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, 1995
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 11, 1996 was $145,675,805. As of March 11, 1996, there were
8,569,165 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 1996 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 8 water companies (the Consumers Water
Subsidiaries) which operate 27 separate systems providing water service to
approximately 223,000 customers in six states. The Company also owns 100% of
Consumers Applied Technologies, Inc. (CAT), formerly known as C/P Utility
Services, which provides services primarily in the areas of meter
installation, environmental engineering, corrosion engineering, contract
operations and water conservation. CAT has three main regional profit
centers, The New England, Mid-Atlantic and Southeast regions.
By the end of 1995, in order to improve the Company's corporate identity,
all the Consumers subsidiaries had changed their names to include the word
"Consumers." In addition, the Company's three water subsidiaries located in
Maine merged in 1994 and the Company's two Illinois subsidiaries merged in
1995 to improve operating efficiencies. The Company's three subsidiaries in
Pennsylvania, on the other hand, have changed their names to Consumers
Pennsylvania -- Shenango Valley Division, Consumers Pennsylvania -- Roaring
Creek Division and Consumers Pennsylvania -- Susquehanna Division, while
maintaining three separate corporate entities. They have combined various
business functions in an effort to increase efficiency, however.
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, 1995, 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 1995,
65% of the revenue of the 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, 1995, 1994 and 1993 were $89,143,000, $80,376,000 and
$78,171,000, respectively. At December 31, 1995, the Consumers Water
Subsidiaries owned in the aggregate 3,297 miles of mainline pipe of which
approximately 83% was 6-inches or larger in diameter.
Of the 27 primary systems, 13 use primarily surface supplies (lakes,
ponds, rivers and streams) as their source of supply; 12 obtain water
principally or entirely from wells; and 2 purchase their supplies
from adjacent systems. 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. Nine systems own and operate full scale
water treatment plants. In addition, Consumers Illinois Water Company
(Consumers Illinois) 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, 1995:
Number Number of Utility Net Utility
Subsidiary of Systems Customers Revenue Plant (1)
(Dollars in Thousands)
Consumers Ohio
Water Company 5 72,803 $28,775 $110,510
Consumers Illinois
Water Company 6 60,162 19,960 94,491
Consumers Pennsylvania
Water Company--
Shenango Valley
Division (2) 2 17,379 7,499 26,443
Roaring Creek Division 1 17,618 7,496 35,035
Susquehanna Division 1 4,501 1,458 4,814
Consumers New Jersey
Water Company 4 29,904 11,324 51,508
Consumers New Hampshire
Water Company 1 7,907 5,413 32,314
Consumers Maine
Water Company 7 14,303 7,218 28,332
Inter-Company
Eliminations - - - (3,546)
27 222,865 $89,143 $379,901
_________________________________
(1) Includes construction work in progress.
(2) Includes Masury Water Company, wholly-owned by the Shenango Division.
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, 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 $6,938,000 for 1995, $5,624,000 for 1994, and $1,945,000 for 1993,
represented by six, ten, and five, rate decisions, respectively.
The Company currently has six rate filings pending totaling $6.1 million of
requested annualized new revenue. Decisions on these cases are expected
during 1996.
Rates for some divisions of Consumers Ohio Water Company (Consumers Ohio)
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 Consumers Ohio 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 five years. The gain on those sales totaled over
$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), the Safe Drinking Water Act (the SDWA) and the regulations
promulgated pursuant thereto by the United States Environmental Protection
Agency (the EPA), as well as federal and state regulations affecting dams.
These laws and regulations establish criteria and standards, including those
for drinking water and for liquid 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. Nine 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 nine 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 soil 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.
Improvements at a wastewater plant owned by Consumers Illinois serving
the University Park area are underway and will be completed in 1996 to correct
periodic excursions in discharge permit requirements.
At Consumers Illinois, a wastewater plant serving the Candlewick area is
overloaded and a replacement treatment plant is under construction and will be
operational during the first quarter of 1996 to eliminate periodic excursions
in discharge permit requirements. The Illinois Environmental Protection
Agency has restricted Consumers Illinois from extending its sewer lines in
the Candlewick service area until the plant improvements program is complete.
The Illinois Attorney General has brought suit against Consumers Illinois
and the Company because of these exursions. Consumers Illinios entered into
settlement negotiations with the Attorney General in an effort to resolve
this matter.
The Struthers Filtration Plant, which is operated by Consumers Ohio, has
been disposing of treatment precipitate at an abandoned strip mine. The Ohio
Environmental Protection Agency has informed Consumers Ohio 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 $1,000,000.
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 continue to be considered by
Congress in 1996. Stricter drinking water standards currently under
consideration may result in additional capital expenditures being required of
the Company's water subsidiaries.
The the regulations related to the SDWA are directed at various
contaniments, including microbials, inorganics, organics, and radionuclides.
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 Consumers Water
Subsidiaries. The estimated cost for 1996 and beyond for these improvements
is $23 million. Other major improvements at two water treatment plants
designed to increase capacity and upgrade facilities are estimated to cost $11
million. In addition, an open water storage reservoir will be replaced at an
approximate cost of $1.0 million in 1996.
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. For four of its systems impacted by the D/DBP the effective date
for Stage I is estimated to be in mid-1998.
Based on preliminary cost estimates the proposed Enhanced Surface Water
Treatment Rule (ESWTR) may cost Consumers as much as $22 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 the EPA will set the standard at 1,000
pico curies/liter, as proposed by an industry group, and the necessary capital
expenditures will be approximately $3 million to occur after 1997.
The Consumers Water Subsidiaries have surveillance programs in place to
provide early warning of a possible contamination threat to their water
supplies from organics and other potential contaminants. Treatment processes
may have to be modified or improved to reduce herbicides and pesticides if
elevated levels are found in the finished water. The risk is primarily
utilities in the Midwest farming areas. The capital cost of these
modifications and improvements, if required, would be less than $8 million.
The Consumers Water Subsidiaries have adopted contingency plans to respond to
contamination, should it occur.
In 1992, Consumers Illinois' Vermillion Division executed a Letter of
Commitment with the IEPA to comply with the MCL for nitrates by 1997 and to
take additional interim steps to address the problem. The Vermillion Division
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 total project cost of $8 million. Due to project
delays, it is anticipated the 1997 completion date will be extended.
A contractor working at the Lake Erie Division's water treatment
facility, which is operated by Consumers Ohio, 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 at a cost of approximately $900,000.
Clean-up has been completed and Consumers Ohio is looking to the responsible
parties for reimbursement of its costs. In 1993, CAT was involved in
replacing an underground fuel tank, where fuel oil contamination was found.
Cleanup has been completed at a cost of $500,000 and the owner of
the tank has sought recovery from CAT and others involved in the incident.
Management believes that CAT is only partially responsible for the damages
related to this incident.
The Consumers Water Subsidiaries own 10 major dams that are subject to
the requirements of the Federal and State regulations related to dam safety.
The dams normally undergo a comprehensive engineering evaluation annually.
The Company believes the dams are structurally sound and well maintained.
Numerous federal and state environmental laws other than the SDWA, the
CWA and Dam Safety Regulations, 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, Consumers Ohio, Consumers
Illinois, Consumers New Jersey Water Company (Consumers New Jersey), Consumers
Pennsylvania -- Shenango Valley Division (Shenango) and Consumers Pennsylvania
- -- Roaring Creek Division (Roaring Creek), accounted for approximately 84% of
consolidated operating revenues of the water subsidiaries in 1995 and 84% of
consolidated water utility net property, plant and equipment at December 31,
1995.
Consumers' five largest water subsidiaries are discussed separately
below.
Consumers Ohio Consumers Ohio is the largest of the Consumers Water
Subsidiaries, accounting for approximately 32% of the operating revenues of
the water subsidiaries in 1995. As of December 31, 1995, Consumers Ohio
operates five separate systems, four of which deliver treated water and one of
which delivers partially treated water primarily to industrial customers.
Consumers Ohio serves a number of communities in northeastern Ohio.
The following indicates the distribution of 1995 year-end customers,
revenues and net utility plant among the five divisions of Consumers Ohio.
Number of Utility Net Utility
Customers Revenues Plant
(Dollars in Thousands)
Lake Erie East Division 7,852 $ 3,384 $11,118
Lake Erie Division 26,131 9,081 37,790
Stark Regional Division 24,045 9,625 37,948
Struthers Division 14,765 6,158 22,164
Mahoning Valley Division 10 527 1,490
Totals 72,803 $ 28,775 $ 110,510
CONSUMERS ILLINOIS Consumers Illinois serves 49,986 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; the Cities of
Danville, Tilton, Westville and Catlin as well as the communities of Lake
Boulevard and Hooton, all in Vermilion County, 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 9,893 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 while its customers in
Vermilion County are supplied from Lake Vermilion. 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, 1995, and
utility revenues for 1995 were $94,491,000 and $19,960,000, respectively.
