SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission file number 0-493
CONSUMERS WATER COMPANY
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(Exact name of registrant as specified in its charter)
Maine 01-0049450
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(State or other jurisdiction (I.R.S. Employer
ofincorporation or organization) Identification No.)
THREE CANAL PLAZA, PORTLAND, MAINE 04101 (207-773-6438)
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(Address and telephone number of principal executive offices)
NONE
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(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
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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 X .
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The aggregate market value of all voting shares held by non-affiliates
as of March 7, 1997 was $156,365,714. As of March 7, 1997, there
were 8,809,336 Common Shares outstanding.
Documents Incorporated by Reference
The "Nominees for Election as Directors", "Other Executive Officers",
"Executive Compensation," and "Common Stock Ownership of Certain Beneficial
Owners and Management" sections of the registrant's proxy statement for its
1997 annual meeting filed pursuant to Regulation 14A are incorporated in
Part III of this Form 10-K by reference.
PART I
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ITEM 1. BUSINESS
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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 28 divisions providing water service to
approximately 228,000 customers in six states. The Company also owns 100%
of Consumers Applied Technologies, Inc. (CAT), which provides services
primarily in the areas of meter installation, corrosion engineering, contract
operations and water conservation. At the end of 1996, the Company took a
$2.4 million after tax charge to consolidate some operations to its Southeast
Region and to exit two business lines that were unprofitable and no longer
fit within CAT's strategic plans. The restructuring eliminated the
Mid-Atlantic and the New England regions of CAT.
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, 1996, 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 28 divisions 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 1996, 65% of the revenue of the Consumers Water Subsidiaries
was generated from residential accounts while sales for commercial
users, industrial users, fire protection and miscellaneous uses accounted
for 13%, 8%, 8%, and 6% of revenues respectively. Water utility revenues
for the three years ended December 31, 1996, 1995 and 1994 were $93,587,000,
$89,143,000, and $80,376,000 respectively. At December 31, 1996, the
Consumers Water Subsidiaries owned in the aggregate 3,381 miles of mainline
pipe of which approximately 84% was 6-inches or larger in diameter.
Of the 28 divisions, 14 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 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, 1996:
Number Number of Utility Net Utility
Subsidiary of Divisions Customers Revenue Plant (1)
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(Dollars in Thousands)
Consumers Ohio
Water Company 5 73,659 $29,572 $119,424
Consumers Illinois
Water Company 7 58,935 20,581 97,456
Consumers Pennsylvania
Water Company--
Shenango Valley
Division (2) 1 18,641 7,768 28,939
Roaring Creek Division 1 17,664 8,570 37,009
Susquehanna Division 1 4,543 1,588 6,134
Consumers New Jersey
Water Company 3 30,694 11,575 56,127
Consumers New Hampshire
Water Company 1 8,018 6,369 32,387
Consumers Maine
Water Company 9 15,538 7,564 30,173
Inter-Company Eliminations - - - (3,424)
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28 227,692 $93,587 $404,225
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(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 the Consumers Water Subsidiaries' 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 coverage 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.
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 $4,510,000 for 1996, $6,938,000 for 1995, and $5,624,000 for
1994, represented by eight, six, and ten rate decisions, respectively.
The Company currently has four rate filings pending totaling $2.8 million
of requested annualized new revenue. Decisions on these cases are
expected during 1997.
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, two 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 five divisions, with customers
totaling approximately 15,000 under threat of eminent domain in the last
several 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. The 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.
Numerous federal and state environmental laws other than the SDWA,
the CWA and Dam Safety Regulations, affect the operations of the Consumers
Water Subsidiaries.
The Federal SDWA established uniform minimum national quality standards for
drinking water. 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 Federal
1996 Safe Drinking Water Act Amendments require the EPA to put more emphasis
on the benefits versus costs of compliance when considering new or stricter
finished water quality criteria and standards. Stricter drinking water
standards currently under consideration may result in additional capital
expenditures being required by the Company's water subsidiaries.
Estimated capital costs for the projects described below are in
1997 dollars.
In order to eliminate and/or inactivate microbials in the finished water,
improved disinfection and/or filtration is required under the EPA Surface
Water Treatment Rule (SWTR) adopted pursuant to the SDWA. Most necessary
improvements to comply with the SWTR have been completed. Improvements
continue at three operations. The estimated cost for 1997 and beyond to
comply with the SWTR, replace aged infrastructure, increase capacity and
address other SDWA items is estimated at $32 million. Costs related to
dealing with future regulations for the removal and/or inactivation of
microbials such as cryptosporidium cannot be estimated at the present
time.
Two of the Consumers Water Company Subsidiaries have unfiltered surface
supplies pursuant to exemptions granted from the filtration requirement
of the SDWA. If filtration were required in the future, an additional
expenditure of $6 million would be necessary. Two of the Consumers
Water Subsidiaries operations have groundwater that might be found to be
under the influence of a surface supply which could require filtration at
an estimated cost of $9 million.
The Disinfectants/Disinfection By-Products Rule (D/DBP) adopted under
the SDWA is expected to affect four Consumers Water Company operations.
The cost to comply with Stage I and Stage II of this rule is expected
to be $3 to $9 million. However, most of the necessary improvements
will be for Stage II compliance and will occur after 2002.
An enhanced Surface Water Treatment Rule (ESWTR) is anticipated to
be proposed by the EPA in late 1998 or early 1999. A portion of the
capital investment indicated for compliance with the D/DBP Rule is
expected also to meet a portion of the ESWTR requirements. Additional
capital investment for ESWTR compliance cannot be estimated until the
actual rule is in place.
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 2000.
Existing water treatment facilities in Midwest farming areas may have to
be modified or improved to reduce herbicides and pesticides if elevated
levels are found in the finished water. The capital cost of
these modifications and improvements, if required, are estimated at
$8 million.
In 1992, Consumers Illinois executed a Letter of Commitment with the
Illinois Environmental Protection Agency to comply with the MCL for
nitrates at its Vermilion Division by 1997 and to take additional
interim steps to address the problem. The Vermilion 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 compliance date will be extended
by the IEPA.
The Consumers Water Subsidiaries own 10 major dams that are subject to
the requirements of the Federal and State regulations related to dam
safety. Most dams undergo a comprehensive engineering inspection
annually. The Company believes the dams are structurally sound and
well maintained.
The CWA regulates the discharge of effluents from drinking water
and wastewater treatment facilities into the lakes, rivers,
streams, subsurface or sanitary sewers. Ten 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 ten 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 a 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 wastewater 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.
At Consumers Illinois, a new wastewater plant is now serving the
Candlewick area. Pursuant to a settlement agreement entered into with
a Homeowners Association in an area served by the Candlewick treatment
plant, Consumers Illinois has agreed to study the possible relocation of
the effluent discharge from the facility. As a result, the location of
the discharge may be changed at an estimated cost of up to $0.5
million.
The Struthers Filtration Plant, which is operated by Consumers Ohio, has
been disposing of treatment precipitate at an inactive 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 an
alternative disposal method is estimated at $0.5 to 1.0 million.
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 regulations, 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
generally have been 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 83% of consolidated operating revenues
of the water subsidiaries in 1996 and 84% of consolidated water utility
net property, plant and equipment at December 31, 1996. 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 1996. As of December 31,
1996, 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 portions
of Ashtabula, Lake, Stark, Summit and Mahoning counties, in northeastern
Ohio.
The following indicates the distribution of 1996 year-end customers,
revenues and net utility plant among the five divisions of Consumers Ohio.
Number of Utility Net Utility
Customers Revenues Plant
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(Dollars in Thousands)
Lake Erie East Division 7,579 $ 3,409 $11,646
Lake Erie Division 26,508 8,936 38,759
Stark Regional Division 24,590 10,433 44,364
Struthers Division 14,972 6,256 23,181
Mahoning Valley Division 10 538 1,474
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Totals 73,659 $ 29,572 $ 119,424
CONSUMERS ILLINOIS Consumers Illinois serves 49,007 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.
Consumers Illinois also serves 9,928 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, 1996, and utility revenues for 1996
were $97,456,000 and $20,581,000, respectively.
CONSUMERS NEW JERSEY Consumers New Jersey operates three divisions in
New Jersey which serve 30,694 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 County, that are experiencing modest growth. Consumers New Jersey's
net utility plant at December 31, 1996, and utility revenues for 1996 were
$56,127,000 and $11,575,000 respectively.
SHENANGO Shenango and its wholly-owned Ohio subsidiary, Masury
Water Company, which draws its water from the Shenango River, serve
18,641 residential, commercial, industrial and wholesale customers in
the cities of Sharon and Farrell, the boroughs of Wheatland, New
Wilmington and West Middlesex, and portions of Hermitage, Mercer, Pulaski
and Shenango Townships, all in Pennsylvania, and Trumbull County, Ohio.
The economy of the area is largely based on heavy industrial
manufacturing. Shenango's net utility plant at December 31, 1996, and
utility revenue for 1996 were $28,939,000 and $7,768,000 respectively.
