<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED June 30, 1998 OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO
Commission File Number 0-8084
Connecticut Water Service, Inc.
(Exact name of registrant as specified in its charter)
Connecticut 06-0739839
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
93 West Main Street, Clinton, CT 06413-1600
(Address of principal executive offices) (Zip Code)
(860) 669-8636
(Registrant's telephone number, including area code)
Not Applicable
(Former name, address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE
PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a count. Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
3,023,859
Number of shares of common stock outstanding, June 30, 1998
<PAGE> 2
CONNECTICUT WATER SERVICE, INC.
Financial Report
June 30, 1998 and 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I, ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets at June 30, 1998
and December 31, 1997 Page 3
Consolidated Statements of Capitalization at
June 30, 1998 and December 31, 1997 Page 4
Consolidated Statements of Income for Three Months
Ended June 30, 1998 and 1997 Page 5
Consolidated Statements of Income for Six Months
Ended June 30, 1998 and 1997 Page 6
Consolidated Statements of Income for Twelve Months
Ended June 30, 1998 and 1997 Page 7
Consolidated Statements of Retained Earnings for Three
Months Ended June 30, 1998 and 1997 Page 8
Consolidated Statements of Retained Earnings for Six
Months Ended June 30, 1998 and 1997 Page 8
Consolidated Statements of Retained Earnings for Twelve
Months Ended June 30, 1998 and 1997 Page 8
Consolidated Statements of Cash Flows for Six Months
Ended June 30, 1998 and 1997 Page 9
Notes to Consolidated Financial Statements Page 10
PART I, ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations Pages 11-12
PART I, ITEM 5: Other Information - Stock Split Page 12
PART II, ITEM 6: Item 6(a) - Exhibits Page 13
Signature Page Page 14
</TABLE>
<PAGE> 3
Page 3
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AT JUNE 30, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30,
1998 DEC. 31,
ASSETS (UNAUDITED) 1997
- ------ ----------- ----
<S> <C> <C>
Utility Plant
Utility Plant $ 209,429 $ 207,476
Construction Work in Progress 11,056 9,882
Utility Plant Acquisition Adjustments (1,255) (1,255)
--------- ---------
219,230 216,103
Accumulated Provision for Depreciation (54,400) (52,346)
--------- ---------
Net Utility Plant 164,830 163,757
--------- ---------
Investments 1,818 1,570
--------- ---------
Current Assets
Cash 23 346
Accounts Receivable (Less Allowance, 1998 - $200; 1997 - $126) 5,535 4,568
Accrued Unbilled Revenues 2,270 2,684
Prepayments and Other Current Assets 691 758
--------- ---------
Total Current Assets 8,519 8,356
--------- ---------
Deferred Charges
Unamortized Debt Issuance Expense 6,020 5,023
Income Taxes 8,671 8,623
Postretirement Benefits Other Than Pension 1,220 1,220
Other Costs 882 728
--------- ---------
Total Deferred Charges 16,793 15,594
--------- ---------
TOTAL ASSETS $ 191,960 $ 189,277
========= =========
CAPITALIZATION AND LIABILITIES
Capitalization (See accompanying statements)
Common Stockholders' Equity $ 56,386 $ 56,069
Preferred Stock 772 772
Long-Term Debt 62,517 54,532
--------- ---------
Total Capitalization 119,675 111,373
--------- ---------
Current Liabilities
Interim Bank Loans Payable 4,130 8,811
Accounts Payable and Accrued Taxes and Interest 5,735 7,775
Other 2,364 2,208
--------- ---------
Total Current Liabilities 12,229 18,794
--------- ---------
Long-Term Liabilities
Advances for Construction 15,599 15,203
Contributions in Aid of Construction 18,830 18,750
Deferred Federal Income Taxes 14,338 13,838
Unfunded Future Income Taxes 8,000 8,000
Unfunded Postretirement Benefits Other Than Pension 1,220 1,220
Unamortized Investment Tax Credits 2,069 2,099
--------- ---------
Total Long-Term Liabilities 60,056 59,110
--------- ---------
TOTAL CAPITALIZATION AND LIABILITIES $ 191,960 $ 189,277
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 4
Page 4
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
AT JUNE 30, 1998 AND DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
1998 DEC. 31,
(UNAUDITED) 1997
----------- ----
<S> <C> <C>
Common Stockholders' Equity
Common Stock Without Par Value; Authorized - 7,500,000 Shares;
Shares Issued and Outstanding: 1998 - 3,023,859; 1997 - 3,017,101 $44,021 $43,928
Stock Issuance Expense (1,349) (1,349)
Retained Earnings 13,714 13,490
--------- ---------
Total Common Stockholders' Equity 56,386 56,069
--------- ---------
Cumulative Preferred Stock of Connecticut Water Service, Inc.
