<PAGE> 1
Washington, D. C. 20549
FORM 10-K
(X) Annual Report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 1995 or
( ) Transition report pursuant to section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from
to .
Commission File Number 0-8084
CONNECTICUT WATER SERVICE, INC.
(Exact name of registrant as specified in its charter)
CONNECTICUT 06-0739839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
93 WEST MAIN STREET, CLINTON, CT 06413
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (860) 669-8636 Securities
registered pursuant to Section 12 (b) of the Act:
[CAPTION]
Title of each Class Name of each exchange on which registered
NONE NOT APPLICABLE
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding twelve (12) months (or for such shorter period that
the registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229,405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )
<PAGE> 2
Page 2
The aggregate market value of the registrant's voting Common Stock,
computed on the price of such stock at the close of business on February 1, 1996
is $83,228,000.
2,972,416
Number of shares of Common Stock outstanding, February 1, 1996
DOCUMENTS INCORPORATED BY REFERENCE
<TABLE>
<CAPTION>
Part of Form 10-K Into Which
Document Document is Incorporated
-------- ----------------------------
<S> <C>
Definitive Proxy Statement, dated Part III
March 19, 1996, for Annual Meeting
of Shareholders to be held on April 26, 1996.
</TABLE>
<PAGE> 3
Page 3
PART I
ITEM 1. BUSINESS
A. GENERAL DEVELOPMENT OF BUSINESS
The Registrant, Connecticut Water Service, Inc. (the Company), is the
parent company of The Connecticut Water Company (CWC) which supplies water for
residential, commercial, industrial and municipal purposes in various areas in
the State of Connecticut through three operating regions. The Company and CWC
represent the second largest investor-owned water system in Connecticut in terms
of operating revenue and utility plant investment.
The Company was organized in 1956 under the General Statutes of
Connecticut as Suburban Water Service, Inc. and has been engaged in the business
of acquiring and operating water companies through controlling stock ownership.
In 1975, the Company changed its name to Connecticut Water Service, Inc. after
acquiring all of the outstanding Common Stock of CWC. CWC's First Mortgage Bonds
are held primarily by institutional investors. The Company is a non-operating
company whose income is derived from the earnings on the Common Stock of CWC.
The profitability of the operations of the water utility industry
generally and of CWC (and hence the Company) is largely dependent on the
timeliness and adequacy of the rate relief allowed by utility regulatory
commissions. In addition, profitability is dependent on numerous factors over
which CWC has little or no control, such as the quantity of rainfall and
temperature in a given period of time, industrial demand, prevailing rates of
interest for short and long-term borrowings, energy rates, and compliance with
environmental and water quality regulations. In addition, inflation and other
factors beyond the Company's or CWC's control impact the cost of construction,
materials and employee costs. See "Business - Financing", "Business - Rates",
and "Business -Regulation".
B. GENERAL DESCRIPTION OF BUSINESS
The Company, a Connecticut corporation, owns all of the outstanding
Common Stock of CWC. Substantially all of the Company's revenues and net income
are attributable to the sale and distribution of water by the operating regions
of CWC. See "Business - Consolidated Operating Statistics".
CWC is specially chartered by the General Assembly of the State of
Connecticut as a public service company, and the rates and operations of CWC are
regulated by the Connecticut Department of Public Utility Control (DPUC). The
Company is specifically prohibited from engaging in business or activities which
are not regulated by the DPUC. See "Business - Rates" and "Business Regulation".
<PAGE> 4
Page 4
CWC has one subsidiary organized in 1969 to assist in the acquisition
of real estate. The assets and operations of this subsidiary are not
significant.
CWC supplies water and, in most instances, provides fire protection
through three separate operating regions in all or portions of 32 towns in
Connecticut. The service areas have an estimated total population of
approximately 215,000 based on DPUC population estimates of 3.5 people per
average household. During the twelve months ended December 31, 1995,
approximately 64% of the Company's consolidated operating revenues were received
from residential customers, 12% from commercial customers, 5% from industrial
customers, 3% from public authority customers, and 16% from public fire
protection and other customers.
Each of the operating regions serves a separate franchise area. Rates
are the same for all regions. The systems of the three operating regions are not
physically interconnected.
The following table sets forth the percentage of the Company's utility
plant in service at each of CWC's operating regions as of December 31, 1995:
<TABLE>
<CAPTION>
Utility Plant
Regions Dollars Percent
------- ------------ -------
<S> <C> <C>
Northern $ 85,081,000 45%
Shoreline 51,726,000 28%
Naugatuck 50,100,000 27%
------------ ----
$186,907,000 100%
</TABLE>
At December 31, 1995, 61,297 customers were served by CWC. At that
date, all customers were metered except fire protection customers and 380
customers of the Sound View Water System, acquired in 1995. The Company requires
all applicants for new service, other than fire protection, to be metered.
The Company's principal office is located at 93 West Main Street,
Clinton, Connecticut 06413 and its telephone number is 860-669-8636.
The business of CWC is subject to seasonal fluctuations. The demand for
water during the warmer months is generally greater than during the cooler
months due primarily to additional requirements for water in connection with
cooling systems, private and public swimming pools and lawn sprinklers.
Throughout the year, and particularly during the warmer months, demand will vary
with rainfall and temperature levels.
<PAGE> 5
Page 5
WATER SUPPLY
The estimated minimum dependable yields of sources of water supply for
each of the operating regions' transmission and distribution systems, as set
forth under "Business - CWC Production Facilities as of December 31, 1995" are
in excess of present average daily consumption. Except for requests for
voluntary conservation in the summers of 1988 and, in the Shoreline Region only,
1995, no restrictions on water use have been required in the past 21 years.
Water is secured from both surface and subsurface supplies. In 1995,
surface sources provided approximately 54% of the supply, and well supplies
provided approximately 46%. Studies are made periodically to determine the
supply and distribution needs of the regions. A major study, covering a fifty
year planning period required of all water companies supplying 1,000 or more
persons, was completed in 1987 and submitted to the Connecticut Department of
Pubic Health (DPH) for approval. An updated plan must be prepared every five
years or as requested by the DPH. Updated plans for the Collinsville, Thomaston
and Terryville Systems in the Naugatuck Region were submitted in 1992. The plan
for the Collinsville System was approved in 1993. Plans for the Thomaston and
Terryville System were approved in 1995. Plans for the Shoreline Region and the
Naugatuck Central System were submitted in 1993 and 1994, respectively. These
plans were approved in 1995. A plan for all Northern Region Systems was
submitted in 1995. A revision to the Collinsville Plan is scheduled for
submission in late 1996.
See "Business - Construction Program", "Business - Rates" and "Business
- - Regulation".
OPERATING REGIONS
NORTHERN
The Northern Region is composed of eight separate systems, not
interconnected, as listed below:
<TABLE>
<CAPTION>
Number of
Customers
System Towns (or Portions Thereof) Served at 12/31/95
------ ---------------------------------- -----------
<S> <C> <C>
Western (including Suffield, Windsor Locks, East
the former Tolland Granby, Enfield, East Windsor, South
Aqueduct System) Windsor, Vernon, Ellington, Tolland 28,194
Somers Somers 416
Crescent Lake Enfield 156
Stafford Springs Stafford 1,023
Lakewood/Lakeview Coventry 179
Nathan Hale Coventry 40
Llynwood Bolton, Vernon 74
Reservoir Heights Vernon 22
------
30,104
======
</TABLE>
The territory served is primarily residential and commercial with some
industry.
CWC has entered into an agreement with the State of Connecticut,
Department of Transportation, pursuant to which CWC operates and maintains, as
part of its Western System, the State's water distribution system for Bradley
International Airport located in Windsor Locks, Suffield and East Granby,
Connecticut.
<PAGE> 6
Page 6
The Western System has three emergency standby interconnections with
the water system of the Metropolitan District Commission (MDC) (a public water
and sewer authority presently serving the City of Hartford and portions of
surrounding towns), one in South Windsor and two in Windsor Locks. The Western
System also has an emergency interconnection with the water system of the
Hazardville Water Company in Enfield. During 1995 an interconnection was
completed between the Somers System and the water system of the Hazardville
Water Company in Somers. This was initiated to provide water to the Hazardville
Water Company to enable it to provide water service to homeowners in the Somers
area with wells contaminated with dry cleaning solvents.
See "Business - Franchises" with respect to proposals that the MDC
expand its operations into the Northern Region and that MDC take over CWC's
operations in South Windsor.
SHORELINE
The Shoreline Region is composed of four separate systems, not
interconnected, as listed below:
<TABLE>
<CAPTION>
Number of
Customers
System Towns (or Portions Thereof) Served at 12/31/95
------ ---------------------------------- -----------
<S> <C> <C>
Guilford Guilford, Old Saybrook, Westbrook,
Clinton, Madison 15,546
Chester Chester, Deep River, Essex 2,301
Chester Village
West Chester 12
Sound View
(acquired in 1995) Old Lyme 380
------
18,239
======
</TABLE>
The territory served is primarily residential with some commercial and
industry.
NAUGATUCK
The Naugatuck Region is composed of four separate systems, not
interconnected, as listed below:
<TABLE>
<CAPTION>
Number of
Customers
System Towns (or Portions Thereof) Served at 12/31/95
------ ---------------------------------- -----------
<S> <C> <C>
Central Naugatuck, City of Waterbury, Beacon
Falls, Bethany, Prospect 8,641
Terryville Plymouth, Thomaston 1,934
Thomaston Thomaston 1,182
Collinsville Canton, Avon, Burlington 1,197
------
12,954
======
</TABLE>
The territory served is residential and industrial including a
municipality which represented approximately 7% of the region's 1995 revenues.
Water for the Collinsville System is supplied under an agreement with
the MDC from treatment facilities drawing from a large surface water reservoir
owned by the MDC. See "Item 2. Properties" for a description of this agreement.
<PAGE> 7
Page 7
Consolidated Operating Statistics
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Customers (Average)
Residential Metered 55,107 54,464 53,988 53,509 53,119
Commercial Metered 3,906 3,827 3,797 3,790 3,769
Industrial Metered 368 364 366 323 312
Public Authorities Metered 470 467 466 429 418
Fire Protection and Other 993 960 941 915 896
------- ------- ------- ------- -------
Total 60,844 60,082 59,558 58,966 58,514
======= ======= ======= ======= =======
Production (Millions of Gallons)
Residential Metered Sales 3,988 3,874 3,915 3,734 3,858
Commercial Metered Sales 934 908 918 921 968
Industrial Metered Sales 446 460 438 507 570
Public Authorities Metered Sales 227 179 179 169 160
------- ------- ------- ------- -------
Total Metered Consumption 5,595 5,421 5,450 5,331 5,556
Fire Protection, Company Use
and Unaccounted For 777 808 756 692 619
------- ------- ------- ------- -------
Total 6,372 6,229 6,206 6,023 6,175
======= ======= ======= ======= =======
Operating Revenues (Thousands of
Dollars)
Residential Metered $25,345 $24,488 $24,574 $23,541 $23,675
Commercial Metered 4,852 4,696 4,745 4,729 4,853
Industrial Metered 1,868 1,922 1,851 2,100 2,239
Public Authorities Metered 1,090 893 903 856 836
Fire Protection and Other 6,195 6,130 6,058 5,964 5,769
------- ------- ------- ------- -------
Total $39,350 $38,129 $38,131 $37,190 $37,372
======= ======= ======= ======= =======
Average Revenue per 1,000 Gallons
Residential Metered $6.36 $6.32 $6.28 $6.30 $6.14
Commercial Metered $5.19 $5.17 $5.17 $5.13 $5.01
Industrial Metered $4.19 $4.18 $4.23 $4.14 $3.93
Public Authorities Metered $4.80 $4.99 $5.04 $5.07 $5.23
Miles of Distribution Mains
(End of Period) 970 955 950 945 940
</TABLE>
<PAGE> 8
Page 8
CONSTRUCTION PROGRAM
The projected capital expenditures of CWC are established annually by
management and are reviewed and revised from time to time to the extent
necessary to meet changing conditions, including adequacy of rate relief,
customer demand, revised construction schedules, water quality requirements,
pollution control requirements and inflation.
The Company currently estimates that CWC's 1996-1998 construction
program, excluding plant financed by customer advances and contributions in aid
of construction and amounts representing an allowance for funds used during
construction (AFUDC), will aggregate approximately $24,290,000 which includes
routine improvements to the water system of approximately $4,500,000 each year,
approximately $1,050,000 for clean-up of the Reynolds Bridge Well Field (see
"Item 3. Legal Proceedings"), and $8,000,000 for construction costs of an
interim alternative to construction of a new Rockville Water Treatment Plant
(RWTP), which has been delayed indefinitely. Said alternative involves
modifications to the existing RWTP and distribution system. The new RWTP will be
constructed when required by increased demand or increased Safe Drinking Water
Act (SDWA) requirements.
The $24,290,000 construction expenditures for 1996 through 1998,
mentioned above, include all known costs for studies and construction of
facilities to comply with existing SDWA regulations. Construction expenditures
which may be required in the future to comply with Federal and State
regulations, which have not yet been issued but which are required under the
SDWA, are excluded.
FINANCING
The Company and CWC expect to finance a significant portion of the
anticipated $24,290,000 construction expenditures through 1998 with net funds
generated from operations (net cash provided by operating activities less
dividends paid). Net funds generated from operations were $6,070,000, $6,220,000
and $6,025,000 for the years 1995, 1994 and 1993, respectively (see Consolidated
Statements of Cash Flows for additional information). Construction and other
expenditures in excess of net funds generated from operations are expected to be
financed through Common Stock issued under the Company's Dividend Reinvestment
and Common Stock Purchase Plan (DRIP) and in part financed with short-term
interim bank loans which will be refinanced through the sale of Preferred Stock
and/or long or medium-term unsecured debt by CWC and/or the Company, and the
sale of First Mortgage Bonds by CWC and of Common Stock by the Company when
financial market conditions are considered favorable by management. CWC expects
to receive the proceeds of any such financings by the Company in the form of
advances or capital contributions.
<PAGE> 9
Page 9
The Company and CWC currently have lines of credit aggregating
$9,000,000, consisting of conventional lines of credit with three banks, which
management considers adequate at this time. As of December 31, 1995, the Company
had approximately $2,650,000 of borrowings outstanding under these lines of
credit.
Because of changes in the Federal tax laws, the amount of new
tax-exempt debt which may be issued by, or under the authority of, the State of
Connecticut is limited. CWC has not received a tax exempt allocation since 1988.
Although CWC has been able to refund all of its approximately $43,000,000 of
existing tax-exempt borrowings with tax-exempt refunding borrowings since 1990,
it is uncertain whether future tax-exempt allocations from the State will be
available to CWC or the Company. The unavailability of tax-exempt financings
will require the Company and/or CWC to issue traditional taxable debt securities
and will increase the cost of long-term debt financing. During the period 1979
through 1988 approximately $43,000,000 of tax-exempt long-term debt was issued
by CWC to finance construction expenditures.
The Company has no legal restrictions on the issuance of its debt. The
ability of CWC to issue additional long or medium-term secured debt to finance
future construction expenditures depends in part on meeting the applicable
provisions of CWC's First Mortgage Indenture with respect to the coverage of
earnings over interest requirements. These provisions require, for the issuance
of additional First Mortgage Bonds, minimum earnings coverage before income
taxes of two times pro forma annual interest charges on such mortgage debt. The
interest coverage under this formula at year end has been: 1995 - 4.29 times
interest charges, 1994 - 4.12 times, 1993 - 4.17 times, 1992 - 3.97 times, and
1991 - 5.07 times.
CWC's coverage of interest charges on all long-term debt at year end
has been: 1995 - 4.29 times interest charges, 1994 - 4.12 times, 1993 - 4.17
times, 1992 - 3.56 times, and 1991 - 3.15 times.
