SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994 .
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( ) 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 1-8060.
AQUARION COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 06-0852232
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
835 Main Street, Bridgeport, Connecticut 06601
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 335-2333
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, New York Stock Exchange
no par value
Series A Junior New York Stock Exchange
Participating Preferred
Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
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(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 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
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part IV of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates
of the registrant: $150,690,069 (Computed by reference to the closing
price of the Registrant's Common Stock on March 7, 1995, as reported
on the New York Stock Exchange-Composite Tape.)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 7, 1995
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Common Stock, no par value 6,632,132
The following documents have been incorporated by reference:
1. Annual Report to Shareholders for the year ended
December 31, 1994--PART I, Item 1; PART II, Item 5, Item 6,
Item 7 and Item 8; PART IV.
2. Definitive Proxy Statement, dated March 22, 1995, for the
Annual Meeting of Shareholders to be held on April 25, 1995-
-PART III.
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PART I
ITEM 1. BUSINESS
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General
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Aquarion Company ("Aquarion") is a holding company whose
subsidiaries are engaged both in the regulated utility business of
public water supply and in various nonutility businesses.
Aquarion's utility subsidiary, Bridgeport Hydraulic Company
("BHC"), and its subsidiary, Stamford Water Company ("SWC", together
with BHC, the "Utilities") collect, treat and distribute water to
residential, commercial and industrial customers, to other utilities
for resale and for private and municipal fire protection. The
Utilities provide water to customers in 22 communities with a
population of approximately 496,000 people in Fairfield, New Haven and
Litchfield Counties in Connecticut, including communities served by
other utilities to which water is made available by its Utilities on a
wholesale basis for back-up supply or peak demand purposes through the
Southwest Regional Pipeline. BHC is the largest investor-owned water
company in Connecticut and, with its SWC subsidiary, is among the 10
largest investor-owned water companies in the nation. The Utilities
are regulated by several Connecticut agencies, including the
Connecticut Department of Public Utility Control (the "DPUC").
Aquarion is also engaged in various nonutility activities. The
Company conducts an environmental testing laboratory business through
its Industrial and Environmental Analysts group of subsidiaries
(collectively, "IEA"). IEA performs testing to determine the nature
and quantity of contamination in sampled materials, including
hazardous wastes, soil, air and water. IEA provides a range of
environmental analytical testing capabilities, including routine and
customized analysis of organic and inorganic contaminants. IEA's
testing services are conducted at six regional environmental testing
laboratories in Connecticut, Florida, Illinois, Massachusetts, New
Jersey and North Carolina. IEA's laboratories are subject to
governmental regulation at both state and federal levels. Its clients
include engineering consulting firms, industrial and commercial
corporations and federal, state and local governmental entities. The
laboratories located in North Carolina, New Jersey and Connecticut
participate in the U.S. Environmental Protection Agency's Contract
Laboratory Program.
Aquarion owns Timco, Inc. ("Timco"), a small forest products
company based in New Hampshire. At Timco's sawmill complex, lumber is
cut and packaged for sale to wholesalers and retailers. Aquarion is
also engaged in several small utility management service businesses
through its Hydrocorp, Inc. ("Hydrocorp") and Aquarion Management
Services, Inc. ("AMS") subsidiaries and owns Main Street South
Corporation ("MSSC"), a small real estate subsidiary formed in 1969 to
assist the Utilities in marketing surplus land.
The Company was incorporated in Delaware as The Hydraulic Company
in 1969 to become the parent company to BHC, a Connecticut corporation
founded in 1857. The corporate name was changed to Aquarion Company
in April 1991. The Company's executive offices are located at 835
Main Street, Bridgeport, Connecticut 06601-2353 and its telephone
number is (203) 335-2333.
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Recent Developments
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Rates. On October 20, 1994, BHC filed with the DPUC an
application to implement a Construction-Work-in-Progress ("CWIP")
water rate surcharge in order to recover 90 percent of the carrying
costs of capital used in the construction of a filtration plant at its
Hemlocks Reservoir in Fairfield, Connecticut. This plant, mandated by
the Federal Safe Drinking Water Act of 1974 (the "SDWA"), as amended,
is estimated to cost approximately $50,000,000. BHC will file
applications with the DPUC quarterly to increase this surcharge as
construction continues through 1997, at which time the filtration
facilities are expected to be operational and subject to general
ratemaking regulations. On December 7, 1994, a 0.82 percent CWIP rate
surcharge was approved that will increase BHC's revenues by $496,000
on an annual basis. During 1994, revenues from the CWIP rate
surcharge were immaterial. On January 20, 1995, BHC filed an
application to increase this surcharge to 1.26 percent, which would
increase BHC's revenues by $762,000 on an annual basis.
