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, 1994
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 0-493
CONSUMERS WATER COMPANY
(Exact name of registrant as specified in its charter)
Maine 01-0049450
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
THREE CANAL PLAZA, PORTLAND, MAINE 04101 (207-773-6438)
(Address and telephone number of principal executive offices)
NONE
(Securities registered pursuant to Section 12(b) of the Act)
COMMON SHARES, PAR VALUE $1.00 PER SHARE
(Title of class of Securities registered
pursuant to Section 12(g) of the Act)
_______________________________________________________
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 for such shorter
period that registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes XXX No
Indicate by a check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K 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 .
The aggregate market value of all voting shares held by non-affiliates
as of March 22, 1995 was $127,058,212.
As of March 22, 1995, there were 8,331,686 Common Shares outstanding.
Documents Incorporated by Reference
The "Nominees for Election as Directors", "Other Executive Officers",
"Executive Compensation," "Section 16(a) Ownership Reporting Delinquencies"
and "Common Stock Ownership of Certain Beneficial Owners and Management"
sections of the registrant's proxy statement for its 1995 annual meeting
filed pursuant to Regulation 14A are incorporated in Part III of this Form
10-K by reference.
PART I
Item 1. Business.
Consumers Water Company (Consumers or the Company) is a holding and
management company whose principal business is the ownership and operation of
water utility subsidiaries. Consumers owns directly or indirectly at least
90% of the voting stock of 9 water companies (the Consumers Water
Subsidiaries) which operate 27 separate systems providing water service to
approximately 221,000 customers in six states. As of July 1, 1994, Maine
Water Company and Wanakah Water Company were merged into Camden & Rockland
Water Company. The name of the surviving corporation was then changed to
Consumers Maine Water Company. The Company also owns 100% of C/P Utility
Services (C/P), a provider of technical services to utilities and other
enterprises. C/P, headquartered in Hamden, Connecticut, provides services in
the areas of meter services, contract operations, mechanical engineering
services, corrosion engineering services, environmental engineering services
and water conservation to the utility industry and certain industrial clients
primarily in the northeastern United States and Florida.
Consumers was incorporated under the laws of Maine in 1926. The address
of its executive offices is Three Canal Plaza, Portland, Maine 04101, and the
Company's telephone number is (207) 773- 6438.
The Company had at December 31, 1994, subsidiaries as noted on Exhibit
21 attached hereto, the accounts of which are included in the consolidated
financial statements in this report.
Consumers Water Subsidiaries
The Consumers water subsidiaries operate 27 primary systems in six
states for the collection, treatment and distribution of water for public use
to residential, commercial and industrial customers to other water utilities
for resale and for private and municipal fire protection purposes. In 1994,
65% of the revenue of Consumers Water subsidiaries was generated from
residential accounts while sales for commercial users, industrial users and
fire protection and miscellaneous uses accounted for 13%, 9% and 13% of
revenues respectively. Water utility revenues for the three years ended
December 31, 1994, 1993 and 1992 were $80,376,000, $78,171,000 and
$74,637,000, respectively. At December 31, 1994, the Consumers Water
Subsidiaries owned in the aggregate 3,204 miles of mainline pipe of which
approximately 84% was 6-inches or larger in diameter.
Of the 27 primary systems, 14 have surface supplies (lakes, ponds and
streams) as their source of supply; 11 obtain water principally or entirely
from wells; and 2 purchase their supplies from adjacent systems, one of which
is an affiliated utility. Less than 5% of the Consumers Water Subsidiaries'
water usage is purchased from other systems. In general, the Company
considers the surface and well supplies at the Consumers Water Subsidiaries
to be adequate for anticipated average daily demand and normal peak demand.
All of the systems (except one system serving solely industrial users in
Ohio and a few small developer built systems in New Hampshire) provide
customers with water which has been subjected to disinfection treatment and
some of which has been subjected to additional treatment such as softening,
sedimentation, filtration, chemical stabilization, iron and/or manganese
removal and taste and odor control. Eight systems own and operate full scale
water treatment plants. In addition, Consumers Illinois Water Company
operates 4 wastewater treatment facilities.
The water treatment, pumping and distribution capacities of the systems
are generally considered by management to be adequate to meet the present
requirements of their residential, commercial and industrial customers. On a
continuing basis, the Consumers Water Subsidiaries make system improvements
and additions to capacity in response to changing regulatory standards,
changing patterns of consumption and increases in the number of customers.
See "Environmental Regulation." Operating and capital costs associated with
these improvements are normally recognized by the various state regulatory
commissions in setting rates. See "Rate Regulation."
Consumers' water utility business is seasonal because the demand for
water during the warmer months is generally greater than during the cooler
months due to additional requirements for industrial and residential cooling
systems, private and public swimming pools and lawn sprinklers.
The following table indicates, for each of the Consumers Water
Subsidiaries, the number of customers, revenues and net utility plant as of
December 31, 1994:
Number Number of Utility Net Utility
Subsidiary of Systems Customers Revenue Plant (1)
(Dollars in Thousands)
Ohio Water Service Company 5 71,385 $26,355 $103,676
Consumers Illinois Water
Company 5 42,814 11,410 51,656
Inter-State Water Company 1 16,663 7,178 33,257
Shenango Valley Water
Company(2) 2 17,135 6,665 24,321
Roaring Creek Water Company 1 17,664 5,584 31,026
Pennsylvania Water Company 1 4,477 1,406 4,303
Garden State Water Company(3) 4 29,076 10,207 44,729
Southern New Hampshire Water
Company 1 7,741 5,306 31,301
Consumers Maine Water Company 7 14,211 6,265 27,873
Inter-Company Eliminations 0 0 0 (354)
27 221,166 $80,376 $351,788
_________________________________
(1) Includes construction work in progress.
(2) Includes Masury Water Company, a wholly-owned subsidiary.
(3) Includes Califon Water Company, a 93.2% owned subsidiary.
The properties of the Consumers Water Subsidiaries consist of transmission
and distribution mains and conduits, purification plants, pumping facilities,
wells, tanks, meters, supply lines, dams, reservoirs, buildings, land,
easements, rights and other facilities and equipment used for the collection,
purification, storage and distribution of water. Substantially all of the
property and all rights and franchises of the Consumers Water Subsidiaries
are owned by the subsidiaries and are subject to liens of mortgages or
indentures. For the most part, such liens are imposed to secure bonds, notes
and/or other evidences of long-term indebtedness of the respective companies.
Management considers that its water collection, treatment and distribution
systems, facilities and properties are well maintained and structurally
sound. In addition, Consumers carries replacement cost insurance coverage on
substantially all of its and its subsidiaries' above-ground properties, as
well as liability coverages for risks incident to their ownership and use.
Rate Regulation
The Consumers Water Subsidiaries are subject to regulation by their
respective state regulatory bodies. The state regulatory bodies have broad
administrative power and authority to regulate water and other public
utilities, including the power to regulate rates and charges, service and the
issuance of securities. They also establish uniform systems of accounts,
develop standards with respect to groundwater withdrawal rights, surface
water supply, potability and adequacy of treatment, approve the terms of
contracts and relations with affiliates and customers, and purchases and
sales of property and loans. Maine and Illinois have laws regulating
reorganizations of water and other utilities.
The profitability of the operations of the Consumers Water Subsidiaries is
influenced to a great extent by the timeliness and magnitude of rate
allowances by regulatory authorities in various states. Accordingly,
Consumers maintains a rate case management capability to ensure that the
tariffs of the Consumers Water Subsidiaries reflect, to the extent possible,
current costs of operations, capital, taxes, energy, materials and compliance
with environmental regulations. This process also addresses other factors
bearing on rate determinations, such as the quantity of rainfall and
temperature in a given period of time, system expansion and industrial
demand.
The approximate amount of annual rate increases allowed for the last three
years was $5,624,000 for 1994, $1,945,000 for 1993, and $4,698,000 for 1992,
represented by ten, five, and eight rate decisions, respectively. Included
in the 1992 total is a $2.2 million rate allowance for Inter-State Water
Company, received on January 8, 1992. This increase was due primarily to
recovery of, and an allowance of a return on, its new $14 million water
treatment plant.
The Company currently has three rate filings pending totaling $7.3 million
of requested annualized new revenue. Decisions on these cases are expected
in 1995.
Rates for some divisions of Ohio Water are fixed by negotiated
agreements with the political subdivisions that are served, instead of
through a filing with the Public Utility Commission of Ohio. Currently,
three of the four regulated divisions of Ohio Water are operating under rate
ordinances.
Water Utility Competition
In general, the Company believes that the Consumers Water Subsidiaries
have valid operating rights, free from unduly burdensome restrictions,
sufficient to enable them to carry on their businesses as presently
conducted. They derive their rights to install and maintain mains in
streets, highways and other public places, from the acts under which they
were incorporated, municipal consents and ordinances, permits granted for an
indefinite period of time by states and permits from state highway
departments and county and township authorities. In most instances, such
operating rights are non- exclusive. In certain cases, permits from state
highway departments and county and township authorities have not been
received for service in unincorporated areas, but service is being rendered
without assertion or lack of authority by the governmental body concerned.
Each of the Consumers Water Subsidiaries serves an area or areas in
which it is sole operator of the public water supply system. In some
instances another water utility provides service to a separate and sometimes
contiguous area within the same township or other political subdivision
served by one of the Consumers Water Subsidiaries.
In the states in which the operations of the Consumers Water
Subsidiaries are carried on, there exists the right of municipal acquisition
by one or more of the following methods: eminent domain, the right of
purchase given or reserved by a municipality or other political subdivision
in granting a franchise, and the right of purchase given or reserved under
the law of the state in which the subsidiary was incorporated or from which
it received its permit. The price to be paid upon acquisition is usually
determined in accordance with both federal law and the laws of the state
governing the taking of lands or other property under eminent domain
statutes; in other instances, the price may be negotiated, fixed by
appraisers selected by the parties or computed in accordance with a formula
prescribed in the law of the state or in the particular franchise or special
charter. The Company has sold four divisions with customers totaling
approximately 15,000 under threat of eminent domain in the last four years.
The gain on those sales totaled almost $7 million. The Company is working
with the local communities in its service areas in an effort to prevent
future eminent domain proceedings.
Environmental Regulation
The primary federal laws affecting the provision of water and wastewater
treatment services by the Consumers Water Subsidiaries are the Clean Water
Act (the CWA) and the Safe Drinking Water Act (the SDWA), and the regulations
promulgated pursuant thereto by the United States Environmental Protection
Agency (the EPA). These laws and regulations establish criteria and
standards, including those for drinking water and for discharges into waters
of the United States. States have the right to establish criteria and
standards stricter than those established by the EPA, and some of the states
in which the Consumers Water Subsidiaries operate have done so.