<PAGE> 10
Page 10
CWC's Times Coverage of Annual Interest
On Long-Term Indebtedness
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Utility Operating Income (a) $10,053 $9,690 $10,018 $10,066 $10,435
Federal and State Income Tax 4,950 4,756 4,673 4,050 3,607
State Income Tax -
Capitalization (b) (150) (150) (140) (140) (120)
------- ------- ------- ------- -------
Net Operating Earnings $14,853 $14,296 $14,551 $13,976 $13,922
======= ======= ======= ======= =======
Annual Interest on First
Mortgage Bonds (c) $ 3,460 $ 3,468 $ 3,492 $ 3,524 $ 2,747
======= ======= ======= ======= =======
Times Interest Coverage (d) 4.29 4.12 4.17 3.97 5.07
======= ======= ======= ======= =======
Annual Interest on Unsecured
Promissory Notes (c) -- -- -- 404 1,669
------- ------- ------- ------- -------
Annual Interest on Long-Term
Debt $ 3,460 $ 3,468 $ 3,492 $ 3,928 $ 4,416
======= ======= ======= ======= =======
Times Interest Coverage (e) 4.29 4.12 4.17 3.56 3.15
======= ======= ======= ======= =======
</TABLE>
(a) Connecticut Water Service, Inc.'s utility operating income for the
years 1995 to 1991 is $10,022, $9,655, $9,983, $10,033, and $10,402,
respectively.
(b) Amount of minimum State income tax based on the capitalization method.
(c) Includes interest on current portion payable.
(d) Net Operating Earnings / Annual Interest on First Mortgage Bonds per
provisions of CWC's First Mortgage Indenture.
(e) Net Operating Earnings / Annual Interest on Long-Term Debt per
provisions of CWC's First Mortgage Indenture.
During 1980 and 1981 the interest costs of long-term debt increased
more rapidly than earnings so that the coverage requirements prevented CWC from
effecting a planned issue of Bonds in mid 1981. Similar circumstances may in the
future prevent the issue of, or require a reduction in the amount of, bonds CWC
otherwise would have issued or will issue. As a consequence, the Company may be
required to meet an increased portion of its financing needs through sales of
unsecured funded debt or of additional shares of Common Stock. Sales of Common
Stock would result in a dilution of the voting power and relative equity
interests of the holders of Common Stock then outstanding.
<PAGE> 11
Page 11
During the past five years CWC has sold the following issues of
long-term debt:
- During June, 1991, CWC issued a $10,000,000, 6.9%, Series Q, First
Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding Bonds
maturing in 2021. The proceeds were used to repay CWC's tax-exempt 9.25% Water
Facilities Bonds issued in 1985.
- During August, 1992, CWC issued a $15,000,000, 5.875%, Series R,
First Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding
Bonds maturing in 2022, the proceeds of which refunded CWC's 8%, $15,000,000,
Promissory Note.
- During June, 1993, CWC issued a $5,000,000, 5.75%, Series T, First
Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding Bonds
maturing in 2028, the proceeds of which refunded CWC's 8.1%, $5,000,000,
Promissory Note.
- During September, 1993, CWC issued a $4,550,000, 5.30%, Series U,
First Mortgage Bond which secures tax exempt Water Facilities Revenue Refunding
Bonds maturing in 2028, the proceeds of which refunded CWC's 7.25%, $5,000,000,
Series M, First Mortgage Bond.
- During October, 1993, CWC issued a $8,000,000, 6.65%, Series S, First
Mortgage Bond, which secures tax exempt Water Facilities Revenue Refunding Bonds
maturing in 2020. The proceeds from this transaction were used to refund CWC's
8.375% (plus 1% Letter of Credit fee), Series N, $8,000,000, First Mortgage
Bond.
- On January 4, 1994, CWC issued a $4,050,000, 6.94%, Series V, First
Mortgage Bond, maturing in 2029, the proceeds of which refunded CWC's 9.375%,
Series L and 8.5%, Series O, First Mortgage Bonds. During March, 1994, an
additional $8,000,000, 6.94% Series V, First Mortgage Bond was issued. The
proceeds of this transaction were used to redeem CWC's $5,000,000, 10%, Series
P, First Mortgage Bonds as well as all 30,000 shares of CWC's $100 par, 9.5%
Preferred Stock.
The Company has no restriction with respect to the issuance of
additional shares of its Preferred Stock.
<PAGE> 12
Page 12
CWC's Times Coverage of Annual Interest and
Annual Preferred Stock Dividends
in Accordance with Articles of General Preference
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
------- ------- ------- ------- -------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Utility Operating Income $10,053 $ 9,690 $10,018 $10,066 $10,435
Other Income (a) 243 155 193 187 144
------- ------- ------- ------- -------
Gross Earnings Available for
Coverage $10,296 $ 9,845 $10,211 $10,253 $10,579
======= ======= ======= ======= =======
Annual Interest on Funded
Debt (b) $ 3,460 $ 3,468 $ 3,492 $ 3,928 $ 4,416
Annual Dividend on Preferred
Stock (c) -- 2 288 294 300
======= ======= ======= ======= =======
Total Charges $ 3,460 $ 3,470 $ 3,780 $ 4,222 $ 4,716
======= ======= ======= ======= =======
Times Interest Coverage 2.97 2.83 2.70 2.43 2.24
======= ======= ======= ======= =======
</TABLE>
(a) Other income, as defined by the Articles of General Preference,
includes merchandising and jobbing income, interest and dividend income
and miscellaneous rental income less applicable taxes.
(b) Includes interest on current portion payable.
(c) Includes dividends on currently redeemable shares.
The Company's issuance of Common Stock over the past five years are as
detailed below. The $7,100,000 net proceeds from these sales were invested in
CWC in the form of capital contributions.
- The Company issued 1,769 shares of Common Stock during 1993, 2,468
shares during 1994, and 2,022 shares during 1995, pursuant to the Company's
Employee Savings 401-K Match Plan.
- The Company issued 2,338 shares of Common Stock during 1992, 3,074
shares during 1993, 4,061 shares during 1994, and 6,369 shares during 1995,
pursuant to the Company's Performance Stock Program.
- The Company issued 43,247 shares of Common Stock during 1991, 37,868
shares during 1992, 33,803 during 1993, 74,053 during 1994, and 87,807 during
1995, pursuant to its DRIP.
There are currently no legal limits on the amount of short-term
borrowings which may be incurred by the Company or CWC. Should construction
expenditures exceed management's current expectations, the Company will continue
to be dependent upon its ability to issue and sell additional amounts of Common
Stock, mortgage bonds of CWC and (either through the Company or CWC) Preferred
Stock and long or medium-term debt to limit short-term borrowing to appropriate
levels. However, the availability of these methods of financing cannot be
assured. The Company believes that the sale of such additional securities will
continue to depend primarily on the adequacy and timeliness of regulatory action
on future rate increase applications of CWC, on general conditions in securities
markets and on favorable market appraisal of the securities of the Company and
CWC, including the Company's Common Stock.
<PAGE> 13
Page 13
RATES
The rates of CWC have been established under the jurisdiction of, and
approved by, the DPUC. It is the Company's policy to seek rate relief as
necessary to enable CWC to achieve an adequate rate of return.
In the most recent five years the following rate increases have been
put into effect by CWC pursuant to authorization by the DPUC:
<TABLE>
<CAPTION>
Estimated Additional Annual Revenue
-----------------------------------
Effective Dates Requested Allowed
--------------- --------- -------
<S> <C> <C>
3/25/91 10,067,000 6,107,948
</TABLE>
The rate increase effective March 25, 1991 was based upon an allowed
rate of return of 12.7% on Common Stock equity and 10.74% on rate base. CWC had
requested 14% and 11.3% respectively. An historical test year (12 months ended
March 31, 1990) was used to establish the original cost rate base which was
adjusted for identified facilities which were placed in service by December 31,
1990, but otherwise excluded construction work in progress. The decision
disallowed both a proposed adjustment to revenues to reflect declines in sales
due to conservation and the requested provision for a Revenue Stabilization
Clause to provide for revenues to be lost through customer participation in the
Company's residential conservation kit program. The decision did allow recovery
of certain of the conservation kit program costs over a two year amortization
period.
In 1979, the DPUC approved a surcharge to be applied to rates charged
by water utilities in order to provide a current cash return on the major
portion of a water utility's Construction Work In Progress (CWIP) applicable to
facilities required by SDWA facilities. CWC has consistently been allowed to
collect such a surcharge. CWC expects to apply for the application of similar
surcharges with respect to any major future construction projects which may be
required by the SDWA. There is no assurance that any future surcharges will be
permitted.
Under certain circumstances the DPUC, in consultation with the DPH, can
order a water company with good managerial and technical resources to acquire
the water system of another company to assure the availability and potability of
water for customers of the company to be acquired. In 1989 the DPUC promulgated
regulations permitting the DPUC to approve a surcharge to be applied to rates
charged by water utilities in order to cover the costs incurred to acquire the
other system and to make improvements as required. CWC expects to apply for the
application of such a surcharge with respect to any mandated water system
acquisition. There is no assurance that any other such surcharge will be
permitted. Such a surcharge was permitted in 1995 when the DPUC and DPH ordered
CWC to acquire the assets and facilities of the Sound View Water Company in Old
Lyme.
<PAGE> 14
Page 14
In 1993 the DPUC approved a limited rate adjustment to compensate for
the effect of changes in certain costs for water companies. These costs include
rate changes related to the cost of purchased water, energy, and taxes. CWC
expects to apply for the application of this type of adjustment in the future
when appropriate. There is no assurance that any such rate adjustment will be
permitted.
See also "Franchises and Competition" below for a discussion of 1994
Connecticut legislation dealing with the competitiveness of water rates.
FRANCHISES AND COMPETITION
MDC's water rates are substantially lower than those of CWC, primarily
because MDC is a tax-exempt entity, generally serving a denser population with
older facilities. Legislation was proposed in the Connecticut General Assembly
in 1987 which was intended to have the effect of permitting MDC to purchase the
water company operations of CWC in South Windsor, a town which is presently
served by both MDC and CWC. The Company opposed this legislation vigorously. The
Connecticut General Assembly established a Task Force to report on various
issues relating to towns served by both a privately-owned water company and a
publicly-owned water company. The Task Force voted not to recommend legislation
which would authorize such towns to hold referenda on consolidation and empower
towns to force an investor-owned water company to sell its water system within
that town to a governmentally-owned entity. It is not clear at this time whether
such a proposal or similar legislation may be re-introduced and adopted by the
Connecticut General Assembly. Further, even if such legislation were adopted,
the amount of the compensation to be received by CWC for its assets in South
Windsor, or the disposition of any such compensation, cannot be determined at
this time. It is also possible that any legislation in this area could be
written in a manner which would permit a similar acquisition of CWC's water
operations in towns other than South Windsor. The Company has opposed, and will
continue to oppose vigorously, any such proposed legislation.
Legislation was passed in 1994 by the Connecticut General Assembly that
required the DPUC to adopt regulations regarding whether the rates that have
been charged by a water company for a period of five consecutive years are so
excessive in comparison to the rates charged by other water companies providing
the same or similar service as to inhibit the economic development of the area
serviced by the water company or impose an unreasonable cost to the customers of
such company. If the DPUC makes such a finding and also concludes that the water
company is unable or unwilling to provide service at a reasonable cost to
customers, it may order the provision of such service or revoke the franchise
held by such company. In 1995, the DPUC adopted regulations that require a
petition on a form provided by the DPUC to be signed by 50% of the residents of
a town or other political subdivision served by the company, or by 500 customers
of the company, before the DPUC would hold a hearing thereon. CWC believes that,
in light of the tax and other advantages of governmentally-owned entities which
are not available to the Company, its rates are not excessive and would
vigorously oppose any such petition.
<PAGE> 15
Page 15
In 1976, the Connecticut General Assembly created a study commission to
evaluate the feasibility of expanding the water supply services of the MDC to
include the towns of East Granby, East Windsor, Enfield, Somers, Suffield and
Windsor Locks. These towns are in the service areas of and are served in part by
CWC's Northern Region. On February 1, 1978, the study commission reported to the
Governor and the General Assembly that the expansion was feasible and
recommended that the General Assembly authorize the towns of East Granby,
Suffield and Windsor Locks to take immediate steps to acquire water services
from the MDC. It further recommended that the enabling legislation provide a
mechanism for the towns of Enfield, East Windsor and Somers, after adequate
technical, financial and institutional studies, to take the steps necessary to
acquire water services from the MDC. The study commission made no recommendation
in its report with respect to the method of implementation of any MDC expansion
and did not discuss CWC's status or that of its water facilities should MDC
provide such service. The General Assembly has not taken any action on the
report. In 1990, CWC agreed, pursuant to the Connecticut Plan (see "Business -
Regulation") that MDC would have the exclusive right to serve that part of East
Granby which is not adjacent to Bradley International Airport and which is not
presently being served by CWC. The Company will oppose vigorously any extension
of MDC water operations within its service areas and any effort to permit the
takeover by any municipal or other authority of any significant portion of CWC's
service areas.
It is not possible at this time to assess the likelihood of any
legislation being enacted to implement these or similar recommendations or the
impact of any such legislation on CWC and the Company, but such impact could be
substantial. There can be no assurance that the Connecticut General Assembly
will not take action to authorize such a takeover. As of December 31, 1995,
CWC's Northern Region, which includes customers in the towns mentioned above,
represented 45% of the Company's consolidated utility plant.
In common with most water companies in Connecticut, CWC derives its
rights and franchises to operate from special acts of the Connecticut General
Assembly, which are subject to alteration, amendment or repeal by the General
Assembly and which do not grant exclusive rights to CWC in its service areas.
Subject to such power of alteration, amendment or repeal by the
Connecticut General Assembly and subject to certain approvals, permits and
consents of public authority and others prescribed by statute and by its
charter, CWC has, with minor exceptions, valid franchises free from burdensome
restrictions and unlimited as to time, and is authorized to sell potable water
in the towns (or parts thereof) in which water is now being supplied by CWC.
<PAGE> 16
Page 16
In addition to the right to sell water as set forth above, the
franchises of CWC include rights and powers to erect and maintain certain
facilities on public highways and grounds, all subject to such consents and
approvals of public authority and others as may be required by law. Under the
Connecticut General Statutes, CWC, upon payment of compensation, may (subject to
the various requirements described under "Business - Regulation") take and use
such lands, springs, streams or ponds, or such rights or interests therein as
the Connecticut Superior Court, upon application, may determine is necessary to
enable CWC to supply potable water for public or domestic use in its franchise
areas.
CWC faces competition, presently not material, from a few private water
systems operated within, or adjacent to, its franchise areas and from municipal
and public authority systems whose service areas in some cases overlap portions
of CWC's franchise areas. At the present time, except as noted above, there are
no publicly owned utilities, cooperatives or other private utility companies
competing with CWC in the areas now served, although within certain areas there
are wells owned by individuals or private industries.
See also "Business - Regulation" for a description of the so-called
Connecticut Plan which is intended, among other things, to eliminate competition
among water systems.
<PAGE> 17
Page 17
REGULATION
DEPARTMENT OF PUBLIC UTILITY CONTROL (DPUC)
CWC is subject to regulation by the DPUC, which has jurisdiction over
rates, standards of service, accounting procedures, issuance of securities,
disposition of utility properties and related matters. The DPUC consists of five
Commissioners, appointed by the Governor of Connecticut with the advice and
consent of both houses of the Connecticut legislature.
The DPUC is required by law to institute management audits, to be
conducted periodically, of companies such as CWC. Such audits might result in
the DPUC ordering implementation of new management practices or procedures. The
DPUC has not conducted any such audit of CWC.
The Company, which is not an operating utility company, is not a
"public service company" within the meaning of the Connecticut General Statutes
and is not generally subject to regulation by the DPUC. DPUC approval is
necessary, however, before the Company may acquire or exercise control over any
public service company. In connection with the affiliation with CWC, the Company
amended its Certificate of Incorporation to prohibit the Company and any
subsidiary of the Company from engaging, unless approved by the DPUC, in any
business or activity which is not subject to regulation by the DPUC. The Company
has no present intention of engaging, either directly or through any subsidiary,
in any business or activity which is not subject to regulation by the DPUC. The
Company is currently providing management and/or operating services to other
water supply or waste water systems through CWC. CWC is contemplating providing
these services through a new subsidiary. DPUC approval would be required for any
such activity.