On August 1, 1993, the DPUC awarded BHC a 20.7 percent general
water service rate increase designed to provide a $10,400,000 annual
increase in revenues and an 11.6 percent return on common equity. The
rate increase included the replacement of a CWIP rate surcharge
previously granted to BHC pursuant to DPUC regulations in conjunction
with the construction of its Easton Lake Reservoir Water Treatment
Plant mandated by the SDWA. During 1993 and 1992, BHC derived
revenues of $1,937,000 and $1,532,000, respectively, from the CWIP
rate surcharge.
There is no certainty that any given rate increase will produce
the intended level of revenues or the allowed return on equity. See
"Public Water Supply--Rates and Regulations."
Pending Utility Acquisition. Aquarion has proposed to acquire
The New Canaan Water Company ("NCWC") and Ridgefield Water Supply
Company ("RWSC") for Aquarion common stock with a market value of
$3,500,000 and the repayment of certain indebtedness of The New Canaan
Company ("NCC") in an amount not to exceed $130,000, less the amount
of certain transaction costs and liabilities to be paid by Aquarion at
closing. The acquisition and a related property exchange have been
approved by the DPUC but remain contingent upon the approval of the
Department of Public Health and Addiction Services ("DPHAS") for the
transfer of the reservoir from the NCWC to the Second Taxing District
("STD"). A reservoir transfer permit is pending. The DPUC
subsequently reopened its approval proceeding to consider the
potential impact of the proposed NCWC land sale on NCWC's ability to
retire an existing $1.25 million loan from a third party lender and
appropriate regulatory treatment of any shortfall between the net
proceeds from such a sale and the amount of the debt and to consider
certain anticipated costs associated with reregistration of RWSC
supply sources. No final decision has yet been issued in the
reopened proceeding. BHC and NCC have agreed that the Acquisition
will close whether or not the sale of land by NCWC and the retirement
of NCWC debt takes place. However, the effect on the acquisition of
any other terms and provisions of a DPUC approval, not contemplated by
the agreement between BHC and NCC, cannot be predicted. The parties
have agreed to extend their acquisition agreement and the related
property exchange agreement until March 31, 1995. There is no
certainty that the parties will agree to further extensions if the
transaction has not closed by that time. See "Industry Segment
Information."
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Termination of Agreement. In November 1994, Timco entered into
an agreement with the Public Service Company of New Hampshire ("PSNH")
under which Timco agreed to terminate its long-term rate order with
PSNH. Under this rate order, Timco sold electricity produced at its
cogeneration plant to PSNH. PSNH paid Timco $8,195,105 in exchange
for the assignment of the rate order to PSNH and a release of PSNH's
obligations to buy power from Timco. As a result of this transaction,
Timco will not have these cogeneration revenues in the future.
Revenues from electricity cogeneration were $3,000,000 in 1994 and
$3,500,000 in 1993.
Other. Aquarion recorded a charge of $1,900,000 related to the
Company's investment in a rehabilitation housing unit in New Hampshire
(the "Partnership"). Aquarion has been informed that the Partnership
may require additional capital from each of the five limited partners
beyond the amounts originally agreed upon. At present, it is not
known whether the limited partners will make the necessary capital
contributions to sustain the operation of the partnership. Based upon
the risk of continued funding and the project's poor performance, the
Company no longer believes that the value of its investment in the
partnership is recoverable.
The U.S. Court of Appeals for the Second Circuit issued its
decision on an appeal taken by native Americans who allege that they
constitute the Golden Hill Paugusett Tribe of Indians (the "Paugusett
Indians") from the dismissal by the U.S. District Court in Connecticut
of their suit seeking to restore claimed rights to certain lands in
various towns in Fairfield and New Haven Counties. The Court of
Appeals substantively agreed with the District Court, but indicated
that the District Court should have stayed, rather than dismissed, the
case pending a determination of tribal status by the Bureau of Indian
Affairs. Newspaper reports during 1993 indicated that the Paugusett
Indians had announced plans to claim further lands, including all land
in the municipalities of Monroe, Shelton and Trumbull. BHC, which has
not been named as a defendant to date, owns land in these communities,
including land it considers surplus. It is not possible at this time
to determine whether any further suit will be filed or, if so, whether
BHC will be named a defendant, nor is it possible to determine what
effect, if any, the filing of any such suit might have on the
marketability of real property in these communities or, should the
Paugusett Indians prevail, whether there would be any effect on the
operations of BHC.