The CWA regulates the discharge of effluents from the drinking water and
wastewater treatment processes into the lakes, rivers, streams, and ground
water. Eight of the systems owned by the Consumers Water Subsidiaries
generate water treatment precipitate from operating conventional filtration
facilities used for producing drinking water. The water treatment
precipitate is a combination of silt and chemicals used in the treatment
process and chemicals removed from the raw water. For each of the eight
facilities, the water treatment precipitate generated from the treatment
facilities is disposed of either in a storage facility such as a lagoon owned
by the subsidiary, an off-site facility not owned by the subsidiary, a State
approved landfill, municipal sewer system or it is used for agricultural land
application. Wastewater precipitate generated from small wastewater
treatment facilities in Illinois is used as a solid additive. Additional
capital expenditures and operating costs in connection with the management
and ultimate disposal of effluent from water and wastewater facilities may be
required in the future, particularly if changes are made in the requirements
of the CWA or other applicable federal or state laws.
A small wastewater plant owned by Consumers Illinois serving the
University Park area will require approximately $1.3 million of capital
investment in 1995 to correct periodic excursions in discharge permit
requirements. A consent decree addressing these excursions and the alleged
resulting stream bed contamination is being negotiated with the Illinois
Environmental Protection Agency (the IEPA).
At Consumers Illinois, a small wastewater plant serving the Candlewick
area will require approximately $3.0 million of capital investment due to
periodic excursions in discharge permit requirements. The IEPA has
restricted Consumers Illinois from extending its sewer lines in the
Candlewick service area until the plant improvements program is complete.
The Struthers Filtration Plant, which is operated by Ohio Water, has
been disposing of treatment precipitate at an abandoned strip mine. The Ohio
Environmental Protection Agency has informed Ohio Water that it must find an
alternative method of disposal for the treatment precipitate. This issue is
being studied and the cost for the alternative disposal method is estimated
at $500,000 to $1.0 million.
The SDWA established uniform minimum national quality standards for
drinking water. The EPA regulations, promulgated pursuant to the SDWA, set
standards on the amount of certain inorganic and organic chemical
contaminants, microbials and radionuclides in drinking water. The 1986
amendments to the SDWA require that the EPA promulgate new primary water
standards for 83 contaminants. The EPA has not met the timetable established
in the amendments but is developing new water quality standards and, to date,
has issued regulations on volatile synthetic organic chemicals, inorganic
chemicals, surface water treatment, microbials, lead and copper.
Reauthorization of the SDWA is scheduled to be taken up by Congress in 1995.
Stricter drinking water standards currently under consideration may result in
additional capital expenditures being required of the Company.
The implications of the 1986 amendments to the SDWA and the EPA
regulations for the Company can be analyzed by grouping contaminants into
four categories: (i) microbials, (ii) radionuclides and (iii) volatile
organics.
With respect to microbials, improved disinfection and/or filtration is
required under the EPA Surface Water Treatment Rule adopted pursuant to the
SDWA. Necessary improvements to comply with the Surface Water Treatment Rule
have been completed or are under way at a number of the Consumers Water
Subsidiaries. The estimated cost for 1995 and beyond for these improvements
is $22 million. Other major improvements at two water treatment plants
designed to increase capacity and upgrade facilities are estimated to cost
$10 million. In addition, open water storage reservoirs will have to be
covered or replaced at two subsidiaries at an approximate cost of $3.5
million.
The Disinfectants/Disinfection By-Products Rule (D/DBP) is expected to
affect four Consumers Water Company operations. The cost to comply with
Stage I is expected to be $5 to $7 million, and Stage II is expected to cost
$2 to $6 million. The effective date for Stage I is estimated to be in early
1997.
Based on preliminary cost estimates the proposed Enhanced Surface Water
Treatment Rule (ESWTR) may cost Consumers as much as $21 million. The
interim ESWTR will be promulgated about the same time as Stage I of the D/DBP
Rule becomes effective.
The EPA has not yet established the Maximum Contaminant Level (MCL) for
radon in drinking water pursuant to the SDWA provisions applicable to
radionuclides. The Company anticipates that the EPA will set those levels at
not less than 300 pico curies/liter and has planned for capital expenditures
of $5 million during the 1997 through 1999 period to treat groundwater
supplies to comply with this anticipated radon standard. If the standard is
set at 1,000 pico curies/liter, as proposed by an industry group, the
necessary capital expenditures would be reduced to approximately $3 million.
The Consumers Water Subsidiaries have surveillance programs in place to
provide early warning of a possible contamination threat to their water
supplies from volatile organics and other potential contaminants. Each of
the Consumers Water Subsidiaries has adopted contingency plans to respond to
such contamination, should it occur.
In 1992, Inter-State executed a Consent Decree with the Illinois
Environmental Protection Agency to comply with the MCL for nitrates by 1997
and to take additional interim steps to address the problem. Inter-State
will be required to add treatment facilities and/or new sources of supply to
reduce the level of nitrates in its finished water at certain times of the
year for an estimated project cost of $5 million.
A contractor working at the Lake Erie West water treatment facility,
which is operated by Ohio Water, caused the release of a relatively small
amount of mercury within a building at the facility. Workers tracked the
mercury to various areas of the building, necessitating the clean-up of a
relatively large area in and around the building at a cost of approximately
$900,000. Clean-up has been completed and Ohio Water is looking to the
responsible parties for reimbursement of its costs. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations -
Liquidity and Capital Resources."
The Consumers Water Subsidiaries own 12 major dams that are subject to
the requirements of the Federal Dam Safety Act of 1986. The dams normally
undergo a comprehensive engineering evaluation annually. The Company
believes the dams are structurally sound and well maintained. One of the
dams owned by Ohio Water will require structural improvements which are
currently estimated to cost $2.7 million.
In addition to the SDWA, the CWA and Federal Dam Safety Act of 1986,
numerous federal and state environmental laws affect the operations of the
Consumers Water Subsidiaries.
In addition to the capital expenditures and costs currently anticipated,
changes in environmental regulation, enforcement policies and practices or
related matters may result in additional capital
expenditures and costs. Capital expenditures and costs required as a result
of water quality standards and environmental requirements are normally
recognized by state public utility commissions as appropriate plant additions
in establishing rates.
Water Subsidiary Information
Consumers' five largest water subsidiaries, Ohio Water Service Company
(Ohio Water), Consumers Illinois Water Company (Consumers Illinois), Garden
State Water Company (Garden State), Shenango Valley Water Company,
(Shenango), and Inter-State Water Company (Inter-State) accounted for
approximately 77% of consolidated operating revenues of the water
subsidiaries in 1994 and 73% of consolidated water utility net property,
plant and equipment at December 31, 1994.
Consumers' five largest water subsidiaries are discussed separately
below.
Ohio Water Service Company Ohio Water is the largest of the Consumers
Water Subsidiaries, accounting for approximately 33% of the operating
revenues of the water subsidiaries in 1994. As of December 31, 1994, Ohio
Water operates five separate systems, four of which deliver treated water and
one of which delivers partially treated water primarily to industrial
customers. Ohio Water serves a number of communities in northeastern Ohio.
The following indicates the distribution of 1994 year-end customers,
revenues and net utility plant among the five districts of Ohio Water.
Number of Utility Utility Net
Customers Revenue Plant
(Dollars in Thousands)
Lake Erie East District 7,644 $ 3,356 $ 9,997
Lake Erie West District 25,752 7,858 36,937
Massillon District 23,471 8,739 33,510
Struthers District 14,508 5,862 20,724
Mahoning Valley District 10 540 2,508
Totals 71,385 $ 26,355 $ 103,676
Consumers Illinois Water Company Consumers Illinois serves 32,707 water
customers in the City of Kankakee, Village of Bourbonnais, and a portion of
the Village of Bradley, as well as unincorporated areas of Kankakee,
Bourbonnais, Aroma, Limestone, and Manteno Townships, all in Kankakee County;
as well as the Village of University Park and unincorporated areas of Crete
and Monee Townships in Will County, and portions of Lee, Boone and Knox
Counties, all in the state of Illinois.
The Company also serves 10,107 sewer customers in the Village of University
Park, portions of Crete and Monee Townships in Will County, and portions of
Lee and Boone Counties, all in the state of Illinois.
Consumers Illinois obtains its water supply for its customers in Kankakee
County from the Kankakee River and satellite wells. In Will, Lee, Boone and
Knox counties, its customers are supplied from deep well systems. The
economy of the Company's service areas is based on agriculture and diverse
light industries. Consumers Illinois' net utility plant at December 31,
1994, and utility revenues for 1994 were $51,656,000 and $11,410,000,
respectively.
Garden State Water Company Garden State (and its 93.2% owned subsidiary,
Califon Water Company) operates three districts in New Jersey which serve
29,076 customers in territories which are not contiguous. Each district
draws its water from deep high capacity wells. The Blackwood District serves
a growing residential area, primarily in Camden County. The Hamilton
District serves a growing residential area that also includes a small amount
of light industry and agriculture, primarily in Mercer County. The
Phillipsburg District serves an industrial and agricultural community and
outlying municipalities, primarily in Warren County, that are experiencing
modest growth. Garden State's net utility plant at December 31, 1994, and
utility revenues for 1994 were $44,729,000 and $10,207,000 respectively.
Shenango Valley Water Company Shenango, (and its wholly-owned Ohio
subsidiary, Masury Water Company) which draws its water from the Shenango
River, serve 17,135 residential, commercial, industrial and wholesale
customers in the cities of Sharon and Farrell, the boroughs of Wheatland, New
Wilmington and West Middlesex, and portions of Hermitage, Mercer, Pulaski and
Shenango Townships, all in Pennsylvania, and Trumbull County, Ohio. The
economy of the area is largely based on heavy industrial manufacturing.
Shenango's net utility plant at December 31, 1994, and utility revenue for
1994 were $24,321,000 and $6,665,000 respectively.
Inter-State Water Company Inter-State serves 16,663 residential,
commercial, industrial and wholesale customers in the cities of Danville,
Tilton, Westville and Catlin and the Lake Boulevard and Hooton areas in
Illinois. Inter-State draws its water from Lake Vermilion. Inter-State's
corporate offices are located in Danville, Illinois, a city of approximately
34,000 residents, with an economy based on agriculture and heavy industrial
manufacturing. Inter-State's net utility plant at December 31, 1994 and
utility revenue for 1994 were $33,257,000 and $7,178,000 respectively.
Utility Services
C/P Utility Services, Inc. (C/P) and its wholly owned subsidiary,
EnviroAudit, provide services primarily in the area of meter services,
contract operations, corrosion engineering services, environmental
engineering services, and water conservation to the utility industry and
certain industrial clients, primarily in the northeastern United States and
Florida.