CONSUMERS NEW JERSEY Consumers New Jersey operates three divisions in New
Jersey which serve 29,904 customers in territories which are not contiguous.
Each district draws its water from deep high capacity wells. The Southern
Division serves a growing residential area, primarily in Camden County. The
Central Division serves a growing residential area that also includes a small
amount of light industry and agriculture, primarily in Mercer County. The
Northern Division serves an industrial and agricultural community and outlying
municipalities, primarily in Warren ounty, that are experiencing modest
growth. Consumers New Jersey's net utility plant at ecember 31, 1995, and
utility revenues for 1995 were $51,508,000 and $11,324,000 espectively.
SHENANGO Shenango and its wholly-owned Ohio subsidiary, Masury Water
Company, which raws its water from the Shenango River, serve 17,379
residential, commercial, industrial and holesale customers in the cities of
Sharon and Farrell, the boroughs of Wheatland, New ilmington and West
Middlesex, and portions of Hermitage, Mercer, Pulaski and Shenango ownships,
all in Pennsylvania, and Trumbull County, Ohio. The economy of the area is
largely ased on heavy industrial manufacturing. Shenango's net utility plant
at December 31, 1995, and tility revenue for 1995 were $26,443,000 and
$7,499,000 respectively.
ROARING CREEK Roaring Creek, which draws its water from a 12,000 acre
watershed, serves 7,168 residential, commercial, and industrial customers in
the City of Shamokin and other ortions of Northumberland, Columbia and
Schuylkill Counties, all in Pennsylvania. The conomy of the area is based on
light industrial and service oriented employment. Roaring Creek's net utility
plant at December 31,1995, and utility revenue for 1995 were $35,035,000 and
$7,496,000, respectively.
UTILITY SERVICES
CAT and its wholly-owned subsidiary EnviroAudit, provide services
primarily in the areas of Meter Installations, Environmental Engineering,
Corrosion Engineering, Contract Operations and Water Conservation Services to
municipalities, government and private industry. CAT has three main regional
profit centers, New England Region, Mid-Atlantic Region and Southeast Region.
Within these regions there are five separate office locations.
CAT is presently involved with meter installation projects in New Jersey,
New York City and Fall River, Massachusetts. The Fall River contract and a
new New York City contract are expected to account for an additional $5
million in revenue for 1996-1997. CAT is also expanding its role nationwide
in submetering for private property owners and has ongoing contracts
throughout the south east and west.
CAT continues to expand its environmental services, which are primarily
property site surveys, contamination assessments, remediation design,
installation of groundwater treatment systems and system operation.
Groundwater treatment systems are now being constructed or operated in New
York and Wisconsin.
CAT continues to provide operation services at Merrill Creek where it
provides operations and management staff for the pumped storage and recreation
facility. This contract will be up for renewal at the end of 1996.
The Corrosion Engineering business area of CAT provides cathodic
protection engineering and construction for gas mains, underground tanks,
water tanks and power plants. In addition, the protective services group is
working on various bridge painting projects in the northeast to monitor
lead paint removal. Currently, CAT has a three year contract to monitor the
work being done on the Queensboro Bridge in New York City.
EMPLOYEES
Consumers Water Company and its subsidiaries employed 618 people as of
December 31, 1995, of which 460 were employed by the Consumers Utility
Subsidiaries. Non-supervisory personnel at the Company's Utility Subsidiaries
in Ohio, Pennsylvania and Illinois 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 1995.
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
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(1) Consumers Illinois Water Company with six divisions in Kankakee,
Danville, University Park, Sublette, Oak Run and Candlewick, Illinois.
OHIO
----
(2) Consumers Ohio Water Company with corporate offices in Poland
and five operating divisions located in Massillon, Struthers, Mahoning
Valley, Geneva and Mentor, Ohio.
(3) Masury Water Company located in Trumbull County, Ohio.
PENNSYLVANIA
------------
(6) Consumers Pennsylvania Water Company -- Susquehanna Division
located in Sayre, Pennsylvania
(7) Consumers Pennsylvania Water Company -- Shenango Valley Division
located in Sharon, Pennsylvania.
(8) Consumers Pennsylvania Water Company -- Roaring Creek Division
located in Shamokin, Pennsylvania.
NEW JERSEY
----------
(9) Consumers New Jersey Water Company with corporate offices in
Hamilton and operating divisions in Blackwood, Hamilton Square and
Phillipsburg, New Jersey.
CONNECTICUT
-----------
(10) Consumers Applied Technologies, Inc. headquartered in
Wallingford, Connecticut with regional offices in Massachusetts, New Jersey,
and Florida.
(11) EnviroAudit, Ltd. located in Centerbrook, Connecticut.
NEW HAMPSHIRE
-------------
(12) Consumers New Hampshire Water Company located in Londonderry, New
Hampshire.
MAINE
-----
(13) Consumers Maine Water Company with seven divisions located in
Kezar Falls, Freeport, Oakland, Rockport, 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."
(a) OHIO WATER MERCURY SPILL
In March, 1993, an outside contractor spilled a small amount of mercury
while working at one of Consumers Ohio's water treatment plants. Several
areas in and around the plant were contaminated by the spill. Although no
mercury has contaminated Consumers Ohio's water supply, Consumers Ohio is
continuously monitoring the situation to maintain water quality. Consumers
Ohio contacted all appropriate regulatory agencies and the clean up has been
completed. The total cost to clean up the spill was approximately $900,000.
Consumers Ohio has received $100,000 from its insurer and is currently seeking
recovery of all the clean up costs from the contractor. On December 20,
1993, A.P. O'Horo Company filed a complaint against Consumers Ohio in Lake
County Court of Common Pleas seeking recovery of the retainage of
approximately $400,000 that Ohio is withholding on this project. On December
30, 1993, Consumers Ohio filed a counter claim against A.P. O'Horo Company
seeking recovery of all past and future costs relating to the spill. Consumers
Ohio has reached a tentative settlement in the suit that A.P. O'Horo had filed
seeking recovery of the retainage for approximately $400,000. Consumers Ohio
is continuing to pursue its suit against O'Horo, which is seeking recovery of
the costs of the spill.While there can be no assurance as to the ultimate
outcome of Consumers Ohio's efforts to obtain such recovery, management
believed it probable that Consumers Ohio would recover clean up costs from the
contractor and/or the contractor's insurers and, therefore, deferred
the cost incurred in connection with the spill.
Due to the progress of the case to date and to the expected cost of the
litigation, Consumers Ohio reserved $375,000 in 1995 for possible losses on
this claim.
(b) SCHIAVI HOMES LITIGATION
In 1994, the Penobscot Indian Nation had commenced litigation against the
Company, a former subsidiary of the Company, a current subsidiary of the
Company and John H. Schiavi, a Director of the Company, among others. The
Complaint filed in the case alleged, among other things, that one or all of
the defendants defrauded the Penobscot Indian Nation by breaching their duty
of good faith and fair dealing and by making misrepresentations in
connection with the acquisition of the assets of SHC Corporation, then a
subsidiary of the Company, by a Maine limited partnership in which the
Penobscot Indian Nation held a limited partnership interest.
On October 25, 1995, the United States District Court for the District of
Maine issued an Order granting the summary judgment motions of certain of the
defendants, including the Company, its current and former subsidiaries and
John H. Schiavi. The Plaintiff has indicated it will file an appeal with the
First Circuit Court of Appeals.
(c) CANDLEWICK TREATMENT PLANT LITIGATION. On August 25, 1995, the State of
Illinois filed a Complaint in the Circuit Court of the 17th Judicial Court of
Illinois in Boone County, Illinois, against the Company and its subsidiary,
Consumers Illinois, alleging violation of the effluent discharge standards
under various state and federal environmental regulations. The Complaint
alleges that Consumers Illinois' wastewater treatment plant violated such
effluent standards at various times since 1991 and seeks, among other things,
a civil penalty of $10,000 per day for each day that the alleged violations
have continued and a civil penalty of $50,000 for each alleged violation of
the Illinois Environmental Protection Act and the Illinois Pollution Control
Board's Water Pollution Regulations. Settlement negotiations between the
Ilinois Attorney General and Consumers Illinois are ongoing to resolve this
matter.