ROARING CREEK Roaring Creek, which draws its water from a 12,000
acre watershed, serves 17,664 residential, commercial, and
industrial customers in the City of Shamokin and other portions
of Northumberland, Columbia and Schuylkill Counties, all in Pennsylvania.
The economy of the area is based on light industrial and service
oriented employment. Roaring Creek's net utility plant at December
31,1996, and utility revenue for 1996 were $37,009,000 and
$8,570,000, respectively.
UTILITY SERVICES
CAT is a nationwide water resource management service provider
primarily, in meter installations, environmental engineering,
corrosion engineering, contract operations, and water conservation
services. Services were provided to municipalities, government, and
private industry. These services were provided by three regional
profit centers: the New England Region with offices in Connecticut
and Massachusetts, the Mid-Atlantic Region with offices in New Jersey
and Ohio, and the Southeast Region with an office in Florida. Total
revenues were $13,796,000 in 1996.
At the end of 1996, CAT took a $2.4 million after tax charge to
consolidate some operations into its Southeast Region and to exit two
business lines that were unprofitable and no longer fit within its
strategic plans. The restructuring will eliminate the Mid-Atlantic and
the New England Regions. The Corporate office will remain in Connecticut.
In 1997, the Southeast Region will provide water management services,
meter installations, and submetering installations. Total revenues
for the Southeast Region in 1996 were $4,097,000.
In 1997, the Corporate office will manage the contract operations
and maintenance business and concentrate on opportunities to expand
the business. Total revenues from contract operations and maintenance in
1996 were $1,264,000. The primary contract operation was at Merrill
Creek where CAT provides operation and management staff for a pumped
storage and recreation facility. This contract expires at the end of 1997
and is currently being renegotiated.
EMPLOYEES
Consumers Water Company and its subsidiaries employed 617 people as
of December 31, 1996, of which 444 were employed by the Consumers
Utility Subsidiaries. Non-supervisory personnel at the Consumers
Water 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 1996.
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ITEM 2. PROPERTIES.
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(a) Description
See Item 1. "Consumers Water Subsidiaries" for description of Consumers'
principal properties and encumbrances thereon.
Consumers' properties are located as follows:
Illinois
(1) Consumers Illinois Water Company with seven divisions in Kankakee,
Danville, University Park, Sublette, Oak Run, Willowbrook 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
(4) Consumers Pennsylvania Water Company -- Susquehanna Division
located in Sayre, Pennsylvania
(5) Consumers Pennsylvania Water Company -- Shenango Valley Division
located in Sharon, Pennsylvania.
(6) Consumers Pennsylvania Water Company -- Roaring Creek Division
located in Shamokin, Pennsylvania.
New Jersey
(7) Consumers New Jersey Water Company with corporate offices in
Hamilton and operating divisions in Blackwood, Hamilton Square
and Phillipsburg, New Jersey.
Connecticut
(8) Consumers Applied Technologies, Inc. headquartered in Wallingford,
Connecticut with regional offices in Massachusetts, New Jersey,
and Florida. In 1997, CAT is consolidating its offices to offices
in Connecticut and Florida.
(9) EnviroAudit, Ltd. located in Wallingford, Connecticut.
New Hampshire
(10) Consumers New Hampshire Water Company located in Londonderry,
New Hampshire.
Maine
(11) Consumers Maine Water Company with nine divisions located in
Kezar Falls, Freeport, Oakland, Rockport, Skowhegan, Greenville,
Hartland, Bucksport and Millinocket, Maine.
(12) Consumers' corporate headquarters located in Portland, Maine.
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ITEM 3. LEGAL PROCEEDINGS.
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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, A.P. O'Horo Company,
an outside contractor (the "Contractor"), spilled a small amount of
mercury while working at a water treatment plant owned and operated
by Consumers Ohio Water Company, a subsidiary of the Company
("Consumers Ohio"). Several areas in and around the plant were
contaminated by the spill, although no mercury contaminated Consumers
Ohio's water supply. Consumers Ohio contacted all appropriate
regulatory agencies regarding the spill, and the clean up was completed by
the end of 1994. The total cost to clean up the spill was approximately
$900,000. Consumers Ohio received $100,000 from its insurer towards
the clean-up costs and had sought recovery of all of the clean-up costs
from the Contractor.
On December 20, 1993, the Contractor filed a Complaint against
Consumers Ohio in Lake County Court of Common Pleas seeking recovery of
the retainer of approximately $400,000 that Consumers Ohio had withheld
on this project. On December 30, 1993, Consumers Ohio filed a
counterclaim against the Contractor seeking recovery of all past and
future costs related to the spill. Consumers Ohio settled the claims
brought by the Contractor regarding the retainer, while continuing to
pursue recovery of the costs of the spill. On November 4, 1996, the
Court granted the Contractor's motion for a directed verdict, finding that
the Contractor was not liable for any of the clean-up costs. Consumers Ohio
has filed a notice of an appeal from this decision. As a result of this
adverse judgment, Consumers Ohio increased the reserve previously taken to
cover clean-up costs by $560,000, or $360,000 net of taxes.
(b) Schiavi Homes Litigation. In 1994, the Penobscot Indian Nation
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, in the United States District Court
for the District of Maine (the "District Court"). The Complaint filed in
the District Court 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 District Court issued an order granting
the summary judgment motions of certain defendants, including the Company,
its current and former subsidiaries, and John H. Schiavi. On or about June
6, 1996, the Penobscot Indian Nation filed an appeal from the granting
of summary judgment by the District Court with the United States First
Circuit Court of Appeals alleging that the District Court erred in
granting summary judgment to the Company and the other defendants.
The parties have argued the appeal before the First Circuit Court of
Appeals and are awaiting a decision.
In connection with this litigation, John L. Palmer (no relation
to Director, John E. Palmer, Jr.), who was a co-defendant in the suit
brought by the Penobscot Indian Nation and was formerly a director and
officer of SHC Corporation, brought suit against the Company and its
former subsidiary, SHC Corporation, in Cumberland County Superior Court in
the State of Maine on May 29, 1996, seeking reimbursement of all of his
legal fees incurred in connection with his defense of the claims raised
by the Penobscot Indian Nation in their original complaint. The parties
have completed discovery and are awaiting trial.
(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 Water Company ("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 violation 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.
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 (the "Association"), sought to intervene in the case. In
its Complaint, the Association alleged that effluent from the
Consumers Illinois plant had interfered with and damaged the recreational
use of Candlewick Lake. The Complaint sought $1,000,000 in damages
from Consumers Illinois. On October 25, 1996, Consumers Illinois entered
into an agreement with the Association in which the Association agreed
to dismiss its action against Consumers Illinois Water Company
without prejudice to refile its suit. Pursuant to the terms of the
Settlement Agreement, Consumers Illinois agreed to cooperate in a study
of water quality of Candlewick Lake and the possible change in the
discharge point for Consumers Illinois' wastewater treatment plant.
The Settlement Agreement with the Association does not affect the
Complaint filed by the Illinois Attorney General, as to which the Company
has filed a motion to dismiss on the basis of a lack of jurisdiction and as
to which settlement negotiations between the Illinois Attorney
General and Consumers Illinois are ongoing.
(d) Illinois Regulatory Appeal. Consumers Illinois has filed in
the Appellate Court for the Third District of Illinois a Notice of Appeal
and Petition for Review of an Order of the Illinois Commerce
Commission entered on May 8, 1996 (the "Order"). The Order requires
the transfer of the net gain of approximately $394,000 resulting from the
sale of land by Consumers Illinois from the shareholders of Consumers
Illinois to ratepayers in Consumers Illinois' Kankakee district in the form
of reduced rates over a 7-year period. The Notice of Appeal, dated July
17, 1996, was also directed to the City of Kankakee, the NutraSweet Group,
Governor's State University and the Village of University Park, who had
intervened in the underlying rate case giving rise to the Order.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
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 (Nasdaq)
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
1996
First Quarter 19 16 1/2 $0.30
Second Quarter 18 1/4 14 1/2 0.30
Third Quarter 18 15 1/2 0.30
Fourth Quarter 19 1/4 16 0.30
-----
$1.20
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
(b) Holders
As of December 31, 1996, there were approximately 6,255 shareholders of
record of the Registrant's common shares.
(c) Recent Sales of Unregistered Securities
The Company did not make any unregistered sales of its securities
during the period covered by this report.
- --------------------------------
ITEM 6. SELECTED FINANCIAL DATA.
- --------------------------------
(Dollars in Thousands Except Per Share Amounts)
1996 1995 1994 1993 1992
Operating Revenue $107,385 $101,773 $93,337 $ 89,084 $ 84,245
Net Income from
Continuing
Operations $ 6,251 $ 11,303 $10,000 $ 12,003 $ 8,501
Earnings Per
Common Share:
Continuing
Operations $ .72 $ 1.34 $ 1.22 $ 1.63 $ 1.21
Total $ .72 $ 1.34 $ 1.22 $ .80 $ 1.14
Dividends Declared
Per Common Share $ 1.20 $ 1.19 $ 1.17 $ 1.15 $ 1.13
Total Assets $457,841 $432,084 $401,380 $371,657 $343,033
Long-Term Debt
of Continuing
Operations
(including current
maturities, sinking
fund requirements
and redeemable
preferred stock) $173,562 $162,969 $132,648 $125,080 $131,667
- -------------------------------------------------------------------------
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, 1996 and
the results of its operations for the three years ended December 31,
1996.