Series A Voting, $20 Par Value; Authorized, Issued and
Outstanding 15,000 Shares, Redeemable at $21.00 Per Share 300 300
Series $.90 Non-Voting, $16 Par Value; Authorized 50,000 Shares
Issued and Outstanding 29,499 Shares, Redeemable at $16.00 Per Share 472 472
--------- ---------
Total Preferred Stock of Connecticut Water Service, Inc. 772 772
--------- ---------
Long-Term Debt
The Connecticut Water Company
First Mortgage Bonds
6.9% Series Q, due 2021 0 10,000
5.875% Series R, due 2022 14,800 14,800
6.65% Series S, due 2020 8,000 8,000
5.75% Series T, due 2028 5,000 5,000
5.3% Series U, due 2028 4,550 4,550
6.94% Series V, due 2029 12,050 12,050
--------- ---------
44,400 54,400
--------- ---------
Unsecured Water Facilities Revenue Refinancing Bonds
5.05% 1998 Series A, due 2028 10,000 0
5.125% 1998 Series B, due 2028 8,000 0
--------- ---------
18,000 0
--------- ---------
Other
5.5% Unsecured Promissory Note 146 161
--------- ---------
62,546 54,561
Less Current Portion of Long-Term Debt (29) (29)
--------- ---------
Total Long-Term Debt 62,517 54,532
--------- ---------
TOTAL CAPITALIZATION $119,675 $111,373
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
Page 5
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
(UNAUDITED) UNAUDITED)
----------- ----------
<S> <C> <C>
Operating Revenues $ 8,796 $ 9,633
----------- -----------
Operating Expenses
Operation 3,646 3,346
Maintenance 436 598
Depreciation 935 869
Federal Income Taxes 467 788
Connecticut Corporation Business Taxes 72 169
Municipal Taxes 868 811
Payroll Taxes 127 100
Connecticut Gross Earnings Tax 0 474
Organizational Charges 0 422
----------- -----------
Total Operating Expenses 6,551 7,577
----------- -----------
Utility Operating Income 2,245 2,056
----------- -----------
Other Income (Deductions)
Interest 30 25
Allowance for Funds Used During Construction 119 161
Gain on Sale of Property 207 50
Non-Water Sales Earnings 56 37
Miscellaneous Income (Deductions) (8) (2)
Taxes on Other Income (103) (76)
----------- -----------
Total Other Income (Deductions) 301 195
----------- -----------
Interest and Debt Expense
Interest on Long-Term Debt 924 865
Other Interest Charges 89 139
Amortization of Debt Expense 54 47
----------- -----------
Total Interest and Debt Expense 1,067 1,051
----------- -----------
Net Income 1,479 1,200
Preferred Stock Dividend Requirement 9 9
----------- -----------
Net Income Applicable to Common Stockholders $ 1,470 $ 1,191
=========== ===========
Weighted Average Common Shares Outstanding 3,024,000 3,016,000
=========== ===========
Earnings Per Average Common Share $ 0.49 $ 0.39
=========== ===========
Dividends Per Common Share $ 0.435 $ 0.43
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
Page 6
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Operating Revenues $ 17,468 $ 18,645
----------- -----------
Operating Expenses
Operation 6,788 6,510
Maintenance 881 1,008
Depreciation 1,872 1,739
Federal Income Taxes 1,181 1,521
Connecticut Corporation Business Taxes 219 324
Municipal Taxes 1,681 1,623
Payroll Taxes 297 269
Connecticut Gross Earnings Tax 0 924
Organizational Charges 0 422
----------- -----------
Total Operating Expenses 12,919 14,340
----------- -----------
Utility Operating Income 4,549 4,305
----------- -----------
Other Income (Deductions)
Interest 54 49
Allowance for Funds Used During Construction 249 314
Gain on Sale of Property 207 170
Non-Water Sales Earnings 84 83
Miscellaneous Income (Deductions) (11) (4)
Taxes on Other Income (120) (173)
----------- -----------
Total Other Income (Deductions) 463 439
----------- -----------
Interest and Debt Expense
Interest on Long-Term Debt 1,791 1,730
Other Interest Charges 251 262
Amortization of Debt Expense 101 94
----------- -----------
Total Interest and Debt Expense 2,143 2,086
----------- -----------
Net Income 2,869 2,658
Preferred Stock Dividend Requirement 19 19
----------- -----------
Net Income Applicable to Common Stockholders $ 2,850 $ 2,639
=========== ===========
Weighted Average Common Shares Outstanding 3,023,000 3,015,000
=========== ===========
Earnings Per Average Common Share $ 0.94 $ 0.88
=========== ===========
Dividends Per Common Share $ 0.87 $ 0.86
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
Page 7
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Operating Revenues $ 37,324 $ 38,874
----------- -----------
Operating Expenses
Operation 13,376 12,764
Maintenance 1,825 1,830
Depreciation 3,638 3,410
Federal Income Taxes 3,321 3,654
Connecticut Corporation Business Taxes 720 828
Municipal Taxes 3,328 3,297
Payroll Taxes 529 454
Connecticut Gross Earnings Tax 7 1,937
Organizational Charges 2 422
----------- -----------
Total Operating Expenses 26,746 28,596
----------- -----------
Utility Operating Income 10,578 10,278
----------- -----------
Other Income (Deductions)
Interest 127 180
Allowance for Funds Used During Construction 510 537
Gain on Sale of Property 220 189
Non-Water Sales Earnings 175 30
Miscellaneous Income (Deductions) (72) (70)
Taxes on Other Income (162) (200)
----------- -----------
Total Other Income (Deductions) 798 666
----------- -----------
Interest and Debt Expense
Interest on Long-Term Debt 3,521 3,460
Other Interest Charges 645 447
Amortization of Debt Expense 195 188
----------- -----------
Total Interest and Debt Expense 4,361 4,095
----------- -----------
Net Income 7,015 6,849
Preferred Stock Dividend Requirement 38 38
----------- -----------
Net Income Applicable to Common Stockholders $ 6,977 $ 6,811
=========== ===========
Weighted Average Common Shares Outstanding 3,020,000 3,013,000
=========== ===========
Earnings Per Average Common Share $ 2.31 $ 2.26
=========== ===========
Dividends Per Common Share $ 1.74 $ 1.72
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
Page 8
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Balance at Beginning of Period $13,557 $12,091
Net Income 1,479 1,200
------- -------
15,036 13,291
------- -------
Dividends Declared:
Cumulative Preferred, Class A, $.20 per share 3 3
Cumulative Preferred, Series $.90, $.225 per share 6 6
Common Stock - 1998 $.435 per share; 1997 $.43 per share 1,313 1,296
------- -------
1,322 1,305
------- -------
Balance at End of Period $13,714 $11,986
======= =======
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Balance at Beginning of Period $13,490 $11,939
Net Income 2,869 2,658
------- -------
16,359 14,597
------- -------
Dividends Declared:
Cumulative Preferred, Class A, $.80 per share 6 6
Cumulative Preferred, Series $.90, $.90 per share 13 13
Common Stock - 1998 $1.735 per share; 1997 $1.71 per share 2,626 2,592
------- -------
2,645 2,611
------- -------
Balance at End of Period $13,714 $11,986
======= =======
FOR THE TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997
Balance at Beginning of Period $11,986 $10,357