Utility Construction Program
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The Utilities are engaged in a continuing construction program
mandated by legislative and regulatory requirements, as well as for
infrastructure replacements. The Utilities expended $17,739,000,
$16,300,000 and $21,727,000 in 1994, 1993 and 1992, respectively, for
plant additions and modifications of existing plant facilities,
excluding an allowance for funds used during construction ("AFUDC").
The expenditures were made primarily for installations of water mains,
service connections and meters and such special projects as the
Hemlocks and Easton Lake water treatment plants and the Litchfield
Division supply and distribution system improvements.
Utility capital expenditures for 1994 aggregated $17,739,000 and
budgeted expenditures for 1995, most of which management believes should
not be postponed, are approximately $38,300,000. Approximately
60 percent of these expenditures will be devoted to compliance with the
SDWA, which requires filtration or alternative water treatment measures
for BHC's major, unfiltered surface water supplies. The total capital
cost of water filtration or alternative treatment measures for such
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supplies at Hemlocks, Lakeville and Norfolk Reservoirs
through December 31, 1994 was approximately $6,500,000.
Management estimates that the total of such costs from 1995 through
1997 will approximate $51,000,000, without adjustment for inflation,
including $22,800,000 expected to be incurred in 1995. Approximately
$45,000,000 of the projected 1995 through 1997 water treatment costs
will be incurred in construction of the filtration facility for the
Hemlocks reservoir. The remaining $6,000,000 of estimated filtration
expenditures over the next three years is budgeted for filtration
facilities for BHC's Lakeville and Norfolk Reservoirs. Part of the
cost associated with the Hemlocks facility is expected to be offset by
CWIP rate surcharges which, at the DPUC's discretion, permit the
recovery of 90 percent of the carrying cost of capital used in
construction of SDWA-mandated water treatment facilities. Management
cannot predict whether future federal, state or local regulation may
require additional capital expenditures.
The Company's ability to finance its future construction programs
depends in part on future rate relief and the level of CWIP rate
surcharges. In light of the Company's substantial need for additional
funds, the Company will need additional debt and equity capital to
finance future utility construction. See "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Capital Resources and Liquidity" and "Business--Public
Water Supply--Rates and Regulation."
Industry Segment Information
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The Company's operations are grouped into four industry segments:
public water supply; environmental laboratories and utility management
services; forest products; and, real estate. The consolidated
operating revenues of the Company for the year ended December 31, 1994
were derived from the following sources: 60 percent from public water
supply, 20 percent from environmental laboratories and utility
management services, 18 percent from forest products, and 2 percent
from real estate, including both MSSC and surplus utility land sales.
For additional information concerning each segment for each of the
years ended December 31, 1994, 1993 and 1992, see "Note 11" of "Notes
to Consolidated Financial Statements" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of
Operations."
Public Water Supply
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Service Area. The Utilities are engaged in the collection,
treatment and distribution of water for public and private use to
residential, commercial, and industrial users, and for municipal and
private fire protection services in 22 communities in parts of
Fairfield, Litchfield and New Haven counties in Connecticut. The
Utilities also sell, as requested, water for redistribution to
customers of the First and Second Taxing Districts' Water Departments
of the City of Norwalk, Connecticut, Connecticut-American Water
Company, and NCWC through the Southwest Regional Pipeline in Fairfield
County.
The communities served by the Utilities as of December 31, 1994,
have a population of approximately 496,000, and the total number of
customer accounts as of that date was approximately 125,000. The
Utilities' service areas, primarily residential in nature, have
experienced an average growth in accounts of approximately 1 percent
per year over the last 10 years. Industrial use has declined
significantly in that time period, and the residential characteristics
of the area have changed,
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indicating an increase in the percentage of apartment dwellings
and condominium units. Management does not anticipate any significant
growth in residential consumption in the foreseeable future, and expects
continued decline in industrial use.
The operating revenues of the Utilities for the 12 months ended
December 31, 1994 were derived from the following sources: 59 percent
from residential customers, 17 percent from commercial customers, 5
percent from industrial customers, 14 percent from fire protection
customers, and 5 percent from other sources.
Seasonality. The business of the Utilities is subject to
seasonal fluctuations and weather variations. The demand for water
during the warmer months is generally greater than during the cooler
months, primarily due to additional water requirements of industrial
and residential cooling systems, and various private and public
outdoor uses such as lawn and golf course sprinkling. From year to
year and season to season, demand will vary with rainfall and
temperature levels.