LIQUIDITY AND CAPITAL RESOURCES
CONSTRUCTION PROGRAM
Capital construction expenditures in 1996 totaled $28.0 million, net
of contributions and advances, substantially all of which relates to
the Company's utility subsidiaries. Projects include $3.7 million spent on
a new water treatment plant expansion in Ohio, which cost $6.4 million
in total; and many smaller projects throughout the Company.
The Company expects capital expenditures for 1997 through 1999 to be
$89 million, net of contributions and advances. The capital
construction budget is down from its peak of $103 million for the
1995-1997 planning period as a result of the completion of many of
the improvements required by the Safe Drinking Water Act (SDWA), the
Clean Water Act (CWA), and other regulations. With the reduced capital
spending due to regulatory requirements, the Company has increased its
focus on replacing aging infrastructure.
The Company has also started planning a major plant upgrade at
Consumers Pennsylvania Water Company - Shenango Valley Division. This
project is expected to cost approximately $31 million when it is completed
in 2000. 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 have filed or plan to
file rate 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
1996.
Cash was generated from:
Dollars in millions
Operations $21.3
Long-term debt issued 11.4
Common stock issued 4.2
Proceeds from sale of properties .8
Net borrowings of short-term debt 6.7
------
Total Cash Generated $ 44.4
Cash was used for:
Capital expenditures, net of CIAC $(28.0)
Repayment of long-term debt ( .7)
Payment of dividends (10.4)
Increase in restricted funds ( 2.1)
Cost of acquisition ( 2.0)
Other ( 1.6)
-------
Total Cash Used $ (44.8)
-------
Decrease in Cash $ ( .4)
=======
Water utilities now require higher equity ratios than in the past
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 Company's
capital expenditure program, makes it likely that the Company will return
to the equity market again in the next few years. The Company
anticipates continuing to fund its immediate cash flow needs with short-term
lines of credit until a subsidiary's short-term debt level is high
enough to warrant placement of long-term debt, generally, in the $4-$6
million range. The Company's subsidiaries had unused lines of
credit available at December 31, 1996 of $72.6 million. In addition
the Company has two revolving credit agreements totaling $25 million.
These agreements were renewed during the third quarter and are now
committed until mid-1998. The Company also anticipates receiving
a committment for an additional $10 million revolving credit agreement
in early 1997. At December 31, 1996, $17.1 million was outstanding on these
agreements, which is recorded as long-term debt on the balance sheet.
These borrowings were used primarily to provide equity infusions to
the subsidiaries. In addition, the Company is using funds
generated through its dividend reinvestment program. The
Dividend Reinvestment Program generated $3.8 million in new equity in
1996. In addition to short-term debt, the Company's water
utility subsidiaries plan to continue to use tax-exempt, long-term debt
financing in appropriate situations. Retained earnings declined by
$4.2 million in 1996 as a result of payments of dividends in excess of
earnings. Given the seasonality of the business and the continuation
of the current dividend, it is likely that retained earnings will decline
further at least through the first quarter of 1997.
ACQUISITIONS AND DISPOSITIONS
Over the past five years, the Company has acquired nine water
systems including three small systems in 1996. Two of the systems are
located in Maine and have 1,048 customers in the aggregate. The other
is located in Pennsylvania and has 1,150 customers. Management
anticipates continuing the acquisition policy of recent years.
The Company has sold five divisions with customers totaling
approximately 15,000 under the threat of eminent domain since 1991. The
gain on these sales totaled over $7 million. The Town of Hudson,
New Hampshire, has initiated eminent domain proceedings to acquire
the distribution system assets of Consumers New Hampshire Water Company,
which are located in Hudson. The Town of Hudson must get approval from
the New Hampshire Public Utilities Commission. The ultimate resolution
of these proceedings is unknown. Approximately 4,500 of Consumers
New Hampshire's 8,000 customers are located in Hudson. The Company
continues to work 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 Consumers Ohio'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 has been completed at a total cost of approximately
$900,000. Consumers Ohio has received $100,000 from its insurer and
had sought recovery of all the cleanup costs from the contractor.
Management believed it possible 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. However, due
to the progress of the case and to the expected cost of the litigation,
Consumers Ohio reserved $375,000 in 1995 for possible losses on this claim.
In November, 1996, the contractor obtained a judgement in its favor,
from which Consumers Ohio has appealed. As a result of this
adverse judgement, Consumers Ohio increased the reserve previously taken
to cover the clean up and legal costs by $560,000 or $370,000, net of
taxes.
In 1985, the Company's subsidiary, Consumers Maine Water Company
(Consumers Maine), started construction of a trasmission main to Fish
and Hobbs ponds, which are located in Hope, Maine, to increase the
available water supply of its Camden and Rockland Division. Due to
local opposition related to the uncertainty about the environmental impact
of withdrawing water from these ponds, the project was delayed. In
1989, final legislation was passed that imposed a moratorium on the
withdrawal of water from these ponds. The Maine Public Utilities Commission
(MPUC) ordered Consumers Maine to defer the costs of the project, the
legal costs of defending the water rights and carrying costs until its
first rate case after June 1, 1997. Consumers Maine currently has $673,000
on its balance sheet related to this project. Consumers Maine expects to
file a rate case with the MPUC in 1998 seeking recovery of these costs.
RESULTS OF OPERATIONS
1996 Compared to 1995
UTILITY REVENUE
Utilities revenues increased $4,444,000 or 5.0% in 1996 compared to 1995,
due primarily to $5,256,000 in rate increases offset by reduced
consumption. The reduced consumption is due to a wet 1996 compared to a
dry 1995 and reduced industrial usage. The causes for the remainder of
the reduced consumption are difficult to determine, but Management
believes that some decreased usage may be attributable to
increased conservation due to the large percentage rate increases.
The Company has filed additional rate cases in jurisdictions with
revenue shortfalls. During 1996, the Company settled eight rate cases
providing additional annual revenues of $4.5 million. Currently, the
Company has four filings pending totaling $2.8 million of requested
annualized revenue.
UTILITY OPERATING EXPENSES
Water utility operating expenses increased approximately $4,465,000
or 7.5%. Expenses have increased due to increased depreciation of
$1,267,000 and increased property taxes of $1,011,000 related to higher
plant balances. The remainder of the increase is due to increased
operating expense of $400,000 at the new treatment plant at the
Consumers Pennsylvania Water Company - Roaring Creek Division, which
went on line in May, 1995, and normal expense increases.
OTHER OPERATIONS - REVENUE AND EXPENSE
Other revenues, which consist primarily of revenues from Consumers
Applied Technologies (CAT), increased $1,168,000 or 9.2% while other
operating expenses increased $4,876,000 or 35.6%. CAT has been operating at
a loss for the last nine quarters. CAT's efforts to focus on higher
margin technical and engineering work, while still pursuing opportunities
in meter installation work were unsuccessful with its current
organizational structure. As a result, the Company decided to reorganize
CAT and take certain other charges totaling $3,658,000 resulting in
a $2,414,000 after tax charge. CAT is closing its New Jersey and
Massachusetts offices and is consolidating some of those operations into
its Orlando, Florida office. In addition, CAT is phasing out its
environmental business and is refocusing its water meter installation
business.
OTHER
Interest expense increased $985,000 or 7.6%, due primarily to higher
debt balances.
Gains (losses) from sales of properties are down $1,348,000 compared
to 1995. In 1996, the Company's Illinois subsidiary reversed a
gain previously taken on a land sale as a result of action taken by
the Illinois Commerce Commission. The Company's Illinois subsidiary
has appealed this decision. In addition to this gain reversal, the
Company and its subsidiaries had small gains and losses on several other
small sales of property in Ohio, Pennsylvania and New Hampshire. In 1995,
the Company recorded gains from the sale of the Damariscotta Division
of Consumers Maine and the sale by Consumers Ohio of its Girard Lake
Property.
RESULTS OF OPERATIONS
1995 Compared to 1994
UTILITY REVENUE
Utilities revenues were $8.8 million or 10.9%, greater 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.
UTILITY OPERATING EXPENSES
Water utility operating expenses were approximately $3.3 million, or
5.9%, greater 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 were $331,000 or 2.6% lower in 1995 than in
1994, while other operating expenses increased by $1.3 million or
10.6% primarily due to reduced margins in meter installation work as
CAT completed 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 and attempted
to shift its focus to higher margin technical and engineering work to
help compensate for the lost contracts while still pursuing 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.
OTHER
Interest expense increased $1,876,000 in 1995 compared to 1994, due
primarily to higher debt balances.