On or about September 20, 1995, the Candlewick Lake Association, Inc., an
association of owners of lots within a lake community development known as
Candlewick Lake and served by the Consumers Illinois wastewater treatment
plant, sought to intervene in the case. In its Complaint, the Candlewick Lake
Association, Inc. alleges that effluents from the Consumers Illinois plant has
interfered with and damaged the recreational use of Candlewick Lake. The
Complaint seeks $1 million in damages from Consumers Illinois. The Company
has filed a motion to dismiss the State of Illinois' Complaint as to it on the
basis of lack of jurisdiction. The Company is not named as a defendant in the
Complaint filed by the Candlewick Lake Association, Inc. Consumers Illinois
has not yet filed an answer to the Complaints.
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 trade on 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
1995
First Quarter 17 1/2 15 3/8 $0.295
Second Quarter 16 7/8 14 3/4 0.295
Third Quarter 17 1/4 15 1/2 0.30
Fourth Quarter 19 16 1/2 0.30
$1.19
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
(b) Holders
------------
As of December 31, 1995, there were approximately 6,305 shareholders of
record of the Registrant's common shares.
ITEM 6. SELECTED FINANCIAL DATA.
(Dollars in Thousands Except Per Share Amounts)
1995 1994 1993 1992 1991
Operating Revenue $101,773 $93,337 $89,084 $84,245 $79,965
Net Income from Continuing
Operations $ 11,303 $10,000 $12,003 $ 8,501 $ 9,791
Earnings Per Common Share:
Continuing Operations $ 1.34 $ 1.22 $ 1.63 $ 1.21 $ 1.52
Total $ 1.34 $ 1.22 $ .80 $ 1.14 $ 1.74
Dividends Declared Per
Common Share $ 1.19 $ 1.17 $ 1.15 $ 1.13 $ 1.11
Total Assets $432,084 $401,380 $371,657 $343,033 $315,124
Long-Term Debt of Continuing
Operations (including current maturities, sinking fund
requirements and redeemable
preferred stock) $162,969 $132,648 $125,080 $131,667 $106,666<PAGE>
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, 1995 and the
results of its operations for the three years ended December 31, 1995, as
compared to the same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
CONSTRUCTION PROGRAM
- --------------------
Capital construction expenditures totaled $35.3 million in 1995, net
of contributions and advances, the majority of which relates to the Company's
utility subsidiaries. Projects include $2.0 million spent on a new water
treatment plant in Pennsylvania, which cost $16.0 million when it was
completed in the second quarter of 1995, and $3.6 million on a wastewater
treatment plant in Illinois, which is expected to cost $4.2 million when it is
completed in 1996 and many smaller projects throughout the Company.
The Company expects capital expenditures for 1996 through 1998 to be
$92 million, net of contributions and advances.
The capital construction budget is down from the $103 million for the
1995-1997 planning period. The Company's capital spending is beginning to
decrease as the Company has made many of the improvements required by the Safe
Drinking Water Act (SDWA), the Clean Water Act (CWA), and other regulations.
In 1995, the Company completed a new $16 million water treatment
plant at Consumers Pennsylvania Water Company - Roaring Creek Division. The
Company has also started work on a major plant upgrade at Consumers
Pennsylvania Water Company - Shenango Valley Division. This project is
expected to cost $30 million when it is completed in 1999. This upgrade of
one of the Company's older water treatment plants is required to keep it in
compliance with current and future regulations and to meet expected increases
in demand. The project is still in the planning stage. Several design and
financing alternatives for this project are still being explored.
Several of 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. Given
the large rate increases in recent years, Management expects the current
increased scrutiny of rate requests by state public utility commissions to
continue even with decreasing capital construction budgets.
FINANCING AND CAPITALIZATION
- ----------------------------
The table below shows the cash generated and used by the Company
during the twelve months of 1995.
Cash was generated from:
Dollars in millions
Operations $ 22.4
Long-term debt issued 48.3
Common stock issued 3.9
Proceeds from sale of properties 4.2
Decrease in funds restricted for
construction 2.2
Net change in working capital 1.5
Total Cash Generated $ 82.5
Cash was used for:
Capital expenditures, net of CIAC (35.3)
Decrease in short-term debt (15.5)
Repayment of long-term debt (18.0)
Payment of dividends (10.0)
Cost of acquisition (1.3)
Other (2.7)
Total Cash Used $ (82.8)
Decrease in Cash $ ( .3)
Water utilities now require higher equity ratios to maintain favorable 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 1996 through 1998 capital expenditure program makes it likely
that the Company will return to the equity market again in the next few years.
Any cash flow not provided through a stock issuance will, as usual, be
financed with short-term lines of credit until the subsidiary's short-term
debt level is high enough to warrant placement of long-term debt, generally,
in the $4-$6 million range. In 1995, the Company's subsidiaries issued $32
million in long-term debt. The Company had unused lines of credit available
at year-end of over $44 million. In addition, the Company obtained two lines
of credit for a total of $25 million, which are committed until mid 1997. At
December 31, 1995, $16 million was outstanding on these lines and was shown as
long-term debt on the balance sheet. In addition to the short-term debt, the
Company plans to continue to use tax-exempt, long-term debt financing in
appropriate situations.
ACQUISITIONS AND DISPOSITIONS
- -----------------------------
On September 14, 1995, the Company, through its subsidiary Consumers New
Jersey Water Company, acquired the water utility assets of Lakeland County
Hospital for $1.45 million.
Over the past five years, the Company has acquired six water systems.
Although the Company currently has no material acquisitions pending,
management anticipates continuing the acquisition policy of recent years.
On June 5, 1995, the Company's Consumers Ohio Water Company subsidiary
closed on the sale of Girard Lake and Liberty Lake. These two lakes once
supplied raw water to the area's steel industry. The lakes have not been
needed as a source of supply for several years. The lakes were sold for
$2,500,000 and generated a gain, net of taxes, of $724,000.
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 challenged the purchase price
and in February, 1995, settled for a price of $1.5 million. The gain of
approximately $363,000 net of taxes was 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 five years. The gain on
these sales totaled over $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, Consumers Ohio Water Company's
water treatment plant. Several areas in and around the plant were
contaminated by the spill, although no mercury contaminated Consumers Ohio's
water supply. The cleanup was completed at a total cost of approximately
$900,000. Consumers Ohio 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 Consumers Ohio's
efforts to obtain such recovery, Management believed it probable that
Consumers Ohio would recover cleanup costs from the contractor and/or the
contractor's insurer and, therefore, deferred the cost incurred in connection
with the spill. Due to the progress of the case to date and to the expected
cost of the litigation, Consumers Ohio reserved $375,000 in 1995 for possible
losses on this claim.
RESULTS OF OPERATIONS
- ---------------------
1995 Compared to 1994
UTILITY REVENUE
Utilities revenues increased $8.8 million or 10.9% in 1995 compared to 1994
due primarily to $6.3 million in rate increases, and increased consumption due
to dry weather throughout the areas served by the Consumers Water
Subsidiaries. During 1995, the Company settled six rate cases providing
additional annual revenues of $6.9 million. Currently, the Company has six
filings pending totaling $6.1 million of requested annualized new revenue.
UTILITY OPERATING EXPENSES
Water utility operating expenses increased approximately $3.3 million, or
5.9% in 1995 compared to 1994. Increased expenses associated with increased
depreciation and property tax expense due to increased plant balances and
depreciation rates accounted for most of the increase.
OTHER OPERATIONS - REVENUE AND EXPENSE
Other operating revenues decreased $331,000 in 1995 or 2.6% compared to
1994, while other operating expenses increased by $1.3 million or 10.6%
primarily due to reduced margins in meter installation work as Consumers
Applied Technologies, Inc. (CAT), completes its meter installation contracts
with the City of New York. CAT was unsuccessful in its bid for additional
New York City meter installation projects in the first quarter of 1995. CAT
shifted its focus to higher margin technical and engineering work to help
compensate for the lost contracts while still looking for opportunities in
meter installation work. These efforts were unable to make up for
the lost meter contracts, however and CAT had a net loss of $790,000 in 1995.
An additional $2 million New York City meter installation contract was awarded
in late 1995. Most of the work on this contract will be completed in 1996.
OTHER
Interest expense was up $1,876,000 in 1995 compared to 1994, due primarily
to increased debt balances.
1994 Compared to 1993
UTILITY REVENUE
Utilities revenues increased $2,205,000 in 1994 compared to 1993 primarily due
to $3,884,000 in rate increases, offset by the loss of $2,326,000 in revenue
from Washington Court House Division of Consumers Ohio 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.