DEPARTMENT OF ENVIRONMENTAL PROTECTION (DEP)
While the construction of dams, reservoirs and other facilities
necessary to the impounding, storage and withdrawal of water in connection with
public water supplies is a permitted use under the Connecticut Inland Wetlands
and Water Courses Act, CWC is required, pursuant to other statutory provisions,
to obtain permits from the Connecticut Commissioner of Environmental Protection
(Commissioner) for the location, construction or alteration of any dam or
reservoir and to secure the approval of the Commissioner for the diversion and
use of water from any river or underground source for public use. Various
criteria must be satisfied under the respective statutes and regulations of the
Connecticut Department of Environmental Protection (DEP) in order to obtain such
permits or approvals and the Commissioner has the power to impose such
conditions as he deems reasonably necessary in connection with such permits or
approvals in order to assure compliance with such statutes. CWC has obtained,
and complied with the terms of, all such requisite permits or approvals.
<PAGE> 18
Page 18
Legislation was adopted in 1982 conferring upon the DEP authority to
require a permit for any new diversion of water, including both surface and
ground water, within the State of Connecticut. Any water diversion which might
be effected by CWC in the future would require compliance by CWC with a lengthy
permit application process and approval by the Commissioner. CWC has several
potential well sites which are subject to this legislation and the DEP
regulations thereunder. Such legislation requires the registration with the
Commissioner of all diversions of water maintained prior to July 1, 1982. All of
CWC diversions have been registered. Although the legislation provides that
registered diversions are not subject to the permit requirement, DEP regulations
adopted in March, 1990 are being used by DEP, on a case by case basis, to
require compliance with the permit application process before some registered
diversions can be used as a source of water supply. It is not possible at this
time to fully assess the impact of DEP's application of this legislation and the
DEP regulations on CWC and its operations, but such impact may be substantial,
particularly on sources held for future use.
The Federal Clean Water Act requires permits for discharges of
effluents into navigable waters and requires that all discharges of pollutants
comply with federally approved state water quality standards. The DEP has
adopted, and the federal government has approved, water quality standards of
receiving waters. A joint Federal and State permit system has been established
to ensure that applicable effluent limitations and water quality standards are
met in connection with the construction and operation of facilities which affect
or discharge into state or interstate waters. CWC has received all such
requisite permits. A new general permit and permit renewal program for water
treatment waste water discharges was adopted by DEP in 1995. Although the new
program has some stricter monitoring and reporting requirements, the cost to
comply with this program is not expected to be substantial.
In 1984, all CWC's dams were registered with DEP as required under
Public Act 83-38. DEP is required to investigate and periodically inspect most
registered dams to ensure they are safely maintained. CWC was also subject to
the requirements of the National Dam Inspection Act which required the United
States Army Corps of Engineers to inspect certain dams. These inspections were
completed in 1981 and the Army Corps' participation ended. Six of said dams have
been inspected and, although certain modifications and further studies have been
required, no material problems with respect to these dams have been reported.
While the Company recognizes that a certain degree of risk is attached to CWC's
ownership of dams in connection with its water collection system, the Company
believes that all of CWC's dams are well maintained and are structurally stable.
CWC believes that it will be able to comply with any modifications to its dams
that are likely to be required as a result of these six inspections. CWC
believes that the future cost of such compliance will be less than $5,000,000.
These costs are considered in CWC's projected capital expenditures (see
"Construction Program".)
<PAGE> 19
Page 19
The DEP has promulgated regulations requiring that certain minimum
flows be maintained in various waterways within the State of Connecticut.
Pursuant to said regulations, CWC is exempt from compliance at certain of its
facilities. However, DEP is considering making changes in the regulations. The
Company cannot predict either the substance of those changes or their impact on
the Company. However, it is possible that such changes could reduce the safe
yield of CWC's sources. The cost to CWC to restore the lost safe yield is not
now determinable but could be substantial.
DEPARTMENT OF PUBLIC HEALTH (DPH)
CWC is also subject to regulation by the Connecticut DPH with respect
to water quality matters. Plans for new water supply systems or enlargement of
existing water supply systems also must be submitted to the DPH for approval.
In 1985 the Connecticut General Assembly enacted comprehensive
legislation (the so-called Connecticut Plan) designed to maximize the efficient
and effective development of the state's public water supply systems. This
legislation authorized DPH to administer procedures designed to coordinate the
comprehensive planning of public water systems. The legislation mandates the
establishment of public water supply management areas, with each such area
having a water utility coordinating committee comprised of representatives of
the various public water systems and regional planning agencies in the area.
Each such committee is required to establish exclusive service areas for each
public water system in the area, after taking into consideration a number of
factors including existing water service areas, land use plans, etc., optimum
utilization of existing water supplies and existing franchise rights of water
companies. DPH is authorized to resolve any disagreements among members of the
respective committees. This legislation is intended not only to promote
cooperation among various water suppliers in each management area, but also to
provide (through DPH's role) for the centralized planning of water supply. In
implementing this legislation, DPH has created seven water supply management
areas and is in the process of implementing the creation of the appropri ate
water utility coordinating committees. The operations of CWC, which cover many
areas of the state, fall within five of the seven management areas. CWC is
actively involved with the planning process in two of these management areas at
this time. The remaining three areas of the Company's interest are expected to
begin the planning process within the next several years. It is not possible at
this time to predict the impact on the Company of the above described
legislation, regulations and procedures, but the Company was an active
participant in moving for the adoption of this scheme, and is presently hopeful
that such centralized and cooperative planning will have a beneficial impact on
its future water supply and water supply operations.
<PAGE> 20
Page 20
SAFE DRINKING WATER ACT (SDWA)
CWC is subject to regulation of water quality under the SDWA. The SDWA
provides for the establishment of uniform minimum national quality standards by
the Federal Environmental Protection Agency (EPA), as well as governmental
authority to specify the type of treatment process to be used for public
drinking water. The EPA regulations, pursuant to the SDWA, set limits, among
other things, on certain organic and inorganic chemical contaminants,
pesticides, turbidity, microbiological contaminants, and radioactivity. The DPH
has adopted regulations which are in some cases more stringent than the Federal
regulations.
The 1986 SDWA amendments dictate that 83 new primary drinking water
standards be established within three years of enactment. These new standards
supersede the 22 interim standards which EPA established between 1977 and 1986.
In addition to the 83 primary standards, the SDWA amendments require that EPA
publish a list every three years of an additional 25 contaminants which it
intends to regulate in drinking water.
Although unable to meet the three year timetable required by the SDWA
amendments, EPA has actively developed the 83 drinking water standards in six
phases. Phase I, volatile organic chemicals, was promulgated in 1987 and initial
and continued monitoring of sources has taken place. Phase II, which contains 26
synthetic organic chemicals including pesticides and seven inorganic chemicals,
was promulgated in 1991 with initial monitoring for systems serving more than
500 people beginning in 1993. Phase IIB, the aldicarbs, was promulgated in 1992
but implementation is currently delayed by court order. Lead and copper, which
were originally included in Phase II, were promulgated in 1991 and monitoring
for large systems (serving more than 50,000 people) and medium systems (serving
3,301 to 50,000 people) began in 1992, small system monitoring (serving 3,300
people or less) began in July, 1993. Phase III, radionuclides, including radon,
has been proposed but promulgation has been delayed by law and is now expected
to be delayed for several more years. Phase IV, the Surface Water Treatment
Rule, was promulgated in 1989 and became effective June 29, 1993. Phase V, other
synthetic organic chemicals and inorganic chemicals, was promulgated in 1992 and
monitoring was implemented at the same time as Phase II. Phase VIA,
disinfectants and disinfection by-products, is EPA's first list of 25 additional
compounds to be regulated. Phase VIA is scheduled for promulgation in 1996.
Phase VIB, additional organic and inorganic compounds, is not presently
scheduled.
<PAGE> 21
Page 21
The SDWA amendments also require EPA to establish criteria and rules
which provide for filtration of surface water supplies and disinfection of all
public water supplies. The Surface Water Treatment Rule mandates filtration for
surface supplies which do not meet stringent requirements and establishes
performance criteria for the operation of filtration plants. This rule also
establishes guidelines which may redefine some public water supplies which have
traditionally been considered groundwater as surface supplies subject to the
provisions of the rule. The Company has tested its groundwater supplies.
Determination by the State as to which groundwater supplies are considered to be
under the direct influence of surface water, and therefore subject to the
Surface Water Treatment Rule, has been completed. Only one system has been so
determined as under the influence. That system, consisting of two caisson wells,
has been replaced prior to the compliance deadline of January 1, 1996.
Connecticut has adopted the Surface Water Treatment Rule into its regulations
and does not allow for exceptions to the filtration requirement. The draft
Ground Water Disinfection Rule was published in 1992 and is not expected to be
proposed for several more years. This rule may require disinfection and
increased disinfection contact time to be added to groundwater supplies.
Through December 31, 1995, the Company has expended approximately
$38,900,000 in constructing facilities and conducting aquifer mapping necessary
to comply with the requirements of the SDWA. CWC believes that it is in
substantial compliance with regulations promulgated by the EPA and DPH, as
currently applied, although portions of the costs involved in modifying the RWTP
are required to enable CWC to continue to meet SDWA requirements. Connecticut's
aquifer protection legislation not only requires aquifer mapping, but also
requires DEP, in consultation with DPH and DPUC, to prepare guidelines for
acquisition by water companies of lands surrounding public water supply
wellfields. The extent to which those guidelines, not yet prepared, might lead
to regulations requiring the Company to purchase additional land around its
wellfields is not known at this time. The Company anticipates spending an
additional $1,800,000 on required aquifer mapping. Although the Company cannot
predict either the substance of the regulations required by the 1986 SDWA
amendments which have not yet been promulgated or their impact on CWC, the
primary impact on CWC is expected to be in the area of increased monitoring and
reporting although it is possible that such regulations may require
modifications to existing filtration facilities. Construction of new facilities
may be required for certain groundwater sources. It is possible that costs of
compliance by CWC could be substantial.
<PAGE> 22
Page 22
DISPOSITION OF PROPERTY
Connecticut law presently imposes the following restrictions upon the
disposition of property owned by water companies: (a) no property may be sold or
otherwise transferred without the prior approval of the DPUC; (b) the sale,
transfer and change in the use of watershed land (lands draining into a public
water supply) and certain non-watershed lands which are contiguous to reservoirs
and their tributaries are subject to regulation by the DPH; (c) when a water
company intends to transfer or dispose of an interest in any present, potential
or abandoned water supply source, other water companies which might reasonably
be expected to utilize the source are given the opportunity through the DPH to
seek to acquire such source; (d) subject to such acquisition opportunities by
other water companies as to water supply sources, when a water company intends
to transfer or dispose of an interest in three or more contiguous acres of its
unimproved real property, the municipality in which such property is located,
the State of Connecticut and private, nonprofit land-holding organizations have
prior options to acquire such interest in the context of priorities based on
intended use, with open space use being favored; (e) if the municipality or the
State chooses to exercise its option, and the purchase price cannot be
established by agreement, the acquisition may be accomplished by eminent domain
(f) the proceeds from the sale of water company land must generally be
reinvested in utility improvements or land necessary to protect water supply
sources; and (g) land may be sold only if consistent with the utility's water
supply plan. Legislation enacted in 1988 provides that the DPUC use an
accounting treatment which equitably allocates between the utility's ratepayers
and its stockholders the economic benefits of the net proceeds from the sales of
land which has ever been in the utility's rate base. Although CWC has plans to
sell various, relatively small, discrete parcels of land over the next several
years, CWC has no significant amounts of excess land which it presently expects
to sell or otherwise dispose of.
<PAGE> 23
Page 23
GENERAL
Federal and State regulations and controls concerning water quality,
pollution and the effluent from treatment facilities are still in the process of
being developed and it is not possible to predict the scope or enforceability of
regulations or standards which may be established in the future, or the cost and
affect of existing and potential regulations and legislation upon any of the
existing and proposed facilities and operations of CWC. Further, recent and
possible future developments with respect to the identification and measurement
of various elements in water supplies and concern with respect to the impact of
one or more of such elements on public health may in the future require CWC to
replace or modify all or portions of its various water supplies, to develop
replacement supplies and/or to implement new treatment techniques. In addition,
CWC anticipates that threatened and actual contamination of its water sources
will become an increasing problem in the future. CWC has expended and will in
the future be required to expend substantial amounts to prevent or remove said
contamination or to develop alternative water supplies. See "Legal Proceedings"
for a discussion of a recent contamination problem. Any of the aforesaid
developments may significantly increase CWC's operating costs and capital
requirements. Since the DPUC's rate setting methodology permits a utility to
recover through rates prudently incurred expenses and investments in plant,
based upon past DPUC practice, the Company expects that such expenditures and
costs should ultimately be recoverable through rates for water service.
EMPLOYEES
As of December 31, 1995, CWC employed 163 full-time and part-time
employees. The Company has no employees other than its officers, who are also
officers of CWC and whose compensation is paid by CWC. All full-time employees
of CWC who meet specified age and length of service requirements participate in
an Employee's Retirement Plan which is a non-contributory trusteed pension plan
and provides for a monthly income for employees at retirement. None of the
employees is covered by a collective bargaining agreement. Management believes
that its relationship with its employees is satisfactory.
<PAGE> 24
Page 24
ITEM 2. PROPERTIES
The properties of CWC consist of land, easements, rights (including
water rights), buildings, reservoirs, standpipes, dams, wells, supply lines,
treatment plants, pumping plants, transmission and distribution mains and
conduits, mains and other facilities and equipment used for the collection,
purification, storage and distribution of water. CWC owns its principal
properties in fee, except that the Collinsville System's principal source of
water supply is a water supply contract with the MDC. (See below for description
of this contract.) The Company believes that CWC's properties are in good
operating condition. Water mains are located, for the most part, in public
streets and, in a few instances, are located on land owned by CWC in fee and
land occupied under easements, most of which are perpetual and valid and
sufficient for the purpose for which they are held. Although it is impractical
to investigate the validity of the title to some of the easements held by CWC
for distribution mains or to clear title in the cases where such distribution
easement titles have been found defective, any such irregularities or defects in
title which may exist do not materially impair the use of such properties in the
business of CWC. Substantially all of CWC's property is subject to the lien of
its Mortgage Indenture to secure CWC's First Mortgage Bonds.
CWC owns ten water filtration treatment plants. Information about these
facilities is contained in the following table.
<TABLE>
<CAPTION>
Year Treatment Capacity
Placed in (in million
Filtration Plant Operation Region gallons per day)
---------------- --------- ------ ------------------
<S> <C> <C> <C>
Guilford Well 1965 Shoreline 0.70
Rockville 1970 Northern 5.00
Westbrook Well 1975 Shoreline 0.23
Hunt Well Field 1976 Northern 2.50
MacKenzie 1980 Shoreline 4.00
Williams 1981 Shoreline 1.00
Stafford Springs 1984 Northern 1.00
Reynolds Bridge 1986 Naugatuck 1.00
Stewart 1989 Naugatuck 6.00
O'Bready Well 1994 Northern 0.50
</TABLE>
<PAGE> 25
Page 25
CWC has an agreement with the MDC, to provide, among other things, the
construction, operation and maintenance by MDC of a new filtration plant to
supply treated water for substantially all of CWC's Collinsville System, with a
capacity of 650,000 gallons per day, and the provision by MDC to CWC's
Collinsville System of up to 650,000 gallons per day of water from this plant
meeting all applicable Federal and State requirements. CWC has paid 40% of the
cost of construction of this plant and pays MDC an appropriate rate for water
used by CWC in excess of 400,000 gallons per day. The water treatment plant went
into service in December, 1990 following DPH approval.