Water Supply. Water is available from both surface and
subsurface sources. During 1994, approximately 89 percent of the
water supplied by the Utilities was provided by impounding reservoirs,
10 percent by producing wells and 1 percent by purchased water. As of
December 31, 1994, the Utilities' reservoirs, well fields and
interconnections with other water utilities had an aggregate safe
daily yield of 112.3 million gallons. Safe yield is an estimate of
the supply capability during an extended drought. The average daily
demand for water from the Utilities in 1994 was 68.5 million gallons
per day ("MGD"). The reservoirs of the Utilities have an aggregate
storage capacity of 29.4 billion gallons.
All of the Utilities' reservoirs and active wells are located on
property owned by the Utilities. Management believes it has an
adequate water supply to satisfy the current and projected needs of
its customers within its territorial service area through at least the
year 2040. During historical drought periods in the northeastern
United States, the Utilities have been able to accommodate the needs
of their own customers and to offer relief to supplement the supplies
to neighboring communities by water sales to utilities with which it
has pipeline interconnections. Supply and distribution needs of the
Utilities undergo constant review, and the Utilities continue to
explore and develop additional ground-water supplies and study
alternative surface water sources to meet anticipated future water
requirements.
The Connecticut Water Diversion Policy Act, enacted in 1982,
prohibits any future diversions of surface or ground water without a
permit from the DEP. Although this law "grandfathers" existing
surface and ground-water supplies which existed when it was enacted,
any subsequent water diversion which might be effected by the
Utilities is subject to a lengthy permit application process and
approval by the DEP. Diversion permits granted pursuant to this law
are subject to renewal when their terms, which typically run from five
to 10 years, expire.
Rates and Regulation. The Utilities are incorporated under and
operate as public water utilities by virtue of authority granted by
Special Acts adopted by the Connecticut legislature (the "Acts").
These Acts have granted a non-exclusive franchise, unlimited in
duration, to provide public water supply to private and public
customers in designated municipalities and adjacent areas. The Acts
also authorize the Utilities to lay their mains and conduits in any
public street, highway, or public
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ground; to use the water of certain rivers, streams or
other waters in Fairfield, Litchfield and New Haven
counties and from certain locations along and in the Housatonic
River and its tributaries, subject to such consents and approvals as
may be required by law; and to exercise the power of eminent domain in
connection with lands, springs, streams or ponds and any rights or
interests therein which are expedient to or necessary for furnishing
public water supply. In the event of the exercise of such
condemnation powers, the Utilities must pay appropriate compensation
to those injuriously affected by such taking.
The Utilities are subject to regulation by the DPUC, which has
jurisdiction with respect to rates, service, accounting procedures,
issuance of securities, dispositions of utility property and other
related matters.
Rates charged by each of BHC and SWC are subject to approval by
the DPUC. The Utilities continually review the need for increases of
water rates, and historically have sought rate relief in a timely
manner in light of increases in operating costs, additional investment
in utility plant and related financing costs, as well as other
factors. For information concerning the rate increase granted in
1993, see "Item 1. Business. Recent Developments, Rates", above.
The following table sets forth information as to rate requests by
BHC and SWC and increases granted by the DPUC in the last three rate
cases.
<TABLE>
<CAPTION>
Allowed
% Total % Return On Allowed
Date of Amount Increase Effective Increase Increase Utility Return on
Application Requested Requested Date Granted Granted Common Equity Rate Base
- ----------- --------- --------- -------- ------- ------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BHC:
2/5/93 $16,100,000 35% 8/1/93 $10,400,000 21% 11.6% 9.62%
6/29/90 9,819,000 22 1/1/91 6,983,000 15 13.25 10.95
11/21/88 7,600,000 18 6/1/89 3,383,000 8 12.90 10.90
SWC:
2/8/91 $3,646,000 36.5% 8/28/91 $2,276,000 22.5% 12.85% 10.69%
8/1/86 3,849,000 56 12/30/86 3,706,000 54 14.80 11.39
3/22/85 4,959,000 43 7/29/85 450,000 7 14.80 11.39
</TABLE>
The DPUC may allow a surcharge to be applied to rates in order to
provide a current cash return to water utilities on the major portions
of CWIP applicable to facilities, including filtration plants,
required for compliance with the SDWA. See "Environmental Regulations."
The surcharge is adjusted quarterly, subject to DPUC approval, to reflect
increased CWIP expenditures for SDWA facilities. In connection with BHC's
construction of filtration facilities at its Hemlocks Reservoir, the DPUC
granted BHC an initial 0.82 percent CWIP rate surcharge in December
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1994. BHC will file applications with the DPUC quarterly to increase
this surcharge as construction continues through 1997, at which time the
filtration facilities are expected to be operational and subject to
general ratemaking regulations.