C/P's services in the areas of environmental engineering and contract
operations subject it to possible liability in environmentally sensitive
areas such as the removal of underground storage tanks, site remediation, and
environmental assessments of sites and facilities. C/P maintains
professional liability insurance, with respect to the services it provides,
in amounts and subject to deductibles and exclusions believed by C/P's
management to be appropriate.
Since September of 1987, C/P has managed the operation of the Merrill
Creek Reservoir, a pumped storage facility owned by several power companies,
for the purpose of augmenting flows in the Delaware River during periods of
low flow or to replace water used by the owners for cooling purposes. C/P's
contract for the operation of this facility was renewed for an additional
five-year period at the end of 1992.
In June, 1993, C/P was awarded three contracts to install new water
meters in New York City. The total award for these three contracts is $10.7
million. These projects will be completed in the first half of 1995. C/P
expects the opportunity to bid on additional New York city meter projects in
early 1995.
C/P's total revenues for the years ended December 31, 1994, 1993 and
1992 were approximately $13 million, $11 million, and $10 million,
respectively. Approximately $86,000, or approximately 1%, of C/P's 1994
revenue was derived from services provided to the Consumers Water
Subsidiaries.
Discontinued Operations
On October 6, 1993, the Company announced its intention to dispose of
its manufactured housing business, Burlington Homes of New England. The
business was offered for sale. The estimated loss on the disposal of $5.3
million, net of taxes, of approximately $600,000 was recorded. On July 8,
1994, Burlington was sold for $378,000. The reserve taken in 1993 was
adequate to cover the loss on the sale. Please see Note 11 to the
Consolidated Financial Statements.
Employees
Consumers Water Company and its subsidiaries employed 640 people as of
December 31, 1994, of which 486 were employed by the Consumers Water
Subsidiaries. Non-supervisory personnel at Ohio, Shenango Valley, Consumers
Illinois, Roaring Creek, Inter-State and Pennsylvania Water Companies are
covered by collective bargaining agreements. Employee relations are
considered by management to be satisfactory throughout the Company.
Foreign Operations
The Company had no foreign operations or export sales in 1994.
Item 2. Properties.
(a) Description
See Item 1. "Consumers Water Subsidiaries" for description of Consumers'
principal properties and encumbrances thereon.
Consumers' properties are located as follows:
Illinois
(1) Consumers Illinois Water Company with five divisions in Kankakee,
University Park, Sublette, Oak Run and Candlewick, Illinois.
(2) Inter-State Water Company located in Danville, Illinois.
Ohio
(3) Ohio Water Service Company with corporate offices in Poland and
five operating districts located in Massillon, Struthers,
Mahoning Valley, Geneva and Mentor, Ohio.
(4) Masury Water Company located in Trumbull County, Ohio.
Pennsylvania
(5) Pennsylvania Water Company located in Sayre, Pennsylvania
(6) Shenango Valley Water Company located in Sharon, Pennsylvania.
(7) Roaring Creek Water Company located in Shamokin, Pennsylvania.
New Jersey
(8) Garden State Water Company with corporate offices in Hamilton
and operating districts in Blackwood, Hamilton Square and
Phillipsburg, New Jersey.
(9) Califon Water Company located in Califon, New Jersey.
Connecticut
(10) C/P Utility Services Company headquartered in Hamden, Connecticut
with regional offices in Massachusetts, New Jersey, and Florida.
(11) EnviroAudit, Ltd. located in Centerbrook, Connecticut.
New Hampshire
(12) Southern New Hampshire Water Company located in Londonderry,
New Hampshire.
Maine
(13) Consumers Maine Water Company with seven divisions located in
Kezar Falls, Freeport, Oakland, Rockland, Skowhegan, Greenville,
and Millinocket, Maine.
(14) Consumers' corporate headquarters located in Portland, Maine.
Item 3. Legal Proceedings.
Various environmental orders and policies affecting the Consumers Water
Subsidiaries are described above under the caption "Environmental
Regulation."
In March, 1993, an outside contractor spilled a small amount of mercury
while working at one of Ohio Water's water treatment plants. Several areas
in and around the plant were contaminated by the spill. Although no mercury
has contaminated Ohio Water's water supply, Ohio Water is continuously
monitoring the situation to maintain water quality. Ohio Water contacted all
appropriate regulatory agencies and the clean up has been completed. The
total cost to clean up the spill was approximately $900,000. Ohio Water has
received $100,000 from its insurer and is currently seeking recovery of all
the clean up costs from the contractor. While there can be no assurance as
to the ultimate outcome of Ohio Water's efforts to obtain such recovery,
management believes it is probable that Ohio Water will recover clean up
costs from the contractor and/or the contractor's insurers and, therefore,
has deferred the cost incurred in connection with the spill. On December 20,
1993, A.P. O'Horo Company filed a complaint against Ohio Water in Lake County
Court of Common Pleas seeking recovery of the retainage of $250,000 that Ohio
is withholding on this project. On December 30, 1993, Ohio Water filed a
counter claim against A.P. O'Horo Company seeking recovery of all past and
future costs relating to the spill. Ohio Water is also asking the court to
dismiss A.P. O'Horo's complaint.
On September 14, 1994, the Penobscot Indian Nation filed a Complaint in
the United States District Court for the District of Maine naming Key Bank of
Maine, Consumers Water Company, SHC Corporation, Burlington Homes of New
England, Inc., Bernstein, Shur, Sawyer & Nelson, P.C., John H. Schiavi, John
Palmer, Palmer Management Company and Palmer Development Company as
defendants. The suit commenced by the Complaint arises out of the 1986
acquisition of the assets of SHC Corporation, then a subsidiary of Consumers
Water Company, by Schiavi Homes, a Maine limited partnership in which the
Penobscot Indian National held a 90% limited partnership interest.
Burlington Homes of New England, Inc. is a current subsidiary of Consumers
Water Company, and John H. Schiavi is a Director of Consumers Water Company.
The Complaint alleges, among other things, that one of or all of the
defendants defrauded the Penobscot Indian Nation by breaching their duty of
good faith and fair dealing and by making misrepresentations. The Complaint
also alleges that the defendants violated the Racketeer Influenced and
Corrupt Organizations Act ("RICO") in connection with the sale of Schiavi
Homes. The Complaint seeks to nullify the acquisition, actual damages in the
amount of approximately $5,200,000, punitive damages, and treble damages
under RICO. Consumers has answered the Complaint denying any liability, and
discovery in the case has commenced.
John Schiavi, as a Director of Consumers Water Company, is a party to an
Indemnification Agreement with the Company providing him with indemnification
to the fullest extent of Maine law in connection with any suit or proceeding
brought against him by reason of the fact that he is or was a Director of
Consumers Water Company. Under certain circumstances Mr. Schiavi is
entitled to indemnification and, upon receipt by the Company of a written
commitment to repay such amounts if it is later determined that he is not
entitled thereto, may be entitled to receive an advance of expenses in
connection with an indemnifiable claim.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
(a) Market Information
The common shares of Consumers are listed on the National Market System
of the NASDAQ Stock Market under the symbol: CONW. The following table
sets forth the high and low last sale prices for the common shares for the
periods indicated, as reported by NASDAQ, together with cash dividends
declared per common share.
DIVIDENDS
Calendar Year HIGH LOW DECLARED
1994
First Quarter 18 1/4 16 1/2 $0.29
Second Quarter 18 3/4 15 1/2 0.29
Third Quarter 18 15 1/2 0.295
Fourth Quarter 18 1/2 15 3/4 0.295
$1.17
1993
First Quarter 19 17 $0.285
Second Quarter 19 3/4 17 1/4 0.285
Third Quarter 21 1/4 18 1/2 0.29
Fourth Quarter 21 1/4 17 1/4 0.29
$1.15
(b) Holders
As of March 22, 1995, there were approximately 6,000 shareholders of
record of the Registrant's common stock.
Item 6. Selected Financial Data.
(Dollars in Thousands Except Per Share Amounts)
1994 1993 1992 1991 1990
Operating Revenue $93,337 $89,084 $84,245 $79,965 $75,296
Net Income from Continuing
Operations $10,000 $12,003 $8,501 $9,791 $ 7,488
Earnings Per Common Share:
Continuing Operations $ 1.22 $ 1.63 $ 1.21 $ 1.52 $ 1.23
Total $ 1.22 $ .80 $ 1.14 $ 1.74 $( 0.33)
Dividends Declared Per
Common Share $ 1.17 $ 1.15 $ 1.13 $ 1.11 $ 1.09
Total Assets $401,380 $371,657 $343,033 $315,124 $302,220
Long-Term Debt of Continuing
Operations (including
current maturities,
sinking fund requirements
and redeemable
preferred stock) $132,648 $125,080 $131,667 $106,666 $113,875
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion and analysis sets forth certain factors relative to
the Company's financial condition at December 31, 1994 and the results of its
operations for the three years ended December 31, 1994, as compared to the
same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
CONSTRUCTION PROGRAM
Capital construction expenditures in 1994 totaled $35.2 million, net of
contributions and advances, the majority of which relates to the Company's
utility subsidiaries. Projects include $6.6 million spent on a new water
treatment plant in Pennsylvania estimated to cost $16 million when completed
in 1995, $1.2 million spent on a disinfection facility in Maine, which was
completed in May of 1994 at a total cost of $3.7 million, $1.7 million in
improvements to a wastewater treatment plant in Illinois and other smaller
projects throughout the Company.
The Company expects capital expenditures for 1995 through 1997 to be
approximately $103 million, net of contributions and advances. Almost 29% of
these expenditures are required by the Safe Drinking Water Act (SDWA), the
Clean Water Act (CWA) and other regulations. The new $16 million treatment
plant and transmission main, which is under construction in Pennsylvania, is
required by State regulations under the SDWA.
The Company's water utility subsidiaries plan to file cases in their
respective jurisdictions for recovery of and return on capital used to fund
their capital expenditure programs. Costs which have been prudently incurred
in the judgement of the appropriate public utility commission have been, and
are expected to continue to be, recognized in rate setting. To support these
capital expenditures over the next three years, some subsidiaries will be
required to file for large percentage rate increases principally due to the
significant capital expenditures resulting from compliance with the SDWA and
the CWA. Given these large rate increases, management expects that it will
become increasingly difficult to get rates in place on a timely basis.
FINANCING AND CAPITALIZATION
The table below shows the cash generated and used by the Company during the
twelve months of 1994.