As of December 31, 1995, the transmission and distribution systems of
CWC consisted of approximately 970 miles of main, of which approximately 40
miles have been laid in the past five years. On that date, approximately 75% of
CWC's mains were eight-inch diameter or larger. Substantially all new main
installations are cement-lined ductile iron pipe of eight-inch diameter or
larger. Approximately 100 miles of the Company's pipelines are asbestos cement.
From January 1, 1991 through December 31, 1995, CWC added $30,890,000
of gross plant additions (including plant financed by customer advances and
contributions in aid of construction, allowance for funds used during
construction and expenditures by CWC reimbursed by any other sources), and
retired or sold property having a book value of $2,357,000, resulting in net
additions during the period of $28,533,000.
<PAGE> 26
Page 26
CWC PRODUCTION FACILITIES AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Total Dependable Greatest 1995
Storage Yield (1) Avg. Daily Avg. Daily
Capacity (thousands Delivery Delivery
(thousands of gallons (thousands (thousands
of gallons) per day) of gallons) of gallons)
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Northern Region:
Western System
Enfield - East Windsor System Wells 7,200
Suffield System Wells 200
South Windsor Wells 720
Ellsworth Wells 100
Lake Shenipsit 5,050,000 11,200
Talcottville Well 300
Vernon Wells 690
Windsor Locks Wells 300
Tolland Aqueduct Wells (16) 42
------
20,752 9,026 (2) 8,347
------ ----- -----
Somers System Wells 390 120 (7) 120
------ ----- -----
Crescent Lake System (4) -- 32 (7) 32
------ ----- -----
Reservoir Heights (6) -- 5 (7) 5
------ ----- -----
Stafford Springs System
#4 Reservoir 51,000
#3 Reservoir 15,000 700
#2 Reservoir 60,000
------
700 629 (8) 515
------ ----- -----
Llynwood System Wells 30 13 (3) 10
------ ----- -----
Lakewood/Lakeview System Wells 49 30 (5) 25
------ ----- -----
Nathan Hale System Wells 20 9 (8) 5
------ ----- -----
Shoreline Region:
Guilford System
Killingworth & Kelseytown Reservoirs 273,000 2,300
Wells 4,540
------
6,840 3,676 (9) 3,556
Chester System ------ ----- -----
Upper and Lower Reservoirs 176,000
Turkey Hill Reservoir - Haddam 149,000 1,200
Wilcox Reservoir - Chester 65,000
Deuse Pond - Chester 4,800
Well 190
------
1,390 900 (10) 617
------ ----- -----
Chester Village West Wells 30 9 (7) 9
------ ----- -----
Sound View System Wells 124 41 (7) 41
------ ----- -----
</TABLE>
<PAGE> 27
Page 27
CWC PRODUCTION FACILITIES AS OF DECEMBER 31, 1995
<TABLE>
<CAPTION>
Total Dependable Greatest 1995
Storage Yield (1) Avg. Daily Avg. Daily
Capacity (thousands Delivery Delivery
(thousands of gallons (thousands (thousands
of gallons) per day) of gallons) of gallons)
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Naugatuck Region:
Central System
Long Hill Reservoir 506,000
Twitchell Reservoir 1,000
Candee Reservoirs (11) 7,000 3,600
W. H. Moody Reservoir 335,000
Straitsville Reservoir 7,000
Mulberry Reservoir 50,000
Beacon Valley Brook Supply --
Meshaddock Brook Supply 300
Wells 1,000
-----
4,900 4,970 (13) 3,018
----- ----- -----
Terryville System
Harwinton Ave. Reservoir (11) 14,800 50
Wells 910
-----
960 498 (2) 487
----- ----- -----
Thomaston System
Thomaston Reservoir (11) 93,000 310
Wells 0
Waterbury Interconnection (12) 864
-----
1,174 852 (14) 347
----- ----- -----
Collinsville System
Water Acquired by Contract (15) 650
Reservoir (distribution) 100
----- ----- -----
650 391 (3) 339
----- ----- -----
</TABLE>
(1) Dependable yield is the maximum continuous rate of withdrawal available
from a source of supply without seriously depleting the source.
Dependable yield is based on long-term (99% dry year) rainfall records,
storage capacity and watershed area.
(2) Occurred in 1988.
(3) Occurred in 1989.
(4) Supplied by water purchased from the Town of East Longmeadow,
Massachusetts.
(5) Occurred in 1994.
(6) Supplied by water purchased from the Town of Manchester.
(7) Occurred in 1995
(8) Occurred in 1990.
(9) Occurred in 1987.
(10) Occurred in 1969.
(11) Reservoir held in reserve and used for emergencies only.
(12) Generally used for emergencies. However, see "Item 3. Legal Proceedings"
for a discussion of the contamination of the Thomaston Wells. CWC
presently uses the Waterbury emergency water connection to purchase
substantially all of its water supply requirements for the Thomaston
System from the Waterbury Municipal Water Department.
(13) Occurred in 1964.
(14) Occurred in 1966.
(15) The Collinsville System has a right to up to 650,000 gallons per day
through agreement with MDC. The source is Nepaug Reservoir with a storage
capacity of 9.5 billion gallons. See "Item 2. Properties" for a
description of this agreement.
(16) Connected to Northern Region, Western System on August 9, 1995.
<PAGE> 28
Page 28
ITEM 3. LEGAL PROCEEDINGS
During the latter part of 1992 it was discovered that the CWC's Reynolds Bridge
well field in Thomaston, Connecticut, was contaminated with methyl tertiary
butyl ether ("MTBE"), a gasoline additive. At this time CWC is implementing an
appropriate remediation program to clean up the well site. In 1994 legal action
was initiated against the two parties deemed responsible for such contamination
in order to obtain recovery of CWC's investigation, clean-up and water treatment
and supply costs. The lawsuit is still in the discovery stage. The magnitude of
such costs is presently estimated to be $4,500,000, or more, of which
approximately $1,850,000 has been incurred at December 31, 1995, and $450,000 is
expected to be incurred in 1996. The clean-up process may take ten years or more
to complete. The Company has reflected the total estimated clean-up costs as a
deferred asset in the accompanying consolidated balance sheets representing
costs which management believes will be recoverable from third parties or future
rates. A related liability has been recorded representing expected future
clean-up costs. CWC is presently purchasing water from a public water supply
system to provide service to its customers at normal levels. Based upon existing
DPUC precedent, the Company and its legal counsel presently believe that any
such costs which are not recovered from third parties should be allowed to be
recovered through rates charged for water service and that the ultimate
resolution of this matter will not have a material impact on the results of
operations or financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE> 29
Page 29
ITEM 4.1 EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
Period Held or Term of Office
Name Age Office Prior Position Expires
- ---------------- --- --------------- -------------- --------------
<S> <C> <C> <C> <C>
M. T. Chiaraluce 53 President and Held position of 1996 Annual
Chief Executive President since Meeting
Officer January, 1992 and
Chief Executive
Officer position
with the Company
since July, 1992
W. F. Guillaume 63 Vice President - Held current 1996 Annual
Engineering and position or other Meeting
Planning executive position
with the Company
since April, 1970
B. L. Lenz 56 Vice President - Held current 1996 Annual
Finance and position or other Meeting
Accounting and executive position
Treasurer with the Company
since March, 1979
J. R. McQueen 53 Vice President - Held current 1996 Annual
Customer Service position or other Meeting
and Government management or
Affairs engineering
position with the
Company since
October, 1965
K. W. Kells 52 Vice President - Held current 1996 Annual
Design and position or other Meeting
Construction engineering
position with the
Company since June,
1970
V. F. Susco, Jr. 44 Vice President - Held current 1996 Annual
Administration position or Meeting
and Secretary engineering
position with the
Company since May,
1978
T. P. O'Neill 42 Vice President - Held current 1996 Annual
Operations position or other Meeting
engineering
position with the
Company since
February, 1980
P. J. Bancroft 46 Assistant Held current 1996 Annual
Treasurer and position or other Meeting
Controller accounting position
with the Company
since October, 1979
</TABLE>
There are no family relationships between any of the Directors and
Executive Officers of the Company.
<PAGE> 30
Page 30
Part II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded in the over-the-counter market
under the symbol CTWS and is included in the NASDAQ National Market System. The
following table sets forth, for the periods indicated, the high and low last
sale prices of the Company's Common Stock in the over-the-counter market and the
dividends paid by the Company during the two most recent calendar years. The
quotations represent actual sales prices, but the sales reflected may be
inter-dealer transactions which do not reflect retail mark-up, mark-down or
commission. NASDAQ is the source of the quotations for all periods. Since its
affiliation with CWC in 1975, the Company has paid quarterly cash dividends on
its Common Stock.
<TABLE>
<CAPTION>
Price
----------------------------- Dividends
Period High Low Paid
------ ---- --- ---------
<S> <C> <C> <C>
1995:
First Quarter $24.75 $22.75 $ .42
Second Quarter 25.75 23.75 .42
Third Quarter 27.00 24.75 .42
Fourth Quarter 28.25 26.00 .42
1994:
First Quarter $28.00 $25.00 $ .41
Second Quarter 26.00 22.75 .41
Third Quarter 25.00 22.75 .41
Fourth Quarter 24.75 22.75 .42
</TABLE>
As of March 1, 1996, there were approximately 6,750 holders of record
of the Company's Common Stock.
Holders of Common Stock are entitled to receive such dividends as may
be declared by the Board of Directors from funds legally available therefor.
Future dividends of the Company will be dependent upon timely and adequate rate
relief, consolidated and parent company net income, availability of cash to the
Company and CWC, the financial condition of the Company and CWC, the ability of
the Company and CWC to sell their securities, the requirements of the
construction program of CWC and other conditions existing at the time.
The Company is not permitted to pay any dividends on its Common Stock
unless full cumulative dividends to the last preceding dividend date for all
outstanding shares of Cumulative Preferred Stock of the Company have been paid
or set aside for payment.
<PAGE> 31
Page 31
The income of the Company is derived mainly from earnings on its equity
investment in CWC. At December 31, 1995, the retained earnings of CWC aggregated
$10,829,000. As a result of dividend restrictions contained in CWC's mortgage
indenture and Preferred Stock provisions, the amount of cash dividends payable
on CWC's common equity capital out of CWC's retained earnings was limited to
$10,579,000.
The Company has a Dividend Reinvestment and Common Stock Purchase Plan.
Under the plan, customers and employees of CWC and holders of Common Stock who
elect to participate may automatically reinvest all or specified percentages of
their dividends in additional shares of Common Stock (at a price equal to 95% of
the average market price for the five days preceding the purchase) and may also
make optional cash payments of up to $10,000 per calendar quarter to purchase
additional shares of Common Stock at 100% of said average market price. The
Company issues authorized but unissued shares of Common Stock to meet the
requirements of the plan, and 1,500,000 shares have been registered with the
Securities and Exchange Commission for that purpose. Under the plan, approxi
mately 743,000 shares had been issued by the Company as of December 31, 1995.
The Company has a Performance Stock Program that provides for an
aggregate maximum of up to 50,000 shares of Common Stock of the Company to be
issued as awards of restricted stock to eligible employees of CWC, conditioned
on the attainment of performance goals established by the Salary Committee.
Under the plan approximately 15,900 shares, 7,400 of which are restricted, had
been issued by the Company as of December 31, 1995.
The Company has an Employee Savings 401-K Match Plan. Under the Plan
approximately 6,200 shares of Common Stock had been issued by the Company as of
December 31, 1995.
<PAGE> 32
Page 32
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Not covered by Report of Independent Public Accountants)
(Thousands of dollars except where indicated) Years Ended December 31,
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME
Operating Revenues $39,350 $38,129 $38,131 $37,190 $37,372
Operating Expenses $29,328 $28,474 $28,148 $27,157 $26,970
Operating Income $10,022 $ 9,655 $ 9,983 $10,033 $10,402
Interest and Debt Expense $ 3,946 $ 3,940 $ 4,338 $ 4,872 $ 5,321
Net Income Applicable to Common Stock $ 6,325 $ 5,842 $ 5,529 $ 5,111 $ 4,839
Weighted Average Common Shares Outstanding 2,918,417 2,812,456 2,769,347 2,728,573 2,686,337
Earnings Per Average Common Share $2.17 $2.08 $2.00 $1.87 $1.80
Number of Shares Outstanding at Year End 2,966,757 2,870,559 2,789,977 2,751,331 2,711,125
ROE on Year End Common Equity 12.2% 12.2% 12.2% 11.8% 11.7%
Cash Dividends Paid Per Common Share $1.68 $1.65 $1.64 $1.61 $1.60
Dividend Payout Ratio 77.4% 79.3% 82.0% 86.1% 88.9%
Interest Coverage - Long-Term Debt (a) 4.3X 4.1X 4.2X 3.5X 3.1X
Effective Federal Income Tax Rate (Percentage of Pre-Tax Income) 38.1% 38.5% 38.3% 36.7% 34.8%
Accumulated Depreciation to Year End Depreciable Plant 26.37% 25.28% 24.49% 22.85% 21.25%
CASH FLOWS
Dividends to Common Stockholders $4,897 $4,637 $4,539 $4,391 $4,295
Deferred Income Taxes and Investment Tax Credits $1,003 $1,080 $ 994 $ 968 $ 963
Depreciation $3,282 $3,236 $3,194 $3,126 $3,115
Gross Additions to Utility Plant $9,198 $6,514 $5,688 $4,272 $5,218
BALANCE SHEET
Net Utility Plant $146,536 $40,784 $137,568 $135,697 $135,132
Common Stockholders' Equity $ 51,788 $47,983 $ 45,160 $ 43,138 $ 41,490
Long-Term Debt $ 54,460 $54,600 $ 51,600 $ 51,600 $ 52,412
Preferred Stock (Consolidated, Excluding Current Maturities) $772 $772 $3,748 $3,772 $3,869
Total Capitalization $107,020 $103,355 $100,508 $ 98,510 $ 97,771
Book Value - Per Common Share $17.46 $16.72 $16.19 $15.68 $15.30
Stockholders' Equity (Includes Preferred Stock) 49% 47% 49% 48% 46%
Long-Term Debt 51% 53% 51% 52% 54%
</TABLE>
(a) Interest coverage represents the ratio of utility operating income plus
Federal and State income tax to annualized interest expense on outstanding
long-term debt.
<TABLE>
<CAPTION>
OPERATING DATA (Thousands of Dollars)
1995 1994 1993 1992 1991
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
REVENUE CLASS
Residential $25,345 $24,488 $24,574 $23,541 $23,675
Commercial 4,852 4,696 4,745 4,729 4,823
Industrial 1,868 1,922 1,851 2,100 2,239
Public Authority 1,090 893 903 856 836
Fire Protection 6,129 6,021 5,967 5,881 5,691
Other 66 109 91 83 108
--------- --------- --------- --------- ---------
Total Operating Revenues $39,350 $38,129 $38,131 $37,190 $37,372
========= ========= ========= ========= =========
Number of Customers (Average) 60,844 60,082 59,558 58,966 58,514
Production (Million of Gallons) 6,372 6,229 6,206 6,023 6,175
Number of Employees 163 164 168 179 177
</TABLE>
<PAGE> 33
Page 33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the notes thereto.
LIQUIDITY AND CAPITAL RESOURCES - During 1995 the Dividend Reinvestment and
Common Stock Purchase Plan (DRIP) provided over $2,100,000 of new equity capital
increasing the common stock equity component of the Company's capitalization to
48%, up from 46% in 1994.
Utility plant additions were financed through cash provided by operating
activities and funds received from others. Seasonal cash requirements were
provided through interim bank borrowings.
Interim bank loans payable at year end were approximately at the same level as
last year. Management considers the current $9,000,000 line of credit with three
banks adequate to finance expected short-term borrowing requirements that may
arise from operations during 1996. Interest expense charged on interim bank
loans will fluctuate subject to financial market conditions experienced during
the year.
