Water Company to reduce Director's Liability
dated November, 1989. (Exhibit 3.15 to Form 10-K for
year ended December 31, 1989)
4.1 Indenture of Mortgage and Deed of Trust from The
Connecticut Water Company to The Connecticut Bank and
Trust Company, Trustee, dated as of June 1, 1956.
(Exhibit 4.3(a) to Registration Statement No. 2-61843)
4.2 Supplemental Indentures thereto dated as of
(i) February 1, 1958 (Exhibit 4.3(b) (i) to
Registration Statement No. 2-61843)
(ii) September 1, 1962 (Exhibit 4.3(b) (ii) to
Registration Statement No. 2-61843)
(iii) January 1, 1966 (Exhibit 4.3(b) (iii) to
Registration Statement No. 2-61843)
(iv) July 1, 1966 (Exhibit 4.3(b) (iv) to Registration
Statement No. 2-61843)
(v) January 1, 1971 (Exhibit 4.3(b) (v) to
Registration Statement No. 2-61843)
(vi) September 1, 1974 (Exhibit 4.3(b) (vi) to
Registration Statement No. 2-61843)
(vii) December 1, 1974 (Exhibit 4.3(b) (vii) to
Registration Statement No. 2-61843)
(viii) January 1, 1976 (Exhibit 4(b) to Form 10-K for
the year ended 12/31/76)
(ix) January 1, 1977 (Exhibit 4(b) to Form 10-K for
the year ended 12/31/76)
(x) September 1, 1978 (Exhibit 2.12(b) (x) to
Registration Statement No. 2-66855)
(xi) December 1, 1978 (Exhibit 2.12(b) (xi) to
Registration Statement No. 2-66855)
(xii) June 1, 1979 (Exhibit 2.12(b) (xii) to
Registration Statement No. 2-66855)
(xiii) December 1, 1983 (Exhibit 4.2 (xiii) to Form 10-K
for the year ended 12/31/83)
(xiv) January 1, 1987 (Exhibit 4.2 (xiv) to Form 10-K
for the year ended 12/31/86)
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(xv) May 1, 1989 (Exhibit 4.2 (xv) to Form 10-K for
year ended 12/31/89)
(xvi) June 1, 1991 (Exhibit 4.2 (xvi) to Form 10-K for
year ended 12/31/91)
(xvii) August 1, 1992 (Exhibit 4.2 (xvii) to Form 10-K
for year ended 12/31/92)
(xviii) October 1, 1993 (Exhibit 4.2 (xviii) to Form 10-K
for year ended 12/31/93)
(xix) June 1, 1993 (Exhibit 4.2 (xix) to Form 10-K for
year ended 12/31/93)
(xx) September 1, 1993 (Exhibit 4.2 (xx) to Form 10-K
for year ended 12/31/93)
(xxi) December 1, 1993 (Exhibit 4.2 (xxi) to Form 10-K
for year ended 12/31/93)
(xxii) March 1, 1994 (Exhibit 4.2 (xxii) to Form 10-K
for year ended 12/31/94)
4.3 Loan Agreement dated as of October 1, 1993, between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.3 to Form 10-K for year ended
December 31, 1993)
4.4 Loan Agreement dated as of June 1, 1993, between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.4 to Form 10-K for year ended
December 31, 1993)
4.5 Loan Agreement dated as of September 1, 1993, between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.5 to Form 10-K for year ended
December 31, 1993)
4.6 Loan Agreement dated as of June 1, 1991, between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.10 to Form 10-K for year ended
December 31, 1991)
4.7 Loan Agreement dated as of August 1, 1992 between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.10 to Form 10-K for the year
ended December 31, 1992)
4.8 Bond Purchase Agreement dated as of December 1, 1993.
(Exhibit 4.8 to Form 10-K for year ended December 31,
1993)
10.1 Pension Plan Fiduciary Liability Insurance for The
Connecticut Water Company Employees' Retirement Plan and
Trust, The Connecticut Water Company Tax Credit Employee
Stock Ownership Plan, as Amended and Restated, Savings
Plan of The Connecticut Water Company and The Connecticut
Water Company VEBA Trust Fund. (Exhibit 10.1 to
Registration Statement No. 2-74938)
58
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10.2 Directors and Officers Liability and Corporation
Reimbursement Insurance. (Exhibit 10.2 to Registration
Statement No. 2-74938)
10.3 Directors Deferred Compensation Plan, effective as of
January 1, 1980, as amended as of March 20, 1981.
(Exhibit 10.3 to Registration Statement No. 2-74938)
10.4 The Connecticut Water Company Deferred Compensation
Agreement dated December 1, 1984. (Exhibit 10.4 to Form
10-K for the year ended December 31, 1984)
10.5 The Connecticut Water Company Deferred Compensation
Agreement dated January 1, 1989. (Exhibit 10.5 to Form
10-K for the year ended December 31, 1988)
10.6 The Connecticut Water Company Supplemental Executive
Retirement Agreement with William C. Stewart. (Exhibit
10.6a to Form 10-K for year ended December 31, 1991
10.7 The Connecticut Water Company Supplemental Executive
Retirement Agreement with Marshall T. Chiaraluce.
(Exhibit 10.6b to Form 10-K for year ended December 31,
1991)
10.8 The Connecticut Water Company Supplemental Executive
Retirement Agreement - standard form for other officers.
(Exhibit 10.6c to Form 10-K for year ended December 31,
1991)
10.9* Savings Plan of The Connecticut Water Company, amended and
restated effective as of January 1, 1996.
10.10* The Connecticut Water Company Employees' Retirement Plan as
amended and restated as of September 1, 1996.