Cash was generated from:
Dollars in millions
Operations $ 20.8
Net increase in short-term debt 7.6
Long-term debt issued 9.1
Common stock issued 3.6
Proceeds from sale of land .6
Decrease in funds restricted
for construction 7.0
Other 0.2
Total Cash Generated $ 48.9
Cash was used:
Capital expenditures, net of CIAC (35.2)
Repay long-term debt (1.5)
Pay dividends (9.5)
Cost of acquisition (1.4)
Net change in working capital (3.4)
Total Cash Used $ (51.0)
Decrease in Cash $ (2.1)
Cash decreased $2.1 million from year end, 1993, as the Company used the
proceeds from the sale of the Washington Court House District of Ohio Water
Service in December, 1993.
Water utilities will require higher equity ratios to maintain current debt
ratings due to the recognition by Standard & Poor's rating system of
additional risk of the SDWA requirements and the uncertainty of future
regulatory treatment of the cost of these requirements. This coupled with
the size of the 1995 through 1997 capital expenditure program makes it likely
that the Company will return to the equity market again in the next three
years. Any cash flow not provided through a stock issuance will, as usual,
be financed with short-term lines of credit until the subsidiaries'
short-term debt level is high enough to warrant placement of long-term debt,
generally, in the $4-$6 million range. The Company had unused lines of
credit available at year-end of over $56 million. In addition to the
short-term debt, the Company plans to continue to use tax-exempt, long-term
debt financing in appropriate situations. The $16 million project in
Pennsylvania mentioned above is being financed in large part with $14 million
of 6.375% tax-exempt bonds issued on behalf of Roaring Creek Water Company in
October of 1993.
ACQUISITIONS AND DISPOSITIONS
In September, 1994, the Company, through its subsidiary Roaring Creek Water
Company, acquired the assets of the Ralpho Township Municipal Authority Water
System for $1.4 million.
Over the past five years, the Company has acquired seven water systems.
Although the Company currently has no material acquisitions pending,
management anticipates continuing the acquisition policy of recent years.
In October, 1994, the Damariscotta Division of Consumers Maine Water Company
was taken by the local communities by eminent domain for approximately
$600,000 or 75% of rate base. Consumers Maine Water challenged the purchase
price and in February, 1995, settled for a price of $1.5 million. The gain
of approximately $400,000 net of taxes will be recorded in 1995. The
Damariscotta Division had approximately 600 customers. The Company has sold
four divisions with customers totaling approximately 15,000 under threat of
eminent domain in the last four years. The gain on these sales totaled
almost $7 million. The Company is working with the local communities in its
service areas in an effort to prevent future eminent domain proceedings.
OTHER
In March, 1993, an outside contractor spilled a small amount of mercury while
working at the Company's subsidiary, Ohio Water's water treatment plant.
Several areas in and around the plant were contaminated by the spill,
although no mercury contaminated OWS's water supply. The cleanup was
completed at a total cost of approximately $900,000. Ohio Water has received
$100,000 from its insurer and is currently seeking recovery of all the
cleanup costs from the contractor. While there can be no assurances to the
ultimate outcome of Ohio Water's efforts to obtain such recovery, Management
believes that it is probable that Ohio Water will recover cleanup costs from
the contractor and/or the contractor's insurer and, therefore, has deferred
the costs incurred in connection with the spill.
RESULTS OF OPERATIONS
1994 Compared to 1993
UTILITY REVENUE
Utilities revenues increased $2,205,000 as compared to 1993 primarily due
to $3,884,000 in rate increases, offset by the loss of $2,326,000 in revenue
from the Washington Court House Division of Ohio Water Service Company, which
was sold in December 1993. Revenue also increased $538,000 from increased
consumption due to a dry spring in some of the Company's service areas, and
$109,000 due to revenue from acquisitions. During 1994, the Company settled
ten rate cases providing additional annual revenues of $5.6 million.
Currently, there are three rate cases pending in which over $7.2 million in
additional revenue is sought.
UTILITY OPERATING EXPENSES
Water utility operating expenses increased approximately $1,388,000, or
2.5%. Increased depreciation and property taxes due to increased plant
balances and increased health insurance costs were partially offset by the
reduction in expenses of $1,641,000 due to the sale of Washington Court
House.
OTHER OPERATIONS - REVENUE AND EXPENSE
Other operating revenue increased by $2,048,000, or 18.8%, due to increased
sales at C/P Utility Services. Other operating expenses were up $1,274,000,
or 11.5%, compared to 1993. Increased expenses at C/P being somewhat offset
by the reversal of the additional accrual of $500,000 taken on the Company's
self-insured health plan in 1993. Health insurance claims have returned to
normal levels in 1994, allowing this reversal. C/P Utilities was awarded
contracts from the City of New York for $10.7 million in meter installation
projects in June, 1993. These projects will be completed in early 1995. C/P
expects to have additional opportunities to bid on New York City meter
installation projects in the future. Future revenue levels will, in part,
depend on C/P's success in this bidding process.
OTHER
Construction interest capitalized is up $643,000 due to the new water
treatment plant being constructed in Pennsylvania and to an adjustment to the
capitalized interest of a major plant expansion in Ohio, which was completed
in 1993.
RESULTS OF OPERATIONS
1993 Compared to 1992
UTILITY REVENUE
Utility revenues increased $3.5 million or 4.7% in 1993 compared to 1992
due primarily to $2 million in rate increases, $2.1 million from the
inclusion of revenues from the properties acquired in Maine and Pennsylvania
in 1992, and increased consumption due to dry weather in some areas served by
Consumers Water subsidiaries. These increases were partially offset by the
revenue impact of the sale of the Bourbonnais wastewater system, which had
revenue in 1992 of $1.1 million.
UTILITY OPERATING EXPENSES
Water utility operating expenses increased approximately $4.1 million in
1993 compared to 1992. Increased expenses associated with the new
acquisitions, increased depreciation and property tax expense due to
increased plant balances and normal increases in labor costs accounted for
most of the increase.
OTHER OPERATIONS - REVENUE AND EXPENSE
Other operating revenue increased $1.3 million in 1993 or 13.6% over 1992,
while other operating expenses increased by $1.7 million or 17.5%. The
revenue increase is due primarily to revenue of C/P's New York City meter
installation projects. Expenses were up more than revenue in 1993 due to a
health insurance adjustment recorded at the Parent company and lower profit
margins at C/P Utility Services. The Company's self insured health insurance
plan incurred an unusual amount of claims and required an additional accrual
of $500,000 in 1993 compared to $300,000 in 1992. At C/P, meter installation
sales, traditionally a low margin field, increased in 1993 over 1992, while
demand for underground storage tank testing, a high margin area, decreased.
In June, 1993, C/P was awarded contracts for $10.7 million in additional
meter installation projects in New York City. C/P began work on these
projects in December 1993.
OTHER
Interest expense was up $435,000 in 1993 compared to 1992, due primarily to
increased debt balances offset by lower interest rates in 1993. Income taxes
were down $239,000 due to lower pretax income.
Item 8. Financial Statements and Supplementary Data.
Page
Reference
Report of Management
Report of Independent Public Accountants
Consolidated Statements of Income for Years Ended
December 31, 1994, 1993 and 1992
Consolidated Balance Sheets at December 31, 1994
and 1993
Consolidated Statements of Capitalization and
Interim Financing at December 31, 1994 and 1993
Consolidated Statements of Cash Flow for Years Ended
December 31, 1994, 1993 and 1992
Consolidated Statements of Change in Common
Shareholders' Investment for Years Ended
December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Quarterly Information Pertaining to the
Results of Operations for the Years Ended
December 31, 1994 and 1993
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Incorporated by reference are the "Nominees for Election as Directors,"
"Other Executive Officers" and "Section 16(a) Ownership Reporting
Delinquencies" sections of the Company's Definitive Proxy Statement filed
pursuant to Regulation 14A.
Item 11. Executive Compensation.
Incorporated by reference is the "Executive Compensation" section of the
Company's Definitive Proxy Statement filed pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference is the "Common Stock Ownership of Certain
Beneficial Owners and Management" section of the Company's Definitive Proxy
Statement filed pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference is the "Executive Compensation" section of the
Company's Definitive Proxy Statement filed pursuant to Regulation 14A.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) List of financial statements, schedules and exhibits.
(1) Consolidated financial statements and notes thereto of
Consumers Water Company and its subsidiaries together with the Report of
Independent Public Accountants, are listed as part of Item 8 of this Form
10-K.
(2) Schedules
VII Valuation and Qualifying Accounts for the Years
Ended December 31, 1994, 1993 and 1992.
All other schedules have been omitted, since they are
not required, not applicable or the information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits
Exhibit
2.1 Assets Purchase and Sale Agreement between Ohio Water Service and
the City of Washington, Ohio dated October 28, 1993 is incorporated by
reference to Exhibit 2.1 to Consumers Water Company's Annual report on Form
10-K for the year ended December 31, 1993.
3.1 Conformed Copy of Restated Articles of Incorporation of Consumers
Water Company, as amended, incorporated by reference to Exhibit 4.1.6 to
Consumers Water Company's Registration Statement on Form S-2 (No. 33-41113),
filed with the Securities and Exchange Commission on June 11, 1991.
3.2 Bylaws of Consumers Water Company, as amended March 2, 1994, are
incorporated by reference to Exhibit 3.2 to Consumers Water Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
4.1 Instruments defining the rights of security holders, including
Indentures. The registrant agrees to furnish copies of instruments with
respect to long-term debt to the Commission upon request.
10.1 Noncompetition and Consulting Agreement between Consumers Water
Company and John H. Schiavi incorporated by reference to Exhibit 10.2 of
Consumers Water Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
10.2* Consumers Water Company 1988 Incentive Stock Option Plan is
submitted incorporated by reference to Exhibit 10.2 to Consumers Water
Company's Annual Report on Form 10-K for the year ended December 31, 1993.
10.3* Consumers Water Company 1993 Incentive Stock Option Plan is
incorporated by reference to Appendix B to definitive proxy statement dated
April 5, 1993.
10.4* Consumers Water Company 1992 Deferred Compensation Plan for
Directors, Plan A, incorporated by reference to Exhibit 10.5.2 to Consumers
Water Company's Annual Report on Form 10-K for the year ended December 31,
1991.
10.5* Consumers Water Company 1992 Deferred Compensation Plan for
Directors, Plan B, incorporated by reference to Exhibit 10.5.3 to Consumers
Water Company's Annual Report on Form 10-K for the year ended December 31,
1991.
10.6 Letter Agreement between Consumers Water Company and Anjou
International Company dated February 7, 1986, incorporated by reference to
Exhibit 10.6 to Consumers Water Company's Registration Statement on Form S-2
(No. 33- 41113), filed with the Securities and Exchange Commission on June
11, 1991.