- ----------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- ----------------------------------------------------
REPORT OF MANAGEMENT
Report of Independent Public Accountants
Consolidated Statements of Income for Years Ended
December 31, 1996, 1995 and 1994
Consolidated Balance Sheets at December 31, 1996
and 1995
Consolidated Statements of Capitalization and
Interim Financing at December 31, 1996 and 1995
Consolidated Statements of Cash Flow for Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Change in Common
Shareholders' Investment for Years Ended
December 31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Quarterly Information Pertaining to the
Results of Operations for the Years Ended
December 31, 1996 and 1995
Consumers Water Company and Subsidiaries
Consolidated Statements of Income
For the years ended December 31,
(In Thousands Except
Per Share Amounts) 1996 1995 1994
Revenue and Sales:
Water utility operations $93,587 $89,143 $80,376
Other operations 13,798 12,630 12,961
-------------------------------------
Operating revenue 107,385 101,773 93,337
-------------------------------------
Costs and Expenses:
Water utility operations 64,301 59,836 56,515
Other operations 18,569 13,693 12,386
-------------------------------------
Operating expenses 82,870 73,529 68,901
-------------------------------------
Operating Income 24,515 28,244 24,436
-------------------------------------
Other Income and (Expense):
Interest expense (14,717) (13,938) (12,497)
Construction interest
capitalized 780 986 1,421
Preferred dividends and minority
interest of subsidiaries (143) (156) (139)
Other, net (Note 3) 29 556 1,000
-------------------------------------
(14,051) (12,552) (10,215)
-------------------------------------
Earnings from Operations
Before Income Taxes and Gains
(Losses) from Sales of
Properties 10,464 15,692 14,221
Income Taxes (Note 2) 3,973 5,497 4,623
-------------------------------------
Earnings from Operations
Before Gains (Losses) from
Sales of Properties 6,491 10,195 9,598
Gains (Losses) from Sales of
Properties, Net (Note 7) (240) 1,108 402
-------------------------------------
Net Income $6,251 $11,303 $10,000
=====================================
Weighted Average Shares
Outstanding 8,628 8,388 8,161
Earnings per Common
Share:
Before Gains (Losses) from Sales
of Properties $0.75 $1.21 $1.17
Total $0.72 $1.34 $1.22
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) 1996 1995
--------------------
Assets
Property, Plant and Equipment, at cost:
Water utility plant, in service $474,703 $436,248
Less - Accumulated depreciation 83,045 74,414
-------------------------
391,658 361,834
-------------------------
Other subsidiaries 2,558 2,197
Less - Accumulated depreciation 1,596 1,307
-------------------------
962 890
-------------------------
Construction work in progress 12,567 18,067
-------------------------
Net property, plant and equipment 405,187 380,791
-------------------------
Investments, at cost 1,706 1,762
-------------------------
Current Assets:
Cash and cash equivalents (Note 1) 2,214 2,576
Accounts receivable, net of reserves
of $1,114 in 1996 and $848 in 1995 12,445 12,719
Unbilled revenue 7,015 7,014
Inventories (Note 1) 2,456 2,833
Prepayments and other 7,219 6,143
-------------------------
Total current assets 31,349 31,285
-------------------------
Other Assets:
Funds restricted for construction
activity (Note 3) 2,380 287
Deferred charges and other assets 17,219 17,959
-------------------------
19,599 18,246
-------------------------
$457,841 $432,084
=========================
Shareholders' Investment and Liabilities:
Capitalization (See Separate Statement)
Common shareholders' investment $106,015 $105,999
Preferred shareholders' investment 1,054 1,069
Minority interest 2,352 2,355
Long-term debt 172,917 162,161
-------------------------
Total capitalization 282,338 271,584
-------------------------
Contributions in Aid of Construction 73,208 67,439
-------------------------
Current Liabilities:
Interim financing
(See Separate Statement) 19,199 12,537
Accounts payable 6,425 6,060
Accrued taxes (Note 2) 6,071 7,611
Accrued interest 3,873 3,609
Accrued expenses and other 15,161 13,632
--------------------------
Total current liabilities 50,729 43,449
--------------------------
Commitments and Contingencies (Note 10)
Deferred Credits:
Customers' advances for construction 22,378 22,507
Deferred income taxes (Note 2) 24,506 22,260
Unamortized investment tax credits 4,682 4,845
--------------------------
51,566 49,612
--------------------------
$457,841 $432,084
==========================
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) 1996 1995
-------------------
Capitalization (Notes 3 and 5)
Common shareholders' investment:
Common stock, $1 par value
Authorized: 15,000,000 shares
Issued: 8,732,202 shares in
1996 and 8,494,686 shares in 1995 $8,732 $8,495
Amounts in excess of par value 75,686 71,718
Reinvested earnings 21,597 25,786
------------------------
106,015 105,999
------------------------
Preferred shareholders' investment:
Preferred stock, $100 par value 1,054 1,069
------------------------
Minority interest:
Common stock, at equity 674 677
Preferred stock 1,678 1,678
------------------------
2,352 2,355
------------------------
Long-term debt:
First mortgage bonds, debentures
and promissory notes-
Maturities Interest Rate Range
1996 6.10% to 11.00% - 58
1997 5.94% to 6.10% 7 16,019
1998 5.70% to 6.07% 17,069 7
1999 7.00% to 8.50% 45 63
2000 8.59% 11 15
2001 --- - -
2002-2006 8.00% to 9.50% 13,440 13,905
2007-2011 1.00% to 10.55% 6,959 7,018
2012-2016 0.00% to 9.50% 9,139 9,000
THEREAFTER 5.60% to 10.40% 126,892 116,783
------------------------
Total first mortgage bonds, debentures
and notes 173,562 162,868
Less - Sinking fund requirements and
current maturities 645 707
------------------------
172,917 162,161
------------------------
Total capitalization 282,338 271,584
------------------------
Interim financing (Note 4):
Notes payable 18,554 11,830
Sinking fund requirements and
current maturities 645 707
------------------------
Total interim financing 19,199 12,537
------------------------
Total capitalization and interim financing $301,537 $284,121
========================
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) 1996 1995 1994
--------------------------------
Operating activities:
Net income $6,251 $11,303 $10,000
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization 12,093 10,481 8,993
Deferred income taxes and
investment tax credits 2,720 1,768 1,777
(Gains) losses on sales of properties 240 (1,108) (402)
Changes in assets and liabilities:
(Increase) decrease in accounts
receivable and unbilled revenue 393 (338) (2,471)
(Increase) decrease in inventories 386 (575) (465)
(Increase) decrease in prepaid
expenses (1,075) (27) 408
Increase in accounts payable and
accrued expenses 340 2,453 1,013
Change in other assets, net of change
in other liabilities of continuing
operations (2,811) (2,516) (1,883)
Change in assets, net of change in
liabilities of discontinued operations - - 1,308
-----------------------------------
Total adjustments 12,286 10,138 8,278
-----------------------------------
Net cash provided by operating
activities 18,537 21,441 18,278
-----------------------------------
Investing activities:
Capital expenditures (35,163) (40,516) (39,345)
Payment received on a note receivable 1,330 - -
(Increase) decrease in funds
restricted for construction activity (2,093) 2,216 7,005
Increase in construction accounts
payable 205 126 28
Net cash cost of acquisitions (Note 6) (1,990) (1,300) (1,426)
Net proceeds from sales of properties
(Note 7) 847 4,235 659
-----------------------------------
Net cash used in investing activities (36,864) (35,239) (33,079)
-----------------------------------
Financing activities:
Net borrowing (repayment) of
short-term debt 6,724 (15,476) 7,630
Proceeds from issuance of
long-term debt 11,410 48,349 9,053
Repayment of long-term debt (714) (18,029) (1,485)
Proceeds from issuance of stock 4,182 3,876 3,640
Advances and contributions in aid
of construction, net of repayments 7,143 5,223 4,147
Taxes paid by developers on advances
and contributions in aid of
construction (383) (513) (726)
Cash dividends paid (10,397) (9,962) (9,545)
-----------------------------------
Net cash provided by financing
activities 17,965 13,468 12,714
-----------------------------------
Net decrease in cash and
cash equivalents (362) (330) (2,087)
Cash and cash equivalents at beginning
of year 2,576 2,906 4,993
-----------------------------------
Cash and cash equivalents at
end of year $2,214 $2,576 $2,906
===================================
Supplemental disclosures of cash flow
information from continuing operations
Cash paid during the year for:
Interest (net of amounts
capitalized) $13,388 $12,532 $10,712
Income taxes $4,541 $2,879 $4,123
Noncash investing and financing
activities for the year:
Assets acquired by stock issuance
and/or assumption of debt of
acquired company - $150 -
Property advanced or contributed $1,543 $1,230 $2,713
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, 1996, 1995 and 1994
Number of Shares,
$1 par value, (Dollars in Thousands)
Issued and Excess of Reinvested
Outstanding Par Value Earnings
-----------------------------------------------
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
Net income 6,251
Cash dividends:
Common shares (10,386)
Preferred shares (55)
Dividend Reinvestment Plan 215,128 3,571
Employee benefit plans 22,388 384
Other - 13 1
-----------------------------------------------
Balance, December 31, 1996 8,732,202 $75,686 $21,597
===============================================
The accompanying notes are an integral part of these consolidated financial
statements.