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 the Washington Court House Division
of Consumers Ohio.
OTHER OPERATIONS - REVENUE AND EXPENSE
Other operating revenue increased by $2,048,000, or 18.8%, due to increased
sales at CAT. Other operating expenses were up $1,274,000, or 11.5%, compared
to 1993. Increased expenses at CAT were 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 had returned to normal levels in 1994,
allowing this reversal.
OTHER
Construction interest capitalized was up $643,000 in 1994 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Report of Management
Report of Independent Public Accountants
Consolidated Statements of Income for Years Ended
December 31, 1995, 1994 and 1993
Consolidated Balance Sheets at December 31, 1995
and 1994
Consolidated Statements of Capitalization and
Interim Financing at December 31, 1995 and 1994
Consolidated Statements of Cash Flow for Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Change in Common
Shareholders' Investment for Years Ended
December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
Quarterly Information Pertaining to the
Results of Operations for the Years Ended
December 31, 1995 and 1994
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 STATEMENTS 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, 1995, 1994 and 1993.
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
- -------
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 Consumers Water Company Executive Severance Plan is submitted herewith as
exhibit 10.9.
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 herein as Exhibit 27.
- ------------------------------------------------------------
* Management contract or compensatory plan or arrangement required to be
filed as an Exhibit purusant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
------------------------
No reports have been filed on Form 8-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 3/19/96
----------------------------- -----------------
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 3/19/96
----------------------------- -----------------
John F. Isacke Date
Senior Vice President
(Chief Financial Officer)
By: /s/ Gary E. Wardwell 3/19/96
------------------------------ -----------------
Gary E. Wardwell Date
Controller
(Chief Accounting Officer)
By: /s/ David R. Hastings, II 3/19/96
------------------------------ -----------------
David R. Hastings, II Date
Chairman and Director
By: /s/ Jack S. Ketchum 3/19/96
------------------------------- -----------------
Jack S. Ketchum Date
Director
By: /s/ John E. Menario 3/19/96
------------------------------- -----------------
John E. Menario Date
Director
By:
------------------------------- -----------------
Jane E. Newman Date
Director
By: /s/ John E. Palmer, Jr. 3/19/96
--------------------------- ---------------
John E. Palmer, Jr. Date
Director
By: /s/ Elaine D. Rosen 3/19/96
--------------------------- ---------------
Elaine D. Rosen Date
Director
By: /s/ John W. L. White 3/19/96
--------------------------- ---------------
John W. L. White Date
Director
By:
--------------------------- ---------------
Claudio Elia Date
Director
By: /s/ William B. Russell 3/19/96
--------------------------- ---------------
William B. Russell Date
Director
By: /s/ John S. Schiavi 3/19/96
---------------------------- ---------------
John H. Schiavi Date
Director
By: /s/ Peter L. Haynes 3/19/96
---------------------------- ---------------
Peter L. Haynes Date
President and Director
(Chief Executive Officer)
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, 1995
and 1994, 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, 1995. These consolidated 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, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1995, 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.
\s\ Arthur Andersen LLP
---------------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 7, 1996
Consumers Water Company and Subsidiaries
Consolidated Statements of Income
For the years ended December 31,
(In Thousands Except
Per Share Amounts) 1995 1994 1993
Revenue and Sales:
Water utility operations $89,143 $80,376 $78,171
Other operations 12,630 12,961 10,913
-------------------------------------
Operating revenue 101,773 93,337 89,084
Costs and Expenses: -------------------------------------
Water utility operations 59,836 56,515 55,127
Other operations 13,693 12,386 11,112
-------------------------------------
Operating expenses 73,529 68,901 66,239
-------------------------------------
Operating Income 28,244 24,436 22,845
Other Income and (Expense): -------------------------------------
Interest expense (13,938) (12,497) (11,905)
Construction interest
capitalized 986 1,421 778
Preferred dividends and minority
interest of subsidiaries (156) (139) (147)
Other, net (Note 3) 556 1,000 692
--------------------------------------
(12,552) (10,215) (10,582)
--------------------------------------
Earnings from Continuing
Operations Before Income
Taxes and Gains (Losses)
from Sales of Properties 15,692 14,221 12,263
Income Taxes (Note 2) 5,497 4,623 4,128
--------------------------------------
Earnings from Continuing Operations:
Before Gains (Losses) from
Sales of Properties 10,195 9,598 8,135
Gains (Losses) from Sales of
Properties, Net (Note 7) 1,108 402 3,868
Income from Continuing --------------------------------------
Operations 11,303 10,000 12,003
Loss from Discontinued Operations: --------------------------------------
Before Discontinuance 0 0 (784)
Provision for Loss on Disposal of
Discontinued Operations 0 0 (5,300)
Total from Discontinued --------------------------------------
Operations (Note 11) 0 0 (6,084)
--------------------------------------
Net Income $11,303 $10,000 $5,919
Weighted Average Shares ======================================
Outstanding 8,388 8,161 7,320
Earnings (Loss) per Common Share:
Continuing Operations-
Before Gains (Losses)
from Sales $1.21 $1.17 $1.10
Total $1.34 $1.22 $1.63
Discontinued Operations- --------------------------------------
Before Discontinuance $0.00 $0.00 ($0.11)
Loss on Disposal of
Discontinued Operations $0.00 $0.00 ($0.72)
---------------------------------------
Total $0.00 $0.00 ($0.83)
---------------------------------------
Total $1.34 $1.22 $0.80
=======================================
Dividends Declared per
Common Share $1.19 $1.17 $1.15
=======================================
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) 1995 1994
Assets ------------------------
Property, Plant and Equipment, at cost:
Water utility plant, in service $436,248 $395,900
Less - Accumulated depreciation 74,414 69,148
-------------------------
361,834 326,752
-------------------------
Other subsidiaries 2,197 1,947
Less - Accumulated depreciation 1,307 1,119
-------------------------
890 828
-------------------------
Construction work in progress 18,067 21,674
-------------------------
Net property, plant and equipment 380,791 349,254
-------------------------
Investments, at cost 1,762 1,984
-------------------------
Current Assets:
Cash and cash equivalents (Note 1) 2,576 2,906
Accounts receivable, net of reserves of
$848 in 1995 and $682 in 1994 12,719 10,465
Unbilled revenue 7,014 8,966
Inventories (Note 1) 2,833 2,258
Prepayments and other 6,143 6,116
-------------------------
Total current assets 31,285 30,711
Other Assets: -------------------------
Funds restricted for construction
activity (Note 3) 287 2,503
Deferred charges and other assets 17,959 16,928
-------------------------
18,246 19,431
-------------------------
$432,084 $401,380
Shareholders' Investment and Liabilities: =========================
Capitalization (See Separate Statement)
Common shareholders' investment $105,999 $100,928
Preferred shareholders' investment 1,069 1,069
Minority interest 2,355 2,218
Long-term debt 162,161 130,038
-------------------------
Total capitalization 271,584 234,253
-------------------------
Contributions in Aid of Construction 67,439 61,576
Current Liabilities: -------------------------
Interim Financing
(See Separate Statement) 12,537 29,816
Accounts payable 6,060 5,916
Accrued taxes (Note 2) 7,611 6,496
Accrued interest 3,609 3,435
Accrued expenses and other 13,632 12,352
-------------------------
Total current liabilities 43,449 58,015
Commitments and Contingencies (Note 10) -------------------------
Deferred Credits:
Customers' advances for construction 22,507 21,917
Deferred income taxes (Note 2) 22,260 20,613
Unamortized investment tax credits 4,845 5,006
-------------------------
49,612 47,536
-------------------------
$432,084 $401,380
=========================
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,
(Dollars in Thousands) 1995 1994
Capitalization (Notes 3 and 5) ----------------------
Common shareholders' investment:
Common stock, $1 par value
Authorized: 15,000,000 shares
Issued: 8,494,686 shares in 1995
and 8,259,685 shares in 1994 $ 8,495 $ 8,260
Amounts in excess of par value 71,718 68,084
Reinvested earnings 25,786 24,584
-------------------------
105,999 100,928
Preferred shareholders' investment: -------------------------
Preferred stock, $100 par value 1,069 1,069
Minority interest: -------------------------
Common stock, at equity 677 540
Preferred stock 1,678 1,678
-------------------------
2,355 2,218
Long-term debt: -------------------------
First mortgage bonds, debentures and
promissory notes-
Maturities Interest Rate Range
1995 9.00% to 13.88% - 1,608
