UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED March 31, 2003 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number: 0-8084 Connecticut Water Service, Inc. (Exact name of registrant as specified in its charter) Connecticut 06-0739839 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 93 West Main Street, Clinton, CT 06413-1600 (Address of principal executive offices) (Zip Code) (860) 669-8636 (Registrant's telephone number, including area code) Not Applicable (Former name, address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- ------- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes X No ------- ------- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 7,947,093 Number of shares of common stock outstanding, March 31, 2003 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES Financial Report March 31, 2003 and 2002 TABLE OF CONTENTS PART I, ITEM 1: FINANCIAL STATEMENTS Consolidated Balance Sheets at March 31, 2003 and December 31, 2002 Page 3 Consolidated Statements of Capitalization at March 31, 2003 and December 31, 2002 Page 4 Consolidated Statements of Income for the Three Months Ended March 31, 2003 and 2002 Page 5 Consolidated Statements of Retained Earnings for the Three Months Ended March 31, 2003 and 2002 Page 6 Consolidated Statements of Cash Flows for Three Months Ended March 31, 2003 and 2002 Page 7 Notes to Consolidated Financial Statements Page 8 PART I, ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Page 9 PART I, ITEM 3: Quantitative and Qualitative Disclosures About Market Risk Page 13 PART I, ITEM 4: Controls and Procedures Page 13 PART II, ITEM 1: Legal Proceedings Page 13 PART II, ITEM 4: Submission of Matters to a Vote of Security Holders Page 13 PART II, ITEM 6: Exhibits and Reports on Form 8-K Page 14 Signatures Page Page 15 Page 3 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AT MARCH 31, 2003 AND DECEMBER 31, 2002 (IN THOUSANDS) MARCH 31, 2003 DEC. 31, (UNAUDITED) 2002 ----------- --------- ASSETS Utility Plant $ 310,039 $ 308,385 Construction Work in Progress 8,174 9,592 Utility Plant Acquisition Adjustments (1,275) (1,278) --------- --------- 316,938 316,699 Accumulated Provision for Depreciation (88,708) (87,602) --------- --------- Net Utility Plant 228,230 229,097 --------- --------- Other Property and Investments 3,592 3,557 --------- --------- Cash 913 464 Accounts Receivable (Less Allowance, 2003 - $240; 2002 - $240) 5,035 5,157 Accrued Unbilled Revenues 3,519 3,619 Materials and Supplies, at Average Cost 993 960 Prepayments and Other Current Assets 1,413 173 --------- --------- Total Current Assets 11,873 10,373 --------- --------- Unamortized Debt Issuance Expense 5,023 5,080 Unrecovered Income Taxes 10,739 10,718 Postretirement Benefits Other Than Pension 845 846 Goodwill 3,608 3,608 Other Costs 1,402 1,520 --------- --------- Total Regulatory and Other Long-Term Assets 21,617 21,772 --------- --------- TOTAL ASSETS $ 265,312 $ 264,799 ========= ========= CAPITALIZATION AND LIABILITIES Common Stockholders' Equity $ 80,585 $ 79,975 Preferred Stock 847 847 Long-Term Debt 64,605 64,734 --------- --------- Total Capitalization 146,037 145,556 --------- --------- Current Portion of Long Term Debt 242 242 Interim Bank Loans Payable 10,700 6,950 Accounts Payable, Accrued Taxes and Accrued Interest 3,706 7,945 Other 217 341 --------- --------- Total Current Liabilities 14,865 15,478 --------- --------- Advances for Construction 22,382 22,069 Contributions in Aid of Construction 43,564 43,373 Deferred Federal Income Taxes 20,886 20,633 Unfunded Future Income Taxes 9,871 9,871 Long-term Compensation Arrangements 5,781 5,877 Unamortized Investment Tax Credits 1,926 1,942 Commitments and Contingencies --------- --------- Total Long-Term Liabilities 104,410 103,765 --------- --------- TOTAL CAPITALIZATION AND LIABILITIES $ 265,312 $ 264,799 ========= ========= The accompanying notes are an integral part of these financial statements. Page 4 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CAPITALIZATION AT MARCH 31, 2003 AND DECEMBER 31, 2002 (IN THOUSANDS, EXCEPT SHARE DATA) MARCH 31, 2003 DEC. 31, (UNAUDITED) 2002 --------------- --------------- Common Stockholders' Equity Common Stock Without Par Value Authorized - 15,000,000 Shares; $ 54,781 $ 54,661 Shares Issued and Outstanding: 2003 - 7,947,093 ; 2002 - 7,939,713 Stock Issuance Expense (1,592) (1,592) Retained Earnings 27,396 26,906 --------------- --------------- Total Common Stockholders' Equity 80,585 79,975 --------------- --------------- Preferred Stock Cumulative Preferred Stock of Connecticut Water Service, Inc. Series A Voting, $20 Par Value; Authorized, Issued and Outstanding 15,000 Shares, Redeemable at $21.00 Per Share 300 