Aquarion is neither an operating utility company nor a "public
service company" within the meaning of the Connecticut General
Statutes and is not currently subject to general regulation by the
DPUC. DPUC approval is necessary, however, before Aquarion may acquire
or exercise control over any Connecticut public service company. DPUC
approval is also required before any other entity can acquire or
exercise, or attempt to exercise, control over Aquarion.
Connecticut regulations govern the sale of water company land and
treatment of land sale proceeds. See "Item 2. Properties."
Environmental Regulations. The Utilities are subject to
regulation by the DPHAS with respect to water quality matters, use of
water from surface and subsurface sources, the location, construction
and operation of water supply facilities and the sale of certain
utility property. Plans for new water supply systems or enlargement
of existing water supply systems also must be submitted to the DPHAS
for approval. The Department of Environmental Protection ("DEP") is
authorized to regulate the operations of the Utilities with respect to
water pollution abatement, diversion of water from surface and
subsurface sources, and the location, construction and alteration of
dams and other water obstructions.
The Federal Clean Water Act of 1972, as amended (the "Clean Water
Act"), regulates discharges of effluents into navigable 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.
The Utilities are subject to regulation of water quality under
the SDWA, which provides for the establishment of uniform minimum
national quality standards by the Environmental Protection Agency (the
"EPA"), as well as governmental authority to specify the type of
treatment process to be used for public drinking water. EPA
regulations issued pursuant to the SDWA set limits for, among other
things, certain organic and inorganic chemical contaminants, odor,
turbidity, microbiological contaminants and radioactivity. The SDWA
provides that the states have the primary enforcement responsibility
for public drinking water systems, as long as the states' regulations
are no less stringent than those adopted pursuant to SDWA. For
certain of these water quality standards the DPHAS has adopted
regulations which in some instances impose standards more stringent
than those imposed under the federal regulations.
EPA regulations pursuant to SDWA include the Surface Water
Treatment Rule ("SWTR"), the Total Coliform Rule ("TCR") and the Lead
and Copper Rule ("LCR"). The water treatment requirements of SWTR
mandate the construction of filtration plants at BHC's Hemlocks,
Lakeville and Norfolk Reservoirs. BHC has entered into consent
agreements with DPHAS establishing timetables for construction of
filtration facilities at the Hemlocks, Lakeville and Norfolk
reservoirs and penalties if the facilities are not completed within
such timetables. The Hemlocks plant must
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be completed by June 29, 1998 or a $250,000 penalty will be imposed.
Lesser penalties apply to the smaller facilities for Lakeville
and Norfolk, if not completed by June 29, 1997 and June 29, 1996,
respectively. The Company anticipates that it will be able
to meet the construction timetables. The TCR affects the Utilities
by the imposition of requirements for additional biological sampling
and monitoring. The stringent requirements of the TCR may also
result in increased public notification relating to water
quality. The LCR establishes corrosion control techniques and requires
monitoring to determine compliance with prescribed lead and copper
levels in drinking water. If such levels are exceeded, a multi-year
program involving additional monitoring, public notification,
state-supervised corrosion control and treatment and replacement of
lead service lines could result. After the first two required testing
periods, the Utilities were found to be in compliance with the LCR.
In 1994, the DPHAS determined that the utilities were in compliance
with Synthetic Organic Chemical requirements and with Ground
Water Under the Direct Influence of Surface Water requirements,
thereby avoiding additional potentially significant treatment process
construction costs. Further SDWA-related regulations are
anticipated for such water quality parameters as organics,
inorganics and disinfection by-products and for enhanced surface water
treatment. It is impossible to determine at this time the ultimate
impact these regulations will have on the Utilities.
The Company currently estimates that future capital costs of
SWTR-mandated filtration facilities will approximate $51,000,000 for
the period 1995 through 1997, without adjustment for inflation. At
December 31, 1994, the Company had expended $6,500,000 for filtration
facilities currently under construction, of which $5,000,000 has been
expended on the Hemlocks Reservoir filtration facility and the
remaining $1,500,000 at the Lakeville and Norfolk Reservoirs
filtration facilities.
Water quality tests are made continuously at all of the
Utilities' water supply sources, and the Utilities believe they are in
substantial compliance with regulations promulgated in connection with
the organic chemical, inorganic chemical, physical, and
bacteriological standards for drinking water. BHC has been
voluntarily monitoring for Giardia and cryptosporidium, water quality
concerns addressed by the SWTR. While evidence of Giardia and
cryptosporidium have been detected in some surface water reservoir
samples, none has been found in treated water samples.