1996 6.10% to 11.00% 58 145
1997 5.94% to 6.47% 16,019 1,437
1998 5.94% 7 10
1999 7.00% to 8.50% 63 1,447
2000 8.59% 15 -
2001-2005 8.00% to 8.75% 7,425 10,212
2006-2010 9.50% to 10.55% 12,480 13,033
2011-2015 1.00% to 9.50% 10,018 10,077
THEREAFTER 0.00% to 10.40% 116,783 94,579
-------------------------
Total first mortgage bonds,
debentures and notes 162,868 132,548
Less - Sinking fund requirements
and current maturities 707 2,510
-------------------------
162,161 130,038
-------------------------
Total capitalization 271,584 234,253
-------------------------
Interim financing (Note 4):
Notes payable 11,830 27,306
Sinking fund requirements and
current maturities 707 2,510
-------------------------
Total interim financing 12,537 29,816
-------------------------
Total capitalization and interim financing $284,121 $264,069
=========================
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
For the years ended December 31, 1995, 1994 and 1993
Number of Shares,
$1 par value, (Dollars in Thousands)
Issued and Excess of Reinvested,
Outstanding Par Value Earnings
--------------------------------------------
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) (1)
--------------------------------------------
Balance, December 31, 1994 8,259,685 68,084 24,584
Net income 11,303
Cash dividends:
Common shares (10,044)
Preferred shares (56)
Dividend Reinvestment Plan 212,149 3,280
Employee benefit plans 22,852 371
Other - (17) (1)
--------------------------------------------
Balance, December 31, 1995 8,494,686 $71,718 $25,786
============================================
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,
(Dollars in Thousands) 1995 1994 1993
-------------------------------------
Operating Activities:
Net income $11,303 $10,000 $5,919
Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities:
Depreciation and amortization 10,481 8,993 7,994
Deferred income taxes and
investment tax credits 1,768 1,777 6,417
Gains on sales of properties (1,108) (402) (3,869)
Changes in assets and liabilities:
Increase in accounts receivable and
unbilled revenue (338) (2,471) (1,202)
(Increase) decrease in inventories (575) (465) 70
(Increase) decrease in prepaid
expenses (27) 408 (1,203)
Increase in accounts payable and
accrued expenses 2,453 1,013 4,134
Change in other assets, net of change
in other liabilities of continuing
operations (2,516) (1,883) (4,847)
Change in assets, net of change
in liabilities of discontinued
operations - 1,308 (1,428)
Loss on disposal of discontinued
operations (Note 11) - - 5,300
--------------------------------------
Total adjustments 10,138 8,278 11,366
Net cash provided by operating --------------------------------------
activities 21,441 18,278 17,285
--------------------------------------
Investing activities:
Capital expenditures (40,516) (39,345) (34,655)
(Increase) decrease in funds
restricted for construction
activity 2,216 7,005 (4,415)
Increase (decrease) in construction
accounts payable 126 28 911
Net cash cost of acquisitions
(Note 6) (1,300) (1,426) (260)
Net proceeds from sales of
properties (Note 7) 4,235 659 10,239
Net cash used in investing --------------------------------------
activities (35,239) (33,079) (28,180)
Financing activities: --------------------------------------
Net borrowing (repayment) of
short-term debt (15,476) 7,630 10,340
Proceeds from issuance of
long-term debt 48,349 9,053 19,429
Repayment of long-term debt (18,029) (1,485) (25,989)
Proceeds from issuance of stock 3,876 3,640 15,408
Advances and contributions in
aid of construction, net of
repayments 5,223 4,147 3,879
Taxes paid by developers on
advances and contributions in aid
of construction (513) (726) (583)
Cash dividends paid (9,962) (9,545) (8,364)
Net cash provided by financing -----------------------------------------
activities 13,468 12,714 14,120
Net increase (decrease) in cash -----------------------------------------
and cash equivalents (330) (2,087) 3,225
Cash and cash equivalents at
beginning of year 2,906 4,993 1,768
Cash and cash equivalents at -----------------------------------------
end of year $2,576 $2,906 $4,993
=========================================
Supplemental disclosures of cash flow
information from continuing operations
Cash paid during the year for:
Interest (net of amounts
capitalized) $12,532 $10,712 $10,540
Income taxes $2,879 $4,123 $3,570
Noncash investing and financing
activities for the year:
Assets acquired for a note payable $150 - -
Property advanced or contributed $1,230 $2,713 $855
The accompanying notes are an integral part of these consolidated financial
statements.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 8 water companies (the Consumers Water
Subsidiaries) which operate 27 separate systems providing water service to
approximately 223,000 customers in six states. The Company also owns 100% of
Consumers Applied Technologies, Inc. (CAT), formerly C/P Utility Services,
which provides services primarily in the areas of meter installation,
environmental engineering, corrosion engineering, contract operations and
water conservation. CAT has three main regional profit centers: New England,
Mid Atlantic and Southeast regions.
Principles of Consolidation
- ---------------------------
The accompanying consolidated financial statements include the accounts of
Consumers and its water utility and utility services subsidiaries. All
significant intercompany balances and transactions have been eliminated in
consolidation. The 1993 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 2.7% in 1995, 2.5% in
1994 and 2.4% in 1993. Under composite depreciation, when property is retired
or sold in the normal course of business, the entire cost, including net cost
of removal, is charged to accumulated depreciation, and no gain or loss is
recognized. The CAT depreciates property and equipment using the
straight-line method over the estimated useful lives of the assets, generally
five to ten years.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
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 Consumers
Applied Technologies, Inc. CAT 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 $165 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 two notes receivable totaling $1,392,000.
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 temporary
differences between pretax accounting income and taxable income. The income
tax effects of other temporary 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.
New Accounting Pronouncements: SFAS No. 121
- -------------------------------------------
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets to be
Disposed of, requires impairment losses on long-lived assets to be recognized
when an asset's book value exceeds its expected future cash flows
(undiscounted). This statement imposes a stricter criteria for regulatory
assets by requiring that such assets be probable of future recovery at each
balance sheet date. The Company will adopt this standard in 1996 and does
not expect that adoption will have a material impact on the financial
position or results of operations of the Company.
(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. Net regulatory
assets of approximately $3.7 million and $3.9 million at December 31, 1995 and
1994 respectively are reflected in the balance sheet.
Accumulated deferred taxes consisted of tax assets of $599,000, $985,000
and $893,000 related to alternative minimum tax offset by liabilities of
$22,347,000, $21,054,000 and $19,665,000, which are predominanty related to
accumulated depreciation and other plant related differences in 1995,
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 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) 1995 1994 1993
Federal: -------------------------------------
Currently payable $4,646 $4,209 $3,077
Deferred 1,413 561 2,827
Investment tax credit, net of
amortization (190) (139) ( 291)
--------------------------------------
$5,869 $4,631 $5,613
State: --------------------------------------
Currently payable 214 506 134
Deferred 265 ( 13) 195
State investment tax credit,
net of amortization 29 - -
--------------------------------------
508 493 329
--------------------------------------
Total provision $6,377 $5,124 $5,942
=======================================
The provision for income tax
expense is reflected in:
Income taxes $5,497 $4,623 $4,128
Gains (Losses) from sales of
properties 920 242 1,735
Other income (40) 259 79
---------------------------------------
Total provision $6,377 $5,124 $5,942
=======================================
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.
1995 1994 1993
----------------------------------------
Statutory rate 34.0% 34.0% 34.0%
State taxes, net of
federal benefit 1.9 2.2 1.2
Effect of decrease in statutory
rate on reversing timing items ( .2) ( .2) ( .1)
Investment tax credit (1.0) (1.0) ( .8)
Other 1.4 (1.1) (1.2)
-----------------------------------------
36.1% 33.9% 33.1%
=========================================
(3) LONG-TERM DEBT
Maturities and sinking fund requirements of the first mortgage bonds,
debentures and notes, including capitalized leases, are $707,000 in 1996,
$16,645,000 in 1997, $836,000 in 1998, $826,000 in 1999, $2,010,000 in 2000,
and $141,845,000 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 repurchases of the Company's 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 $32.9 million of reinvested earnings were not so restricted at
December 31, 1995.