A 12.7% return on average common equity was achieved in 1995, up from 12.5% in
1994. 1995 was the third consecutive year that interest coverage, the ratio of
utility operating income plus Federal and State income taxes to annualized
interest expense on outstanding long-term debt, exceeded 4.0 times coverage.
RATE RELIEF AND INFLATION - The Subsidiary's last rate increase was effective
March 25, 1991. That rate decision included a 12.7% allowed return on common
equity and a 10.74% allowed return on rate base. Future economic and financial
market conditions, coupled with governmental regulations and fiscal policy, plus
other factors which are unpredictable and often beyond the control of the
Company, will influence when future rate relief will be required. Construction
expenditures mandated to comply with the amendments to the Safe Drinking Water
Act (SDWA) will, when and if required, also affect water rates charged to
customers.
A Construction Work in Progress (CWIP) rate surcharge calculated at the
utility's last allowed return on rate base, applied to 90% of the construction
costs for new facilities mandated by the SDWA, is available to provide a cash
return on the Subsidiary's investment in SDWA mandated utility plant. The
Subsidiary has collected a CWIP surcharge in the past and expects to receive
approval of a similar surcharge with respect to any future significant SDWA
projects. At this time management is not aware of any significant construction
expenditures for new facilities presently mandated by the SDWA.
Construction of a new Rockville Water Treatment Plant presently estimated to
cost approximately $30,000,000, previously reported to begin in 1997, has been
delayed indefinitely. Instead, the existing water treatment plant will be
refurbished in conjunction with related water distribution system improvements
at an estimated cost of $8,000,000 over the next three years. The new Plant will
be constructed when required by increased demand or increased SDWA requirements.
<PAGE> 34
Page 34
The Department of Public Utility Control (DPUC ) is authorized to approve an
acquisition surcharge when it determines, in consultation with the Department of
Public Health (DPH), that a distressed water system should, or must, be acquired
by a investor owned water company so as to assure the availability and
potability of water and the provision of water at adequate volume and pressure
to the customers served by the distressed water system. This surcharge is based
on the acquisition costs and construction improvements necessary to rehabilitate
the acquired water company's system and may be calculated in a manner similar to
the CWIP surcharge. The Subsidiary had requested approval of such an acquisition
surcharge in connection with the acquisition of the Sound View Water Company
System, mandated by the DPUC in 1995. The Company received approval of a
modified surcharge. (For more information see Outlook for 1996.) The Company
intends to apply for approval of an acquisition surcharge with respect to any
other mandated water company acquisitions, although there is no assurance that
the DPUC will permit such a surcharge.
The Company, like all other businesses, is affected by inflation, most notably
by the continually increasing costs required to maintain, improve, and expand
its service capability. The cumulative effect of inflation results in
significantly higher facility replacement costs which must be recovered from
future cash flow. The ability of the Company to recover this increased
investment in facilities is dependent upon future revenue increases which are
subject to approval by the DPUC.
Management does not presently plan to petition the DPUC for an increase in
permanent rates or to implement a CWIP surcharge in 1996.
OUTLOOK FOR 1996 - The Company's profitability is primarily attributable to the
sale and distribution of water, the amount of which is dependent on seasonal
weather fluctuations throughout the year and particularly during the summer
months when water demand will vary with rainfall and temperature levels.
The Board of Directors has approved a $8,540,000 construction budget for 1996.
Funds provided by operating activities, given normal weather patterns and
related operating revenue billings, are expected to finance approximately 75% of
this construction program. Refer to Note 13, Utility Plant and Construction
Program, in Notes to Consolidated Financial Statements for additional discussion
of the Subsidiary's future construction program. The remainder of the
construction program is expected to be financed through new equity capital from
the DRIP and, if necessary, interim bank loans.
The DPUC mandated the Subsidiary's takeover of the Sound View Water Company
water system in 1995. Improvements to this water system over the next two years
are estimated to cost $1,500,000. The DPUC decision on this matter approved an
acquisition surcharge to be charged to the approximate 400 former customers of
Sound View through 1998 and recognition of capital costs to finance the
improvements in a manner similar to AFUDC until the Subsidiary's next change in
permanent rates.
<PAGE> 35
Page 35
Through December 31, 1995, the Company has expended almost $1,850,000 in its
effort to remediate the Reynolds Bridge Well Field (RBWF) contaminated with
MTBE, a gasoline additive. These costs have been deferred. Additional
expenditures of approximately $450,000 related to this remediation effort are
expected to be incurred in 1996, and will also be deferred as management expects
that these costs and future related costs will be recovered from the responsible
parties, or through rates charged to customers. Refer to Note 12, Recoverable
Clean-Up Costs, for additional discussion of RBWF clean-up costs.
RESULTS OF OPERATIONS - 1995 COMPARED WITH 1994
1995 net income applicable to common stock increased from that of 1994
by $483,000, or $.09 per average common share, on an increased number of average
common shares as a result of a $1,221,000 increase in operating revenues, a
$854,000 increase in operating expense, a $122,000 increase in other income and
deductions, and a $6,000 increase in interest and debt expense.
Operating revenues increased by 3.2% primarily due to the higher
residential, commercial, and public authority consumption in 1995 reflecting the
hot and dry summer.
Operating expenses increased by 3.0%. The increased expenses included
$225,000 for gross earnings and income taxes related to the higher revenues and
taxable income, $72,000 for depreciation expense related to increased plant in
service, $56,000 for maintenance expenses, $287,000 for employee fringe benefit
costs related to increases in certain postretirement benefits, as well as
increases in medical and welfare costs, $117,000 for power and chemical costs
related primarily to the higher volume of water sold, and a $67,000 net increase
in other costs.
The increase in other income is primarily due to a reduction in
preferred stock dividends accomplished by the refinancing of the 9.5% Series
Cumulative Preferred Stock of the Subsidiary in March, 1994.
1994 COMPARED WITH 1993 - Net income applicable to common stock for 1994
increased from that of 1993 by $313,000, or $.08 per average common share on an
increased number of common shares outstanding providing a 12.2% return on year
end common equity for the second consecutive year.
This improvement to net income resulted from a $398,000 decrease in interest and
debt expense, a $217,000 decline in preferred stock dividends of the Subsidiary,
and a $26,000 increase in other income and deductions, partially offset by a
$328,000 decrease in operating income.
<PAGE> 36
Page 36
The decrease in interest and debt expense and preferred dividends is primarily
due to the refinancing in 1994 of 10%, 9.375%, and 8.5% First Mortgage Bonds and
a 9.5% Preferred Stock issue with the proceeds of the Subsidiary's 6.94% First
Mortgage Bonds, in addition to the interest savings from the refinancings
completed in 1993. The increase in other income and deductions is primarily due
to increased Allowance For Funds Used During Construction.
Operating revenues were virtually the same as the prior year. In 1993 the
Subsidiary experienced an unusually hot and dry summer that increased
residential customers' water consumption. In 1994 residential and commercial
consumption both dropped 1% from 1993 levels while industrial consumption
increased 5%. Fire protection and other revenues also increased by approximately
$75,000.
Details of the $326,000, or 1.2% increase in operating expense includes the
following:
Increase in expenses:
- - Maintenance Expense - The expense savings from the debt refinancings
provided an opportunity to implement planned preventative maintenance
and non-critical repairs to our utility plant $177,000
- - Income Taxes - Higher taxable income is the primary reason for this
increase. Refer to Notes 2 and 3, Federal Income Tax and Connecticut
Corporation Business Tax Expense, in Notes to Consolidated Financial
Statements $ 83,000
- - Operation Expense - These expenses increased in total only 1/2% from
the prior year. Cost reduction and efficiencies offset the 4% average
wage increase granted to employees $ 65,000
- - Depreciation Expense - Primarily due to utility plant placed in service
during 1994 and 1993 $ 49,000
- - Payroll Taxes - Reflects the increase in FICA, Medicare, and State
Unemployment taxable wage bases and a higher State Unemployment tax
rate $ 23,000
Decrease in expenses:
- - Municipal Taxes - Reflects lower assessed valuations following
revaluation in several towns $ 71,000
<PAGE> 37
Page 37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Connecticut Water Service, Inc.:
We have audited the accompanying consolidated balance sheets of Connecticut
Water Service, Inc. (a Connecticut corporation) and Subsidiary as of December
31, 1995, 1994 and 1993, and the related consolidated statements of income and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Connecticut Water
Service, Inc. and Subsidiary as of December 31, 1995, 1994 and 1993, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Hartford, Connecticut
February 14, 1996
<PAGE> 38
Page 38
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
--------------------------------------
ASSETS
(Thousands of dollars)
<S> <C> <C> <C>
Utility Plant
Utility Plant $186,907 $181,079 $176,308
Construction Work in Progress 6,399 3,369 2,596
Utility Plant Acquisition Adjustments (1,206) (1,206) (1,206)
--------------------------------------
192,100 183,242 177,698
Accumulated Provision for Depreciation (45,564) (42,458) (40,130)
--------------------------------------
Net Utility Plant 146,536 140,784 137,568
--------------------------------------
Investments
Unconsolidated Subsidiary at Underlying Equity 35 35 35
Other 1,061 846 727
--------------------------------------
Total Investments 1,096 881 762
--------------------------------------
Current Assets
Cash 124 18 44
Accounts Receivable (Less Allowance,
1995 - $164; 1994 - $149; 1993 - $166) 3,987 3,599 3,425
Accrued Unbilled Revenues 2,814 2,800 2,798
Materials and Supplies, at Average Cost 588 651 681
Prepayments and Other Current Assets 116 864 255
--------------------------------------
Total Current Assets 7,629 7,932 7,203
--------------------------------------
Deferred Charges
Unamortized Debt Issuance Expense 5,399 5,587 5,111
Costs Recoverable Through Future Rates:
Income Taxes 9,000 9,200 10,000
Postretirement Benefits Other Than Pension 932 757 640
Recoverable Clean-Up Costs 4,500 4,700 912
Prepaid Income Taxes on Contributions in
Aid of Construction 530 450 439
Other Costs 837 950 445
--------------------------------------
Total Deferred Charges 21,198 21,644 17,547
--------------------------------------
Total Assets $176,459 $171,241 $163,080
======================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 39
Page 39
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
---------------------------------
CAPITALIZATION AND LIABILITIES
(Thousands of dollars)
<S> <C> <C> <C>
Capitalization
Common Stockholders' Equity:
Common Stock $ 41,320 $ 38,943 $ 37,068
Retained Earnings 10,468 9,040 8,092
Preferred Stock 772 772 772
Preferred Stock with Mandatory
Redemption Provisions -- -- 2,976
Long-Term Debt 54,460 54,600 51,600
--------------------------------
Total Capitalization 107,020 103,355 100,508
--------------------------------
Current Liabilities
Interim Bank Loans Payable 2,646 2,700 3,950
Current Portion of Preferred Stock -- 30 30
Accounts Payable 4,609 4,219 2,574
Accrued Taxes 1,530 1,810 1,466
Accrued Interest 1,249 1,250 1,196
Current Portion of Accrued Clean-Up Costs 450 500 --
Other 1,826 1,544 1,263
--------------------------------
Total Current Liabilities 12,310 12,053 10,479
--------------------------------
Accrued Clean-Up Costs 2,212 2,811 --
--------------------------------
Advances for Construction 12,610 12,099 11,584
--------------------------------
Contributions in Aid of Construction 18,551 18,145 18,128
--------------------------------
Deferred Federal Income Taxes 11,608 10,547 9,408
--------------------------------
Unfunded Future Income Taxes 9,000 9,200 10,000
--------------------------------
Unfunded Postretirement Benefits
Other Than Pension 932 757 640
--------------------------------
Unamortized Investment Tax Credits 2,216 2,274 2,333
--------------------------------
Total Capitalization and Liabilities $176,459 $171,241 $163,080
=================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 40
Page 40
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1994 1993
----------------------------------
(In thousands except per share amounts)
<S> <C> <C> <C>
Operating Revenues $ 39,350 $ 38,129 $ 38,131
----------------------------------
Operating Expenses
Operation 13,404 12,929 12,864
Maintenance 2,026 1,970 1,793
Depreciation 3,158 3,086 3,037
Federal Income Taxes 3,925 3,769 3,710
Connecticut Corporation Business Taxes 1,025 987 963
Taxes Other Than Income Taxes 5,790 5,733 5,781
----------------------------------
Total Operating Expenses 29,328 28,474 28,148
----------------------------------
Utility Operating Income 10,022 9,655 9,983
----------------------------------
Other Income (Deductions)
Interest 156 100 105
Allowance for Funds Used During Construction 52 89 71
Preferred Stock Dividends of Subsidiary -- (73) (290)
Other 112 23 (29)
Taxes on Other Income (33) 26 65
----------------------------------
Total Other Income (Deductions) 287 165 (78)
----------------------------------
Interest and Debt Expenses
Interest on Long-Term Debt 3,462 3,457 3,855
Other Interest Charges 296 295 273
Amortization of Debt Expense 188 188 210
----------------------------------
Total Interest and Debt Expenses 3,946 3,940 4,338
----------------------------------
Net Income Before Preferred Dividends 6,363 5,880 5,567
Preferred Stock Dividend Requirement 38 38 38
----------------------------------
Net Income Applicable to Common Stockholders $ 6,325 $ 5,842 $ 5,529
==================================
Weighted Average Common Shares Outstanding 2,918 2,812 2,769
==================================
Earnings Per Average Common Share $2.17 $2.08 $2.00
==================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 41
Page 41
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1994 1993
----------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Operating Activities:
Net Income Before Preferred Dividends
of Parent $ 6,363 $ 5,880 $ 5,567
----------------------------------
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation (including $124 in 1995,
$150 in 1994 and $157 in 1993
charged to other accounts) 3,282 3,236 3,194
Change in Assets and Liabilities:
(Increase) Decrease in Accounts Receivable
and Accrued Unbilled Revenues (403) (176) 479
(Increase) Decrease in Other Current Assets 811 (579) 214
(Increase) Decrease in Other Non-Current Items (442) (870) (570)
Increase (Decrease) in Accounts Payable,
Accrued Expenses and Other Current Liabilities 391 2,324 724
Increase (Decrease) in Deferred Income Taxes
and Investment Tax Credits, Net 1,003 1,080 994
----------------------------------
Total Adjustments 4,642 5,015 5,035
----------------------------------
Net Cash Provided by Operating Activities 11,005 10,895 10,602
----------------------------------
Investing Activities:
Gross Additions to Utility Plant (including
Allowance for Funds Used During Construction
of $52 in 1995, $89 in 1994 and $71 in 1993) (9,198) (6,514) (5,688)
----------------------------------
Financing Activities:
Proceeds from Interim Bank Loans 2,646 2,700 3,950
Repayment of Interim Bank Loans (2,700) (3,950) (4,983)
Proceeds from Issuance of Long-Term Debt -- 12,050 17,550
Reduction of Long-Term Debt Including
Current Portion (140) (9,050) (17,700)
Proceeds from Issuance of Common Stock 2,410 1,908 1,032
Retirement of Preferred Stock (30) (3,030) (102)
Charges Related to Redemption of Subsidiary's
9.5% Series Preferred Stock -- (257) --
Advances, Contributions and Funds From
Others for Construction, Net 1,081 594 906
Costs Incurred to Issue Long-Term Debt,
Preferred Stock, and Common Stock (33) (697) (1,006)
Cash Dividends Paid (4,935) (4,675) (4,577)
----------------------------------
Net Cash Provided by (Used in)
Financing Activities (1,701) (4,407) (4,930)
----------------------------------
Net Increase (Decrease) in Cash 106 (26) (16)
Cash at Beginning of Year 18 44 60
----------------------------------
Cash at End of Year $ 124 $ 18 $ 44
==================================
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest (Net of Amounts Capitalized) $ 3,759 $ 3,698 $ 4,189
State and Federal Income Taxes $ 4,635 $ 3,480 $ 3,945
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 42
Page 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1:
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - Connecticut Water Service, Inc. (the Company) is the parent
company of The Connecticut Water Company (the Subsidiary). Intercompany accounts
and transactions have been eliminated in the accompanying consolidated financial
statements.