Net Income 7,015 6,849
------- -------
19,001 17,206
------- -------
Dividends Declared:
Cumulative Preferred, Class A, $.80 per share 12 12
Cumulative Preferred, Series $.90, $.90 per share 26 27
Common Stock - 1998 $1.735 per share; 1997 $1.71 per share 5,249 5,181
------- -------
5,287 5,220
------- -------
Balance at End of Period $13,714 $11,986
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
Page 9
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
(UNAUDITED) (UNAUDITED)
----------- -----------
<S> <C> <C>
Operating Activities:
Net Income Before Preferred Dividends of Parent $ 2,869 $ 2,658
-------- --------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation (including $63 in 1998, $57 in 1997 charged to other accounts) 1,935 1,796
Change in Assets and Liabilities:
Increase in Accounts Receivable and Accrued Unbilled Revenues (553) (48)
Decrease (Increase) in Other Current Assets 66 (208)
Increase in Other Non-Current Items (350) (652)
Increase (Decrease) in Accounts Payable, Accrued Expenses and
Other Current Liabilities (1,882) (609)
Increase (Decrease) in Deferred Federal Income Taxes and
Investment Tax Credits, Net 470 475
-------- --------
Total Adjustments (314) 754
-------- --------
Net Cash Provided by (Used for) Operating Activities 2,555 3,412
-------- --------
Investing Activities:
Gross Additions to Utility Plant (including Allowance for Funds
Used During Construction of $249 in 1998 and $214 in 1997) (3,008) (3,785)
-------- --------
Financing Activities:
Proceeds from Interim Bank Loans 4,130 8,646
Repayment of Interim Bank Loans (8,811) (5,795)
Proceeds from Issuance of Common Stock 93 108
Proceeds from Issuance of Long-Term Debt 18,000 0
Repayment of Long-Term Debt (10,015) (30)
Advances, Contributions and Funds From Others for Construction, Net of (Refunds) 476 369
Costs Incurred to Issue Long-Term Debt, Preferred Stock, and Common Stock (1,098) (22)
Cash Dividends Paid (2,645) (2,612)
-------- --------
Net Cash Provided by (Used in) Financing Activities 130 664
-------- --------
Net Increase (Decrease) in Cash (323) 291
Cash at Beginning of Year 346 35
-------- --------
Cash at End of Period $ 23 $ 326
======== ========
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for:
Interest (Net of Amounts Capitalized) $ 2,476 $ 2,837
Income Taxes $ 1,795 $ 1,595
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
Page 10
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated financial statements included herein have been prepared by
CONNECTICUT WATER SERVICE, INC. (the Company), without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission and reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for interim periods. Certain information and footnote
disclosures have been omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on 10-K.
The results for interim periods are not necessarily indicative of results to
be expected for the year since the consolidated earnings are subject to seasonal
factors.
2. Earnings per average common share are calculated by dividing net income
applicable to common stock by the average number of shares of common stock
outstanding during the respective periods as detailed:
<TABLE>
<CAPTION>
3 Months Ended 12 Months Ended
------------------------ -----------------------------------------
6/30/98 6/30/97 6/30/98 6/30/97 12/31/97
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Common Shares Outstanding:
January 1, 1997 -- -- -- -- 3,012,083
July 1, 1997 & 1996
respectively -- 3,017,101 3,010,091 --
April 1, 1998 & 1997
respectively 3,023,499 3,016,286 -- -- --
Common Shares Issued:
To PSP - July 1, 1996 -- -- -- 687 --
To 401-K - September 30, 1996 -- -- -- 655 --
To 401-K - December 31, 1996 -- -- -- 650 --
To PSP- February 14, 1997 -- -- -- 3,526 3,526
To 401-K - March 30, 1997 -- -- -- 677 677
To CSE - June 13, 1997 -- 40 -- 40 40
To 401-K - June 30, 1997 -- 775 -- 775 775
To CSE - September 15, 1997 -- -- 41 -- 41
To 401-K - September 30, 1997 -- -- 668 -- 668
To CSE - December 15, 1997 -- -- 38 -- 38
To 401-K - December 31, 1997 -- -- 576 -- 576
To PSP - February 18, 1998 -- -- 4,614 -- --
To CSE - March 15, 1998 -- -- 68 -- --
To 401-K - March 30, 1998 -- -- 393 -- --
To CSE - June 15, 1998 63 -- 63 -- --
To 401-K - June 30, 1998 297 -- 297 -- --
--------- --------- --------- --------- ---------
Common Shares Outstanding:
June 30, 1998 & 1997
respectively 3,023,859 3,017,101 3,023,859 3,017,101
========= ========= ========= =========
December 31, 1997 3,018,424
=========
Weighted Average Common Shares Outstanding:
Days outstanding basis* 3,023,513 3,016,301 3,020,215 3,012,954 3,016,279
========= ========= ========= ========= =========
</TABLE>
* Basic and Fully diluted are the same
DRIP = Dividend Reinvestment Plan
PSP = Performance Stock Program
401-K = Company contribution to employees' 401-K savings plan
CSE = Common Stock Equivalents
<PAGE> 11
Page 11
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
PART I, ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CORPORATE RESOURCES
At June 30, 1998 the Company had lines of credit of $9,000,000, of
which, $4,870,000 were available.
On April 24, 1998 the Connecticut Water Company refinanced its Series
Q, $10,000,000 6.9% tax-exempt First Mortgage Bonds, issued in 1991 with
proceeds from $10,000,000 of 5.05% 1998 Series A unsecured tax-exempt water
facilities revenue refinancing bonds, issued for that purpose on March 25, 1998.
Additionally, $8,000,000 of 5.125% tax-exempt 1998 Series B unsecured
water facilities revenue refinancing bonds were issued on March 25, 1998. The
proceeds of this bond issue were used to reduce interim bank loans payable.
RESULTS OF OPERATIONS
THE FOLLOWING FACTORS HAD A SIGNIFICANT EFFECT UPON THE COMPANY'S NET
INCOME FOR THE THREE MONTHS ENDED JUNE 30, 1998 AS COMPARED WITH THE NET INCOME
FOR THE SAME PERIOD LAST YEAR.
Net income applicable to common stock for the three months ended June
30, 1998 increased from that of June 30, 1997 by $279,000, or $0.10 per average
common share. The increase in net income resulted from a $189,000 increase in
utility operating income and a $106,000 increase in other income, partially
offset by a $16,000 increase in interest and debt expense.
The net increase in operating income is primarily due to a one-time
organizational charge in 1997 relating to an early retirement program and
decreased 1998 income tax expense relating to lower pre-tax income, a tax/book
timing adjustment relating to the 1998 refinancing of the Series Q First
Mortgage Bonds, and a reduction in the state corporate income tax rate. These
expense reductions were partially offset by a decrease in operating revenues,
due to residential customers reducing their summer water usage in response to
the cool, wet 1998 weather* and increased operation, depreciation, and municipal
tax expenses.