Connecticut has established seven public water supply management
areas to coordinate the comprehensive planning of public water systems
and provide for the centralized regulation by the DPHAS of water
resources for water supply and other public purposes. Each area has a
water utility coordinating committee ("WUCC") comprised of
representatives of the various public water systems and regional
planning agencies in the area. BHC operations fall under four of the
State's seven WUCCs, and SWC operations fall under two WUCCs. Each
WUCC is required to establish exclusive service areas for each public
water system in the area. The DPHAS is authorized to resolve any
disagreements among members of the respective committees. It is not
possible at this time to predict the full impact on the Utilities of
the WUCC system and the associated regulations and proceedings.
Aquifer protection legislation in Connecticut requires each water
utility to conduct extensive groundwater data collection and
groundwater mapping of critical wellfield areas. The
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DEP is also proposing land-use regulations within these critical areas.
The proposed legislation mandates that each municipality designate an
aquifer protection agency to regulate land use in these areas.
Finally, the DEP, in consultation with the DPHAS and DPUC, is
preparing guidelines for acquisition of lands for proposed public
water supply wellfields. Regulations are still being prepared for
this program and the effect of this legislation and related
regulations cannot be determined at this time. If BHC were required
to purchase additional land around its wellfields, the cost could be
substantial.
Developments with respect to the identification and measurement
of various elements in water supplies and concern about the effect of
such elements on public health, together with possible contamination
of water sources, may in the future require the Utilities to modify
all or portions of their various water supplies, to develop
replacement supplies or to implement new treatment techniques. Any
such developments would significantly increase the Utilities'
operating costs and capital requirements. The Company expects that
all such expenditures and costs should ultimately be recoverable
through rates for water service, but there can be no assurance that
this will be the case.
Certain dams owned by the Utilities are subject to inspection
under the National Dam Inspection Act as well as the Connecticut Dam
Registration Act, and dams owned by SWC in New York are subject to
inspection by the New York State Department of Environmental
Conservation. The Utilities own 29 dams, 16 of which are subject to
federal inspection. Although certain modifications and further
studies have been required, no material problems with respect to these
dams have been reported to the Company.
The Utilities are required to obtain permits from the DEP for the
location, construction or alteration of any dam or reservoir, and to
secure the approval of the DEP for the diversion and use of water from
any surface or ground source for public use. The Utilities have taken
all compliance actions required to date.
SWC may be subject to health, safety and environmental regulation
by various state and local authorities in New York State with respect
to its properties located in New York. SWC does not provide water to
any customers in New York. The leasing or sale of land around
reservoirs, wellfields and some streams may be restricted by various
Connecticut statutes and regulations. See "Item 2. Properties."
Environmental Laboratories
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Laboratories. The Company conducts an environmental testing
laboratory business through IEA, which operates six laboratories in
Connecticut, Florida, Illinois, Massachusetts, New Jersey and North
Carolina through six corporate subsidiaries. IEA believes that it is
among the 20 largest environmental testing laboratory businesses in
the country. IEA is headquartered at its Cary, North Carolina,
facility.
Environmental laboratories provide data to customers concerning
the nature and quantity of contaminants or hazardous substances
present in samples. IEA offers a range of environmental
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analytical services, including routine and customized testing of
hazardous wastes, soil, air and water. Additionally, IEA offers mixed
waste/radiological testing at its North Carolina laboratory. IEA also
provides asbestos testing and sample collection services.
Quality Control. The ability to deliver accurate and precise
test results consistently is essential to a successful laboratory, and
testing samples must meet rigorous chain-of-custody requirements and
testing protocols to enable the test results to be used as evidence in
legal or regulatory proceedings. IEA performs internal quality
assurance reviews to monitor consistent performance. IEA is certified
in over 20 state-operated certification programs and, through its
laboratories in North Carolina, New Jersey and Connecticut, is an
active participant in the EPA's Contract Laboratory Program ("CLP").
In order to qualify for the CLP, the laboratories must satisfy
stringent quality control standards, and are subject to quarterly
performance evaluations.
Technology. IEA has invested in sophisticated analytical testing
equipment needed to process a large volume of tests with accurate
results. IEA laboratories are equipped with Gas Chromatography/Mass
Spectrometry instruments, which identify specified organic and
inorganic chemical compounds within a sample by means of electron beam
"fingerprinting." IEA owns chromatograph instruments, which are used
extensively to perform organics testing. IEA laboratories contain
inductively coupled plasma instruments and atomic absorption units for
inorganics analysis. IEA laboratories perform wet-chemistry tests for
general chemistry parameters and also offer a range of microscopy
services including asbestos analysis.