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 judgments 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 personnel, 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, 1996 and 1995, 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, 1996.
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, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the
basic financial statements taken as a whole. Schedule II, Valuation and
Qualifying Accounts for the years ended December 31, 1996, 1995,
and 1994, 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 5, 1997
(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 28 divisions providing
water service to approximately 228,000 customers in six states. The
Company also owns 100% of Consumers Applied Technologies, Inc. (CAT), which
in 1996 provided services primarily in the areas of meter installation,
corrosion engineering, contract operations and water conservation.
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.
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 2.8% in 1996, 2.7% in 1995 and 2.5% in 1994.
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.
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 $179 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 notes receivable totaling $245,248.
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, but before June 12,
1996, 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 stricter criteria
for regulatory assets by requiring that such assets be probable of
future recovery at each balance sheet date. The Company adopted this
standard in 1996. The adoption of SFAS No. 121 did not have a material
impact on the financial position or results of operations of the Company.
(2) Income Tax Expense
The Company uses 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 $3.9
million and $3.7 million at December 31, 1996 and 1995 respectively are
reflected in the balance sheet.
Accumulated deferred taxes consisted of tax assets of $565,000,
$599,000, and $985,000 related to alternative minimum tax offset
by liabilities of $23,655,000, $22,347,000, and $21,054,000, which
are predominantly related to depreciation and other plant related
differences in 1996, 1995 and 1994, respectively. The Company has
reserved $613,000 for state net operating loss carryforwards at CAT.
All other deferred tax assets are expected to be realized in the
future; therefore, no additional valuation allowance has 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) 1996 1995 1994
- ----------------------------------------------------------------------
Federal:
Currently payable $2,353 $4,646 $4,209
Deferred 1,025 1,413 561
Investment tax credit,
net of amortization (185) (190) (139)
------------------------------------------
$3,193 $5,869 $4,631
State: ------------------------------------------
Currently payable 308 214 506
Deferred 317 265 ( 13)
State investment tax credit,
net of amortization 4 29 -
------------------------------------------
629 508 493
------------------------------------------
Total provision $3,822 $6,377 $5,124
==========================================
The provision for income tax
expense is reflected in:
Income taxes $3,973 $5,497 $4,623
Gains (Losses) from sales of
properties (94) 920 242
Other income (57) (40) 259
------------------------------------------
Total provision $3,822 $6,377 $5,124
==========================================
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.
1996 1995 1994
---------------------------------------
Statutory rate 34.0% 34.0% 34.0%
State taxes, net of
federal benefit 4.1 1.9 2.2
Effect of decrease in
statutory rate on reversing
timing items (.6) ( .2) ( .2)
Investment tax credit (1.8) (1.0) (1.0)
Other 2.2 1.4 (1.1)
----------------------------------------
37.9% 36.1% 33.9%
========================================
(3) Long-Term Debt
Maturities and sinking fund requirements of the first mortgage
bonds, debentures and notes, including capitalized leases, are $645,000
in 1997, $836,000 in 1998, $17,891,000 in 1999, $2,010,000 in 2000,
$2,010,000 in 2001 and $150,170,000 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 Companys' 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 $34.5 million of reinvested earnings were not so restricted
at December 31, 1996.
In 1996, funds restricted for construction activity of $10 million
was obtained through the issuance of tax exempt bonds, the use of which
is restricted for utility plant construction. At December 31,1996, there
was $2.4 million of restricted funds remaining. 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) 1996 1995 1994
----------------------------------------
Unused lines of bank
credit $72,646 $43,670 $56,694
Borrowings outstanding at
year-end 18,554 11,830 27,306
Total lines of bank ----------------------------------------
credit $91,200 $55,500 $84,000
Monthly average borrowings ========================================
during the year $18,271 $24,795 $27,679
Maximum borrowings at any ========================================
month-end during the year $21,815 $34,915 $34,600
Weighted average annual interest========================================
rate during the year 7.0% 7.5% 6.6%
Weighted average interest rate ========================================
on borrowings outstanding
at year-end 6.7% 7.3% 7.0%
========================================
(5) Shareholders' Investment
As of December 31, 1996, the Company reserved issuable common shares for
the following purposes:
Dividend Reinvestment Plan 196,543
401(k) Savings Plan 177,317
Stock Option Plans 120,000
Long-term Incentive Plan 400,000
---------
893,860
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 1996, 30,000 options were
granted, 1,300 options were exercised, and 19,654 options lapsed and
were canceled. During 1995, 27,000 options were granted, no options were
exercised and 38,493 options lapsed and were canceled. During 1994,
29,000 options were granted, 1,980 options were exercised, and 34,833
options lapsed and were canceled. At December 31, 1996, options for
120,000 shares were exercisable at prices of $17.75, $18.50, $18.25,
$17.25, and $16.75 per share. Stock options were exercised in 1996 at
$16.50. No options were exercised in 1995. Stock options were exercised
in 1994 at $18.25 and $16.50 per share.
Information regarding outstanding preferred stock ($100 par value) of
the Company and its subsidiaries is as follows:
<TABLE>
Par Value
of Shares
Cumulative Current Shares
Outstanding
Dividend Call Price Shares Issued
and (Dollars in
Rate % Per Share Authorized
Outstanding Thousands)
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
<C>
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 2,739
274
Consumers Water Company 5 1/4 105 30,000 10,538
1,054
Consumers Water Company - None 120,000 -
-
</TABLE>
In addition to the shares listed above, Consumers Water Company owns 36
preferred shares of Consumers Pennsylvania Water Company-Shenango Valley
Division, 423 preferred shares of Consumers Illinois Water Company and 11
preferred shares of Consumers Maine Water Company.
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. The Company adopted the
disclosure-only option under SFAS No. 123, Accounting for Stock-Based
Compensation, as of December 31, 1996. If the accounting provisions of
the new Statement had been adopted as of the beginning of 1996, the effect
on 1996 net earnings would have been immaterial. Further, based on
current and anticipated use of stock options, it is not envisioned that
the impact of the Statement's accounting provisions would be material in
any future period.
(6) Acquisitions
On November 18, 1996, the Company, through its subsidiary, Consumers
Maine Water Company, acquired the stock of the Bucksport Water Company
for $1,079,000. Bucksport Water Company was subsequently merged into
Consumers Maine Water Company.
On September 10, 1996, the Company, through its subsidiary, Consumers
Maine Water Company, acquired the assets of Hartland Water Company for
$148,000.
On September 23, 1996, the Company, through its subsidiary, Consumers
Pennsylvania Water Company-Shenango Valley Division, acquired the assets
of Mercer Water Company for $761,000.
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 Company-Roaring Creek Division, acquired the assets of
Ralpho Township water system for $1,426,000.
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) Dispositions
In 1994, Consumers Illinois recorded a gain, net of taxes of $394,000
from the sale of nine acres of land. In 1996, as part of a rate hearing,
the Illinois Commerce Commission ordered Consumers Illinois to return the
gain from this sale to the customer through reduced rates. Therefore,
the gain was reversed in the second quarter of 1996. On July 17, 1996,
Consumers Illinois filed in the Appellate Court for the Third District of
Illinois a Notice of Appeal and Petition for Review of the Commission's
Order.
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.
(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) 1996 1995
- ---------------------------------------------------------------------
Actuarial present value of benefit
obligations:
Accumulated benefit obligations
Vested $24,167 $22,441
Nonvested 1,651 1,583
------------------------
Total 25,818 24,024
Effect of future salary increases 6,594 7,045
Projected benefit obligations for services ------------------------
provided to date 32,412 31,069
Market value of plan assets, primarily
invested in stocks, bonds and short-term
funds 38,112 32,849
Plan assets in excess of projected ------------------------
benefit obligations 5,700 1,780
Unrecognized net asset existing
as of January 1, 1987, being amortized over
22 years (2,690) (2,899)
Unrecognized prior service cost 1,959 2,171
Unrecognized net gain (7,258) (3,718)
--------------------------
Accrued pension cost at year-end $(2,289) $(2,666)
==========================
Net pension cost included the following items:
(Dollars in Thousands) 1996 1995 1994
- ---------------------------------------------------------------------------
Service cost-benefits earned
during the year $1,142 $ 980 $1,151
Interest cost on projected
benefit obligations 2,430 2,236 2,178
Actual loss (return) on plan assets (5,869) (6,555) 1,656
Net amortization and deferral 2,946 4,127 (4,322)
--------------------------------------
Net periodic pension cost $ 649 $ 788 $ 663
======================================
The expected long-term rate of return on plan assets was 9.0% in 1996,
1995 and in 1994. The salary increase assumption was 4.5% in 1996, 5.0%
in 1995 and in 1994. The discount rate used to determine the actuarial
present value of the projected benefit obligations was 8.0% in 1996, 8.0%
in 1995, and 8.5% in 1994. The Company also has a 401(k) Plan, which
covers substantially all its employees. The Company matches up to 40% of
an employee's contributions in Company stock, subject to a $1,040
limitation. The value of the match was $394,000, $364,000 and $371,000
in 1996, 1995, and 1994, respectively.