10.7 Assignment of Rights under February 7, 1986 Agreement between
Consumers Water Company and Anjou International Company to Compagnie Generale
des Eaux, dated November 12, 1987, incorporated by reference to Exhibit 10.7
to Consumers Water Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
10.8 Form of Indemnification Agreement entered into between Consumers
Water Company and each of its current directors and executive officers,
incorporated by reference to Exhibit 10.8 to Consumers Water Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
10.9* Employment Agreement between Peter L. Haynes and Consumers Water
Company incorporated by reference to Exhibit 10.11 to Consumers Water
Company's Annual Report on Form 10-K for the year ended December 31, 1992.
11. Statement of Computation of Per Share Earnings is submitted
herewith as Exhibit 11.
21. List of Subsidiaries of the Registrant is submitted herewith as
Exhibit 21.
23. Consent of Arthur Andersen LLP is submitted herewith as Exhibit
(b) Reports on Form 8K
No reports have been filed on Form 8-K.
27. Financial Data Schedule is submitted herein as Exhibit 27.
-------------------------------------------------
* Management contract or compensatory plan or arrangement required to be
filed as an Exhibit pursuant to Item 14(c) on Form 10-K.
CONSUMERS WATER COMPANY
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Peter L. Haynes 3/24/95
Peter L. Haynes Date
President and Director
(Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ John F. Isacke 3/24/95
John F. Isacke Date
Senior Vice President
(Chief Financial Officer)
By: /s/ Gary E. Wardwell 3/24/95
Gary E. Wardwell Date
Controller
(Chief Accounting Officer)
By: /s/ David R. Hastings, II 3/24/95
David R. Hastings, II Date
Chairman and Director
By: /s/ Jack S. Ketchum 3/24/95
Jack S. Ketchum Date
Director
By: /s/ John E. Menario 3/24/95
John E. Menario Date
Director
By: /s/ J. Bonnie Newman 3/24/95
J. Bonnie Newman Date
Director
By: /s/ John E. Palmer, Jr. 3/24/95
John E. Palmer, Jr. Date
Director
By: /s/ Elaine D. Rosen 3/24/95
Elaine D. Rosen Date
Director
By: /s/ John W. L. White 3/24/95
John W. L. White Date
Director
By: /s/ Claudio Elia 3/24/95
Claudio Elia Date
Director
By: /s/ Peter L. Haynes 3/24/95
Peter L. Haynes Date
President and Director
(Chief Executive Officer)
EXHIBITS
Consumers Water Company and Subsidiaries
REPORT OF MANAGEMENT
The accompanying consolidated financial statements of Consumers Water
Company and its subsidiaries were prepared by management, which is
responsible for the integrity and objectivity of the data presented,
including amounts that must necessarily be based on judgements or
estimates. The consolidated financial statements were prepared in
conformity with generally accepted accounting principles and financial
information appearing throughout this annual report is consistent with
these statements.
In recognition of its responsibility, management maintains and relies
upon systems of internal accounting controls, which are reviewed and
evaluated on an ongoing basis. The systems are designed to provide
reasonable assurance that transactions are executed in accordance with
management's authorization and properly recorded to permit
preparation of reliable financial statements, and that assets are
safeguarded. Management must assess and balance the relative cost and
expected benefits of these controls.
These financial statements have been audited by Arthur Andersen, LLP,
the Company's independent public accountants. Their audit, in
accordance with generally accepted auditing standards, resulted in the
expression of their opinion. Arthur Andersen LLP's audit does not
limit management's responsibility for the fair presentation of the
financial statements and all other information in this annual report.
The Audit Committee of the Board of Directors, composed solely of
outside directors, meets periodically with management, internal audit,
and Arthur Andersen LLP to review the work of each and to discuss
areas relating to internal accounting controls, audits, and financial
reporting. Arthur Andersen LLP and the Company's internal
auditor have free access to meet individually with the Committee,
without management present, at any time, and they periodically do so.
\s\ John F. Isacke
John F. Isacke
Senior Vice President
Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
of Consumers Water Company:
We have audited the accompanying consolidated balance sheets and the
consolidated statements of capitalization and interim financing of CONSUMERS
WATER COMPANY (a Maine corporation) and subsidiaries as of December 31, 1994
and 1993, and the related consolidated statements of income, change in common
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 1994. These financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 financial statements referred to above present fairly, in
all material respects, the financial position of Consumers Water Company and
subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
the financial statements is presented for purposes of complying with the
Securities and
Exchange Commission's rules and is not a required part of the basic financial
statements. This schedule has been subjected to the auditing procedures
applied in our audit of the basic financial statements and, in our opinion,
is fairly stated in relation to the basic financial statements taken as a
whole.
As discussed in Notes 2 and 9 to the Consolidated Financial Statements,
effective January 1, 1993, the Company changed its method of accounting for
income taxes and other postretirement benefits
\s\ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 8, 1995
Consumers Water Company and Subsidiaries
Consolidated Statements of Income
For the years ended December 31,
(In Thousands Except Per Share
Amounts) 1994 1993 1992
Revenue and Sales:
Water utility operations $80,376 $78,171 $74,637
Other operations 12,961 10,913 9,608
------- ------- -------
Operating revenue 93,337 89,084 84,245
Costs and Expenses: ------- ------- -------
Water utility operations 56,515 55,127 50,996
Other operations 12,386 11,112 9,454
------- ------ ------
Operating expenses 68,901 66,239 60,450
------- ------ ------
Operating Income 24,436 22,845 23,795
Other Income and (Expense): ------- ------ ------
Interest expense (12,497) (11,905) (11,470)
Construction interest capitalized 1,421 778 367
Preferred dividends and minority
interest of subsidiaries ( 139) (147) (143)
Other, net (Note 3) 1,000 692 344
-------- -------- --------
(10,215) (10,582) (10,902)
Income from Continuing Operations -------- -------- --------
Before Income Taxes and Gains
(Losses) from Sales of
Properties 14,221 12,263 12,893
Income Taxes (Note 2) 4,623 4,128 4,367
Income from Continuing Operations: ------- ------- --------
Before Gains (Losses) from Sales
of Properties 9,598 8,135 8,526
Gains (Losses) from Sales of
Properties, Net (Note 7) 402 3,868 (25)
Income from Continuing ------- ------- --------
Operations 10,000 12,003 8,501
Income (Loss) from Discontinued ------- ------- --------
Operations:
Before Discontinuance - (784) (479)
Provision for Loss on Disposal of
Discontinued Operations - (5,300) -
Total from Discontinued Operations------- -------- --------
(Note 11) - (6,084) (479)
------- -------- --------
Net Income $10,000 $5,919 $8,022
======= ======== ========
Weighted Average Shares Outstanding 8,161 7,320 7,007
Earning (Loss) per Common Share:
Continuing Operations-
Before Gains (Losses) from Sales$1.17 $1.10 $1.21
Total $1.22 $1.63 $1.21
Discontinued Operations- ======== ======== ========
Before Discontinuance - ($0.11) ($0.07)
Earnings (Loss) on Disposal of
Discontinued Operations - ($0.72) -
-------- -------- --------
Total - ($0.83) ($0.07)
-------- -------- --------
Total $1.22 $0.80 $1.14
-------- -------- --------
Dividend Declared per Common Share $1.17 $1.15 $1.13
-------- -------- --------
The accompanying notes are an integral part of these consolidated
financial statements.
Consumers Water Company and Subsidiaries
Consolidated Balance Sheets
December 31,
(Dollars in Thousands)
1994 1993
Assets
Property, Plant and Equipment, at cost:
Water utility plant, in service $395,900 $360,115
Less - Accumulated depreciation 69,148 63,579
-------- --------
326,752 296,536
-------- --------
Other subsidiaries 1,947 1,710
Less - Accumulated depreciation 1,119 881
-------- --------
828 829
-------- --------
Construction work in progress 21,674 20,180
-------- --------
Net property, plant and equipment 349,254 317,545
Assets of Discontinued Operations, Net -------- --------
(Note 11) - 1,308
Investments, at cost 1,984 2,044
-------- --------
Current Assets:
Cash and cash equivalents (Note 4) 2,906 4,993
Accounts receivable, net of reserves
of $682 in 1994 and $798 in 1993 10,465 10,171
Unbilled revenue 8,966 6,649
Inventories (Note 1) 2,258 1,793
Prepayments and other 6,116 6,524
-------- --------
Total current assets 30,711 30,130
Other Assets: -------- --------
Funds restricted for construction
activity (Note 3) 2,503 9,508
Deferred charges and other assets 16,928 11,122
-------- --------
19,431 20,630
-------- --------
$401,380 $371,657
Shareholders' Investment and Liabilities: ========= ========
Capitalization (See Separate Statement)
Common shareholders' investment $100,928 $96,938
Preferred shareholders' investment 1,069 1,069
Minority interest 2,218 2,240
Long-term debt 130,038 124,050
-------- -------
Total capitalization 234,253 224,297
-------- -------
Contributions in Aid of Construction 61,576 54,045
Current Liabilities: -------- -------
Interim Financing (See Separate
Statement) 29,816 20,606
Accounts payable 5,916 6,052
Accrued taxes (Note 2) 6,496 6,662
Accrued interest 3,435 3,318
Accrued expenses 12,352 11,011
-------- --------
Total current liabilities 58,015 47,649
Commitments and Contingencies (Note 10) -------- --------
Deferred Credits:
Customers' advances for construction 21,917 21,338
Deferred income taxes (Note 2) 20,613 19,183
Unamortized investment tax credits 5,006 5,145
-------- --------
47,536 45,666
-------- --------
$401,380 $371,657
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
Consumers Water Company and Subsidiaries
Consolidated Statements of Capitalization and Interim Financing
December 31,
1994 1993
(Dollars in Thousands)
Capitalization (Notes 3 and 5)
Common shareholders' investment:
Common stock, $1 par value
Authorized: 15,000,000 shares
Issued: 8,259,685 shares in 1994 and
8,041,369 shares in 1993 $8,260 $8,041
Amounts in excess of par value 68,084 64,662
Reinvested earnings 24,584 24,235
------- -------
100,928 96,938
------- -------
Preferred shareholders' investment:
Preferred stock, $100 par value 1,069 1,069
Minority interest: ------- -------
Common stock, at equity 540 562
Preferred stock 1,678 1,678
------- -------
2,218 2,240
------- -------
Long-term debt:
First mortgage bonds, debentures and
promissory notes-
Maturities Interest Rate Range
1994 69% of Prime to 10.50% - 14
1995 9.00% to 13.88% 1,608 1,624
1996 6.10% to 11.00% 145 228
1997 5.94% to 7.50% 1,437 1,452
1998 5.94% 10 573
1999 70% of Prime to 7.00% 1,447 1,460
2000-2004 8.00% to 8.75% 9,979 10,177
2005-2009 9.31% to 10.55% 13,266 13,646
2010-2014 1.00% to 9.50% 10,077 10,135
THEREAFTER 6.10% to 10.40% 94,579 85,671
------- -------
Total first mortgage bonds, debentures
and notes 132,548 124,980
Less - Sinking fund requirements and
current maturities 2,510 930
------- -------
130,038 124,050
------- -------
Total capitalization 234,253 224,297
------- -------
Interim financing (Note 4):
Notes payable 27,306 19,676
Sinking fund requirements and current
maturities 2,510 930
------- -------
Total interim financing 29,816 20,606
------- -------
Total capitalization and interim financing $264,069 $244,903
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
Consumers Water Company and Subsidiaries
Consolidated Statements of Change in
Common Shareholders' Investment
Number of Shares,
$1 par value, (Dollars in Thousands)
Issued and Excess of Reinvested
For the years ended Outstanding Par Value Earnings
December 31, 1994,
1993 and 1992
Balance, December 31, 1991 6,891,533 $46,235 $26,968
Net income 8,022
Cash dividends:
Common shares (7,977)
Preferred shares (57)
Dividend Reinvestment Plan 170,823 2,823
Employee benefit plans 32,957 542
Other 34,326 557
--------------------------------------------------------------------
Balance, December 31, 1992 7,129,639 50,157 26,956
Net income 5,919
Cash dividends:
Common shares (8,584)
Preferred shares (56)
Dividend Reinvestment Plan 187,679 3,280
Employee benefit plans 34,051 569
Stock Issue 690,000 10,652
Other - 4
--------------------------------------------------------------------
Balance, December 31, 1993 8,041,369 64,662 24,235
Net income 10,000
Cash dividends:
Common shares (9,594)
Preferred shares (56)
Dividend Reinvestment Plan 193,908 3,049
Employee benefit plans 24,408 389
Other - (16)
--------------------------------------------------------------------
Balance, December 31, 1994 8,259,685 $68,084 $24,585
====================================================================
The accompanying notes are an integral part of these consolidated
financial statements.