The net increase in other income is primarily due to increased land
sales in 1998, as compared to 1997.
*In addition to the weather-related reduction, operating revenues were reduced
approximately $500,000 in the second quarter of 1998 due to a reduction in
rates, attributable primarily to the elimination of the Connecticut Gross
Earnings Tax effective July 1, 1997. As operating expense relating to the gross
earnings tax was also reduced by a comparable amount, the net effect on
operating income is zero.
<PAGE> 12
Page 12
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
THE FOLLOWING FACTORS HAD A SIGNIFICANT EFFECT UPON THE COMPANY'S NET
INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1998 AS COMPARED WITH THE NET INCOME
FOR THE SAME PERIOD LAST YEAR.
Net income applicable to common stock for the six months ended June 30, 1998
increased from that of June 30, 1997 by $211,000, or $0.06 per average common
share. The increase in net income resulted from a $244,000 increase in utility
operating income and a $24,000 increase in other income.
The net increase in operating income is primarily due to a one-time
organizational charge in 1997 relating to an early retirement program and
decreased 1998 income tax expense relating to lower pre-tax income, a tax/book
timing adjustment relating to the 1998 refinancing of the Series Q First
Mortgage Bonds, and a reduction in the state corporate income tax rate. These
expense reductions were partially offset by a decrease in operating revenues,
due to residential customers reducing their summer water usage in response to
the cool, wet 1998 weather* and increased operation, depreciation, and municipal
tax expenses.
The net increase in other income is primarily due to increased land
sales in 1998, as compared to 1997.
*In addition to the weather-related reduction, operating revenues were reduced
approximately $925,000 in 1998 due to a reduction in rates, attributable
primarily to the elimination of the Connecticut Gross Earnings Tax effective
July 1, 1997. As operating expense relating to the gross earnings tax was also
reduced by a comparable amount, the net effect on operating income is zero.
PART I, ITEM 5: OTHER INFORMATION
STOCK SPLIT
On August 12, 1998 the Company's Board of Directors approved a
three-for-two stock split to be effected by issuing on or about September 15,
1998 one share of the Company's Common Stock, no par value, for each two shares
of Common Stock held by each Common Shareholder of record on the close of
business on September 1, 1998. No fractional shares will be issued in connection
with the stock split and in lieu thereof an equivalent amount in cash will be
paid based on a value per share equal to the closing price of the Company's
Common Stock on September 2, 1998. In connection with the stock split, the
Company's issued and outstanding Common Stock will be increased by a number of
shares equal to 50% of the Company's issued and outstanding shares of Common
Stock on September 1, 1998, decreased by the number of whole shares which equal
the sum of the fractional interests of stock to be paid in cash. Appropriate
adjustments to reflect the stock split will also be made to the Company's
Performance Stock Program.
On August 12, 1998 the Company's Board of Directors declared a dividend
of $.44 per common share to shareholders of record as of a time on September 1,
1998 immediately prior to the effective time of the three-for-two stock split,
it being the intent of the Board of Directors that the Common Stock dividend be
payable on the pre-split shares of the Company's Common Stock.
<PAGE> 13
Page 13
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
PART I, ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(A) The Company is filing herewith the Connecticut Water Service, Inc.
Performance Stock Program Amended and Restated as of December 1, 1996. This
Amended and Restated Performance Stock Program amends in its entirety Exhibit
10.22 to the Company's Annual Report on Form 10-K.
<PAGE> 14
Page 14
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Connecticut Water Service, Inc.
(Registrant)
Date: August 13, 1998 By /s/ David C. Benoit
David C. Benoit
Vice President - Finance
Date: August 13, 1998 By: /s/ Peter J. Bancroft
Peter J. Bancroft
Assistant Treasurer
<PAGE> 15
CONNECTICUT WATER SERVICE, INC.
PERFORMANCE STOCK PROGRAM
AMENDED AND RESTATED AS OF DECEMBER 1, 1996
I. INTRODUCTION
A. Purpose of the Program.
Connecticut Water Service, Inc. has established the Program to
further its long-term financial success by granting stock and
stock-based compensation to key employees of Connecticut Water
Service, Inc. and its majority-owned subsidiaries in
recognition of services provided by such employees, thereby
enabling them to share in sustaining such success. The Program
also provides a means to attract and retain the executive
talent needed to achieve the long-term growth and
profitability objectives of Connecticut Water Service, Inc.
B. Amendment and Restatement.
The Program was originally established April 19, 1991. It has
been amended and restated effective as of December 1, 1996.
<PAGE> 16
-2-
C. Definitions.
When used in the Program, the following terms shall have the
meanings set forth below:
1. "Award" shall mean Restricted Stock and Performance
Shares awarded under the Program. Such Restricted
Stock and Performance Shares may have certain
restrictions that lapse upon the satisfaction of
conditions imposed by the Committee at the time of
the Award.
2. "Board" shall mean the Board of Directors of
Connecticut Water Service, Inc.
3. "Cause" shall mean the commission of a felony, the
misappropriation of Company assets, or the commission
of any act which is injurious to the business or
reputation of the Company.
4. "Committee" shall mean the Compensation Committee, or
such other Committee of the Board as shall be
designated by the Board to administer the Program. If
the Board does not designate the Compensation
Committee as the Committee, the Committee shall be
composed of three (3) or more persons who are from
time to time appointed to serve by the Board. Each
<PAGE> 17
-3-
member of the Committee shall be a "non-employee
director" within the meaning of Rule 16b-3 under the
Securities Exchange Act of 1934, as amended, or any
successor rule, as such rule may be amended from time
to time.
5. "Common Stock" shall mean the common stock of
Connecticut Water Service, Inc., and may be either
stock previously authorized but unissued, or stock
reacquired by the Company.
6. "Company" shall mean Connecticut Water Service, Inc.,
a Connecticut corporation, any majority-owned
subsidiaries of Connecticut Water Service, Inc., and
any successor to Connecticut Water Service, Inc., in
a reorganization or similar transaction.