(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) 1996 1995
- ------------------------------------------------------------------------
Accumulated postretirement benefit
obligation ($3,226) ($3,447)
Plan assets at fair value - -
Accumulated postretirement benefit --------------------------
obligation in excess of plan assets ($3,226) ($3,447)
Unrecognized net gain from past
experience different from that assumed
and from changes in assumptions (1,337) (835)
Unrecognized transition obligation 2,567 2,727
-------------------------
Accrued postretirement benefit cost ($1,996) ($1,555)
=========================
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 $2,407,000
and for life insurance is $819,000.
Net periodic postretirement benefit cost included the following components;
(Dollars in Thousands) 1996 1995 1994
- ----------------------------------------------------------------------------
Service cost-benefits attributed to
service during the period $132 $148 $182
Interest cost on accumulated
postretirement benefit obligation 272 292 286
Amortization of transition obligation
over 20 years 160 160 160
Net amortization and deferral ( 30) ( 6) -
-------------------------------
Net periodic postretirement benefit cost $534 $594 $628
===============================
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 8.0% in 1996 and in 1995
and 8.5% in 1994. An 8% annual rate of increase in the per capita cost
of covered health care benefits is assumed for 1996, an 8% increase for
1995 and a 10% increase for 1994. 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 $77,000 as
of September 30, 1996, $123,000 as of September 30, 1995, and $112,000 as
of September 30, 1994. 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,
1996, would be an increase of $14,000.
(10) Commitments and Contingencies
The Company is a party in or may be affected by various matters
under litigation. Many of the improvements required by the Safe
Drinking Water Act have been completed. The Company expects that some of
its subsidiaries will need to make significant additional
improvements, however, including, but not limited to, construction
of treatment plants, new wells and replacement of water mains, to stay
in compliance with environmental regulations and to replace aging
plant. 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, 1996, 1995 and 1994 were approximately
$1,333,000, $1,344,000, and $1,321,000, respectively. At December 31,
1996, minimum future lease payments under noncancelable operating leases
are $1,158,000 in 1997, $911,000 in 1998, $716,000 in 1999, $511,000 in
2000, $474,000 in 2001 and $1,458,366 thereafter.
In March, 1993, an outside contractor spilled a small amount of
mercury while working at Consumers Ohio'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 has been completed at a total cost of approximately
$900,000. Consumers Ohio Water has received $100,000 from its insurer and
has sought recovery of all the cleanup costs from the contractor.
Management believed it possible 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.
However, due to the progress of the case and to the expected cost of
the litigation, Consumers Ohio reserved $375,000 in 1995 for possible
losses on this claim. In November, 1996, the contractor obtained a
judgement in its favor, from which Consumers Ohio has appealed. As a
result of this adverse judgement, Consumers Ohio increased the
reserve previously taken to cover the clean up and legal costs by $560,000
or $370,000, net of taxes.
Consumers Water Company and Subsidiaries
Unaudited Financial Information
Quarterly Financial Data
Unaudited quarterly financial data pertaining to the results of operations for
1996 and 1995 are as follows:
(Dollars in Thousands 1st 2nd 3rd 4th
Except Per Share Amounts) Quarter Quarter Quarter Quarter
1996
Operating Revenue $25,055 $26,681 $29,349 $26,300
Operating Income $ 6,022 $ 6,517 $ 9,059 $ 2,917
-----------------------------------------
Net Income (Loss):
Before Gains $ 1,738 $ 2,035 $ 3,659 ($ 941)
-----------------------------------------
Total $ 1,824 $ 1,640 $ 3,659 ($ 872)
-----------------------------------------
Earnings(Loss) Per Share:
Before Gains $ 0.20 $ 0.25 $ 0.42 ($ 0.11)
=========================================
Total $ 0.21 $ 0.19 $ 0.42 ($ 0.10)
=========================================
1995
Operating Revenue $22,530 $25,518 $28,479 $25,246
Operating Income $ 4,684 $ 6,396 $10,152 $ 7,012
-----------------------------------------
Net Income(Loss):
Before Gains $ 1,232 $ 2,170 $ 4,439 $ 2,354
-----------------------------------------
Total $ 1,595 $ 2,894 $ 4,450 $ 2,364
-----------------------------------------
Earnings(Loss) Per Share:
Before Gains $ 0.15 $ 0.26 $ 0.53 $ 0.28
-----------------------------------------
Total $ 0.19 $ 0.35 $ 0.53 $ 0.28
=========================================
The fluctuations in revenue and operating income between quarters reflect the
seasonal nature of the water utility business, changes in industrial usage and
the timing of rate relief. Operating income in the fourth quarter of 1996 is
also impacted by Consumers Applied Technologies reorganization and other
charges of $2,414,000 net of tax.
Gains (losses) from the sales of properties of continuing operations, net
of taxes, were $86,000, ($395,000), $0, and $69,000 in the four quarters of
1996 as compared with $363.000, $724,000, $11,000, and $10,000 in 1995. The
loss of $395,000 recorded in the second quarter of 1996 resulted from the
reversal from a gain of the same amount previously recorded in the fourth
quarter of 1994.
Schedule II
CONSUMERS WATER COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(Dollars in Thousands)
Additions Deductions
--------- ----------
Balance at Provision Balance at
Beginning of Charged to Accounts End of
Description Year Operations Recoveries Written Off Year
- ----------------------------------------------------------------------------
Allowance for
Doubtful Year Ended December 31, 1996
Accounts -----------------------------
$ 848 $1,314 $60 $1,108 $1,114
Year Ended December 31, 1995
-----------------------------
$682 $750 $59 $643 $848
Year Ended December 31, 1994
-----------------------------
$798 $706 $55 $877 $682
- -------------------------------------------------------------
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,"
and "Other Executive Officers" and 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
II Valuation and Qualifying Accounts for the Years
Ended December 31, 1996, 1995 and 1994.
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
EXHIBITS
3.1 Conformed Copy of Restated Articles of Incorporation of Consumers
Water Company, as amended, is submitted herewith as Exhibit 3.1.
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* 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.
10.2* Consumers Water Company 1993 Incentive Stock Option Plan is
incorporated by reference to Appendix B to definitive proxy
statement dated April 5, 1993.
10.3* 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.
10.4* 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.
10.5 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.
10.6 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.
10.7 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.
10.8* Consumers Water Company Executive Severance Plan is incorporated
by reference to exhibit 10.9 to Consumers Water Company's Annual
Report on Form 10K for the year ended December 31, 1995.
10.9* Consumers Water Company's Senior Management Long-term Incentive
Plan is incorporated by reference to Appendix A to the Company's
definitive Proxy Statement dated March 29, 1996.
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.
(b) REPORTS ON FORM 8-K.
On November 8, 1996, Consumers Water Company filed a Form 8-K with the
Securities and Exchange Commission reporting, under item 5 thereof, the
entry of an adverse judgment with respect to claims brought by its
subsidiary, Consumers Ohio Water Company, against a contractor to recover
the costs of clean-up of a mercury spill at on of the subsidiary's
treatment plants.
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 3/10/97
----------------------- -----------------
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 3/10/97
----------------------- -----------------
John F. Isacke Date
Senior Vice President
(Chief Financial Officer)
By: /s/ Gary E. Wardwell 3/10/97
-------------------------- ----------------
Gary E. Wardwell Date
Controller
(Chief Accounting Officer)
By: /s/ David R. Hastings, II 3/10/97
-------------------------- ----------------
David R. Hastings, II Date
Chairman and Director
By: /s/ Jack S. Ketchum 3/10/97
-------------------------- ----------------
Jack S. Ketchum Date
Director
By: /s/ John E. Menario 3/10/97
-------------------------- ----------------
John E. Menario Date
Director
By: /s/ Jane E. Newman 3/10/97
-------------------------- ----------------
Jane E. Newman Date
Director
By: /s/ John E. Palmer, Jr. 3/10/97
-------------------------- ----------------
John E. Palmer, Jr. Date
Director
By: /s/ Elaine D. Rosen 3/10/97
-------------------------- ----------------
Elaine D. Rosen Date
Director
By: /s/ William B. Russell 3/10/97
--------------------------- -----------------
William B. Russell Date
Director
By: /s/ John H. Schiavi 3/10/97
---------------------------- -----------------
John H. Schiavi Date
Director
By: /s/ Peter L. Haynes 3/10/97
---------------------------- -----------------
Peter L. Haynes Date
President and Director
(Chief Executive Officer)
EXHIBIT INDEX
Exhibit
3.1 Conformed Copy of Restated Articles of Incorporation of Consumers
Water Company, as amended, is submitted herewith as Exhibit 3.1.
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* 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.
10.2* Consumers Water Company 1993 Incentive Stock Option Plan is
incorporated by reference to Appendix B to definitive proxy statement
dated April 5, 1993.
10.3* 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.
10.4* 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.
10.5 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.
10.6 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.
10.7 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.
10.8 Consumers Water Company Executive Severance Plan is incorporated by
reference to exhibit 10.9 to Consumers Water Company's Annual Report
on Form 10K for the year ended December 31, 1995.