300 Series $.90 Non-Voting, $16 Par Value; Authorized 50,000 Shares Issued and Outstanding 29,499 Shares, Redeemable at $16.00 Per Share 472 472 --------------- --------------- Total Preferred Stock of Connecticut Water Service, Inc. 772 772 Cumulative Preferred Stock of Barnstable Water Company Voting, $100 Par Value; Authorized, Issued and Outstanding 750 shares. Redeemable at $105 per share 75 75 --------------- --------------- Total Preferred Stock 847 847 --------------- --------------- Long-Term Debt The Connecticut Water Company First Mortgage Bonds 5 875% Series R, due 2022 14,645 14,645 6.65% Series S, due 2020 8,000 8,000 5 75% Series T, due 2028 5,000 5,000 5.3% Series U, due 2028 4,550 4,550 6.94% Series V, due 2029 12,050 12,050 --------------- --------------- 44,245 44,245 Unsecured Water Facilities Revenue Refinancing Bonds 5.05% 1998 Series A, due 2028 9,625 9,625 5.125% 1998 Series B, due 2028 7,720 7,720 --------------- --------------- Total Connecticut Water Company 61,590 61,590 Crystal Water Utilities Corporation 8.0% New London Trust, Due 2017 121 122 --------------- --------------- Crystal Water Company of Danielson 7.82% Connecticut Development Authority, Due 2021 480 483 --------------- --------------- Chester Realty 6% Note Payable, Due 2006 78 78 --------------- --------------- Barnstable Water Company 10.2% Indianapolis Life Insurance Co., Due 2011 1,425 1,525 --------------- --------------- Unionville Water Company 8.125% Farmington Savings Bank, Due 2011 1,153 1,178 --------------- --------------- Total Connecticut Water Service, Inc. 64,847 64,976 --------------- --------------- Less Current Portion (242) (242) --------------- --------------- Total Long-Term Debt 64,605 64,734 --------------- --------------- TOTAL CAPITALIZATION $ 146,037 $ 145,556 =============== =============== The accompanying notes are an integral part of these financial statements. Page 5 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 2002 (UNAUDITED) (UNAUDITED) --------------- --------------- Operating Revenues $ 10,901 $ 10,284 --------------- --------------- Operating Expenses Operation and Maintenance 5,614 4,468 Depreciation 1,474 1,230 Income Taxes 481 883 Taxes Other Than Income Taxes 1,316 1,204 --------------- --------------- Total Operating Expenses 8,885 7,785 --------------- --------------- Utility Operating Income 2,016 2,499 --------------- --------------- Other Income, Net of Taxes Gain on Property Transactions 943 -- Non-Water Sales Earnings 124 80 Allowance for Funds Used During Construction 123 115 Other 40 34 --------------- --------------- Total Other Income, Net of Taxes 1,230 229 --------------- --------------- Interest and Debt Expense Interest on Long-Term Debt 973 972 Other Interest Charges 97 107 Amortization of Debt Expense 57 96 --------------- --------------- Total Interest and Debt Expense 1,127 1,175 --------------- --------------- Net Income Before Preferred Dividends 2,119 1,553 Preferred Stock Dividend Requirement 9 9 --------------- --------------- Net Income Applicable to Common Stock $ 2,110 $ 1,544 =============== =============== Weighted Average Common Shares Outstanding: Basic 7,943 7,656 Diluted 7,986 7,723 Earnings Per Common Share: Basic $ 0.27 $ 0.20 Diluted $ 0.26 $ 0.20 Dividends Per Common Share $ 0.2050 $ 0.2022 The accompanying notes are an integral part of these financial statements. Page 6 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2003 2002 (UNAUDITED) (UNAUDITED) --------------- --------------- Balance at Beginning of Period $ 26,906 $ 24,441 Net Income Before Preferred Dividends of Parent 2,119 1,553 --------------- --------------- 29,025 25,994 --------------- --------------- Dividends Declared: Cumulative Preferred, Class A, $.20 per share 3 3 Cumulative Preferred, Series $.90, $.225 per share 6 6 Common Stock - 2003 $.2050 per share; 2002 $.2022 per share 1,620 1,541 --------------- --------------- 1,629 1,550 --------------- --------------- Balance at End of Period $ 27,396 $ 24,444 =============== =============== The accompanying notes are an integral part of these financial statements. Page 7 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002 (IN THOUSANDS) 2003 2002 (UNAUDITED) (UNAUDITED) --------------- --------------- Operating Activities: Net Income Before Preferred Dividends of Parent $ 2,119 $ 1,553 --------------- --------------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation (including $41 in 2003, $43 in 2002 charged to other accounts) 1,515 1,273 Change in Assets and Liabilities: Decrease in Accounts Receivable and Accrued Unbilled Revenues 222 18 (Increase) in Other Current Assets (1,273) (955) Decrease in Other Non-Current Items 24 115 (Decrease) in Accounts