REGULATION - The Subsidiary's accounting policies conform to the Uniform System
of Accounts prescribed by the State of Connecticut Department of Public Utility
Control (DPUC) and to generally accepted accounting principles.
REVENUES - The Subsidiary accrues an estimate for the amount of revenues
relating to sales unbilled at the end of each quarter. Generally, all customers
are billed quarterly, except larger commercial and industrial customers, and
public fire protection customers, who are billed monthly. All customers, except
fire protection customers, are metered. Public fire protection charges are based
on the length and diameter of the water main and number of hydrants in service.
Private fire protection charges are based on the diameter of the connection to
the water main.
UTILITY PLANT - Utility plant is stated at original cost of such property when
first devoted to public service. The difference between the original cost and
the cost to the Subsidiary is charged or credited to utility plant acquisition
adjustments. Utility plant accounts are charged with the cost of improvements
and replacements of property including an allowance for funds used during
construction. Retired or disposed of depreciable plant is charged to accumulated
provision for depreciation together with any costs applicable to retirement,
less any salvage received. Maintenance of utility plant is charged to expense.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION - The allowance for funds used
during construction (AFUDC) represents the estimated cost of funds used to
finance the construction of the Subsidiary's utility plant. Generally, utility
plant under construction is not recognized as part of the Subsidiary's rate base
for ratemaking purposes until facilities are placed into service, and
accordingly, the Subsidiary charges AFUDC to the construction cost of utility
plant. Capitalized AFUDC, which does not represent current cash income, is
recovered through rates over the service lives of the facilities. The AFUDC rate
applied by the Subsidiary was 10.74% for all years reported.
DEPRECIATION - Depreciation is computed on a straight line basis at various
rates, approved by the DPUC, estimated to be sufficient to
provide for the recovery of the investment in utility plant over its useful
life. Water treatment facilities are depreciated using a 2.5% composite rate,
while most other utility plant is depreciated at a composite rate of 1.64%. The
depreciation rates, based on the average balance of depreciable property, were
1.9% for 1995, 1994 and 1993.
<PAGE> 43
Page 43
CUSTOMERS' ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION
AND RELATED PREPAID INCOME TAXES - Under the terms of construction contracts
with real estate developers and others, the Subsidiary receives advances for the
costs of new main installations. Refunds are made, without interest, as services
are connected to the main, over periods not exceeding fifteen years and not in
excess of the original advance. Unrefunded balances, at the end of the contract
period, are credited to contributions in aid of construction (CIAC) and are no
longer refundable. Advances and CIAC received from developers subsequent to 1986
are taxable to the Subsidiary for income tax purposes when received. The DPUC
allows partial recovery of this tax from real estate developers and other third
parties. The tax collected from third parties is discounted by the present value
of the tax depreciation benefits. The difference between the tax paid by the
Subsidiary and the tax collected is recorded as a prepaid tax asset. This will
be recovered through future tax depreciation deductions.
INCOME TAXES - Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes", which
requires the use of the liability method in accounting for income taxes. Under
the liability method, deferred income taxes are recognized at currently enacted
income tax rates to reflect the tax effect of temporary differences between the
financial reporting and tax bases of assets and liabilities. Such temporary
differences are the result of provisions in the income tax law that either
require or permit certain items to be reported on the income tax return in a
different period than they are reported in the financial statements. To the
extent such income taxes increase or decrease future rates, an offsetting
regulatory asset and liability have been recorded in the accompanying
consolidated balance sheets.
The Company believes that all deferred income tax assets will be realized in the
future. Approximately $1,000,000 and $1,500,000, respectively, of the December
31, 1995 and 1994 unfunded future income taxes is related to deferred Federal
income taxes. The remaining $8,000,000 and $7,700,000, respectively, of the
unfunded future income taxes on the consolidated balance sheet at December 31,
1995 and 1994, is related to deferred State income taxes.
Deferred Federal income taxes consists primarily of amounts that have been
provided for Federal investment tax credits and accelerated depreciation
subsequent to 1981, as required by Federal income tax regulations. Deferred
taxes have also been provided for temporary differences in the recognition of
certain expenses for tax and financial statement purposes as allowed by DPUC
ratemaking policies.
Connecticut Corporation Business Taxes has been reflected using the flow-through
method of accounting for all tax accounting timing differences in accordance
with required DPUC ratemaking policies.
MUNICIPAL TAXES - Municipal taxes are expensed over the 12 month period
beginning on July 1 following the lien date, corresponding with the period in
which the municipal services are provided.
<PAGE> 44
Page 44
OTHER DEFERRED COSTS - In accordance with DPUC ratemaking procedures, costs
which benefit future periods, such as tank painting, are expensed over the
periods they benefit.
UNAMORTIZED DEBT ISSUANCE EXPENSE - The issuance costs of long-term debt,
including the remaining balance of issuance costs on long-term debt issues that
have been refinanced prior to maturity and related call premiums, are amortized
over the respective lives of the outstanding debt, as approved by the DPUC.
NOTE 2:
FEDERAL INCOME TAX EXPENSE
The following is an analysis of the consolidated Federal income tax provision
and a reconciliation of the consolidated expected Federal income tax, at the
statutory Federal income tax rate, to the actual tax expense:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Charged to Operations:
Current Provision $ 2,853 $2,563 $2,581
---------------------------------------
Deferred Tax:
Investment Tax Credit - Amortization (20) (18) (19)
Capitalized Interest - Net 24 24 28
Depreciation - Net 1,037 1,115 1,025
Advances and CIAC - Net 31 85 95
---------------------------------------
Total Deferred Tax 1,072 1,206 1,129
---------------------------------------
Total Charged to Operations 3,925 3,769 3,710
---------------------------------------
Charged to Other Income:
Current Provision 27 -- (30)
Deferred Investment Tax Credit - Amortization (40) (39) (40)
---------------------------------------
Total Charged to Other Income (13) (39) (70)
---------------------------------------
Total Federal Income Tax Expense $ 3,912 $3,730 $3,640
=======================================
Pre-Tax Income Before Preferred Stock Dividends
of Subsidiary $10,275 $9,683 $9,497
=======================================
Computed Tax Expense at 34% $ 3,494 $3,292 $3,229
Increase (Reduction) in Taxes Resulting From
"Flow Through" Accounting for:
Excess of Book Over Tax Depreciation 165 163 156
Property Taxes Deducted For Tax Less
Than Expense Per Books -- 74 181
Issuance Expense of Refunded Debt Issues
Deducted for Tax Less Than (in Excess of)
Expense Per Books 17 (27) (85)
Pension Costs Deducted for Tax Less Than
(in Excess of) Expense Per Books 112 149 121
Other 124 79 38
---------------------------------------
Total Federal Income Tax Expense $ 3,912 $3,730 $3,640
=======================================
Effective Tax Rate (% of Pre-Tax Income) 38.1% 38.5% 38.3%
=======================================
</TABLE>
<PAGE> 45
Page 45
NOTE 3:
CONNECTICUT CORPORATION BUSINESS TAX EXPENSE
The following is an analysis of the consolidated Connecticut Corporation
Business Tax expense and a reconciliation of the consolidated expected tax at
the statutory rate to the actual tax expense:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Charged to Operations:
Current Provision $ 1,025 $ 987 $ 963
Charged to Other Income:
Current Provision 10 -- (12)
--------------------------------
Total Connecticut Corporation Business
Tax Expense $ 1,035 $ 987 $ 951
================================
Pre-Tax Income Before Preferred Stock Dividends
of Subsidiary $11,310 $10,670 $10,448
================================
Computed Tax Expense at 11.25% $ 1,272 $ -- $ --
Computed Tax Expense at 11.5% -- 1,227 1,202
Increase (Reduction) in Taxes Resulting From
"Flow Through" Accounting for:
Excess of Tax Over Book Depreciation (347) (367) (348)
Other Timing Differences 110 127 97
--------------------------------
Total Connecticut Corporation Business
Tax Expense $ 1,035 $ 987 $ 951
================================
Effective Tax Rate (% of Pre-Tax Income) 9.2% 9.3% 9.1%
================================
</TABLE>
<PAGE> 46
Page 46
NOTE 4:
COMMON STOCK
The Company has 7,500,000 authorized shares of common stock, no par value. A
summary of the changes in the common stock accounts for the period January 1,
1993 through December 31, 1995, appears below:
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------------
Issuance
Shares Amount Expense Total
----------------------------------------------------
(Thousands of dollars except share amounts)
<S> <C> <C> <C> <C>
Balance January 1, 1993 2,751,331 $37,186 $(1,150) $36,036
Stock issued through Dividend
Reinvestment Plan 33,803 916 -- 916
Stock issued through Performance
Stock Program 3,074 66 -- 66
Stock issued to Employee Savings
401-K Match Plan 1,769 50 -- 50
----------------------------------------------------
Balance, December 31, 1993 2,789,977 38,218 (1,150) 37,068
Stock issued through Dividend
Reinvestment Plan (1) 74,053 1,728 (33) 1,695
Stock issued through Performance
Stock Program 4,061 120 -- 120
Stock issued to Employee Savings
401-K Match Plan 2,468 60 -- 60
----------------------------------------------------
Balance, December 31, 1994 2,870,559 40,126 (1,183) 38,943
Stock issued through Dividend
Reinvestment Plan (1) 87,807 2,199 (33) 2,166
Stock issued through Performance
Stock Program 6,369 160 -- 160
Stock issued to Employee Savings
401-K Match Plan 2,022 51 -- 51
-----------------------------------------------------
Balance, December 31, 1995 (2) 2,966,757 $42,536 $(1,216) $41,320
====================================================
</TABLE>
(1) Includes approximately 33,000 and 36,000 shares for 1994 and 1995,
respectively, issued through the Customer Stock Purchase Plan, a 1994
amendment to the Dividend Reinvestment Plan.
(2) Includes 7,340 restricted shares issued through the Performance Stock
Program.
<PAGE> 47
Page 47
NOTE 5:
ANALYSIS OF RETAINED EARNINGS
The summary of the changes in Retained Earnings for the period January 1, 1993
through December 31, 1995, appears below:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Balance at Beginning of Year $ 9,040 $ 8,092 $ 7,102
Income Before Preferred Stock Dividends
of Company 6,363 5,880 5,567
---------------------------------------
15,403 13,972 12,669
---------------------------------------
Charges Related to Redemption of Subsidiary's
9.5% Series Preferred Stock -- 257 --
---------------------------------------
Dividends Declared:
Cumulative Preferred, Series A, $.80 Per Share 12 12 12
Cumulative Preferred, Series $.90, $.90 Per Share 26 26 26
Common Stock:
1995 $1.68 Per Share 4,897 -- --
1994 $1.65 Per Share -- 4,637 --
1993 $1.64 Per Share -- -- 4,539
---------------------------------------
4,935 4,675 4,577
---------------------------------------
Balance at End of Year $10,468 $ 9,040 $ 8,092
=======================================
</TABLE>
NOTE 6:
COMMON STOCK RIGHTS PLAN
In 1988 the Board of Directors authorized a dividend distribution of one right
to purchase Common Stock (Right) for each outstanding share of Common Stock.
Each Right entitles the registered holder under certain circumstances to
purchase from the Company one share of Common Stock (or substitute equity or
debt securities) at an exercise price (subject to antidilution adjustments) of
$50 per share, or under other circumstances, common stock or other securities or
assets of an acquiring entity or of the Company.
The Rights are not currently exercisable or separately transferable apart from
the Common Stock. The Rights can be redeemed by the Board of Directors under
certain circumstances at a price of $.01 per Right. The agreement pursuant to
which the Rights were issued may be amended by the Board of Directors under
certain circumstances. The Rights expire on October 11, 1998.
NOTE 7:
RESTRICTIONS ON DIVIDENDS
The Company may not pay any dividends on its Common Stock unless full cumulative
dividends to the preceding dividend date for all outstanding shares of Preferred
Stock of the Company have been paid or set aside for payment. All such preferred
stock dividends have been paid.
The income of the Company is derived mainly from the earnings of its Subsidiary.
At December 31, 1995, the retained earnings of the Subsidiary aggregated
$10,829,000. Restrictions contained in the Subsidiary's mortgage indenture limit
the amount of cash dividends payable on the Subsidiary's Common Stock to
$10,579,000.
<PAGE> 48
Page 48
NOTE 8:
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each of the following financial instruments.
CASH - The carrying amount approximates fair value.
FIRST MORTGAGE BONDS - The fair value of the Company's fixed rate long-term debt
is based upon borrowing rates currently available to the Company.
As of December 31, 1995 and 1994, the estimated fair value of the Company's
long-term debt was $58,400,000 and $47,600,000, respectively, as compared to the
carrying amounts of $54,460,000 and $54,600,000, respectively.
The fair values shown above have been reported to meet the disclosure
requirements of Statement of Financial Accounting Standards No. 107,
"Disclosures About Fair Values of Financial Instruments" and do not purport to
represent the amounts at which those obligations would be settled.
NOTE 9:
LONG-TERM DEBT
Long-Term Debt at December 31, consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------
(Thousand of Dollars)
<S> <C> <C> <C>
The Connecticut Water Company First Mortgage Bonds:
9.375% Series L, Due 1997 $ -- $ -- $ 1,800
8.5% Series 0, Due 1999 -- -- 2,250
10% Series P, Due 2004 -- -- 5,000
6.9% Series Q, Due 2021 10,000 10,000 10,000
5.875% Series R, Due 2022 14,860 15,000 15,000
6.65% Series S, Due 2020 8,000 8,000 8,000
5.75% Series T, Due 2028 5,000 5,000 5,000
5.3% Series U, Due 2028 4,550 4,550 4,550
6.94% Series V, Due 2029 12,050 12,050 --
---------------------------------------
Total Long-Term Debt $54,460 $54,600 $51,600
=======================================
</TABLE>
Substantially all utility plant is pledged as collateral for the Subsidiary's
long-term debt.
There are no mandatory sinking fund payments required on the outstanding First
Mortgage Bonds at December 31, 1995. However, the Series Q and R First Mortgage
Bonds provide for an estate redemption right whereby the estate of deceased
bondholders or surviving joint owners may submit bonds to the Trustee for
redemption at par subject to a $25,000 per individual holder and a 3% annual
aggregate limitation.
<PAGE> 49
Page 49
NOTE 10:
PREFERRED STOCK
Preferred Stock at December 31, consisted of the following:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Cumulative Preferred Stock of Connecticut
Water Service, Inc.
Series A Voting, $20 Par Value; Authorized
Issued and Outstanding 15,000 Shares $300 $300 $300
Series $.90 Non-Voting, $16 Par Value;
Authorized 50,000 Shares, Issued and
Outstanding 29,499 Shares 472 472 472
-----------------------------------
Total Preferred Stock of Connecticut
Water Service, Inc. $772 $772 $772
===================================
Cumulative Preferred Stock of The Connecticut
Water Company, With Mandatory Redemption
Provisions, Voting $100 Par Value:
Authorized 50,000 Shares, Issued and Outstanding:
Series 4.75% $ -- $ 30 $ 60
Series 9.5% -- -- 3,000
Stock Issuance Expense -- -- (54)
-----------------------------------
-- 30 3,006
Less Current Portion of Preferred Stock -- 30 30
-----------------------------------
Total Preferred Stock of The Connecticut
Water Company $ -- $ -- $2,976
===================================
</TABLE>
All or any part of any series of either class of the Company's issued Preferred
Stock may be called for redemption by the Company at any time. The per share
redemption prices of the Series A and Series $.90 Preferred Stock, if called by
the Company, are $21.00 and $16.00, respectively.
The Company is authorized to issue 400,000 shares of an additional class of
Preferred Stock, $25 par value, the general preferences, voting powers,
restrictions and qualifications of which are similar to the Company's existing
Preferred Stock. No shares of the $25 par value Preferred Stock have been
issued.