Consumers Water Company and Subsidiaries
Consolidated Statements of Cash Flows
For the years ended December 31, 1994 1993 1992
(Dollars in Thousands)
Operating activities:
Net income $10,000 $5,919 $8,022
Adjustments to reconcile
net income to net cash provided
by operating activities:
Depreciation and amortization 8,993 7,994 7,432
Deferred income taxes and
investment tax credits 1,777 6,417 1,072
(Gains) losses on sales of
properties ( 402) (3,869) 25
Changes in assets and
liabilities:
Increase in accounts receivable
and unbilled revenue (2,471) (1,202) (1,695)
(Increase) decrease in
inventory ( 465) 70 63
(Increase) decrease in
prepaid expenses 408 (1,203) 432
Increase (decrease) in accounts
payable and accrued expenses 1,013 4,134 (236)
Change in other assets, net of change
in other liabilities of continuing
operations (1,883) (4,847) (1,263)
Change in assets, net of change in
liabilities of discontinued
operations 1,308 (1,428) 257
Loss on disposal of
discontinued operations
(Note 11) - 5,300 -
------- ------- -------
Total adjustments 8,278 11,366 6,087
------- -------- -------
Net cash provided by operating
activities 18,278 17,285 14,109
Investing activities: ------- -------- -------
Capital expenditures (39,345) (34,655) (21,877)
Increase(decrease) in funds
restricted for construction
activity 7,005 (4,415) (5,093)
Increase (decrease) in
construction accounts payable 28 911 (1,092)
Net cash cost of acquisitions
(Note 6) ( 1,426) ( 260) (3,524)
Net proceeds from sales of
properties (Note 7) 659 10,239 8
-------- ------- -------
Net cash used in investing
activities (33,079) (28,180) (31,578)
-------- -------- --------
Financing activities:
Net borrowing (repayment) of
short-term debt 7,630 10,340 (7,673)
Proceeds from issuance of
long-term debt 9,053 19,429 39,902
Repayment of long-term debt ( 1,485) (25,989) (15,084)
Proceeds from issuance of stock 3,640 15,408 3,570
Advances and contributions in aid
of construction, net of repayments 4,147 3,879 3,070
Taxes paid by developers on advances
and contributions in aid of
construction ( 726) ( 583) (364)
Cash dividends paid (9,545) (8,364) (7,932)
Net cash provided by ------- ------- -------
financing activities 12,714 14,120 15,489
Net increase (decrease) in cash ------- ------- -------
and cash equivalents (2,087) 3,225 (1,980)
Cash and cash equivalents at
beginning of year 4,993 1,768 3,748
------- ------- -------
Cash and cash equivalents
at end of year $2,906 $4,993 $1,768
======= ======= =======
Supplemental disclosures of cash flow information from continuing
operations
Cash paid during the year for:
Interest (net of amounts
capitalized) $10,712 $10,540 $10,612
Income taxes $ 4,123 $ 3,570 $ 3,713
Noncash investing and financing
activities for the year:
Assets acquired by stock issuance
and/or assumption of debt of
acquired company - - $ 998
Property advanced or contributed $2,713 $855 $3,910
Note receivable and water rights
in exchange for utility assets - - $2,085
The accompanying notes are an integral part of these consolidated
financial statements.
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of Consumers Water Company (the Company) and its water
utility and utility services subsidiaries. All significant
intercompany balances and transactions have been eliminated in
consolidation. The consolidated financial statements and related
footnote information have been restated to reflect the Company's
manufactured housing subsidiary, Burlington Homes of New
England, as discontinued operations. See Note 11.
Regulation
The rates, operations, accounting and certain other practices of the
Company's utility subsidiaries are subject to the regulatory authority
of State Public Utility Commissions.
Property, Plant and Equipment
The utility subsidiaries generally capitalize interest at current
rates on short-term notes payable used to finance major
construction projects. Utility plant construction costs also include
payroll, related fringe benefits and other overhead
costs associated with construction activity. Depreciation is provided
principally at straight-line composite rates. The
consolidated provision, based on average amounts of depreciable
utility plant (which excludes contributions in aid of
construction and customers' advances for construction for most
subsidiaries), approximated 2.5% in 1994, 2.4% in
1993 and 2.3% in 1992. Under composite depreciation, when property is
retired or sold in the normal course of business, the entire cost,
cluding net cost of removal, is charged to accumulated depreciation
and no gain or loss is recognized.
The utility services subsidiary depreciates property and equipment
using the straight-line method over the estimated useful lives of the
assets, generally 5 to 10 years.
Revenue Recognition
All of the utility subsidiaries accrue estimated revenue for water
distributed but not yet billed as of the balance sheet
date. Unbilled revenue also includes amounts for work performed but
not yet billed for C/P Utility Services Company, Inc. C/P accounts
for contracts using the percentage-of-completion method for long-term
contracts and the completed contract method for short-term contracts.
Cash Flows
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid instruments with
an original maturity of three months or less, which are not restricted
for construction activity to be cash equivalents.
Disclosures about Fair Value of Financial Instruments
The carrying amount of cash, temporary investments, notes receivable,
and preferred stock approximate their fair value. The fair value of
long-term debt based on borrowing rates currently available for loans
with similar terms and maturities is approximately $130 million.
Inventories
Inventories generally consist of materials and supplies. They are
stated at the lower of cost (average cost method) or market.
Other Assets
Deferred charges consist primarily of financing charges, rate case,
other expenses, and a note receivable of $1,330,000.
Deferred rate case expenses are amortized over periods allowed by
the governing regulatory authorities, generally one to three years.
Other assets also include preliminary survey and investigation costs
and certain items amortized, subject to regulatory approval, over
their anticipated period of recovery. Deferred financing charges are
amortized over the lives of the related debt issues.
Customers' Advances/Contributions in Aid of Construction
The water subsidiaries receive contributions and advances for
construction from or on behalf of customers. Advances received are
refundable, under certain circumstances, either wholly or in part,
over varying periods of time. Amounts no longer refundable are
reclassified to contributions in aid of construction. Contributions
and advances received after 1986 are treated as taxable income.
Amounts that customers are required to contribute to offset the income
taxes payable by the Company are normally included in contributions or
advances.
Income Taxes
The Company and its subsidiaries file a consolidated federal income
tax return. The rate-making practices followed by most regulatory
agencies allow the utility subsidiaries to recover, through customer
rates, federal and state income taxes payable currently and deferred
taxes related to certain timing differences between pretax accounting
income and taxable income. The income tax effects of other timing
differences are flowed through for rate-making and accounting
purposes. The Company expects that deferred taxes not collected will
be recovered through customer rates in the future when such taxes
become payable.
Investment Tax Credits
Investment tax credits of utility subsidiaries are deferred and
amortized over the estimated useful lives of the related properties.
Effective January 1, 1986, investment tax credits were eliminated by
the Tax Reform Act of 1986 except for property meeting the
transitional rules.
Earnings (Loss) Per Common Share
Earnings (loss) per common share are based on the annual weighted
average number of shares outstanding and common share equivalents.
The effect of employee stock options, which are included as common
share equivalents, is not significant.
(2) Income Tax Expense
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes,
which requires the use of the liability method in accounting for
income taxes. 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 are recoverable or payable through
future rates, regulatory assets and liabilities have been recorded in
the accompanying Consolidated Balance Sheets.
Accumulated deferred taxes consisted of tax assets of $985,369 and
$893,000 related to alternative minimum tax offset by liabilities of
$21,053,895 and $19,665,000, which are predominanty related to
accumulated depreciation and other plant related differences in 1994
and 1993, respectively. The Company believes that all deferred income
tax assets will be realized in the future; therefore, a valuation
allowance has not been recorded. The net regulatory asset
was approximately $3.9 million and $3.1 million at December 31, 1994,
and 1993, respectively.
(2) Income Tax Expense (continued..)
The components of income tax expense from continuing operations
reflected in the Consolidated Statements of
Income are as follows:
For the Years Ended December 31,
(Dollars in Thousands) 1994 1993 1992
Federal:
Currently payable $4,209 $3,077 $ 3,255
Deferred 561 2,827 668
Investment tax credit,
net of amortization (139) ( 291) ( 183)
$4,631 $5,613 3,740
State:
Currently payable 506 134 589
Deferred ( 13) 195 ( 21)
493 329 568
Total provision $5,124 $5,942 4,308
The provision for income tax
expense is reflected in:
Income taxes $4,623 $4,128 $ 4,367
Gains (Losses) from sales of
properties 242 1,735 ( 89)
Other income 259 79 30
Total provision $5,124 $5,942 $ 4,308
The table below reconciles the federal statutory rate to a rate
computed by dividing income tax expense, as shown in the previous
table, by income from continuing operations before income tax expense.