Payable, Accrued Expenses and Other Current Liabilities (4,363) (2,902) Increase in Deferred Federal Income Taxes and Investment Tax Credits, Net 237 235 --------------- --------------- Total Adjustments (3,638) (2,216) --------------- --------------- Net Cash (Used for) Operating Activities (1,519) (663) --------------- --------------- Investing Activities: Gross Additions to Utility Plant (including Allowance for Funds Used During Construction of $123 in 2003 and $115 in 2002) (658) (1,747) --------------- --------------- Financing Activities: Proceeds from Interim Bank Loans 10,700 6,613 Repayment of Interim Bank Loans (6,950) (1,825) Proceeds from Issuance of Common Stock 120 96 Reduction of Long-Term Debt including Current Portion (129) (2,180) Advances, Contributions and Funds From Others for Construction, Net 514 1,654 Cash Dividends Paid (1,629) (1,550) --------------- --------------- Net Cash Provided by Financing Activities 2,626 2,808 --------------- --------------- Net Increase in Cash 449 398 Cash at Beginning of Year 464 102 --------------- --------------- Cash at End of Period $ 913 $ 500 =============== =============== Supplemental Disclosures of Cash Flow Information: Cash Paid During the Period for: Interest (Net of Amounts Capitalized) $ 1,193 $ 1,759 State and Federal Income Taxes $ 130 $ 17 The accompanying notes are an integral part of these financial statements. Page 8 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements included herein have been prepared by CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES (the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for interim periods. Certain information and footnote disclosures have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report or Form 10-K. The results for interim periods are not necessarily indicative of results to be expected for the year since the consolidated earnings are subject to seasonal factors. 2. The Company has a Stock Option Program. Statement of Financial Accounting Standard (SFAS) No. 123 "Accounting for Stock-Based Compensation," encourages entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows entities to continue to apply the provisions of APB opinion No. 25 "Accounting for Stock Issued to Employees" and provide pro forma net income and pro forma earnings per share disclosures for employee stock grants as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company accounts for its Stock Option Program under the recognition and measurement principles of APB No. 25. As such, no compensation cost related to the Stock Option Program is reflected in Net Income, as all options under this program had an exercise price equal to market value of the underlying common stock on the date of grant. The following table illustrates the effect on Net Income and Earnings Per Share if the Company had applied the fair value recognition provisions of SFAS No. 123 to the Stock Option Program. THREE MONTHS ENDED MARCH 31 ----------------------------------------- 2003 2002 ---------------- ---------------- (in thousands, except for per share data) Net income, as reported $ 2,110 $ 1,544 Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects (74) (55) --------------- --------------- Pro forma net income $ 2,036 $ 1,489 =============== =============== Earnings per share: Basic - as reported $ 0.27 $ 0.20 =============== =============== Basic - pro forma $ 0.26 $ 0.19 =============== =============== Diluted - as reported $ 0.26 $ 0.20 =============== =============== Diluted - pro forma $ 0.25 $ 0.19 =============== =============== Page 9 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 3. Earnings per average common share are calculated by dividing net income applicable to common stock by the average number of shares of common stock outstanding during the respective periods as detailed below: 3 MONTHS ENDED ------------------------------------ 03/31/03 03/31/02 --------------- --------------- Common Shares Outstanding: End of period: 7,947,093 7,661,728 =============== =============== Weighted Average Shares Outstanding: Days outstanding basis Basic 7,943,453 7,655,643 =============== =============== Fully Diluted 7,986,016 7,722,886 =============== =============== 4. In June 2001, the Financial Accounting Standard Board (FASB) issued SFAS No. 143, "Accounting for Asset Retirement Obligations" (FAS 143). FAS 143 provides the accounting requirements for retirement obligations associated with tangible long-lived assets. The Company adopted FAS 143 January 1, 2003. There is no significant impact to the Company's financial position or results of operations due to the adoption of FAS 143. PART I, ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS REGULATORY