10.9 Consumers Water Company's Senior Management Long-term Incentive Plan
is incorporated by reference to Appendix A to the Company's
definitive Proxy Statement dated March 29, 1996.
11. Statement of Computation of Per Share Earnings is submitted herewith
as Exhibit 11.
21. List of Subsidiaries of the Registrant is submitted herewith as
Exhibit 21.
23. Consent of Arthur Andersen LLP is submitted herewith as Exhibit 23.
27. Financial Data Schedule is submitted herewith as Exhibit 27.
- ------------------------------------------
* Management contract or compensatory plan or
arrangement required to be filed as an Exhibit
pursuant to Item 14(c) of Form 10-K.
EXHIBIT 3.1
RESTATEMENT OF ARTICLES OF INCORPORATION
OF
CONSUMERS WATER COMPANY
[CONFORMED COPY]
FIRST: The name of the Company is CONSUMERS WATER COMPANY and it is
located at Portland, Maine.
SECOND: The name of its Clerk and the address of its registered office
are:
Name: Brian R. Mullany
Street & Number: Three Canal Plaza
City: Portland, Maine 04112
THIRD: All purposes and powers allowed by the Maine Business
Corporation Act are adopted as the purposes and powers of the Company.
FOURTH: The Board of Directors is authorized to increase or decrease
the number of directors. The minimum number shall be five directors, and the
maximum number shall be seventeen directors.
FIFTH: There shall be two or more classes of shares. The information
required by Section 403 of the Maine Business Corporation Act concerning each
such
class is set out in Article SEVENTH below.
SUMMARY
The aggregate par value of all authorized shares (of all classes) having
a par value is $18,000,000. The total number of authorized shares (of all
classes) without par value is 120,000 shares.
SIXTH: Meetings of the shareholders may be held outside the State of
Maine.
SEVENTH: Provisions concerning the shares of the Company are:
I. There are no pre-emptive rights.
II. The total number of shares which the Company is authorized to
issue is 120,000 preferred shares having no par value, 15,000,000 common
shares, par value $1.00 per share, and 30,000 preferred shares, par value
$100.00 per share.
(a) Preferred Shares, Par Value $100.00 Per Share. The
preferred shares, par value $100.00 per share, shall have
the following designations, preferences, priorities,
rights, voting powers, restrictions, limitations,
qualifications and covenants:
1. Cumulative Preferred Stock, Series A. Of the total
authorized 30,000 preferred shares of the par value of $100.00
per share, 15,925 shares thereof shall be designated as
Cumulative Preferred Stock, Series A.
A. The Cumulative Preferred Stock, Series A, shall
be entitled when and as declared by the Board of Directors
in its discretion, out of consolidated earned surplus or
retained earnings, but before any dividends are paid on the
common shares, to quarterly cumulative dividends from the
day of issue thereof at the annual rate of five and one-
quarter percent (5 1/4%) of the par value of $100.00 per
share, and no more, payable on the first days of January,
April, July and October.
B. Upon at least thirty (30) days' notice given by
mail to the record holders thereof at their address as it
appears on the books of the Company, or in the absence of
any such address, at their last known address, the Company,
by vote of the Board of Directors, except as herein
otherwise provided, may on any dividend date out of any
funds legally available therefor redeem the whole or any
part of the Cumulative Preferred Stock, Series A, at one
hundred five per centum (105%) of the par value thereof, if
allowed by law, together with an amount equal to dividends
accrued on the dividend date on which the redemption is made
and all the accumulated dividends, if any; such redemption
shall, except as herein provided, be made in such manner as
shall be determined from time to time by resolution of the
Board of Directors, by the bylaws and by law. Any such
redemption of a part only of the outstanding Cumulative
Preferred Stock, Series A, may be made either by lot or pro
rata as determined by the Board of Directors. No redemption
of less than all the outstanding Cumulative Preferred Stock,
Series A, shall be made while any dividends accumulated on
the Cumulative Preferred Stock, Series A, shall remain
unpaid. Notice of redemption having been given as herein
provided, unless default be made in the payment of the
redemption price in pursuance of such notice, dividends
shall cease to accrue upon such shares so called for
redemption from and after the date fixed for redemption, and
the shares so redeemed shall be deemed to have been retired
and the holders of the certificate therefor shall be
entitled in respect of their certificates only to the
payment of the redemption price.
C. In the event of any liquidation or dissolution, or
winding up of the Company, whether voluntary or involuntary,
the holders of the Cumulative Preferred Stock, Series A,
shall be entitled before any distribution shall be made to
the holders of the common shares, to be paid in full the par
value of their shares, plus an amount equal to all dividends
accrued and accumulated to date of payment, but upon such
payment the Cumulative Preferred Stock, Series A, shall not
participate further in any distribution of the Company's
assets.
D. No right to subscribe for or take any shares of
any class, or securities convertible into shares, now or
hereafter authorized or issued whether by additional issues,
share dividends, splits or otherwise, whether preferred or
common, shall appertain to the Cumulative Preferred Stock,
Series A.
E. Each share of the Cumulative Preferred Stock,
Series A, shall have voting power for all purposes equal
with, but no greater than, each common share, having one
vote per share notwithstanding any increase in the common
shares outstanding whether by additional issue, share
dividends, share rights or otherwise.
2. Remainder of Authorized Preferred Shares, Par Value
$100.00 Per Share. The remainder of the authorized preferred
shares, par value $100.00 per share, may be issued in whole or in
part from time to time by resolution of the Board of Directors as
additional series or as additional shares of any series of
preferred shares, par value $100.00 per share, with such
variations in (i) the rate of dividend, and whether it is to be
cumulative, (ii) whether shares may be redeemed and, if so, the
redemption price and the terms and conditions of redemption, (iii)
the amount payable upon shares in event of voluntary or
involuntary liquidation, (iv) sinking fund provisions, if any, for
the redemption of purchase of shares, (v) the terms and
conditions, if any, on which shares may be converted, and (vi) the
voting rights, if any, as shall be stated and expressed in the
resolution providing for the issuance of such new series;
provided, however, that no series of preferred shares, par value
$100.00 per share, shall rank senior to the Cumulative Preferred
Stock, Series A, with respect to priority in payment of dividends
and the distribution of assets upon liquidation, and that all
series of preferred shares, par value $100.00 per share, shall
rank equally on a pro rata basis with all series of preferred
shares having no par value with respect to all rights, preferences
and limitations except those specified above.
b. Preferred Shares Having No Par Value. The authorized
preferred shares having no par value may be issued in whole or in part
from time to time by resolution of the Board of Directors, as additional
series or as additional shares of any series of preferred shares having
no par value with such variations in (i) the rate of dividends and
whether it is to be cumulative, (ii) whether shares may be redeemed and,
if so, the redemption price and the terms and conditions of redemption,
(iii) the amount payable upon shares in event of voluntary or
involuntary liquidation, (iv) sinking fund provisions, if any, for the
redemption or purchase of shares, (v) the terms and conditions, if any,
on which shares may be converted, and (vi) the voting rights, if any, as
shall be stated and expressed in the resolution providing for the
issuance of such new series; provided, however, that no series of
preferred shares having no par value shall rank senior to the Cumulative
Preferred Stock, Series A, with respect to priority in payment of
dividends and the distribution of assets upon liquidation, and that all
series of preferred shares having no par value shall rank equally on a
pro rata basis with all series of preferred shares, par value $100.00
per share, with respect to all rights, preferences and limitations
except those specified above.
c. Common Shares. Except as limited in these Articles, the
common shares shall be entitled to dividends when and as declared by the
Board of Directors in its discretion and, together with such preferred
shares as may have voting rights, shall have voting power for all
purposes.
EIGHTH: The Company is authorized to purchase its own shares to the
extent of unreserved and unrestricted capital surplus and unreserved and
unrestricted earned surplus.
NINTH: Dividends payable in the shares of any class may be paid to the
holders of shares of the same or of any other class, except as otherwise
provided in Article SEVENTH hereof.