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. 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) 1995 1994 1993
---------------------------------------
Unused lines of bank credit $43,670 $56,694 $ 82,574
Borrowings outstanding at
year-end 11,830 27,306 19,676
---------------------------------------
Total lines of bank credit $55,500 $84,000 $102,250
Monthly average borrowings =======================================
during the year $24,795 $27,679 $ 20,660
Maximum borrowings at any =======================================
month-end during the year $34,915 $34,600 $ 34,619
Weighted average annual interest =======================================
rate during the year 7.5% 6.6% 4.5%
Weighted average interest rate on=======================================
borrowings outstanding at year-end 7.3% 7.0% 4.7%
=======================================
(5) SHAREHOLDERS' INVESTMENT
As of December 31, 1995, the Company reserved issuable common shares for the
following purposes:
Dividend Reinvestment Plan 411,671
401(k) Savings Plan 198,405
Stock Option Plans 207,071
---------
817,147
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 1995, 27,000 options were granted, no options were
exercised and 38,493 options lapsed and were cancelled. 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. At December
31, 1995, options for 112,954 shares were exercisable at prices of $16.5,
$17.75, $18.50, $18.25, $17.25, and $16.75 per share. No options were
exercised in 1995. 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.
Information regarding outstanding preferred stock ($100 par value) of the
Company and its subsidiaries is as follows:
<TABLE>
Par Value
Shares of Shares
Cumulative Current Issues Outstanding
Dividend Call Price Shares and Out- (Dollars in
Rate% Per Share Authorized standing Thousands)
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consumers Pennsylvania--
Shenango Valley Division 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 2,750 275
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) ACQUISITION
On September 14, 1995, the Company, through its subsidiary, Consumers New
Jersey Water Company, acquired the water utility assets of Lakeland County
Hospital for $1,450,000.
On September 2, 1994, the Company, through its subsidiary Consumers
Pennsylvania Water's Roaring Creek Division, acquired the assets of Ralpho
Township water system for $1,426,000.
On December 7, 1993, the Company, through its subsidiary Consumers Applied
Technologies, Inc. acquired the assets of EnviroAudit, Ltd., an environmental
services company, for $260,000.
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) DISPOSITION
On June 5, 1995, the Company's Consumers Ohio Water Company subsidiary
closed on the sale of Girard Lake and Liberty Lake. These two lakes once
supplied raw water to the area's steel industry.
The lakes have not been needed as a source of supply for several years. The
lakes were sold for $2.5 million and generated a gain, net of taxes, of
$724,000. 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, 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, reached an out
of court settlement for $1,552,000. This sale generated a gain which was
recorded in 1995 of approximately $363,000, net of taxes.
On December 16, 1993, the Company sold the Washington Court House Division
of Consumers Ohio 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.
(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.
The funded status of the Plan as of December 31 is as follows:
(Dollars in Thousands) 1995 1994
- --------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligations
Vested $22,441 $20,306
Nonvested 1,583 654
----------------------------
Total 24,024 20,960
Effect of future salary increases 7,045 5,995
----------------------------
Projected benefit obligations for services
provided to date 31,069 26,955
Market value of Plan assets, primarily
invested in stocks, bonds and short-term
funds 32,849 27,668
Plan assets in excess of projected ----------------------------
benefit obligations 1,780 713
Unrecognized net asset existing
as of January 1, 1987, being amortized over
22 years (2,899) (3,108)
Unrecognized prior service cost 2,171 2,383
Unrecognized net gain (3,718) (1,866)
----------------------------
Accrued pension cost at year-end $(2,666) $(1,878)
============================
Net pension cost included the following items:
(Dollars in Thousands) 1995 1994 1993
- ----------------------------------------------------------------------------
Service cost-benefits earned
during the year $ 980 $1,151 $ 977
Interest cost on projected
benefit obligations 2,236 2,178 2,022
Actual loss (return) on plan asset (6,555) 1,656 (2,502)
Net amortization and deferral 4,127 (4,322) 4
-----------------------------------
Net periodic pension cost $ 788 $ 663 $ 501
===================================
The expected long-term rate of return on plan assets was 9.0% in 1995, 1994
and in 1993. The salary increase assumption was 5.0% in 1995, 1994 and in
1993. The discount rate used to determine the actuarial present value of the
projected benefit obligations was 8.0% in 1995, 8.5% in 1994, and 7.5% in
1993.
(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.
The following table sets forth the postretirement health and life insurance
plans' combined funded status.
(Dollars in Thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
Accumulated postretirement benefit
obligation ($3,447) ($3,066) ($3,873)
Plan assets at fair value - - -
Accumulated postretirement benefit ------------------------------------
obligation in excess of plan assets ($3,447) ($3,066) ($3,873)
Unrecognized net gain from past
experience different from that assumed
and from changes in assumptions (835) (862) 323
Unrecognized transition obligation 2,727 2,887 3,048
------------------------------------
Accrued postretirement benefit cost ($1,555) ($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 $2,717,000 and for life insurance
is $731,000.
Net periodic postretirement benefit cost included the following components;
(Dollars in Thousands) 1995 1994 1993
- -----------------------------------------------------------------------------
Service cost-benefits attributed to
service during the period $148 $182 $155
Interest cost on accumulated
postretirement benefit obligation 292 286 269
Amortization of transition obligation
over 20 years 160 160 160
Net amortization and deferral ( 6) - -
Net periodic postretirement benefit --------------------------------------
cost $594 $628 $584
======================================
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0% in 1995 and 8.5% in 1994 and 7.5%
in 1993. An 8% annual rate of increase in the per capita cost of covered
health care benefits is assumed for 1995, a 10% increase for 1994 and a 15%
increase for 1993. The health care cost trend rate is assumed to decrease
annually through the year 2001 to an ultimate rate of 5%. Increasing the
assumed health care cost trend rates by 1% would increase the accumulated
postretirement benefit obligation by $123,000 as of September 30, 1995,
$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, 1995, would be an increase of
$18,000.
(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, 1995, 1994 and 1993 were approximately $1,344,000,
$1,321,000, and $1,612,000, respectively. At December 31, 1995, minimum
future lease payments under noncancelable operating leases are $1,385,000
in 1996, $838,000 in 1997, $692,000 in 1998, $560,000 in 1999, $471,000
in 2000 and $1,939,000 thereafter.
In March, 1993, an outside contractor spilled a small amount of mercury
while working at the Company's subsidiary, Consumers Ohio Water Company's
water treatment plant. Several areas in and around the plant were
contaminated by the spill, although no mercury contaminated Consumers
Ohio's water supply. The cleanup was completed at a total cost of
approximately $900,000. Consumers Ohio 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
Consumers Ohio's efforts to obtain such recovery, Management believed it
probable that Consumers Ohio would recover cleanup costs from the contractor
and/or the contractor's insurer and, therefore, deferred the costs incurred
in connection with the spill. Due to the progress of the case to date and
to the expected cost of litigation, Consumers Ohio reserved $375,000 in 1995
for possible losses on this claim.
(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 $5,300,000, net of taxes of approximately $600,000 was recorded
in 1993. 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.
Schedule II
CONSUMERS WATER COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(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
Accounts Year Ended December 31, 1995
--------------------------------------
$ 682 $750 $59 $ 643 $848
Year Ended December 31, 1994
--------------------------------------
$ 798 $706 $55 $ 877 $682
Year Ended December 31, 1993
--------------------------------------
$ 702 $599 $60 $ 563 $798
EXHIBIT INDEX
Exhibit
- -------
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 Consumers Water Company Executive Severance Plan is
submitted herewith as Exhibit 10.9.
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.
EXHIBITS
EXHIBIT 11
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
Years Ended December 31,
-------------------------------------------
1995 1994 1993
-------------------------------------------
(Amounts in Thousands except per share data)
PRIMARY
Weighted average number of
shares outstanding 8,385 8,160 7,314
Net effect of dilutive common
stock equivalents 3 2 6
--------------------------------------
Weighted average
primary shares 8,388 8,162 7,320
======================================
Net income (loss) $ 11,303 $ 10,000 $ 5,919
Preferred dividends (56) ( 56) ( 56)
--------------------------------------
Earnings applicable
to common shares $ 11,247 $ 9,944 $ 5,863
======================================
Primary earnings (loss) per
common share $ 1.34 $ 1.22 $ 0.80
======================================
FULLY DILUTED
Weighted average number of
shares outstanding 8,385 8,160 7,321
Net effect of dilutive common
stock equivalents 3 2 6
--------------------------------------
Weighted average fully
diluted shares 8,388 8,162 7,327
======================================
Earnings (loss) applicable to
common shares $ 11,247 $ 9,944 $ 5,863
======================================
Fully diluted earnings (loss)
per common share $ 1.34 $ 1.22 $ 0.80
======================================
EXHIBIT 21
Subsidiaries of Registrant
December 31, 1995
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 99.0%
Consumers Illinois Water
Company Illinois 1926 100.0%
Consumers Applied Technologies,
Inc. (and its wholly owned Maine 1984 100.0%
subsidiary EnviroAudit)
Consumers Land Management Co. Maine 1984 100.0%
Consumers New Jersey Water
Company New Jersey 1969 96.8%
Consumers Ohio Water Company Ohio 1973 100.0%
Consumers Pennsylvania Water
Company -- Susquehanna Division Pennsylvania 1971 94.9%
-- Roaring Creek Division Pennsylvania 1985 100.0%
-- Shenango Valley Division
(and its wholly-owned Pennsylvania 1926 100.0%
subsidiary, Masury Water
Company) Ohio 1926 100.0%
Consumers New Hampshire
Water Company, Inc. New Hampshire 1930 100.0%
- --------------
EXHIBIT 10.19
- --------------
EXECUTIVE SEVERANCE PLAN
The Consumers Water Company Executive Severance Plan (the "Plan") is
hereby adopted as of this 6th day of March, 1996, by Consumers Water Company
("Employer") for the benefit of its eligible employees.