MATTERS AND INFLATION During the quarter ended March 31, 2003, there were no changes to any items previously disclosed by the Company in its Annual Report on Form 10-K for the period ended December 31, 2002. CRITICAL ACCOUNTING POLICIES The Company maintains its accounting records in accordance with accounting principles generally accepted in the United States of America and as directed by the regulatory commissions to which the Company's subsidiaries are subject. Management believes that the following accounting policies may involve a higher degree of complexity and judgement. Revenue Recognition - Revenue from metered customers includes billings to customers based on quarterly meter readings plus an estimate of water used between the customer's last meter reading and the end of the accounting period. The unbilled revenue amount is listed as a current asset on the balance sheet. The amount recorded as unbilled revenue is generally higher during the summer months when water sales are higher. Based upon historical experience, management believes the Company's estimate of unbilled revenues is reasonable. Page 10 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES Statement of Financial Accounting Standards - Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," (FAS 71) requires cost-based, rate-regulated enterprises such as the Company's water companies to reflect the impact of regulatory decisions in their financial statements. The state regulators, through the rate regulation process, can create regulatory assets that result when costs are allowed for ratemaking purposes in a period after the period in which the costs would be charged to expense by an unregulated enterprise. The balance sheet includes regulatory assets and liabilities as appropriate, primarily related to income taxes and post-retirement benefits costs. The Company believes, based on current regulatory circumstances, that the regulatory assets recorded are likely to be recovered and that its use of regulatory accounting is appropriate and in accordance with the provisions of FAS 71. Material regulatory assets are earning a return. LIQUIDITY AND CAPITAL RESOURCES The Company is not aware of demands, events or uncertainties that will result in a decrease of liquidity or a material change in the mix or relative cost of capital resources. The Company does not use off-balance sheet arrangements such as securitization of receivables or unconsolidated entities. The Company has no material lease obligations, does not engage in trading or risk management activities and does not have material transactions involving related parties. Interim Bank Loans Payable at March 31, 2003 was $10,700,000. We consider the current $12,500,000 lines of credit with three banks adequate to finance any expected short-term borrowing requirements that may arise from operations during 2003. In May 2003, $6,500,000 of the lines of credit expire and the remaining $6,000,000 expires in May 2004. We expect the lines of credit to be renewed. Interest expense charged on interim bank loans will fluctuate based on financial market conditions. RESULTS OF OPERATIONS On October 31, 2002, the Company issued 249,715 shares of its common stock in exchange for all the outstanding common stock of The Unionville Water Company (Unionville). This acquisition was accounted for under the purchase method of accounting; as such only the Balance Sheet and Income Statement activity from the acquisition date forward are included in the financial statements. Page 11 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES The table below presents the Income Statement detailing the balances with and without Unionville. The narrative following the table includes explanations of the Income Statement variances excluding the amounts associated with Unionville. INCOME STATEMENTS For the 3 Months ended, March 31, (in thousands) 2003 2002 -------------------------------------------- ---------- WITHOUT WITHOUT CONSOLIDATED UNIONVILLE UNIONVILLE UNIONVILLE VARIANCE ------------ ---------- ---------- ---------- -------- Operating Revenues $ 10,901 $ 521 $ 10,380 $ 10,284 $ 96 --------- ---------- ---------- ---------- ---------- Operating Expenses Operation and Maintenance 5,614 329 5,285 4,468 817 Depreciation 1,474 118 1,356 1,230 126 Income Taxes 481 (1) 482 883 (401) Taxes Other Than Income Taxes 1,316 52 1,264 1,204 60 --------- ---------- ---------- ---------- ---------- Total Operating Expenses 8,885 498 8,387 7,785 602 --------- ---------- ---------- ---------- ---------- Utility Operating Income 2,016 23 1,993 2,499 (506) --------- ---------- ---------- ---------- ---------- Other Income (Deductions), Net of Taxes Gain on Property Transactions 943 -- 943 -- 