1994 1993 1992
Statutory rate 34.0% 34.0% 34.0%
State taxes, net of
federal benefit 2.2 1.2 3.0
Effect of decrease in statutory
rate on reversing timing items ( .2) ( .1) (0.2)
Investment tax credit (1.0) ( .8) (1.6)
Other (1.1) (1.2) (1.1)
33.9% 33.1% 34.1%
The table below was required prior to the adoption of SFAS 109,
therefore, it is only presented for years prior to 1993. The major
differences in the timing of recognition of income and expense for tax
and accounting purposes, for which deferred income taxes are provided,
are as follows:
(Dollars in Thousands) 1992
Accelerated depreciation $ 2,896
Contributions and advances ( 2,570)
Alternative minimum tax 526
Other, net ( 205)
$ 647
(3) Long-Term Debt
Maturities and sinking fund requirements of the first mortgage bonds,
debentures and notes including capitalized leases are $2,510,000 in
1995, $878,000 in 1996, $2,215,000 in 1997, $808,000 in 1998,
$4,891,000 in 1999, and $121,246,000 thereafter.
Substantially all of the Company's water utility plant is pledged
as security under various indentures or mortgages.
The indentures restrict cash dividends and purchases of the companies'
common stocks. The various water utility subsidiaries' indentures
generally prohibit the payment of dividends on common shares in excess
of retained earnings plus a stated dollar amount. Approximately $31.1
million of reinvested earnings were not so restricted at December 31,
1994.
In 1993, funds restricted for construction activity of $9.5 million
was obtained through the issuance of tax exempt bonds, the use of
which is restricted for utility plant construction. At December 31,
1994, $2.5 million of these funds was still available. Interest
income earned is included in Other, net in the accompanying
Consolidated Statements of Income.
(4) Notes Payable
Notes payable are incurred primarily for temporary financing of plant
expansion. It is the subsidiaries' intent to repay these borrowings
with the proceeds from the issuance of long-term debt or equity
securities. Certain information related to the borrowings of the
continuing operations is as follows:
(Dollars in Thousands) 1994 1993 1992
Unused lines of bank
credit $56,694 $ 82,574 $47,314
Borrowings outstanding at
year-end 27,306 19,676 9,336
Total lines of bank
credit $84,000 $102,250 $56,650
Monthly average borrowings
during the year $27,679 $ 20,660 $17,310
Maximum borrowings at any
month-end during the year $34,600 $ 34,619 $21,612
Weighted average annual interest
rate during the year 6.6% 4.5% 6.0%
Weighted average interest rate on
borrowings outstanding
at year-end 7.0% 4.7% 5.1%
(5) Shareholders' Investment
As of December 31, 1994, the Company reserved issuable common shares
for the following purposes:
Dividend Reinvestment Plan 123,820
401(k) Savings Plan 221,257
Stock Option Plans 241,564
Employee Stock Bonus Plan 64,019
650,660
The stock option plans approved by stockholders in 1988 and 1993
provide for the sale of shares to eligible key employees of the
Company and its subsidiaries. The plans provide that option prices
shall not be less than 100% of the fair market value on the date of
the grant. The options expire after five years. During 1994, 29,000
options were granted, 1,980 options were excercised, and 34,833
options lapsed and were cancelled. During 1993, 34,500 options
were granted, 13,091 options were exercised and 13,445 options lapsed
and were cancelled. During 1992, 30,700 options were granted, 12,767
options were exercised, and 25,613 options lapsed and were cancelled.
At December 31, 1994, options for 108,614 shares were exercisable at
prices of $18.50, $18.25, $17.75, $17.25 and $16.50 per share.
Stock options were exercised in 1994 at $18.25 and $16.50 per share.
Stock options were exercised in 1993 at $19.25, $18.25, $17.75, $16.75
and $16.50. Stock options were excercised in 1992 at $16.75 and
$16.50.
Information regarding outstanding preferred stock ($100 par value) of the
Company and its subsidiaries is as follows:
<TABLE>
<CAPTION>
Par Value
of Shares
Cumulative Current Shares Outstanding
Dividend Call Price Shares Issued and (Dollars in
Rate % Per Share Authorized Outstanding Thousands)
<S> <C> <C> <C> <C> <C>
Shenango Valley Water Company 5 $110 10,000 9,964 $996
Consumers Illinois Water Company 5 1/2 107 5,000 3,577 358
Consumers Maine Water Company 5 105 4,000 2,739 274
Consumers Water Company 5 1/4 105 30,000 10,694 1,069
Consumers Water Company - None 120,000 - -
</TABLE>
Of the total 30,000 Consumers Water Company preferred shares
authorized with voting rights, 15,925 shares have been designated
5-1/4% Cumulative Preferred Stock Series A. The remaining 14,075
shares are undesignated. The difference between par value and
acquisition price was credited to amounts in excess of par value.
(6) Acquisitions
On September 2, 1994, the Company, through its subsidiary Roaring
Creek Water Company, acquired the assets of Ralpho Township watersystem for
$1,426,000.
On December 7, 1993, the Company, through its subsidiary C/P
Utilities acquired the assets of EnviroAudit Ltd., an environmental
services company, for $260,000.
On December 31, 1992, the Company, through its subsidiary, Roaring
Creek Water Company, acquired the assets of Northumberland Utilities
in exchange for $590,000 of the Company's common stock and the
assumption of $408,000 in debt.
On December 31, 1992, the Company, through its subsidiary Wanakah
Water Company, acquired the assets of Greenville, Millinocket and
Skowhegan Water Companies for $3.5 million.
All of these acquisitions were accounted for using the purchase
method of accounting, and the results of their operations have been
included in the consolidated financial statements since the date of
acquisition.
(7) Dispositions
On December 29, 1994, Consumers Illinois Water Company closed on the
sale of 9 acres of land in Bradley, Illinois for $667,000. This sale
generated a gain, net of taxes, of $394,000.
On October 20, 1994, Shenango Valley Water Company sold its old
office building for $54,000. This sale generated a gain of $7,000.
On December 16, 1993, the Company sold the Washington Court House
Division of Ohio Water Service Company to the City of Washington
resulting in a gain, net of taxes, of $3.0 million. In 1993,
Washington Court House Division generated $2.3 million in revenue and
had 6,000 customers.
On January 13, 1993, the Company sold the Bourbonnais wastewater
collection system of Consumers Illinois Water Company to the Village
of Bourbonnais for a gain, net of taxes, of approximately $847,000.
The operation generated $1.1 million in revenues and had 5,007
customers in 1992.
On December 31, 1992, Southern New Hampshire Water Company sold its
Amherst Division for $2.1 million resulting in a loss, net of taxes,
of $27,000.
(8) Retirement Plan
The Company has a defined benefit pension plan covering substantially
all of its employees. Pension benefits are based on years of service
and the employee's average salary during the last five years of
employment. The Company's funding policy is to contribute an amount
that will provide for benefits attributed to service to date and for
those expected to be earned in the future by current participants, to
the extent deductible for income tax purposes.
Net pension cost for the years ended December 31, 1994, 1993, and
1992, was $663,000, $501,000, and $30,000, respectively.
The funded status of the Plan as of December 31 is as follows:
(Dollars in Thousands) 1994 1993
Actuarial present value of benefit obligations:
Accumulated benefit obligations
Vested $20,306 $20,448
Nonvested 654 2,132
Total 20,960 22,580
Effect of future salary increases 5,995 7,361
Projected benefit obligations for services
provided to date 26,955 29,941
Market value of plan assets, primarily
invested in stocks, bonds and short-term
funds 27,668 30,067
Plan assets in excess of projected
benefit obligations 713 126
Unrecognized net asset existing
as of January 1, 1987, being amortized over
22 years (3,108) (3,317)
Unrecognized prior service cost 2,383 2,601
Unrecognized net gain (1,866) ( 865)
Accrued pension cost at year-end (1,878) $(1,455)
Net pension cost included the following items:
(Dollars in Thousands) 1994 1993 1992
Service cost-benefits earned
during the year $1,151 $ 977 $934
Interest cost on projected
benefit obligations 2,178 2,022 1,860
Actual loss (return) on plan assets 1,656 (2,502) (1,955)
Net amortization and deferral (4,322) 4 ( 809)
Net periodic pension cost $663 $501 $ 30
The expected long-term rate of return on plan assets was 9.0% in 1994
and in 1993 and 9.5% in 1992. The salary increase assumption was 5.0%
in 1994 and in 1993 and 6% in 1992. The discount rate used to
determine the actuarial present value of the projected benefit
obligations was 8.5% in 1994, 7.5% in 1993, and 8.0% in 1992.
(9) Postretirement Benefits
Employees retiring from the Company in accordance with the retirement
plan provisions are entitled to postretirement health care and life
insurance coverage. These benefits are subject to deductibles,
co-payment provisions and other limitations. The Company may amend or
change the plan periodically.
The Company has adopted the delayed recognition method under which the
unrecorded SFAS 106 liability as of January 1, 1993, will be amortized
to expense on a straight-line basis over a 20-year period. Prior to
the adoption of SFAS 106 on January 1, 1993, the Company was on the
cash-basis method of accounting. The net cost of these
benefits charged to income on a cash basis was $75,000 for 1992.
The following table sets forth the postretirement health and life
insurance plans' combined funded status.
(Dollars in Thousands) 1994 1993
Accumulated postretirement benefit
obligation ($3,066) ($3,873)
Plan assets at fair value - -
Accumulated postretirement benefit
obligation in excess of plant assets ($3,066) ($3,873)
Unrecognized net gain from past
experience different from that assumed
and from changes in assumptions (862) 323
Unrecognized transition obligation 2,887 3,048
Accrued postretirement benefit cost ($1,041) ($502)
The Company's postretirement health and life insurance plans are
unfunded; there are no assets for either plan and the accumulated
postretirement benefit obligation for health insurance is $2,305,000
and for life insurance is $761,000.
Net periodic postretirement benefit cost included the following
components;
(Dollars in Thousands) 1994 1993
Service cost-benefits attributed to
service during the period $182 $155
Interest cost on accumulated
postretirement benefit obligation 286 269
Amortization of transition obligation
over 20 years 160 160
Net periodic postretirement benefit cost $628 $584
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation is 8.5% in 1994 and 7.5% in 1993. A
10% and 15% annual rate of increase in the per capita cost of covered
health care benefits is assumed for 1994 and 1993, respectively. The
health care cost trend rate is assumed to decrease annually through
the year 2002 to an ultimate rate of 6%. Increasing the assumed
health care cost trend rates by 1% would
increase the accumulated postretirement benefit obligation by $112,000
as of September 30, 1994, and $300,000 as of December 31, 1993. The
effect of this increase in trend rate assumptions on the sum of the
service cost and interest cost components of the net periodic
postretirement benefit cost for the year ended December 31, 1994,
would be an increase of $20,000.