WITNESSETH
WHEREAS, the Employees (as defined below) are currently employed by
Employer as executive officers; and
WHEREAS, the Employer wishes to retain the services of the Employees and
to encourage the Employees to remain with the Employer; and
WHEREAS, Employer desires to establish the Plan to provide security to
the Employees in connection with the Employees' employment with Employer or an
Affiliate or Associate as defined below in the event of a Change in Control
affecting Employer;
NOW, Therefore, Employer hereby establishes the Plan as set forth below.
1. DEFINITIONS. For purposes of this Plan:
(a) "Affiliate" or "Associate" shall have the meaning set forth in Rule
12b-2 under the Securities Exchange Act of 1934.
(b) "Beneficiary" shall mean the person or entity designated by an
Employee, by written instrument delivered to Employer, to receive the benefits
payable under this Plan in the event of his or her death. If an Employee
fails to designate a Beneficiary, or if no Beneficiary survives the Employee,
such death benefits shall be paid:
(1) to his or her surviving spouse; or
(2) if there is no surviving spouse, to his or her living
descendants per stirpes; or
(3) if there is neither a surviving spouse nor descendants, to
his or her duly appointed and qualified executor or personal
representative.
(c) A "Change in Control" shall be deemed to take place on the
occurrence of any of the following events:
(1) The acquisition by an entity, person or group (including all
Affiliates or Associates of such entity, person or group) of
beneficial ownership, as that term is defined in Rule 13d-3
under the Securities Exchange Act of 1934, of capital stock
of Employer if after such acquisition such entity, person or
group (and their Affiliates or Associates) is entitled to
exercise more than 30% of the outstanding voting power of all
capital stock of Employer entitled to vote in elections of
directors ("Voting Power");
(2) The effective time of (i) a merger or consolidation of Employer
with one or more other corporations as a result of which the
holders of the outstanding Voting Power of Employer immediately
prior to such merger or consolidation (other than the surviving
or resulting corporation or any Affiliate or Associate thereof)
hold less than 50% of the Voting Power of the surviving or
resulting corporation, or (ii) a transfer of 30% of the Voting
Power, or a Substantial Portion of the Property, of Employer
other than to an entity of which Employer owns at least 50%
of the Voting Power; or
(3) The election to the Board of Directors of Employer of
candidates who were not recommended for election by the
Board of Directors of Employer in office immediately prior
to the election, if such candidates constitute a majority
of those elected in that particular election.
(d) "Employee" shall mean the Chief Executive Officer, President
and any Vice President of the Employer who was elected as
such by the Board of Directors of the Employer and was
serving as such upon a Change in Control and who has been
credited with at least one year of vesting service under any
Retirement Plan as defined herein, other than an Employee who
is covered by an agreement providing payments and benefits
upon a Change in Control that are at least as valuable, in the
aggregate, as the payments and benefits provided under this
Plan. "Senior Employee" shall mean any Employee who was
serving as the Chief Executive Officer, President or as a
Senior Vice President of the Employer upon a Change in Control.
(e) "Good Cause" shall be deemed to exist with respect to an
Employee if, and only if:
(1) The Employee engages in acts or omissions constituting
dishonesty, intentional breach of fiduciary obligation or
intentional wrongdoing, in each case that results in
substantial harm to the business or property of Employer
or any Affiliate; or
(2) The Employee is convicted of a criminal violation involving
fraud or dishonesty.
(f) "Good Reason" shall exist with respect to an Employee if and
only if, without the Employee's express written consent:
(1) The Employee is assigned duties materially inconsistent with
his or her present duties, responsibilities and status;
(2) There is a reduction in the Employee's rate of base salary or
bonus; or
(3) Employer or any Affiliate or Associate changes by 100 miles
or more the principal location in which the Employee is
required to perform services.
(g) "Retirement Plan" shall mean any qualified or supplemental
employee pension benefit plan, as defined in Section 3(2)
of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), currently or hereinafter made available
by Employer or an Affiliate or Associate in which an Employee
is eligible to participate.
(h) "Salary" shall mean the Employee's annual base salary rate
at the greater of (1) the date of the Change in Control,
or (2) the date the Employee's employment with the Employer
or an Affiliate or Associate terminates.
(I) "Severance Period" shall mean the period beginning on the
date an Employee's employment with Employer or an Affiliate
or Associate terminates under circumstances described in
subsection 2(a) and ending on the date twenty-four (24)
months thereafter.
(j) "Substantial Portion of the Property of Employer" shall mean
50% of the aggregate book value of the assets of Employer,
as set forth on the most recent balance sheet of Employer,
prepared on a consolidated basis, by its regularly employed,
independent, certified public accountants.
(k) "Welfare Plan" shall mean any health and dental plan,
disability plan, survivor income plan or life insurance plan,
as defined in Section 3(1) of ERISA, currently or hereafter
made available by Employer or an Affiliate or Associate in
which an Employee is eligible to participate.
2. BENEFITS UPON TERMINATION OF EMPLOYMENT.
(a) If, at any time within twenty-four (24) months after a Change
in Control occurs (i) the employment of an Employee with,
Employer and all Affiliates or Associates is terminated by
Employer or such Affiliates or Associates for any reason
other than Good Cause, or (ii) the Employee terminates his
or her employment with Employer and all Affiliates or
Associates for Good Reason, Employer shall make a lump sum
cash payment (A) to the Employee or his or her Beneficiary
in an amount equal to three (3) years' Salary, if the Employee
is a Senior Employee or (B) to the Employee or his or her
beneficiary in an amount equal to two (2) years' Salary if
the Employee is not a Senior Employee.
Such payment shall be made within 30 days after the Employee's
date of termination of employment.
(b) If the employment of an Employee with Employer and all
Affiliates and Associates is terminated by Employer, such
Affiliates, Associates or the Employee other than under
circumstances set forth in subsection 2(a), the Employee's
compensation shall be paid through the date of his or her
termination, and Employer shall have no further obligation
with respect to the Employee under this Plan. Such
termination shall have no effect upon an Employee's other
rights, including but not limited to rights under any
Retirement Plan, any Welfare Plan or any other employer
plan or program.
(c) Notwithstanding anything herein to the contrary, in the
event that, at any time within twenty-four (24) months
after a Change in Control occurs, Employer or an Affiliate
or Associate shall terminate the employment of an Employee
for Good Cause, Employer or such Affiliate or Associate
shall give the Employee at least thirty (30) days' prior
written notice specifying in detail the reason or reasons
for the Employee's termination.
(d) This Plan shall have no effect, and Employer shall have no
obligations hereunder, with respect to an Employee whose
employment terminates for any reason at any time other than
within twenty-four (24) months after a Change in Control.
(e) The Employee or his or her Beneficiary, or any other person
entitled to receive benefits with respect to the Employee
under any Retirement Plan, Welfare Plan, or other plan or
program maintained by Employer or any Affiliate or Associate
in which he or she participates at the date of termination of
employment, shall receive any and all benefits accrued under
any such Plan or other plan or program to the date of
termination of employment, the amount, form and time of payment
of such benefits to be determined by the terms of such
Retirement Plan, Welfare Plan or other plan or program, and
the Employee's employment shall be deemed to have terminated
by reason of retirement, and without regard to vesting
limitations in all such Plans and other plans or programs,
under circumstances that have the most favorable result for
the Employee thereunder. Payment shall be made at the
earliest date permitted under any such Plan or other plan or
program.