Laboratory Employees. Experienced personnel qualified in the use
of the instruments and related computer systems used by IEA are
critical to its operations. IEA has a staff of 302, which includes
183 scientists and technicians. IEA's laboratory services are
marketed by a field and in-house sales staff, which is supported by
IEA's Client Service Department as well as by IEA's scientific and
technical staff.
Customers. During 1994, IEA serviced approximately 1,500
customers. No single customer represented 10 percent or more of IEA's
revenues during that period. IEA's broad client base includes
consulting and engineering firms, public and private water companies,
large and small industrial and high-tech companies, federal government
agencies including the EPA, and various state and local government
bodies, including state environmental departments, municipalities and
waste treatment facilities.
Competition. The environmental testing business is highly
competitive. Its participants compete primarily on the basis of price
and service. Many customers view environmental testing as a commodity
and for them, price is the most important factor in purchasing
decisions. Following a period of rapid growth, the environmental
testing business is now characterized by significant overcapacity. As
a result of these factors, operating margins tend to be low.
Estimates of the number of commercial laboratory companies range
between 1,000 and 1,500, although IEA believes that the 30 largest
companies account for approximately 50 percent of industry revenues.
Most laboratory companies are single-laboratory operations serving a
local market. As the environmental services market has matured over
the past 20 years, the trend
-10-
<PAGE>
<PAGE>
has been toward consolidation and larger laboratory
companies that operate several laboratories. This trend
has been driven, in part, by the increasing sophistication and expense
of laboratory equipment. In addition, larger laboratory companies can
offer a wider variety of services and equipment. Some customers,
particularly larger companies with operations in multiple locations,
prefer to deal with larger laboratory companies. In addition, some
environmental service businesses operate in-house laboratories that
exclusively service their own environmental testing needs. IEA's
competitors include larger companies that possess greater financial
resources than the Company. The three IEA laboratories that
participate in the CLP compete with approximately 50 other laboratory
companies that bid for such EPA work.
Regulatory Background. Federal and state environmental laws and
regulations have been the primary force driving the environmental
testing laboratory market. The proliferation of environmental
regulations over the past two decades has required increasingly
sophisticated analysis and remediation of a growing range of
environmental hazards. The environmental services industry has grown
rapidly in response to regulatory demands for tests that reveal the
nature and quantity of any contamination caused during the handling,
use and transportation of hazardous substances, the treatment, storage
and disposal of wastes, and the remediation of contaminated sites. As
advances in technology have continued to make more sophisticated
testing possible, regulations have often been revised to require those
more sophisticated tests.
Environmental Regulation. IEA receives and uses various small
quantities of hazardous chemicals in its operations, and is a licensed
hazardous waste handler. IEA operates under federal and, as
applicable to the states in which various IEA laboratories operate,
various state environmental laws and regulations that subject parties
handling hazardous wastes to potential liabilities for non-compliance,
in addition to possible civil and criminal penalties.
Contract Terms. IEA's client contracts generally contain
provisions which may impose financial penalties for inaccurate or late
test results. Contracts with governmental and private sector clients
regularly contain liquidated damage or penalty provisions which reduce
the amount paid if a test is delivered late.
Seasonality. IEA's business is affected by seasonality, with the
busiest period during the late spring, summer and early fall, when
sampling and construction activity are at their peak. Sampling, and
therefore the related testing, falls off for large parts of IEA's
service area during the winter months because of frozen ground and
water and accumulations of snow in some parts of the country.
Utility Management Services
- ---------------------------
The Company, through Hydrocorp and its AMS subsidiary, provides clients
with an integrated range of utility management services, including contract
management and operations, information services, water and wastewater
billing and collections and various engineering, operations and management
consulting services. AMS clients are private and municipal water and
-11-
<PAGE>
<PAGE>
wastewater utilities, including municipal systems engaged in
privatization initiatives. The utility management services businesses
are highly competitive.
Hydrocorp also has minority interests in small businesses which
provide security consulting services and automated mapping and
facilities management services to utilities, industry, municipalities
and government agencies.