(10) Commitments and Contingencies
The Company is a party in or may be affected by various matters under
litigation. The Company expects that some of its operating
subsidiaries, in order to comply with the requirements of the Safe
Drinking Water Act, may have to invest in significant improvements or
additions including, but not limited to, the construction of treatment
plants and the modification or replacement of open reservoirs.
Management believes that the ultimate treatment of these
expenditures and the various matters under litigation will not have a
significant adverse effect on either the Company's future results of
operations or financial position.
The Company has operating leases for buildings, vehicles, water
meters and office equipment. Rental expenses relating to these leases
for the years ended December 31, 1994, 1993 and 1992 were
approximately $1,321,000, $1,612,000, and $1,684,000, respectively.
At December 31, 1994, minimum future lease payments under
noncancelable operating leases are $1,290,000 in 1995, $869,000 in
1996, $552,000 in 1997, $433,000 in 1998, $339,000 in 1999 and
$573,000 thereafter.
In March, 1993, an outside contractor spilled a small amount of
mercury while working at the Company's subsidiary, Ohio Water's water
treatment plant. Several areas in and around the plant were
contaminated by the spill, although no mercury contaminated OWS's
water supply. The cleanup was completed at a total cost of
approximately $900,000. Ohio Water has received $100,000 from its
insurer and is currently seeking recovery of all the cleanup
costs from the contractor. While there can be no assurances to the
ultimate outcome of Ohio Water's efforts to obtain such recovery,
Management believes that it is probable that Ohio Water will recover
cleanup costs from the contractor and/or the contractor's insurer and,
therefore, has deferred the costs incurred in connection with the
spill.
(11) Discontinuance of Manufactured Housing Operations
On October 6, 1993, the Company announced its intention to dispose of
its manufactured housing business, Burlington Homes of New England.
The business was offered for sale. A reserve for the estimated loss
on the disposal for $5.3 million, net of taxes of approximately
$600,000 was recorded in 1994. On July 8, 1994, Burlington
was sold for $378,000. The reserve taken in 1993 was adequate to
cover the loss on the sale. The operating results of Burlington Homes
prior to the date of discontinuance are shown separately on the
accompanying consolidated statements of income, and all financial
statements for prior periods have been restated. Total sales for
Burlington Homes were $5,486,000 and $5,370,000 in 1993 and 1992
respectively.
(12) Subsequent Event
On October 20, 1994, the Damariscotta division of Consumers Maine
Water Company was taken by the local communities by eminent domain for
$600,000 or approximately 75% of rate base. Consumers Maine prepared
to challenge the purchase price in court, but, instead, on February
21, 1995, they reached an out of court settlement for $1,552,000.
This sale will generate a gain which will be recorded in 1995 of
approximately $400,000, net of taxes.
Schedule II
CONSUMERS WATER COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(Dollars in Thousands)
Additions Deductions
Balance at Provision Balance at
Beginning of Charged to Accounts End of
Description Year Operations Recoveries Written Off Year
Allowance for
Doubtful Year Ended December 31, 1994
Accounts --------------------------------------------------------------
$798 $706 $55 $877 $682
Year Ended December 31, 1993
--------------------------------------------------------------
$702 $599 $60 $563 $798
Year Ended December 31, 1992
--------------------------------------------------------------
$1,121 $645 $57 $1,121 $702
EXHIBIT INDEX
Sequentially
Numbered
Exhibit Page
2.1 Assets Purchase and Sale Agreement between Ohio Water Service and
the City of Washington, Ohio dated October 28, 1993 is incorporated by
reference to Exhibit 2.1 to Consumers Water Company's Annual Report on Form
10-K for the year ended December 31, 1993.
3.1 Conformed Copy of Restated Articles of Incorporation of Consumers
Water Company, as amended, incorporated by reference to Exhibit 4.1.6 to
Consumers Water Company's Registration Statement on Form S-2 (No. 33-41113),
filed with the Securities and Exchange Commission on June 11, 1991.
3.2 Bylaws of Consumers Water Company, as amended March 2, 1994, are
incorporated by reference to Exhibit 3.2 to Consumers Water Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
4.1 Instruments defining the rights of security holders, including
Indentures. The registrant agrees to furnish copies of instruments with
respect to long-term debt to the Commission upon request.
10.1 Noncompetition and Consulting Agreement between Consumers Water
Company and John H. Schiavi incorporated by reference to Exhibit 10.2 of
Consumers Water Company's Annual Report on Form 10-K for the year ended
December 31, 1992.
10.2* Consumers Water Company 1988 Incentive Stock Option Plan is
incorporated by reference to Exhibit 10.2 to Consumers Water Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
10.3* Consumers Water Company 1993 Incentive Stock Option Plan is
incorporated by reference to Appendix B to definitive proxy statement dated
April 5, 1993.
10.4* Consumers Water Company 1992 Deferred Compensation Plan for
Directors, Plan A, incorporated by reference to Exhibit 10.5.2 to Consumers
Water Company's Annual Report on Form 10-K for the year ended December 31,
1991.
10.5* Consumers Water Company 1992 Deferred Compensation Plan for
Directors, Plan B, incorporated by reference to Exhibit 10.5.3 to Consumers
Water Company's Annual Report on Form 10-K for the year ended December 31,
1991.
10.6 Letter Agreement between Consumers Water Company and Anjou
International Company dated February 7, 1986, incorporated by reference to
Exhibit 10.6 to Consumers Water Company's Registration Statement on Form S-2
(No. 33-41113), filed with the Securities and Exchange Commission on June 11,
1991.
10.7 Assignment of Rights under February 7, 1986 Agreement between
Consumers Water Company and Anjou International Company to Compagnie
Generale des Eaux, dated November 12, 1987, incorporated by reference to
Exhibit 10.7 to Consumers Water Company's Annual Report on Form 10-K for
the year ended December 31, 1992.
10.8 Form of Indemnification Agreement entered into between Consumers
Water Company and each of its current directors and executive officers,
incorporated by reference to Exhibit 10.8 to Consumers Water Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
10.9* Employment Agreement between Peter L. Haynes and Consumers Water
Company incorporated by reference to Exhibit 10.11 to Consumers Water
Company's Annual Report on Form 10-K for the year ended December 31, 1992.
11. Statement of Computation of Per Share Earnings is submitted
herewith as Exhibit 11.
21. List of Subsidiaries of the Registrant is submitted herewith as
Exhibit 21.
23. Consent of Arthur Andersen LLP is submitted herewith as Exhibit 23.
27. Financial Data Schedule is submitted herewith as Exhibit 27.
------------------------------------------
* Management contract or compensatory plan or arrangement required to
be filed as an Exhibit pursuant to Item 14(c) of Form 10-K.
EXHIBIT 11
Statement of Computation of Per Share Earnings
Years Ended December 31,
1994 1993 1992
(Amounts in Thousands except per share data)
PRIMARY
Weighted average number of
shares outstanding 8,160 7,314 7,003
Net effect of dilutive common
stock equivalents 2 6 4
Weighted average ------- ------ ------
primary shares 8,162 7,320 7,007
========= ========== =========
Net income (loss) $ 10,000 $ 5,919 $ 8,022
Preferred dividends ( 56) ( 56) ( 57)
Earnings applicable --------- ---------- ---------
to common shares $ 9,944 $ 5,863 $ 7,965
Primary earnings (loss) per ========= ========== =========
common share $ 1.22 $ 0.80 $ 1.14
========= ========== =========
FULLY DILUTED
Weighted average number of
shares outstanding 8,160 7,321 7,003
Net effect of dilutive common
stock equivalents 2 6 5
Weighted average fully --------- --------- -------
diluted shares 8,162 7,327 7,008
Earnings (loss) applicable to ======== ========= =======
common shares $ 9,944 $ 5,863 $ 7,965
========= ========= ========
Fully diluted earnings (loss)
per common share $ 1.22 $ 0.80 $ 1.14
========= ========= ========
EXHIBIT 21
Subsidiaries of Registrant
December 31, 1994
Percentage
Voting
State in Which Year Acquired Securities
Name of Subsidiary Incorporated or Formed Owned
BHNE Liquidating Corp., Inc. Maine 1983 100.0%
Consumers Maine Water Company Maine 1959 98.7%
Consumers Illinois Water Company Illinois 1926 100.0%
C/P Utility Services Company, Inc. Maine 1984 100.0%
(and its wholly owned subsidiary
EnviroAudit)
Consumers Land Management Co. Maine 1984 100.0%
Garden State Water Company New Jersey 1969 97.5%
(and its 93.2% owned subsidiary,
Califon Water Company)
Inter-State Water Company Illinois 1986 100.0%
Ohio Water Service Company Ohio 1973 100.0%
Pennsylvania Water Company Pennsylvania 1971 94.9%
Roaring Creek Water Company Pennsylvania 1985 100.0%
Shenango Valley Water Company
(and its wholly- Pennsylvania 1926 100.0%
owned subsidiary, Masury
Water Company) Ohio 1926 100.0%
Southern New Hampshire
Water Company, Inc. New Hampshire 1930 100.0%
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 8, 1995, included in this Form 10-K, into the
Company's previously filed Registration Statement (Form S-3 No. 33-55584 and
Forms S-8 Nos. 33-68858, 33-20994, 33-22032 and
33-57618).
/s/ Arthur Andersen LLP
Boston Massachusetts
March 24, 1995
[ARTICLE] 5
<TABLE>
[MULTIPLIER] 1,000
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1994
[PERIOD-END] DEC-31-1994
[CASH] 2,906
[SECURITIES] 0
[RECEIVABLES] 11,147
[ALLOWANCES] 682
[INVENTORY] 2,258
[CURRENT-ASSETS] 30,711
[PP&E] 397,847
[DEPRECIATION] 70,267
[TOTAL-ASSETS] 401,380
[CURRENT-LIABILITIES] 58,015
[BONDS] 130,038
[COMMON] 8,260
[PREFERRED-MANDATORY] 0
[PREFERRED] 1,069
[OTHER-SE] 94,886
[TOTAL-LIABILITY-AND-EQUITY] 401,380
[SALES] 0
[TOTAL-REVENUES] 93,337
[CGS] 0
[TOTAL-COSTS] 68,901
[OTHER-EXPENSES] (861)
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 11,076
[INCOME-PRETAX] 14,623
[INCOME-TAX] 4,623
[INCOME-CONTINUING] 10,000
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 10,000
[EPS-PRIMARY] 1.22
[EPS-DILUTED] 1.22
</TABLE>