7. "Disability" shall mean the inability of a
Participant to perform the services normally rendered
due to any physical or mental impairment that can be
expected to be of either permanent or indefinite
duration, as determined by the Committee on the basis
of appropriate medical evidence, and that results in
the Participant's Termination of Employment;
provided, however, that with respect to any
Participant who has entered into an employment
agreement with the Company, the term of which has not
expired at the time a determination concerning
Disability is to be made, Disability shall have the
<PAGE> 18
-4-
meaning, if any, attributed to "permanent disability"
in such employment agreement.
8. "Dividend Equivalent" shall mean, with respect to a
whole Performance Share credited to a Participant's
Performance Share Account, a measure of value equal
to the fractional share of Common Stock that could be
purchased with the amount that would have been paid
to the Participant as a dividend or other
distribution if the Participant had owned a whole
share of Common Stock in lieu of said whole
Performance Share, the date of such deemed purchase
being the dividend payment date. Dividend Equivalents
are expressed in the form of Performance Shares.
9. "Participant" shall mean an officer or full-time
salaried employee of the Company (including a member
of the Board who is also an employee).
10. "Performance Goal" shall mean any financial,
statistical or other measure selected by the
Committee, including, without limitation, the
attainment of a specified financial or statistical
objective or the performance of the Company relative
to a peer group as applicable to a specific
Performance Period.
<PAGE> 19
-5-
11. "Performance Period" shall mean a period set by the
Committee over which Performance Goals shall be
measured. There may be more than one Performance
Period in existence at any one time, and the
durations of Performance Periods may differ from each
other.
12. "Performance Share" shall mean a measure of value
representing a share of Common Stock that may be
credited to a Participant's Performance Share Account
under Article V hereof. Performance Shares are not
actual shares of Common Stock but instead represent
the Company's liability for amounts deferred under
Article V hereof.
13. "Performance Share Account" shall mean an account
established by the Company under Section V.E. hereof
to record its liability for future payments to a
Participant or his beneficiary pursuant to the
Program.
14. "Program" shall mean the Connecticut Water Service,
Inc. Performance Stock Program, as such Program may
be amended from time to time.
15. "Restricted Stock" shall mean shares of Common Stock
awarded to a Participant under Article IV hereof.
<PAGE> 20
-6-
16. "Retirement" shall mean a Participant's Termination
of Employment by reason of the Participant's
retirement at his normal retirement date, pursuant to
and in accordance with a pension, retirement or
similar plan or other regular retirement practice of
the Company, or in accordance with the early
retirement provision(s) thereof. If a Participant is
not a participant in a retirement plan of the
Company, "Retirement" shall be deemed to occur at the
termination of the Participant's employment at or
after attainment of age 65.
17. "Termination of Employment" shall mean a cessation of
the employee- employer relationship between a
Participant and the Company for any reason.
II. PROGRAM ADMINISTRATION
A. Administration.
The Program shall be administered by the Committee. Subject to
the express provisions of the Program, the Committee shall
have full and exclusive authority to interpret the Program; to
prescribe, amend and rescind rules and regulations relating to
the Program; and to make all other determinations deemed
necessary or advisable in the implementation and
administration of the Program; provided, however, that
<PAGE> 21
-7-
subject to the express provisions hereof or unless required by
applicable law or regulation, no action of the Committee shall
adversely affect the terms and conditions of any Award made to
any Participant, without such Participant's written consent.
The Committee's interpretation and construction of the Program
shall be conclusive and binding on all persons, including the
Company and all Participants.
B. Participation.
The Committee shall make all determinations with respect to
selection of Participants and the Award or Awards to be
granted to each Participant. In making such determinations,
the Committee may take into account the nature of the services
rendered or expected to be rendered by the respective
Participants, their present and potential contributions to the
Company's success, and such other factors as the Committee, in
its discretion, shall deem relevant.
C. Maximum Number of Shares Available.
The maximum number of shares of Common Stock that may be
awarded or with respect to which Performance Shares, including
Dividend Equivalents, may be awarded or earned under the
Program is 50,000. Restricted Stock and Performance Shares
that are forfeited in accordance with the Program shall again
be available for
<PAGE> 22
-8-
award under the Program either in the form of Restricted Stock
or Performance Shares.
D. Adjustments.
In the event of stock dividends, stock splits,
recapitalization, mergers, consolidations, combinations,
exchanges of shares, spin-offs, liquidations,
reclassifications or other similar changes in the
capitalization of the Company, the number of shares of Common
Stock available for award under this Program or with respect
to which Performance Shares are available for award with this
Program shall be adjusted proportionately by the Board, and
the number of shares of Restricted Stock and number of
Performance Shares then represented by a Participant's
Performance Share Account shall be similarly adjusted. In the
event of any other change affecting the Common Stock reserved
under the Program, such adjustment, if any, as may be deemed
appropriate by the Board, shall be made to give proper effect
to such event.
E. Registration Conditions.
Before issuing a certificate with respect to any Common Stock,
the Company may: (i) require the holder to give satisfactory
assurances that the Common Stock is being acquired for
investment and not with a view to resale or distribution, and
will not be transferred in violation of applicable securities
laws; (ii) restrict the transferability
<PAGE> 23
-9-
of such Common Stock and require a legend to be endorsed on
the certificates representing the Common Stock; and (iii)
condition the issuance and delivery of Common Stock upon the
listing, registration, or qualification or such Common Stock
upon a securities exchange or under applicable securities
laws.
III. VESTING
A. Establishment of Performance Goals.
1. The Committee shall establish measurable Performance
Goals for each Performance Period. The Committee
shall also establish a schedule for such Performance
Period setting forth the percentage of the Award
which will vest based on the extent to which the
Performance Goals for such Performance Period are
actually achieved and the date or dates of such
vesting.
2. As promptly as practical after the conclusion of each
Performance Period, the Committee shall determine
whether, or the extent to which, the Performance
Goals have been achieved. Based on such achievement,
the restrictions upon all or a portion (or none) of a
Participant's Award shall be released, and the
Participant shall become fully vested in such Award.
To the extent that restrictions are not released, any
remaining Award shall be forfeited. Notwithstanding
the foregoing, although a Participant may be fully
vested
<PAGE> 24
-10-
in a Performance Share, the Participant's rights with
respect to such Performance Share are limited as
provided in Article V hereof.
3. A failure to achieve the Performance Goals
established for the Performance Period or a breach of
any other conditions of the Award will cause a
forfeiture of all or a portion (as determined by the
applicable condition of the Award) of the Award.