943 Non-Water Sales Earnings 124 3 121 80 41 Allowance for Funds Used During Construction 123 23 100 115 (15) Other 40 -- 40 34 6 --------- ---------- ---------- ---------- ---------- Total Other Income (Deductions), Net of Taxes 1,230 26 1,204 229 975 --------- ---------- ---------- ---------- ---------- Interest and Debt Expenses Interest on Long-Term Debt 973 24 949 972 (23) Other Interest Charges 97 -- 97 107 (10) Amortization of Debt Expense 57 -- 57 96 (39) --------- ---------- ---------- ---------- ---------- Total Interest and Debt Expenses 1,127 24 1,103 1,175 (72) --------- ---------- ---------- ---------- ---------- Net Income Before Preferred Dividends 2,119 25 2,094 1,553 541 Preferred Stock Dividend Requirement 9 -- 9 9 -- --------- ---------- ---------- ---------- ---------- Net Income Applicable to Common Stock $ 2,110 $ 25 $ 2,085 $ 1,544 $ 541 ========= ========== ========== ========== ========== Page 12 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES THE FOLLOWING FACTORS HAD A SIGNIFICANT EFFECT UPON THE COMPANY'S NET INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2003 AS COMPARED WITH THE NET INCOME FOR THE SAME PERIOD LAST YEAR. Net income applicable to common stock for the three months ended March 31, 2003 increased from that of March 31, 2002 by $566,000, or $.07 per average common share. The increase in net income resulted from a $975,000 increase in Net Other Income (Deductions) and a $72,000 decrease in Interest and Debt Expense, partially offset by a $506,000 decrease in Utility Operating Income. The major reason for the $975,000 higher Net Other Income (Deductions) was a January 2003 donation of approximately 178 acres of land to the Town of Killingly, Connecticut which resulted in a net after tax gain of approximately $943,000. Additionally, non-water sales earnings increased 55% due to increased profits from the Company's Linebacker(TM) service line maintenance program and antenna leases. The decrease in Utility Operating Income was primarily due to the following: - - a $817,000 increase in Operation and Maintenance Expense due to increased wages, increases in pension and insurance expense, and an increase in maintenance expense due to numerous main breaks in the first quarter of 2003. - - a $126,000 increase in Depreciation Expense. - - a $ 60,000 increase in Taxes Other Than Income Taxes. Partially offset by - - a $ 96,000 increase in Operating Revenue due to customer growth. - - a $401,000 decrease in Income Taxes primarily due to the increase in expenses detailed above. COMMITMENTS AND CONTINGENCIES During the quarter ended March 31, 2003, there were no changes to any items previously disclosed by the Company in its Annual Report on Form 10-K for the period ended December 31, 2002. FORWARD LOOKING INFORMATION This report, including management's discussion and analysis, contains certain forward looking statements regarding the Company's results of operations and financial position. These forward looking statements are based on current information and expectations, and are subject to risks and uncertainties, which could cause the Company's actual results to differ materially from expected results. Our water companies are subject to various federal and state regulatory agencies concerning water quality and environmental standards. Generally, the water industry is materially dependent on the adequacy of approved rates to allow for a fair rate of return on the investment in utility plant. The ability to maintain our operating costs at the lowest possible level, while providing good quality water service, is beneficial to customers and stockholders. Profitability is also dependent on the timeliness of rate relief, when necessary, and numerous factors over which we have little or no control, such as the quantity of rainfall and temperature, industrial demand, financing costs, energy rates, tax rates, and stock market trends which may affect the return earned on pension assets, and compliance with environmental and water quality regulations. We undertake no obligation to update or revise forward looking statements, whether as a result of new information, future events, or otherwise. Page 13 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES PART I, ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The primary market risk faced by the Company is interest rate risk. The Company has no exposure to derivative financial instruments or financial instruments with significant credit risk or off-balance sheet risks and is not subject in any material respect to any currency or other commodity risk. The Company is subject to the risk of fluctuating interest rates in the normal course of business. The Company's exposure to