TENTH: 1. The affirmative vote or consent of the holders of ninety-five
percent (95%) of all shares of stock of the Company entitled to vote in
elections of Directors, considered for the purposes of this Article TENTH as
one class, shall be required for the adoption or authorization of a business
combination (as hereinafter defined) with any other entity (as hereinafter
defined) if, as of the record date for the determination of stockholders
entitled to notice thereof and to vote thereon or consent thereto, such other
entity is the beneficial owner, directly or indirectly, of thirty percent
(30%) of more of the then outstanding voting shares of the Company, considered
for the purposes of this Article TENTH as one class; provided that such
ninety-five percent (95%) voting requirement shall not be applicable if:
a. The cash, or fair market value of other consideration, to be
received per share by common shareholders of the Company in such
business combination bears the same or a greater percentage relationship
to the market price of the Company's common shares immediately prior to
the announcement of such business combination as the highest per share
price (including brokerage commissions and/or soliciting dealers' fees)
which such other entity has theretofore paid for any of the common
shares of the Company already owned by it bears to the market price of
the common shares of the Company immediately prior to the commencement
of acquisition of the Company's common shares by such other entity;
b. The cash, or fair market value of other consideration, to be
received per share by common shareholders of the Company in such
business combination (i) is not less than the highest per share price
(including brokerage commissions and/or soliciting dealers' fees) paid
by such other entity in acquiring any of its holdings of the Company's
common shares, and (ii) is not less than the earnings per common share
of the Company for the four full consecutive fiscal quarters immediately
preceding the record date for solicitation of votes on such business
combination, multiplied by the then price/earnings multiple (if any) of
such other entity as customarily computed and reported in the financial
community;
c. After such other entity has acquired thirty percent (30%) or
more of the then outstanding voting shares of the Company, considered
for the purposes of this Article TENTH as one class, and prior to the
consummation of such business combination: (i) such other entity shall
have taken steps to insure that the Company's Board of Directors
included at all times representation by continuing Director(s) (as
hereinafter defined) proportionate to the shareholdings of the Company's
public common shareholders not affiliated with such other entity (with a
continuing Director to occupy any resulting fractional board position);
(ii) there shall have been no reduction in the rate of dividends payable
on the Company's common shares except as necessary to insure that a
quarterly dividend payment does not exceed 15% of the net income of the
Company for the four full consecutive fiscal quarters immediately
preceding the declaration date of such dividend, or except as may have
been approved by a unanimous vote of the Directors; (iii) such other
entity shall not have acquired any newly issued shares of stock,
directly or indirectly, from the Company (except upon conversion of
convertible securities acquired by it prior to obtaining its thirty
percent (30%) or more of the then outstanding voting shares of the
Company, considered for purposes of this Article TENTH as one class, or
as a result of a pro rata stock dividend or stock split); and (iv) such
other entity shall not have acquired any additional common shares of the
Company or securities convertible into common shares except as a part of
the transaction which results in such other entity acquiring its thirty
percent (30%) or more of the then outstanding voting shares of the
Company, considered for purposes of this Article TENTH as one class;
d. Such other entity shall not have (i) received the benefit,
directly or indirectly (except proportionately as a shareholder) of any
loans, advances, guarantees, pledges or other financial assistance or
tax credits provided by the Company, or (ii) made any major change in
the Company's business or equity capital structure without the unanimous
approval of the Directors, in either case prior to the consummation of
such business combination; and
e. A proxy statement responsive to the requirements of the
Securities Exchange Act of 1934 shall be mailed to public shareholders
of the Company for the purpose of soliciting shareholder approval of
such business combination and shall contain at the front thereof, in a
prominent place, any recommendations as to the advisability (or
inadvisability) of the business combination which the continuing
Directors, or any of them, may choose to state and, if deemed advisable
by a majority of the continuing Directors, an opinion of a reputable
investment banking firm as to the fairness (or not) of the terms of such
business combination, from the point view of the remaining public
shareholders of the Company (such investment banking firm to be selected
by a majority of the continuing Directors and to be paid a reasonable
fee for their services by the Company upon receipt of such opinion).
The provisions of this Article TENTH shall also apply to a business
combination with any other entity which at any time has been the beneficial
owner, directly or indirectly, of thirty percent (30%) or more of the
outstanding voting shares of the Company, considered for the purposes of this
Article TENTH as one class, notwithstanding the fact that such other entity
has reduced its holdings of voting shares below such thirty percent (30%) if,
as of the record date for the determination of shareholders entitled to notice
of and to vote on or consent to the business combination, such other entity is
an "affiliate" of the Company (as hereinafter defined).
2. As used in this Article TENTH, (a) the term "other entity" shall
include any corporation, person or other entity and any other entity with
which it or its "affiliate" or "associate" (as defined below) has any
agreement, arrangement or understanding, directly or indirectly, for the
purpose of acquiring, holding, voting or disposing of stock of the Company, or
which is its "affiliate" or "associate" as those terms are defined in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act
of 1934 as in effect on January 1, 1982, together with the successors and
assigns of such persons in any transaction or series of transactions not
involving a public offering of the Company's stock within the meaning of the
Securities Act of 1933; (b) an other entity shall be deemed to be the
beneficial owner of any shares of stock of the Company which the other entity
(as defined above) has the right to acquire pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or otherwise; (c) the
outstanding shares of any class of stock of the Company shall include shares
deemed owned through application of clause (b) above but shall not include any
other shares which may be issuable pursuant to any agreement, or upon exercise
of conversion rights, warrants or options, or otherwise; (d) the term
"business combination" shall include any merger or consolidation of the
Company with or into any other entity, or the sale or lease of all or any
substantial part of the assets of the Company to any other entity, or any sale
or lease to the Company or any subsidiary thereof in exchange for securities
of the Company of any assets (except assets having an aggregate fair market
value of less than $1,000,000) of any other entity; (e) the term "continuing
Director" shall mean a person who was a member of the Board of Directors of
the Company elected by the public shareholders prior to the time that such
other entity acquired in excess of ten percent (10%) of the voting shares of
the Company, considered for the purposes of this Article TENTH as one class,
or a person recommended to succeed a continuing Director by a majority of
continuing Directors; and (f) for the purposes of subparagraphs l(a) and (b)
of this Article TENTH the term "other consideration to be received" shall mean
common shares of the Company retained by its existing public shareholders in
the event of a business combination with such other entity in which the
Company is the surviving corporation.
3. A majority of the continuing Directors shall have the power to
determine for the purposes of this Article TENTH on the basis of information
known to them whether (a) such other entity beneficially owns, directly or
indirectly, thirty percent (30%) or more of the outstanding voting shares of
the Company, considered for the purposes of this Article TENTH as one class,
(b) an other entity is an "affiliate" or "associate" (as defined above) of
another, (c) an other entity has an agreement, arrangement or understanding
with another, or (d) the assets being acquired by the Company, or any
subsidiary thereof, have an aggregate fair market value of less than
$1,000,000.
4. No amendment to the Articles of Incorporation of the Company shall
amend, alter, change or repeal any of the provisions of this Article TENTH,
unless the amendment effecting such amendment, alteration, change or repeal
shall receive the affirmative vote or consent of the holders of ninety-five
percent (95%) of all outstanding voting shares of the Company, considered for
the purposes of the Article TENTH as one class; provided that this paragraph 4
shall not apply to, and such ninety-five percent (95%) vote or consent shall
not be required for, any amendment, alteration, change or repeal recommended
to the shareholders by the Board of Directors of the Company, provided,
however, that at least eighty percent (80%) of the Directors vote in favor of
such recommendation, and provided further that at least eighty percent (80%)
of the Directors are persons who would be eligible to serve as "continuing
Directors" within the meaning of paragraph 2 of this Article TENTH.
5. Nothing contained in this Article TENTH shall be construed to
relieve any other entity from any fiduciary obligation imposed by law.
EXHIBITS
EXHIBIT 11
Statement of Computation of Per Share Earnings
Years Ended December 31,
---------------------------------------
1996 1995 1994
---------------------------------------
(Amounts in Thousands except per share data)
PRIMARY
Weighted average number of
shares outstanding 8,625 8,385 8,160
Net effect of dilutive common
stock equivalents 3 3 1
Weighted average
primary shares 8,628 8,388 8,161
Net income $ 6,251 $ 11,303 $ 10,000
Preferred dividends (55) (56) (56)
Earnings applicable
to common shares $ 6,196 $ 11,247 $ 9,944
Primary earnings per
common share $ 0.72 $ 1.34 $ 1.22
FULLY DILUTED
Weighted average number of
shares outstanding 8,625 8,385 8,160
Net effect of dilutive common
stock equivalents 4 3 2
Weighted average fully
diluted shares 8,629 8,388 8,162
Earnings applicable to
common shares $ 6,196 $ 11,247 $ 9,944
Fully diluted earnings
per common share $ 0.72 $ 1.34 $ 1.22
EXHIBIT 21
Subsidiaries of Registrant
December 31, 1996
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. Maine 1984 100.0%
(and its wholly owned
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- Pennsylvania 1926 100.0%
owned subsidiary,
Masury Water Company) Ohio 1926 100.0%
Consumers New Hampshire
Water Company, Inc. New Hampshire 1930 100.0%
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 5, 1997, 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 and
333-19821).
/s/ Arthur Andersen LLP
------------------------
Arthur Andersen LLP
Boston Massachusetts
March 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,214
<SECURITIES> 0
<RECEIVABLES> 13,559
<ALLOWANCES> 1,114
<INVENTORY> 2,456
<CURRENT-ASSETS> 31,349
<PP&E> 477,261
<DEPRECIATION> 84,641
<TOTAL-ASSETS> 457,841
<CURRENT-LIABILITIES> 50,729
<BONDS> 172,917
0
1,054
<COMMON> 8,732
<OTHER-SE> 99,635
<TOTAL-LIABILITY-AND-EQUITY> 457,841
<SALES> 0
<TOTAL-REVENUES> 107,385
<CGS> 0
<TOTAL-COSTS> 82,870
<OTHER-EXPENSES> (114)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,937
<INCOME-PRETAX> 10,073
<INCOME-TAX> 3,822
<INCOME-CONTINUING> 6,251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,251
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