4. If during the course of a Performance Period there
occur significant changes in economic conditions or
in the nature of the operations of the Company, or
any other pertinent changes which the Committee did
not foresee or accurately predict and which, in the
Committee's sole judgment, can be expected to have a
substantial effect on the performance of the Company
or one or more Participants during such Performance
Period, the Committee may make such adjustment to the
Performance Goals or measurement of such Performance
Goals as the Committee, in its sole judgment, may
deem appropriate.
B. Dividend Equivalents.
A Participant shall be fully vested in Dividend Equivalents
when such Dividend Equivalents are credited to a Participant's
Performance Share Account.
<PAGE> 25
-11-
Notwithstanding the foregoing, a Participant's rights with
respect to Dividend Equivalents credited to the Participant's
Performance Share Account are limited as provided in Article V
hereof.
C. Termination of Employment.
In the event of a Participant's Termination of Employment for
reasons of Disability or death prior to satisfaction of the
vesting conditions related to an Award, the Participant or the
Participant's beneficiary shall be entitled to receive such
portion of such Award determined by dividing the number of
months in the relevant Performance Period actually completed
by the Participant by the total number of months in the
Performance Period. In the event of a Participant's
Termination of Employment on account of discharge for Cause
prior to satisfaction of the vesting conditions related to an
Award, the entire Award shall be forfeited, and the
Participant shall have no further rights with respect to such
forfeited Award. In the event of a Participant's Termination
of Employment for any other reason, including Retirement,
prior to satisfaction of the vesting conditions related to an
Award, the Participant shall be entitled to receive such
portion of the Award as the Committee, in its sole discretion,
shall determine.
<PAGE> 26
-12-
IV. RESTRICTED STOCK
A. Award of Restricted Stock.
Following the Committee's selection of Participants who will
receive Awards, the Committee shall inform each Participant of
the number of shares of Restricted Stock awarded to the
Participant and the terms and applicable conditions of the
Award.
B. Other Terms and Conditions.
Common Stock, when awarded pursuant to an Award of Restricted
Stock, will be represented by a stock certificate registered
in the name of the Participant who is awarded the Restricted
Stock. Such certificate shall be deposited, together with a
stock power endorsed in blank, with the Company. The
Participant shall be entitled to receive dividends and all
other distributions with respect to such Award during the
Performance Period and shall have all stockholder's rights
with respect to such stock, with the exception that: (1) the
Participant may not transfer ownership of the shares during
the Performance Period except by will or the laws of descent
and distribution; (2) the Participant will not be entitled to
delivery of the stock certificate during the Performance
Period; (3) the Company will retain custody of the stock
during the Performance Period; and (4) a failure to achieve
the Performance Goals established for the Performance Period
or a breach of any other conditions of the Award will
<PAGE> 27
-13-
cause a forfeiture of all or a portion (as determined by the
applicable condition of the Award) of the Restricted Stock.
The Committee may impose additional restrictions, terms, or
conditions upon the Restricted Stock Award.
C. Restricted Stock Award Agreement.
Each Restricted Stock Award shall be evidenced by a Restricted
Stock Award Agreement in such form and containing such terms
and conditions not inconsistent with the provisions of the
Program as the Committee from time to time shall approve.
D. Registration Conditions.
Each stock certificate representing Restricted Stock shall
contain an appropriate legend referring to the Program and the
restrictions upon such Restricted Stock. Simultaneously with
delivery of each stock certificate for Restricted Stock, the
Company may cause a stop transfer order with respect to such
certificate to be placed with the transfer agent of the Common
Stock.
<PAGE> 28
-14-
E. Payment for Restricted Stock.
Awards of Restricted Stock shall be made by the Committee
evidenced by a Restricted Stock Award Agreement under which a
Participant shall not be required to make any cash payment for
the stock. Shares of Common Stock awarded under this Program
shall be granted in recognition of services provided by the
Participant and, when issued upon satisfaction of the vesting
conditions relating thereto, shall be fully paid and
non-assessable shares of the Company.
F. Non-Transferability.
Prior to being vested under Article III hereof, no right or
interest of any Participant in any Restricted Stock under the
Program shall be (a) assignable or transferable, except by
will or the laws of descent and distribution or a valid
beneficiary designation made in accordance with procedures
established by the Committee, or (b) liable for, or subject
to, any lien, obligation or liability of a Participant.
V. PERFORMANCE SHARES
A. Deferral.
<PAGE> 29
-15-
Upon election by a Participant in accordance with Section V.B.
hereof, a whole share portion of an Award that would otherwise
be made to the Participant in the form of Restricted Stock
pursuant to Article IV hereof shall instead be made in the
form of Performance Shares, and such Performance Shares shall
be credited to the Participant's Performance Share Account.
Such credit of Performance Shares to a Participant's
Performance Share Account shall be made as of the same date as
Restricted Stock would have been awarded to the Participant
had no prior election been made. Following the Committee's
selection of Participants who will receive Awards, the
Committee shall inform each Participant of the number of
Performance Shares awarded to the Participant and the terms
and applicable conditions of the Award.
B. Elections.
Any election to have an Award or a portion of an Award
credited to a Performance Share Account in lieu of an Award of
Restricted Stock shall be made on a written form provided by
the Company for such purpose and shall only be effective with
respect to Awards that may be made on and after the January 1
following the Company's receipt of such form, provided that
such form is received by the December 24 prior to the
applicable January 1. Any such election shall be made only in
increments of ten percent (10%) of the Award (rounded to the
nearest whole
<PAGE> 30
-16-
share) and shall be effective only for Awards made during the
year in which the election becomes effective.
C. Other Terms and Conditions.
A failure to achieve the Performance Goals established for the
Performance Period or a breach of any other conditions of the
Award will cause a forfeiture of all or a portion (as
determined by the applicable condition of the Award) of an
Award of Performance Shares. The Committee may impose
additional restrictions, terms, or conditions upon the
Performance Share Award.
D. Performance Share Award Agreement.
Each Performance Share Award shall be evidenced by a
Performance Share Award Agreement in such form and containing
such terms and conditions not inconsistent with the provisions
of the Program as the Committee from time to time shall
approve.