The Company is also authorized to issue 1,000,000 shares of $1 par value
preference stock, junior to the Company's existing Preferred Stock in rights to
dividends and upon liquidation of the Company. No shares of the preference stock
have been issued.
In 1995, the remaining balance of the 4.75% Series Preferred Stock were redeemed
in accordance with the sinking fund provisions.
NOTE 11:
BANK LINES OF CREDIT
A $9,000,000 line of credit is provided by three banks. Bank commitment fees of
approximately $12,000, $14,000, and $20,000 were paid in 1995, 1994, and 1993,
respectively, on the lines of credit.
At December 31, 1995, 1994, and 1993, the weighted average interest rates on
short-term borrowings outstanding were 6.02%, 6.32%, and 3.38%, respectively.
<PAGE> 50
Page 50
NOTE 12:
RECOVERABLE CLEAN-UP COSTS
During the latter part of 1992 it was discovered that the Subsidiary's Reynolds
Bridge well field in Thomaston, Connecticut, was contaminated with methyl
tertiary butyl ether (MTBE), a gasoline additive. At this time the Subsidiary is
implementing an appropriate remediation program to clean up the well site. In
1994, legal action was initiated by the Company against the two parties deemed
responsible for such contamination in order to obtain recovery of the
Subsidiary's investigation, clean-up and water treatment and supply costs. The
lawsuit is still in the discovery stage. The magnitude of such costs is
presently estimated to be $4,500,000, or more, of which approximately $1,850,000
has been incurred at December 31, 1995, and $450,000 is expected to be incurred
in 1996. The clean-up process may take ten years or more to complete. The
Company has reflected the total estimated clean-up costs as a deferred asset in
the accompanying consolidated balance sheets representing costs which management
believes will be recoverable from third parties or through future rates. A
related liability has been recorded representing expected future clean-up costs.
The Subsidiary is presently purchasing water from a public water supply system
to provide service to its customers at normal levels. The Company and its legal
counsel presently believe that any such costs which are not recovered from third
parties should be allowed to be recovered through rates charged for water
service and that the ultimate resolution of this matter will not have a material
impact on the results of operations or financial condition of the Company.
NOTE 13:
UTILITY PLANT AND CONSTRUCTION PROGRAM
The components of utility plant and equipment at December 31, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Source of Supply $ 15,197 $ 14,814 $ 13,562
Pumping 10,351 10,039 9,980
Water Treatment 35,023 35,147 35,335
Transmission and Distribution 114,901 110,425 108,127
General (including intangible) 9,259 8,726 8,747
Held for Future Use 2,176 1,928 557
----------------------------------------
Total $186,907 $181,079 $176,308
========================================
</TABLE>
The amounts of depreciable plant at December 31, 1995, 1994, and 1993, included
in total plant were $172,819,000, $167,944,000, and $163,848,000, respectively.
<PAGE> 51
Page 51
The Subsidiary is engaged in a continuous construction program. The Subsidiary's
estimated annual capital expenditures, net of amounts financed by customer
advances and contributions in aid of construction, are expected to be $8,540,000
during 1996, $9,200,000 during 1997, and $5,500,000 in 1998. These projections
include costs of refurbishing the Rockville Water Treatment Plant of $2,800,000
in 1996, $4,200,000 in 1997, and $1,000,000 in 1998. The projections also
include $1,000,000 in 1996 and $500,000 in 1997 to make improvements to the
Sound View Water System that the Subsidiary took over in 1995. During the period
1999 to 2000, construction expenditures for routine improvements to the water
distribution system are expected to be approximately $5,000,000 each year.
NOTE 14:
DISCUSSION OF ACCOUNTING FOR LONG-TERM ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of". 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 anticipates
adopting this standard on January 1, 1996, and does not expect that adoption
will have a material impact on the financial position or results of operations
of the Company based on the current regulatory environment in which the Company
operates.
NOTE 15:
TAXES OTHER THAN INCOME TAXES
Taxes Other than Income Taxes consist of the following:
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Municipal Property Taxes $3,284 $3,331 $3,402
Payroll Taxes 539 496 473
Connecticut Gross Earnings Tax 1,967 1,906 1,906
-----------------------------------
Total $ 5,790 $5,733 $5,781
===================================
</TABLE>
<PAGE> 52
Page 52
NOTE 16:
PENSION AND OTHER EMPLOYEE BENEFITS
PENSION - The Subsidiary has a trusteed, non-contributory defined benefit
retirement plan (the Pension Plan) which covers all employees who have completed
one year of service. Benefits under the Pension Plan are based on credited years
of service and "average earnings", as defined in the Pension Plan. The
Subsidiary's policy is to fund accrued pension costs as permitted by Federal
income tax regulations. Funding in the amount of $396,000 will be made for 1995.
No funding was permitted for 1994 and 1993.
The table below sets forth the Pension Plan's funded status and amounts
recognized in the Company's year end Balance Sheets.
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Actuarial Present Value of Benefit Obligations:
Vested Benefit Obligation $ 7,811 $ 6,044 $6,776
Accumulated Benefit Obligation 8,146 6,322 6,909
Projected Benefit Obligation 11,029 8,184 9,568
Pension Plan Assets at Fair Value, Primarily
Equity Securities and U.S. Bonds 10,866 8,825 9,412
Projected Benefit Obligation (11,029) (8,184) (9,568)
----------------------------------------
Pension Plan Assets in Excess of (Under)
Projected Benefit Obligation (163) 641 (156)
Add (Deduct):
Unrecognized Net Gain From Past Experience
Different From That Assumed and Effects
of Changes in Assumptions (1,209) (1,768) (534)
Unrecognized Net Transition Asset at January 1,
1986 Being Recognized Over 15 Years (194) (226) (259)
Unrecognized Prior Service Cost 315 347 388
----------------------------------------
Prepaid (Accrued) Pension Cost as of December 31 $ (1,251) $(1,006) $ (561)
========================================
</TABLE>
Net periodic pension cost for 1995, 1994, and 1993 included the following
components:
<TABLE>
<S> <C> <C> <C>
Service Cost-Benefits Earned During the Period $ 383 $ 469 $ 388
Interest Cost on Projected Benefit Obligation 668 631 618
Actual Return on Pension Plan Assets (2,493) 144 (796)
Deferred Investment Gain (Loss) 1,801 (813) 117
Amortization of:
Unrecognized Net Transition Asset (32) (32) (32)
Unrecognized Net (Gain) Loss (114) 14 (89)
Unrecognized Prior Service Cost 32 32 33
----------------------------------------
Net Periodic Pension Cost $ 245 $ 445 $ 239
========================================
</TABLE>
The actuarial present value of the projected benefit obligation was determined
based on the following assumptions:
<TABLE>
<S> <C> <C> <C>
Weighted Average Discount Rate 6.5% 7.75% 6.5%
and
Rate of Increase in Future Compensation Levels 5.3% 5.3% 5.3%
The Long-Term Expected Rate of Return on Plan Assets
Used in the Determination of Pension Costs 8.0% 8.0% 8.5%
</TABLE>
<PAGE> 53
Page 53
The weighted average discount rate assumption is based on the return provided by
high quality fixed income investments at year end. This rate of return
assumption will likely change annually. The wage rate assumption and the rate of
return on plan assets are more long-term assumptions which may be revised to
reflect changes in economic conditions.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN - The Subsidiary provides additional
pension benefits to senior management through a supplemental executive
retirement plan. At December 31, 1995 the actuarial present value of the
projected benefit obligation was $600,000. Expense associated with this plan was
$181,000 for 1995, $72,000 for 1994, and $123,000 for 1993.
POSTRETIREMENT BENEFITS OTHER THAN PENSION (PBOP) - In addition to providing
pension benefits, the Subsidiary provides certain medical, dental and life
insurance benefits to retired employees partially funded by a 501(c)(9)
Voluntary Employee Beneficiary Association Trust (VEBA) that has been approved
by the DPUC. Substantially all of the Subsidiary's employees may become eligible
for these benefits if they retire from the Company on or after age 55 with 10
years of service with the Subsidiary. The contributions for calendar years 1995,
1994, and 1993 were $250,000, each year and were deductible by the Subsidiary
for Federal Income Tax purposes.
The Financial Accounting Standards Board issued new standards of accounting for
postretirement health care benefits (Statement of Financial Accounting Standards
No. 106) which the Company adopted in 1993. A deferred regulatory asset has been
recorded on the Company's books to reflect the amount which represents the
future operating revenues expected to be collected in customer rates when the
associated liabilities become payable, including appropriate income and gross
earnings taxes. The Company believes that the deferred asset recorded from the
adoption of this statement will be recovered in the future through the
ratemaking process as the DPUC has issued decisions for other water companies
authorizing rate recovery of Statement of Financial Accounting Standards No. 106
expense and has allowed the recording of a regulatory asset for the portion of
the costs to be recovered through future rates.
For Statement of Financial Accounting Standards No. 106, the Company has elected
to recognize the transition obligation on a delayed basis over a period equal to
the plan participants' 21.6 years of average future service.
<PAGE> 54
Page 54
During 1993, three changes in the Company's policy of providing PBOP's
provisions were adopted effective January 1, 1994 and are reflected in the
Accumulated Postretirement Benefit Obligation (APBO) as of December 31, 1993.
These changes are summarized below:
- - Participants retiring on or after January 1, 1994 will contribute 20% of
the annual medical premium for medical coverage.
- - Active employees with 10 consecutive years of service will be eligible for
benefits at age 55.
- - Participants hired on or after January 1, 1994 will receive full PBOP
benefits after 30 years of service. Benefits will be prorated for less than
30 years of service.
The table below sets forth the PBOP plans' funded status and unfunded amounts
recognized in the Company's 1995, 1994, and 1993 year end Balance Sheets.
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Accumulated Postretirement Benefit Obligation (APBO):
Current Retirees $(2,453) $(1,757) $(2,345)
Active Employees Fully Eligible for Benefits (616) (401) (354)
Other Active Employees (790) (784) (1,145)
---------------------------------------
Total (3,859) (2,942) (3,844)
Fair Value of Assets 1,092 901 836
---------------------------------------
APBO in Excess of Fair Value of Assets (2,767) (2,041) (3,008)
---------------------------------------
Unrecognized Amounts:
Transition Obligation 2,803 2,968 2,616
Net Loss (Gain) (968) (1,684) (248)
---------------------------------------
Total 1,835 1,284 2,368
---------------------------------------
Unfunded PBOP at December 31 $ 932 $ 757 $ 640
=======================================
</TABLE>
Net periodic PBOP costs include the following components:
<TABLE>
<S> <C> <C> <C>
Service Cost - Benefits Attributed to Service
During the Period $ 150 $ 158 $ 273
Interest Cost 249 209 429
Actual Return on Assets (182) (9) (24)
Amortization of Transition Obligation 165 165 221
Amortization of Losses (Gains) (97) (128) --
Deferral of Asset (Loss) Gain During the Year 140 (29) (9)
---------------------------------------
Net Periodic PBOP Costs $ 425 $ 366 $ 890
=======================================
</TABLE>
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation for 1995 was 6.5%, 7.75% for 1994 and 6.5% for
1993. The expected long-term after tax return on PBOP assets was 5% for 1995,
1994 and 1993.
In determining the accumulated postretirement benefit obligation, two sets of
medical cost trend rates were used; for retired employees prior to age 65 and
for retirees age 65 and over. Health care cost trends of 13% and 10%,
respectively, were assumed for 1995, grading down over the years to 5.5% in 1999
and after.
<PAGE> 55
Page 55
The health care cost trend rate has a significant effect on the accumulated
postretirement benefit obligation and net periodic cost. A one-percentage-point
increase in the assumed health care cost trend rates would increase the
accumulated postretirement benefit obligation at December 31, 1995 by $395,000
and would increase the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year then ended by $57,000.
Accordingly, subsequent changes would increase or decrease the regulatory assets
and liabilities discussed above.
SAVINGS PLAN - The Subsidiary maintains an employee savings plan which allows
participants to contribute from 1% to 10% of pre-tax compensation. Beginning
January 1, 1993 the Subsidiary matches either 25 or 50 cents for each dollar
contributed by the employee up to 3% of the employees' compensation depending on
the Company's earnings per average common share (EPS). If EPS in the prior year
exceeds 110% of dividends paid per common share, the applicable percentage is
50%; otherwise, the match is 25%. The Subsidiary's contribution charged to
expense in 1995, 1994 and 1993 was $71,000, $60,000 and $47,000, respectively,
in each case based on a 50% match.
PERFORMANCE STOCK PROGRAM - The Company has a Performance Stock Program whereby
restricted shares of Common Stock may be awarded annually to Officers of the
Subsidiary. When the goals established by the Compensation Committee have been
attained, the restrictions on the stock are removed. Amounts charged to expense
pursuant to this plan were $160,000, $120,000 and $66,000 for 1995, 1994 and
1993, respectively.
NOTE 17:
QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for the years ended December 31, 1995 and 1994
appears below:
<TABLE>
<CAPTION>
Net Income Earnings
Utility Applicable to Per Average
Operating Revenues Operating Income Common Stock Common Share
-----------------------------------------------------------------------------------------------------
(Thousands of dollars except per share amounts)
1995 1994 1995 1994 1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter $ 8,819 $ 8,864 $2,085 $2,111 $1,137 $1,099 $ .39 $ .39
Second Quarter 9,179 9,201 2,089 2,008 1,167 1,077 .40 .38
Third Quarter 12,221 11,022 3,798 3,467 2,910 2,518 .99 .90
Fourth Quarter 9,131 9,042 2,050 2,069 1,111 1,148 .39 .41
-----------------------------------------------------------------------------------------------------
Year $39,350 $38,129 $10,022 $9,655 $6,325 $5,842 $2.17 $2.08
=====================================================================================================
</TABLE>
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
<PAGE> 56
Page 56
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), the information called for by
Items 10, (except for information concerning the executive officers of the
Company) 11, 12, and 13 is hereby incorporated by reference from the Company's
definitive proxy statement filed by EDGAR on or about March 19, 1996.
Information concerning the executive officers of the Company is included as Item
4.1 of this report.
<PAGE> 57
Page 57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A) Documents filed as part of this report:
(1) Consolidated Financial Statements:
Page Number
in this Report
--------------
Report to Independent Auditors.......................... 37
Consolidated Balance Sheets -
December 31, 1995, 1994 and 1993............... 38-39
Consolidated Statements of Income -
December 31, 1995, 1994 and 1993............... 40
Consolidated Statements of Cash Flows -
December 31, 1995, 1994 and 1993............... 41
Notes to Consolidated Financial Statements.............. 42-55
(2) Financial Statement Schedules for the years ended December 31,
1995, 1994 and 1993:
Report of Independent Public Accountants on Schedules
Schedule II - Valuation and Qualifying Accounts
All other schedules provided for in the applicable accounting
regulations of the Securities and Exchange Commission have been omitted
because of the absence of conditions under which they are required or
because the required information is set forth in the financial
statements or notes thereto.
(3) Exhibits:
Exhibits heretofore filed with the Securities and Exchange Commission
as indicated below are incorporated herein by reference and made a part
hereof as if filed herewith. Exhibits marked by asterisk (*) are being
filed herewith.