interest fluctuations is managed at the Company and subsidiary operations levels through the use of a combination of fixed rate long-term debt (and variable rate borrowings) under financing arrangements entered into by the Company and its subsidiaries. The Company has $12,500,000 current lines of credit with three banks, under which interim bank loans payable at March 31, 2003 were $10,700,000. Management believes that any near-term change in interest rates should not materially affect the consolidated financial position, results of operations or cash flows of the Company. PART I, ITEM 4: CONTROLS AND PROCEDURES Based on their evaluation of the Company's internal controls, disclosure controls and procedures within 90 days of the filing date of this report, the Chief Executive Officer and the Chief Financial Officer have concluded that the effectiveness of such controls and procedures is satisfactory. Further, there were not any significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. PART II, ITEM 1: LEGAL PROCEEDINGS We are involved in various legal proceedings. Although the results of legal proceedings cannot be predicted with certainty, there are no pending legal proceedings to which we or any of our subsidiaries are a party or to which any of our properties is the subject that presents a reasonable likelihood of a material adverse impact on the Company. PART II, ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On April 25, 2003, at its annual meeting, the stockholders of Connecticut Water Service, Inc. elected the following directors to serve three-year terms expiring at the annual meeting to be held in 2006: AFFIRMATIVE WITHHELD ----------- -------- Roger Engle 6,521,591 134,980 Lisa Thibdaue 6,529,794 126,777 Carol P. Wallace 6,575,004 81,567 Donald B. Wilbur 6,579,351 77,220 Page 14 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES Directors whose term of office continues until 2004 are Marshall T. Chiaraluce, Marcia L. Hincks, Robert F. Neal, and Arthur C. Reeds. Directors whose term of office continues until 2005 are Mary Ann Hanley, Mark G. Kachur, Ronald D Lengyel and David A. Lentini. The appointment of PricewaterhouseCoopers, LLP, independent public accountants, as independent auditors for the Company for the calendar year ending December 31, 2003 was ratified by the stockholders. Number of Common and Preferred Series A Shares Cast ABSTENTIONS PRICEWATERHOUSECOOPERS LLP AFFIRMATIVE NEGATIVE AND NON-VOTES - -------------------------- ----------- -------- ------------- 6,562,749 46,660 47,162 PART II, ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Required by Item 601 of Regulation S-K. EXHIBIT NUMBER DESCRIPTION - ------ ----------- 3.1 Certificate of Incorporation of Connecticut Water Service, Inc. amended and restated as of April, 1998. (Exhibit 3.1 to Form 10-K for the year ended 12/31/98). 3.2 By-Laws, as amended, of Connecticut Water Service, Inc. as amended and restated as of August 12, 1999. (Exhibit 3.2 to Form 10-K for the year ended 12/31/99). 3.3 Certification of Incorporation of The Connecticut Water Company effective April, 1998. (Exhibit 3.3 to Form 10-K for the year ended 12/31/98). 3.4 Certificate of Amendment to the Certificate of Incorporation of Connecticut Water Service, Inc. dated August 6, 2001 (Exhibit 3.4 to Form 10-K for the year ended 12/31/01). 99.1* Certification of Marshall T. Chiaraluce, Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99.2* Certification of David C. Benoit, Chief Financial Officer and Vice President - Finance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K On February 13, 2003, the Company filed a Form 8-K to report its earnings for the fourth quarter of 2002 and for the full fiscal year ended December 31, 2002. Page 15 SIGNATURES PAGE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Connecticut Water Service, Inc. (Registrant) Date: May 14, 2003 By /s/ David C. Benoit -------------------- David C. Benoit Vice President - Finance Date: May 14, 2003 By: /s/ Peter J. Bancroft ---------------------- Peter J. Bancroft Assistant Treasurer FORM 10-Q CONNECTICUT WATER SERVICE, INC. RULE 13a-14 CERTIFICATION I, Marshall T. Chiaraluce, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Connecticut Water Service, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Marshall T. Chiaraluce - --------------------------- Marshall T. Chiaraluce Chief Executive Officer May 14, 2003 FORM 10-Q CONNECTICUT WATER SERVICE, INC. RULE 13a-14 CERTIFICATION I, David C. Benoit, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Connecticut Water Service, Inc. 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ David C. Benoit - ------------------- David C. Benoit Chief Financial Officer May 14, 2003