E. Performance Share Account.
The Company shall maintain on its books and records a
Performance Share Account to record its liability for future
payments to the Participant or his beneficiary
<PAGE> 31
-17-
pursuant to the Program. However, whether or not an Award of
Performance Shares has become vested, an Award of Performance
Shares under the Program shall constitute an unfunded
arrangement; the Company shall not be required to segregate or
earmark any of its assets for the benefit of the Participant
or his beneficiary, and the amount reflected in a Performance
Share Account shall be available for the Company's general
corporate purposes and shall be available to the Company's
general creditors. The amount reflected in a Performance Share
Account shall not be subject in any manner to anticipation,
alienation, transfer or assignment by the Participant or his
beneficiary, and any attempt to anticipate, alienate, transfer
or assign the same shall be void. Neither the Participant nor
his beneficiary may assert any right or claim against any
specific assets of the Company in respect of a Performance
Share Account, and the Participant and his beneficiary shall
have only a contractual right against the Company for the
amount reflected in a Performance Share Account.
Notwithstanding the foregoing, in order to pay amounts which
may become due under the Program in respect of a Participant's
Performance Share Account, the Company may establish a grantor
trust (hereinafter the "Trust") within the meaning of Section
671 of the Internal Revenue Code of 1986, as amended. Some or
all of the assets of the Trust may be dedicated to providing
benefits to the Participants pursuant to the Program, but,
nevertheless, all assets of the Trust shall at all times
<PAGE> 32
-18-
remain subject to the claims of the Company's general
creditors in the event of the Company's bankruptcy or
insolvency.
F. Dividend Equivalents.
On every date on which a dividend or other distribution is
paid with respect to Common Stock, commencing with the first
such payment date after the date on which a Performance Share
is credited to a Participant's Performance Share Account and
continuing until such Performance Share is either forfeited or
paid out pursuant to Section V.H. hereof, there shall be
credited to the Participant's Performance Share Account a
Dividend Equivalent in respect of such Performance Share.
G. Participant not a Stockholder.
The Participant shall have no stockholder's rights with
respect to any shares of Common Stock in respect of which
Performance Shares are credited to his Performance Share
Account.
H. Payments in Respect of Performance Shares.
1. Termination of Employment: In the event of a
Participant's Termination of Employment for any
reason other than as provided in Section V.H.3.
hereof
<PAGE> 33
-19-
and without a payment date having been specified as
provided in V.H.2. hereof, such Participant shall be
entitled to receive payment in respect of the entire
amount then credited to his Performance Share
Account, to the extent then vested pursuant to
Article III hereof. Such payment shall be made in the
form of the number of shares of Common Stock equal to
the number of vested whole Performance Shares then
credited to the Participant's Performance Share
Account, with any fractional Performance Share being
paid in cash determined on the basis of the value of
a corresponding fractional share of Common Stock on
the business day preceding the date of payment. Said
shares of Common Stock and any cash amount shall be
transferred to the Participant within sixty (60) days
after the Participant's termination of employment.
2. Election of Participant: Upon prior written election
by a Participant, the Participant shall be entitled
to receive payment in respect of an Award of
Performance Shares, to the extent then vested
pursuant to Section III hereof, and any Dividend
Equivalents earned on such Award on the date
specified in such written election. Such election
must be made as part of the election to have such
Award of Performance Shares credited to a Performance
Share Account as provided in Section V.B. hereof.
Such payment shall be made in the form of the number
of shares of Common Stock equal to the number of
vested whole Performance Shares, including related
Dividend Equivalents,
<PAGE> 34
-20-
then credited to the Participant's Performance Share
Account with respect to such Award, with any
fractional Performance Share being paid in cash
determined on the basis of the value of a
corresponding fractional share of Common Stock on the
business day preceding the date of payment. The
Participant's Performance Share Account thereafter
shall be reduced to reflect the foregoing payment.
Nothing herein shall preclude separate elections with
respect to separate Awards.
3. Disability or Death While Employed by the Company:
Notwithstanding an election made pursuant to Section
V.H.2. hereof, in the event of a Participant's
Termination of Employment for reasons of Disability
or death, the Participant or his beneficiary, as the
case may be, shall be entitled to receive payment in
respect of the entire amount then credited to his
Performance Share Account, to the extent then vested
pursuant to Article III hereof. Such payment shall be
made in the form of the number of shares of Common
Stock equal to the number of vested whole Performance
Shares then credited to the Participant's Performance
Share Account, with any fractional Performance Share
being paid in cash determined on the basis of the
value of a corresponding fractional share of Common
Stock on the business day preceding the date of
payment. Said shares of Common Stock and any cash
amount shall be transferred to the Participant or his
beneficiary within sixty (60) days after the Company
has been notified in writing of the
<PAGE> 35
-21-
Disability or death of the Participant and has been
provided with any additional information, forms or
other documents it may reasonably request.
4. Hardship Payment: Notwithstanding an election made
pursuant to Section V.H.2. hereof or the
Participant's continued employment with the Company,
if the Committee, upon written petition of the
Participant, determines, in the Committee's sole
discretion, that the Participant has suffered an
unforeseeable financial emergency, the Participant
shall be entitled to receive, as soon as practicable
following such determination, payment sufficient to
meet the cash needs arising from the unforeseeable
financial emergency, not in excess of the number of
vested whole Performance Shares then credited to the
Participant's Performance Share Account. Such payment
shall be made, at the election of the Participant,
either (i) in the form of the number of whole shares
of Common Stock, the proceeds from the sale of which
would be sufficient to meet the cash needs arising
from the unforeseeable financial emergency, not in
excess of the number of vested whole Performance
Shares then credited to the Participant's Performance
Share Account; (ii) in cash equal to the value on the
business day preceding the date of payment of the
number of whole shares of Common Stock available for
payment under clause (i) of this sentence; or (iii)
in any combination of the methods of payment provided
for in clauses (i) and (ii) of this sentence. In the
event of a hardship payment in respect of the
<PAGE> 36
-22-
Participant's entire Performance Share Account, any
fractional Performance Share shall be paid in cash
determined on the basis of the value of a
corresponding fractional share of Common Stock on the
business day preceding the date of payment. For
purposes of the foregoing, an unforeseeable financial
emergency is an unexpected need for cash arising from
an illness, casualty loss, sudden financial reversal,
or other such unforeseeable occurrence. Cash needs
arising from foreseeable events such as the purchase
of a house or educational expenses for children shall
not be considered to be the result of an
unforeseeable financial emergency. Said shares of
Common Stock and any cash amount shall be transferred
to the Participant as soon as practicable after the
Committee determines that the Participant has
suffered an unforeseeable financial emergency. The
Participant's Performance Share Account thereafter
shall be reduced to reflect the foregoing payment.