<PAGE> 58
Page 58
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3.1 Certificate of Incorporation of Connecticut Water
Service, Inc. amended and restated September 15,
1988.(Exhibit 3.1 to Form 10-K for year ended December
31, 1989)
3.2 Certificate Amending Certificate of Incorporation of
Connecticut Water Service, Inc. creating $25 par value
Preferred Stock dated September 5, 1989. (Exhibit 3.1a
to Form 10-K for year ended December 31, 1989)
3.3 By-Laws, as amended, of Connecticut Water Service, Inc.
as amended January 18, 1995. (Exhibit 3.3 to Form 10-K
for year ended December 31, 1994)
3.4 Charter of The Connecticut Water Company and amendments
thereto (Certificate of Incorporation) through November
13, 1960. (Exhibit 3.2 to Registration Statement
No. 2-61843)
3.5 Articles of General Preferences, Voting Powers,
Restrictions and Qualifications of the Preferred Stock of
The Connecticut Water Company. (Exhibit 3.3 to
Registration Statement No. 2-61843)
3.6 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company effective May 4, 1970
increasing authorized Preferred Stock. (Exhibit 3.4 to
Registration Statement No. 2-61843)
3.7 Resolutions of stockholders of The Connecticut Water
Company adopted November 14, 1960 creating Preferred
Stock, 5 7/8% Series. (Exhibit 3.5 to Registration
Statement No. 2-61843)
3.8 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company dated May 8, 1965 creating
Preferred Stock, 4 3/4% Series. (Exhibit 3.6 to
Registration Statement No. 2-61843)
3.9 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company dated June 20, 1968 creating
Preferred Stock, 7% Series. (Exhibit 3.6 to
Registration Statement No. 2-61843)
3.10 Purchase Agreement dated May 20 1968 with respect to sale
of Preferred Stock, 7% Series, including Common Stock
dividend restriction in Section 6(e) thereof of The
Connecticut Water Company (Exhibit 3.8 to Registration
Statement No. 2-61843)
3.11 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company dated April 10, 1975. (Exhibit
3.9 to Registration Statement No. 2-54353)
<PAGE> 59
Page 59
3.12 Certificate Amending Certificate of Incorporation of The
Connecticut Water Company dated December 22, 1980,
creating Preferred Stock, 12 1/2% Series. (Exhibit 2(k)
to Form 10-K for the year ended December 31, 1980)
3.13 Purchase Agreement dated December 1, 1980 with respect to
sale of Preferred Stock, 12 1/2% Series. (Exhibit 2(1)
to Form 10-K for the year ended December 31, 1980)
3.14 Resolution of The Connecticut Water Company Board of
Directors creating Preferred Stock, 9 1/2% Series dated
March 30, 1989. (Exhibit 3.13 to Form 10-K for year
ended December 31, 1989)
3.15 Purchase Agreement with respect to sale of Preferred
Stock, 9 1/2% Series dated March 1, 1989. (Exhibit 3.14
to Form 10-K for year ended December 31, 1989)
3.16 Certificate Amending Certificate of Incorporation by
Action of Board of Directors and Shareholders of The
Connecticut Water Company to reduce Director's Liability
dated November, 1989. (Exhibit 3.15 to Form 10-K for
year ended December 31, 1989)
4.1 Indenture of Mortgage and Deed of Trust from The
Connecticut Water Company to The Connecticut Bank and
Trust Company, Trustee, dated as of June 1, 1956.
(Exhibit 4.3(a) to Registration Statement No. 2-61843)
4.2 Supplemental Indentures thereto dated as of
(i) February 1, 1958 (Exhibit 4.3(b) (i) to
Registration Statement No. 2-61843)
(ii) September 1, 1962 (Exhibit 4.3(b) (ii) to
Registration Statement No. 2-61843)
(iii) January 1, 1966 (Exhibit 4.3(b) (iii) to
Registration Statement No. 2-61843)
(iv) July 1, 1966 (Exhibit 4.3(b) (iv) to Registration
Statement No. 2-61843)
(v) January 1, 1971 (Exhibit 4.3(b) (v) to
Registration Statement No. 2-61843)
(vi) September 1, 1974 (Exhibit 4.3(b) (vi) to
Registration Statement No. 2-61843)
(vii) December 1, 1974 (Exhibit 4.3(b) (vii) to
Registration Statement No. 2-61843)
(viii) January 1, 1976 (Exhibit 4(b) to Form 10-K for
the year ended 12/31/76)
(ix) January 1, 1977 (Exhibit 4(b) to Form 10-K for
the year ended 12/31/76)
(x) September 1, 1978 (Exhibit 2.12(b) (x) to
Registration Statement No. 2-66855)
(xi) December 1, 1978 (Exhibit 2.12(b) (xi) to
Registration Statement No. 2-66855)
(xii) June 1, 1979 (Exhibit 2.12(b) (xii) to
Registration Statement No. 2-66855)
(xiii) December 1, 1983 (Exhibit 4.2 (xiii) to Form 10-K
for the year ended 12/31/83)
(xiv) January 1, 1987 (Exhibit 4.2 (xiv) to Form 10-K
for the year ended 12/31/86)
<PAGE> 60
Page 60
(xv) May 1, 1989 (Exhibit 4.2 (xv) to Form 10-K for
year ended 12/31/89)
(xvi) June 1, 1991 (Exhibit 4.2 (xvi) to Form 10-K for
year ended 12/31/91)
(xvii) August 1, 1992 (Exhibit 4.2 (xvii) to Form 10-K
for year ended 12/31/92)
(xviii) October 1, 1993 (Exhibit 4.2 (xviii) to Form 10-K
for year ended 12/31/93)
(xix) June 1, 1993 (Exhibit 4.2 (xix) to Form 10-K for
year ended 12/31/93)
(xx) September 1, 1993 (Exhibit 4.2 (xx) to Form 10-K
for year ended 12/31/93)
(xxi) December 1, 1993 (Exhibit 4.2 (xxi) to Form 10-K
for year ended 12/31/93)
(xxii) March 1, 1994 (Exhibit 4.2 (xxii) to Form 10-K
for year ended 12/31/94)
4.3 Loan Agreement dated as of October 1, 1993, between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.3 to Form 10-K for year ended
December 31, 1993)
4.4 Loan Agreement dated as of June 1, 1993, between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.4 to Form 10-K for year ended
December 31, 1993)
4.5 Loan Agreement dated as of September 1, 1993, between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.5 to Form 10-K for year ended
December 31, 1993)
4.6 Loan Agreement dated as of June 1, 1991, between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.10 to Form 10-K for year ended
December 31, 1991)
4.7 Loan Agreement dated as of August 1, 1992 between the
Connecticut Development Authority and The Connecticut
Water Company. (Exhibit 4.10 to Form 10-K for the year
ended December 31, 1992)
4.8 Bond Purchase Agreement dated as of December 1, 1993.
(Exhibit 4.8 to Form 10-K for year ended December 31,
1993)
10.1 Pension Plan Fiduciary Liability Insurance for The
Connecticut Water Company Employees' Retirement Plan and
Trust, The Connecticut Water Company Tax Credit Employee
Stock Ownership Plan, as Amended and Restated, Savings
Plan of The Connecticut Water Company and The Connecticut
Water Company VEBA Trust Fund. (Exhibit 10.1 to
Registration Statement No. 2-74938)
<PAGE> 61
Page 61
10.2 Directors and Officers Liability and Corporation
Reimbursement Insurance. (Exhibit 10.2 to Registration
Statement No. 2-74938)
10.3 Directors Deferred Compensation Plan, effective as of
January 1, 1980, as amended as of March 20, 1981.
(Exhibit 10.3 to Registration Statement No. 2-74938)
10.4 The Connecticut Water Company Deferred Compensation
Agreement dated December 1, 1984. (Exhibit 10.4 to Form
10-K for the year ended December 31, 1984)
10.5 The Connecticut Water Company Deferred Compensation
Agreement dated January 1, 1989. (Exhibit 10.5 to Form
10-K for the year ended December 31, 1988)
10.6 The Connecticut Water Company Supplemental Executive
Retirement Agreement with William C. Stewart. (Exhibit
10.6a to Form 10-K for year ended December 31, 1991
10.7 The Connecticut Water Company Supplemental Executive
Retirement Agreement with Marshall T. Chiaraluce.
(Exhibit 10.6b to Form 10-K for year ended December 31,
1991)
10.8 The Connecticut Water Company Supplemental Executive
Retirement Agreement - standard form for other officers.
(Exhibit 10.6c to Form 10-K for year ended December 31,
1991)
10.9 Savings Plan of The Connecticut Water Company, amended and
restated effective as of January 1, 1989.
10.10 Amendment to The Connecticut Water Company Savings Plan,
adopted August 19, 1992. (Exhibit 10.10 to Form 10-K for
the year ended December 31, 1992.)
10.11 Second Amendment to The Connecticut Water Company Savings
Plan, adopted August 19, 1992. (Exhibit 10.11 to Form
10-K for year ended December 31, 1992.)
10.12 Third Amendment to The Connecticut Water Company Savings
Plan, adopted August 18, 1993. (Exhibit 10.12 to Form
10-K for year ended December 31, 1993.)
10.13 Amendment to The Connecticut Water Company Savings Plan,
adopted November 16, 1994. (Exhibit 10.13 to Form 10-K
for year ended December 31, 1994.)
10.14 The Connecticut Water Company Employees' Retirement Plan
as amended and restated as of January 1, 1994. (Exhibit
10.14 to Form 10-K for year ended December 31, 1994)
10.15 Water Supply Agreement dated June 13, 1994, between The
Connecticut Water Company and the Hazardville Water
Company. (Exhibit 10.15 to Form 10-K for year ended
December 31, 1994)
<PAGE> 62
Page 62
10.16 November 4, 1994 Amendment to Agreement dated
December 11, 1957 between The Connecticut Water Company
(successor to the Thomaston Water Company) and the City
of Waterbury. (Exhibit 10.16 to Form 10-K for year ended
December 31, 1994)
10.17 Contract between The Connecticut Water Company and The
Rockville Water and Aqueduct Company dated as of
January 1, 1976. (Exhibit 9(b) to Form 10-K for the year
ended December 31, 1975)
10.18 Agreement dated August 13, 1986 between The Connecticut
Water Co. and the Metropolitan District. (Exhibit 10.14
to Form 10-K for the year ended December 31, 1986)
10.19 Report of the Commission to Study the Feasibility of
Expanding the Water Supply Services of the Metropolitan
District. (Exhibit 14 to Registration Statement
No. 2-61843)
10.20 Plan of Merger dated December 18, 1978 of Broad Brook
Water Company, The Collinsville Water Company, The
Rockville Water and Aqueduct Company, The Terryville
Water Company and The Thomaston Water Company with and
into The Connecticut Water Company. (Exhibit 13 to Form
10-K for the year ended December 31, 1978)
10.21 Bond Exchange Agreements between Connecticut Water
Service, Inc., The Connecticut Water Company Bankers Life
Company and Connecticut Mutual Life Insurance Company
dated October 23, 1978. (Exhibit 14 to Form 10-K for the
year ended December 31, 1978)
10.22 Dividend Reinvestment and Common Stock Purchase Plan as
amended. (Registration Statement No. 33-53211 as
amended)
10.23 Contract for Supplying Bradley International Airport.
(Exhibit 10.21 to Form 10-K for the year ended
December 31, 1984)
10.24 Report of South Windsor Task Force. (Exhibit 10.23 to
Form 10-K for the year ended December 31, 1987)
10.25 Trust Agreement for The Connecticut Water Company Welfare
Benefits Plan (VEBA) dated January 1, 1989. (Exhibit
10.21 to Form 10-K for year ended December 31, 1989)
10.26 Performance Stock Plan. (Registration Statement No.
33-49058.)
<PAGE> 63
Page 63
24.1 * Consent of Arthur Andersen LLP
27.0 * Financial Data Schedule
- ----------
Note: Exhibits 10.1 through 10.14, 10.25 and 10.26 set forth
each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this
Form-10K.
(b) No reports on Form 8-K were filed during the last
quarter of 1995.
<PAGE> 64
Page 64
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CONNECTICUT WATER SERVICE, INC.
Registrant
By /s/ Marshall T. Chiaraluce
----------------------------
Marshall T. Chiaraluce
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of Connecticut
Water Service, Inc. in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
s/s Marshall T. Chiaraluce
- ---------------------------
Marshall T. Chiaraluce Director and March 14, 1996
(Principal Executive Officer) President and
Chief Executive
Officer
/s/ Bertram L. Lenz
- ------------------------------
Bertram L. Lenz Director and Vice March 14, 1996
(Principal Financial and President -
Accounting Officer) Finance and
Accounting,
and Treasurer
/s/ William F. Guillaume
- ------------------------------
William F. Guillaume Director and Vice March 14, 1996
President -
Engineering and
Planning
<PAGE> 65
Page 65
/s/ Francis E. Baker, Jr. Director March 12, 1996
- ---------------------
Francis E. Baker, Jr.
/s/ Harold E. Bigler, Jr. Director March 6, 1996
- ---------------------
Harold E. Bigler, Jr.
/s/ Astrid T. Hanzalek Director March 10, 1996
- ---------------------
Astrid T. Hanzalek
/s/ Frederick E. Hennick Director March 3, 1996
- ---------------------
Frederick E. Hennick
Marcia L. Hincks Director March 4, 1996
- ---------------------
Marcia L. Hincks
/s/ W. C. Lichtenfels Director March 12, 1996
- ---------------------
William C. Lichtenfels
/s/ Rudolph E. Luginbuhl Director March 2, 1996
- ---------------------
Rudolph E. Luginbuhl
/s/ Harvey G. Moger Director March 2, 1996
- ---------------------
Harvey G. Moger
/s/ Robert F. Neal Director March 3, 1996
- ---------------------
Robert F. Neal
/s/ Warren C. Packard Director March 2, 1996
- ---------------------
Warren C. Packard
/s/ Donald B. Wilbur Director March 12, 1996
- ---------------------
Donald B. Wilbur
<PAGE> 66
SCHEDULES
<PAGE> 67
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
We have audited, in accordance with generally accepted auditing standards, the
financial statements of Connecticut Water Service, Inc. included in this Form
10-K, and have issued our report thereon dated February 14, 1996. Our audit was
made for the purpose of forming an opinion on those statements taken as a whole.
The schedule listed in the accompanying index to financial statements and
schedule is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
Hartford, Connecticut
February 14, 1996
<PAGE> 68
CONNECTICUT WATER SERVICE, INC. and SUBSIDIARY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance Additions Deductions Balance
Beginning Charged to From End of
Description of Year Income Reserves (1) Year
- ---------------------------------------------- --------- --------- ------------ ------
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Allowance for Uncollectible Accounts
Year Ended December 31, 1995 $149 $137 $122 $164
==== ==== ==== ====
Year Ended December 31, 1994 $166 $115 $132 $149
==== ==== ==== ====
Year Ended December 31, 1993 $256 $189 $279 $166
==== ==== ==== ====
</TABLE>
(1) Amounts charged off as uncollectible after deducting recoveries
<PAGE> 69
EXHIBITS
TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR
ENDED DECEMBER 31, 1995
24.1 Consent of Arthur Andersen LLP
27.0 Financial Data Schedule
<PAGE> 1
Exhibit 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-53211.
/s/ Arthur Andersen LLP
Hartford, Connecticut
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 146,536
<OTHER-PROPERTY-AND-INVEST> 1,096
<TOTAL-CURRENT-ASSETS> 7,629
<TOTAL-DEFERRED-CHARGES> 21,198
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 176,459
<COMMON> 41,320
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 10,468
<TOTAL-COMMON-STOCKHOLDERS-EQ> 51,788
0
772
<LONG-TERM-DEBT-NET> 54,460
<SHORT-TERM-NOTES> 2,646
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 66,793
<TOT-CAPITALIZATION-AND-LIAB> 176,459
<GROSS-OPERATING-REVENUE> 39,350
<INCOME-TAX-EXPENSE> 4,950
<OTHER-OPERATING-EXPENSES> 24,378
<TOTAL-OPERATING-EXPENSES> 29,328
<OPERATING-INCOME-LOSS> 10,022
<OTHER-INCOME-NET> 287
<INCOME-BEFORE-INTEREST-EXPEN> 10,309
<TOTAL-INTEREST-EXPENSE> 3,946
<NET-INCOME> 6,363
38
<EARNINGS-AVAILABLE-FOR-COMM> 6,325
<COMMON-STOCK-DIVIDENDS> 4,897
<TOTAL-INTEREST-ON-BONDS> 3,462
<CASH-FLOW-OPERATIONS> 11,005
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.17
</TABLE>