10.11 Water Supply Agreement dated June 13, 1994, between The
Connecticut Water Company and the Hazardville Water
Company. (Exhibit 10.15 to Form 10-K for year ended
December 31, 1994)
10.12 November 4, 1994 Amendment to Agreement dated
December 11, 1957 between The Connecticut Water Company
(successor to the Thomaston Water Company) and the City
of Waterbury. (Exhibit 10.16 to Form 10-K for year ended
December 31, 1994)
10.13 Contract between The Connecticut Water Company and The
Rockville Water and Aqueduct Company dated as of
January 1, 1976. (Exhibit 9(b) to Form 10-K for the year
ended December 31, 1975)
10.14 Agreement dated August 13, 1986 between The Connecticut
Water Co. and the Metropolitan District. (Exhibit 10.14
to Form 10-K for the year ended December 31, 1986)
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10.15 Report of the Commission to Study the Feasibility of
Expanding the Water Supply Services of the Metropolitan
District. (Exhibit 14 to Registration Statement
No. 2-61843)
10.16 Plan of Merger dated December 18, 1978 of Broad Brook
Water Company, The Collinsville Water Company, The
Rockville Water and Aqueduct Company, The Terryville
Water Company and The Thomaston Water Company with and
into The Connecticut Water Company. (Exhibit 13 to Form
10-K for the year ended December 31, 1978)
10.17 Bond Exchange Agreements between Connecticut Water
Service, Inc., The Connecticut Water Company Bankers Life
Company and Connecticut Mutual Life Insurance Company
dated October 23, 1978. (Exhibit 14 to Form 10-K for the
year ended December 31, 1978)
10.18 Dividend Reinvestment and Common Stock Purchase Plan as
amended. (Registration Statement No. 33-53211 as
amended)
10.19 Contract for Supplying Bradley International Airport.
(Exhibit 10.21 to Form 10-K for the year ended
December 31, 1984)
10.20 Report of South Windsor Task Force. (Exhibit 10.23 to
Form 10-K for the year ended December 31, 1987)
10.21 Trust Agreement for The Connecticut Water Company Welfare
Benefits Plan (VEBA) dated January 1, 1989. (Exhibit
10.21 to Form 10-K for year ended December 31, 1989)
10.22 Performance Stock Program. (Registration Statement No.
33-49058.)
24.1 * Consent of Arthur Andersen LLP
27.0 * Financial Data Schedule
- ----------
Note: Exhibits 10.1 through 10.10, 10.21 and 10.22 set forth
each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this
Form-10K.
(b) No reports on Form 8-K were filed during the last
quarter of 1996.
60
Page 60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CONNECTICUT WATER SERVICE, INC.
Registrant
By /s/ Marshall T. Chiaraluce
----------------------------
Marshall T. Chiaraluce
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of Connecticut
Water Service, Inc. in the capacities and on the dates indicated.
Signature Title Date
/s/ Marshall T. Chiaraluce
- ---------------------------
Marshall T. Chiaraluce Director and March 19, 1997
(Principal Executive Officer) President and
Chief Executive
Officer
/s/ David C. Benoit
- ------------------------------
David C. Benoit Vice President - March 18, 1997
(Principal Financial and Finance,
Accounting Officer) Accounting, and
Treasurer
/s/ William F. Guillaume
- ------------------------------
William F. Guillaume Director and Vice
President - March 19, 1997
Engineering and
Planning
61
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/s/ Francis E. Baker, Jr. Director March 12, 1997
- --------------------
Francis E. Baker, Jr.
/s/ Harold E. Bigler, Jr. Director March 12, 1997
- ---------------------
Harold E. Bigler, Jr.
/s/Astrid T. Hanzalek Director March 13, 1997
- ---------------------
Astrid T. Hanzalek
/s/ Frederick E. Hennick Director March 10, 1997
- ---------------------
Frederick E. Hennick
/s/ Marcia L. Hincks Director March 13, 1997
- ---------------------
Marcia L. Hincks
/s/ William C. Lichtenfels Director March 10, 1997
- ---------------------
William C. Lichtenfels
/s/ Rudolph E. Luginbuhl Director March 8, 1997
- ---------------------
Rudolph E. Luginbuhl
/s/ Harvey G Moger Director March 21, 1997
- ---------------------
Harvey G. Moger
/s/ Robert F. Neal Director March 8, 1997
- ---------------------
Robert F. Neal
/s/ Warren C. Packard Director March 15, 1997
- ---------------------
Warren C. Packard
/s/ Donald B. Wilbur Director March 11, 1997
- ---------------------
Donald B. Wilbur
62
SCHEDULES
63
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited, in accordance with generally accepted auditing standards, the
financial statements of Connecticut Water Service, Inc. included in this Form
10-K, and have issued our report thereon dated February 14, 1997. Our audit was
made for the purpose of forming an opinion on those statements taken as a whole.
The schedule listed in the accompanying index to financial statements and
schedule is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Hartford, Connecticut
February 14, 1997
64
CONNECTICUT WATER SERVICE, INC. and SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Balance Additions Deductions Balance
Beginning Charged to From End of
Description of Year Income Reserves (1) Year
------------- --------- --------- ------------ -----
(Thousands of Dollars)
Allowance for Uncollectible Accounts
Year Ended December 31, 1996 $164 $128 $152 $140
==== ==== ==== ====
Year Ended December 31, 1995 $149 $137 $122 $164
==== ==== ==== ====
Year Ended December 31, 1994 $166 $115 $132 $149
==== ==== ==== ====
(1) Amounts charged off as uncollectible after deducting recoveries
65
EXHIBITS
TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR
ENDED DECEMBER 31, 1996
10.9 Savings Plan of The Connecticut Water Company
10.10 The Connecticut Water Company Employees' Retirement Plan
24.1 Consent of Arthur Andersen LLP
27.0 Financial Data Schedule