5. Early Withdrawal: Notwithstanding an election made
pursuant to Section V.H.2. hereof or the
Participant's continued employment with the Company,
the Participant, upon written petition to the
Committee at any time, shall be entitled to receive
payment in respect of all or any portion of the
vested amount then credited to his Performance Share
Account, subject to a forfeiture penalty of six
percent (6%) of the amount of the payment requested
by the Participant. Such payment shall be made, at
the election of
<PAGE> 37
-23-
the Participant, either (i) in the form of the number
of shares of Common Stock equal to the number of
vested whole Performance Shares requested by the
Participant in the written petition and then credited
to the Participant's Performance Share Account; (ii)
in cash equal to the value on the business day
preceding the date of payment of the number of whole
shares of Common Stock available for payment under
clause (i) of this sentence; or (iii) in any
combination of the methods of payment provided for in
clauses (i) and (ii) of this sentence. In the event
of an early withdrawal in respect of the
Participant's entire Performance Share Account, any
fractional Performance Share shall be paid in cash
determined on the basis of the value of a
corresponding fractional share of Common Stock on the
business day preceding the date of payment. Said
shares of Common Stock and any cash amount shall be
transferred to the Participant within sixty (60) days
after the Company has received the Participant's
written petition. The Participant's Performance Share
Account thereafter shall be reduced to reflect the
foregoing payment and the six percent (6%) forfeiture
penalty.
I. Non-Transferability:
Prior to payment in respect of Performance Shares credited to
a Participant's Performance Share Account, no right or
interest of any Participant in any Performance Share under the
Program shall be (a) assignable or transferable, except
<PAGE> 38
-24-
by will or the laws of descent and distribution or a valid
beneficiary designation made in accordance with procedures
established by the Committee, or (b) liable for, or subject
to, any lien, obligation or liability of a Participant.
VI. GENERAL PROVISIONS
A. Amendment and Termination of Program.
The Board may, at any time and from time to time, suspend or
terminate the Program or amend it in such respects as the
Board may deem appropriate; provided, however, that no
suspension, amendment, or termination shall impair the rights
of a Participant with respect to an Award previously granted.
B. Government and Other Regulations.
The obligation of the Company to issue Awards under the
Program shall be subject to all applicable laws, rules and
regulations, and to such approvals by any government agencies
as may be required.
<PAGE> 39
-25-
C. Miscellaneous Provisions.
1. No Right to Continue Employment: Nothing in the
Program or in any Award confers upon any Participant
the right to continue in the employ of the Company or
interferes with, or restricts in any way, the rights
of the Company to discharge any Participant at any
time for any reason whatsoever, with or without
cause.
2. Designation of Beneficiary: A Participant, in
accordance with procedures established by the
Committee, may designate a person or persons
(collectively referred to as a "beneficiary") to
receive, in the event of the Participant's death, (a)
any payments with respect to which the Participant
would then be entitled and (b) the right to continue
to receive the Participant's outstanding Awards, if
any. Such designation shall be made upon forms
supplied by, and delivered to, the Company and may
only be revoked in writing. If the Participant dies
and has not designated a beneficiary, his beneficiary
shall be his spouse, if living; otherwise, his
beneficiary shall be deemed to be his estate.
3. Withholding Taxes: The Company may require a payment
from a Participant to cover applicable withholding
for income and employment taxes. The Company reserves
the right to offset such tax payment from any funds
which
<PAGE> 40
-26-
may be due to the Participant by the Company under
the Program or otherwise or, in lieu thereof, may
retain, or sell without notice, a sufficient number
of shares of Common Stock that have vested or that
are to be paid to the Participant to cover the amount
required to be withheld.
4. Program Expenses: Any expenses of administering the
Program shall be borne by the Company.
5. Construction of Program: The interpretation of the
Program and the application of any rules implemented
hereunder shall be determined solely in accordance
with the laws of the State of Connecticut.
6. Benefit Plan Computations: Any benefits received or
amounts paid to a Participant with respect to any
Award granted under the Program shall not have any
effect on the level of benefits provided to or
received by any Participant, or the Participant's
estate or beneficiary, as part of any employee
benefit plan (other than the Program) of the Company.
<PAGE> 41
-27-
7. Integration: No agreements or representations, oral
or otherwise, express or implied, with respect to the
subject matter hereof have been made by the Company
that are not set forth expressly in the Program.
8. Pronouns, Singular and Plural: The masculine may be
read as feminine, the singular as plural, and the
plural as singular as necessary to give effect to the
Program.
D. Effective Dates.
The Program became effective on April 19, 1991, the date of
its approval by stockholders of Connecticut Water Service,
Inc., and shall continue to be effective thereafter until
terminated by the Board. The effective date of this amendment
and restatement of the Program is December 1, 1996.
<TABLE> <S> <C>
<ARTICLE> OPUR1
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 164,830
<OTHER-PROPERTY-AND-INVEST> 1,818
<TOTAL-CURRENT-ASSETS> 8,519
<TOTAL-DEFERRED-CHARGES> 16,793
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 191,960
<COMMON> 42,672
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 13,714
<TOTAL-COMMON-STOCKHOLDERS-EQ> 56,386
0
772
<LONG-TERM-DEBT-NET> 44,400
<SHORT-TERM-NOTES> 4,130
<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> 68,155
<TOT-CAPITALIZATION-AND-LIAB> 191,960
<GROSS-OPERATING-REVENUE> 8,796
<INCOME-TAX-EXPENSE> 539
<OTHER-OPERATING-EXPENSES> 6,012
<TOTAL-OPERATING-EXPENSES> 6,551
<OPERATING-INCOME-LOSS> 2,245
<OTHER-INCOME-NET> 301
<INCOME-BEFORE-INTEREST-EXPEN> 2,546
<TOTAL-INTEREST-EXPENSE> 1,067
<NET-INCOME> 1,479
9
<EARNINGS-AVAILABLE-FOR-COMM> 1,470
<COMMON-STOCK-DIVIDENDS> 2,626
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 2,555
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.94
</TABLE>