(f) During the Severance Period an Employee and his or her spouse
And other dependents will continue to be covered by all Welfare
Plans in which the Employee and his or her spouse and other
dependents were participating immediately prior to the date
of his or her termination as if the Employee continued to be
an Employee of Employer or an Affiliate or Associate, and
Employer will continue to pay the costs of coverage of the
Employee and his or her spouse and other dependents under
such Welfare Plans on the same basis as is applicable to
active Employees covered thereunder; provided that, if
participation in any one or more of such Welfare Plans is
not possible under the terms thereof, Employer will provide
substantially identical benefits. Coverage under any such
Welfare Plan will cease if and when the Employee obtains
employment with another employer during the Severance Period,
and becomes eligible for coverage under any substantially
similar Welfare Plan provided by his or her new employer.
The right of an Employee and his or her spouse and other
dependents to continued group health coverage under Section
4980B of the Internal Revenue Code of 1986, or any
corresponding section, shall commence at the end of the
Severance Period; provided, however, that if the right to
such continued group health coverage occurs due to an
employee's divorce or a dependent's cessation of dependent
status, then such right shall commence as of the date of
the divorce or cessation of dependent status, as the case may be.
(g) The Severance Period shall be treated as if it were a
period of employment with Employer or an Affiliate or
Associate for purposes of any Retirement Plan or other
plan or program and shall be treated as a period of
covered employment under such Plan or other plan or
program if Employee was in covered employment immediately
before the Change in Control or the date of his or her
termination; provided that, if such treatment is not
possible under the terms thereof, Employer will provide
substantially identical benefits.
3. SETOFF.
No payments or benefits payable to or with respect to an
Employee pursuant to this Plan shall be reduced by any amount
the Employee or his or her spouse or Beneficiary may owe to
Employer or any Affiliate or Associate, or any amount Employee
may earn or receive from employment with another employer or
from any other source, except as expressly provided in
subsection 2(f). Benefits payable hereunder shall be reduced
by the amount of benefits paid to Employee under the Employer's
Severance Pay Plan, if any.
4. DEATH.
If an Employee's employment with Employer and all
Affiliates or Associates terminates under circumstances
described in subsection 2(a), then upon the Employee's
subsequent death, all unpaid amounts payable to the Employee
under subsection 2(a), shall be paid to his or her Beneficiary.
If subsection 2(a) applies, the Employee's spouse and other
dependents shall continue to be covered under all applicable
Welfare Plans during the remainder of the Severance Period, if
any, pursuant to subsection 2(f), and shall receive any
payments owing under subsection 2(e) (as affected by subsection
2(g)) unless payments at death are specified by the applicable
Retirement Plan, Welfare Plan or other plan or program.
5. NO SOLICITATION OF REPRESENTATIVES AND EMPLOYEES.
No Employee shall, directly or indirectly, in his or her
individual capacity or otherwise, induce, cause, persuade, or
attempt to induce, cause or, persuade, any representative,
agent or employee of Employer or any of its Affiliates and
Associates to terminate such person's employment relationship
with Employer or any of its Affiliates and Associates, or to
violate the terms of any agreement between said representative,
agent or employee and Employer or any of its Affiliates or
Associates.
6. CONFIDENTIALITY.
Preservation of a continuing business relationship between
Employer or its Affiliates and Associates and their respective
customers, representatives, and employees is of critical
importance to the continued business success of Employer, its
Affiliates and Associates and it is the active policy of
Employer, its Affiliates and Associates to guard as
confidential certain information not available to the public
relating to the business affairs of Employer, its Affiliates
and Associates. In view of the foregoing, no Employee shall,
without the prior written consent of Employer disclose to any
person or entity any such confidential information that was
obtained by the Employee in the course of his or her employment
by Employer or any of its Affiliates or Associates. This
section shall not be applicable if and to the extent the
Employee is required to testify in a legislative, judicial or
regulatory proceeding pursuant to an order of Congress, any
state or local legislature, a judge or an administrative law
judge or is otherwise required by law to disclose such information.
7. FORFEITURE.
If an Employee shall at any time violate any obligation
under Section 5 or 6 in a manner that results in material
damage to Employer, any Affiliate or Associate, or its
business, he or she shall immediately forfeit his or her right
to any benefits under this Plan, and Employer and its
Affiliates and Associates shall thereafter have no further
obligation hereunder to the Employee or his or her spouse,
Beneficiary or any other person.
8. EMPLOYEE ASSIGNMENT.
No interest of any Employee, his or her spouse or any
Beneficiary, under this Plan, or any right to receive any
payment or distribution hereunder, shall be subject in any
manner to sale, transfer, assignment, pledge, attachment,
garnishment, or other alienation or encumbrance of any kind,
nor may such interest or right to receive a payment or
distribution be taken, voluntarily or involuntarily, for the
satisfaction of the obligations or debts of, or other claims
against, the Employee or his or her spouse or Beneficiary,
including claims for alimony, support, separate maintenance,
and claims in bankruptcy proceedings.
9. BENEFITS UNFUNDED.
All rights under this Plan of the Employees and their
spouses and Beneficiaries, shall at all times be entirely
unfunded, and no provision shall at any time be made with
respect to segregating any assets of Employer for payment of
any amounts due hereunder. The Employees, their spouses and
Beneficiaries shall have only the rights of general unsecured
creditors of Employer and its Affiliates and Associates.
10. APPLICABLE LAW.
This Plan shall be construed and interpreted pursuant to
the laws of the State of Maine.
11. NO EMPLOYMENT CONTRACT.
Nothing contained in this Plan shall be construed to be an
employment contract between an Employee and Employer or any
Affiliate or Associate.
12. SEVERABILITY.
In the event any provision of this Plan is held illegal or
invalid, the remaining provisions of this Plan shall not be
affected thereby.
13. SUCCESSORS.
The Plan shall be binding upon and inure to the benefit of
Employer, the Employees and their respective heirs,
representatives and successors.
14. LITIGATION EXPENSES.
Employer shall pay the litigation expenses, including
reasonable attorneys' fees, incurred by any Employee, spouse or
Beneficiary in a suit against Employer or any Affiliate or
Associate in which such Employee, spouse or Beneficiary
successfully sues to enforce his or her rights under this Plan.
15. AMENDMENT AND TERMINATION.
Employer shall have the right to amend this Plan from time
to time and may terminate this Plan at any time; provided that
within twenty-four (24) months following a Change in Control
(I) no amendment may be made that diminishes any Employee's
right in the event of a termination of employment, following
such Change in Control, and (ii) the Plan may not be
terminated. This Section 15 may not be amended.
16. NOTICE.
Notices under this Plan shall be in writing and sent by
registered mail, return receipt requested, to the following
addresses or to such other address as the party being notified
may have previously furnished to the other party by written
notice:
If to Employer: Brian R. Mullany
Consumers Water Company
3 Canal Plaza, 5th Floor
Portland, Maine 04101
With a copy to: Keith C. Jones, Esq.
Drummond Woodsum & MacMahon
245 Commercial St.
Portland Maine 04101
If to an Employee:
The address last indicated on the records of Employer.
17. EXCISE TAX.
If the payments and benefits provided under the Plan to or
with respect to an Employee, either alone or with other
payments and benefits, would constitute "parachute payments" within the
meaning of Section 280G of the Internal Revenue Code, then the
payments and/or benefits under the Plan shall be reduced to the
extent necessary so that no portion thereof shall be subject to
the excise tax imposed by Section 4999 of the Code. Either
Employer or the party entitled to receive the payment or
benefit may request a determination as to whether the payment
or benefit would constitute a parachute payment and, if
requested, such determination shall be made by independent tax
counsel selected by Employer and approved by such party.
"Independent tax counsel" shall mean a law firm of recognized
expertise in Federal income tax matters that has not previously
advised Employer or an Affiliate or Associate.
IN WITNESS WHEREOF, Employer has caused this instrument to be
executed in its name by its duly authorized officer, all as of
the day and year first above written.
ATTEST: CONSUMERS WATER COMPANY
/s/ Peter L. Haynes
______________________________ By:___________________________
Its: President and CEO
- ----------
EXHIBIT 23
- ----------
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report dated February 7, 1996, included in this Form 10-K, into the
company's previously filed Registration Statements (Form S-3 No. 33-59375
and Forms S-8 Nos. 33-68858, 33-20994, 33-22032 and 33-57618).
/s/ Arthur Andersen LLP
- --------------------------
Arthur Andersen LLP
Boston, Massachusetts
March 19, 1996
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