Forest Products
- ---------------
The Company is engaged in the forest products industry through
Timco, which has operations in New Hampshire consisting of a sawmill
complex and formerly a wood waste electricity cogeneration plant. The
sawmill complex processes and markets kiln-dried, finished eastern
white pine and other lumber. The product is used in the remodeling
and do-it-yourself markets and, to a lesser extent, in the
construction of new homes. It is marketed in the Northeast and
Mid-Atlantic regions through lumber wholesalers, distributors and, in
some instances, directly to retailers. Wholesalers and distributors,
in turn, sell the product to the construction trade and to retail
outlets. Timco obtains the timber used in its products from
independent loggers and from purchased timber rights. A four megawatt
electricity cogeneration plant, which no longer is used to produce
electricity, is located at the sawmill complex. The main by-product
of the cogeneration plant is to produce low-cost steam for drying
lumber and heating some of the sawmill buildings.
In November 1994, Timco agreed to terminate its long-term rate
order with PSNH under which Timco sold electricity produced at its
cogeneration plant to PSNH. Under the agreement PSNH paid Timco
$8,195,105 in exchange for the assignment of the rate order to PSNH
and a release of PSNH's obligations to buy power from Timco. As a
result of this transaction, Timco will not have these cogeneration
revenues in the future. Revenues from electricity cogeneration were
$3,000,000 in 1994 and $3,500,000 in 1993.
Traditionally, the demand for Timco's lumber is lower in the
winter months and inventories are built up in anticipation of the
busier spring and summer season. The lumber products industry is very
competitive, on the basis of quality and price. Timco faces
competition on the basis of both quality and price from domestic and
foreign forest product companies, many of which have greater resources
than the Company.
Real Estate
- -----------
The Company treats real estate as a separate business segment in
order to distinguish the earnings impact from sales of surplus utility
land from the results of utility operations. For a discussion of the
surplus off-watershed land which the Utilities intend to market as
appropriate, see "Item 2. Properties."
Employees
- ---------
As of December 31, 1994, the Company employed approximately 679
persons on a full-time basis, including 276 in the Public Water Supply
business, 305 in the Environmental
-12-
<PAGE>
<PAGE>
Laboratories and Utility Management Services business
and 98 in the Forest Products business. None of the
Company's employees is covered by collective bargaining arrangements,
and the Company believes its relations with its employees are
satisfactory.
Executive Officers
- ------------------
For information concerning the Company's executive officers, see
"Item 10. Directors and Executive Officers of the Registrant".
ITEM 2. PROPERTIES
- -------------------
BHC owns a 20,000-square-foot headquarters building and a 44,370-
square-foot Operations Center in Bridgeport, and leases an additional
22,000 square feet of office, laboratory and garage space in
Bridgeport for utility operations. SWC owns its 13,618-square-foot
headquarters and operations facility in Stamford, Connecticut.
Aquarion owns nonutility land totaling approximately 99 acres in
Easton and Litchfield, Connecticut.
At December 31, 1994, BHC owned in the aggregate 11 active
reservoirs and approximately 1,657 miles of water mains, of which
approximately 41 miles have been laid in the past five years. In
addition, SWC owned five active reservoirs at year-end. The rights to
locate and maintain water transmission and distribution mains are
secured by charter, easement and permit and are generally perpetual.
Water is delivered to the distribution system from four major and
several smaller reservoirs and 42 producing wells. Eight additional
reservoirs are used for storage purposes and are interconnected with
the distribution reservoirs.
BHC owns two dual-media filtration plants for treatment of its
Trap Falls and Easton Lake reservoir systems, which plants have
capacities of 25 and 20 MGD, respectively. SWC owns a 24 MGD
rapid-sand and activated-carbon filtration plant for treatment of its
entire reservoir system.
BHC owns approximately 19,000 acres of real property, most of
which consists of reservoirs and surrounding watershed, located in
Fairfield, New Haven, and Litchfield counties in Connecticut. All but
1,360 specified acres of such property are subject to the first lien
arising under the BHC Indenture securing its First Mortgage Bonds.
SWC owns approximately 2,400 acres of real property, which consists
almost exclusively of reservoirs and surrounding watershed, pumps,
standpipes and building facilities, located in Stamford and New
Canaan, Connecticut, and in Pound Ridge and Lewisboro, New York.
The DPHAS regulates public water company lands according to a
three-tiered classification system. Class I lands cannot be sold,
leased or transferred. The DPHAS may authorize a transfer or change
in use of Class II lands only upon a finding that there will be no
adverse impact upon the public water supply and that any use
restrictions required as a condition of transfer are enforceable
against subsequent owners and occupants of the lands. Class III lands,
which are off-watershed, are not currently subject to regulation by
the DPHAS. BHC has identified
-13-
<PAGE>
<PAGE>
approximately 2,700 acres of land it believes are surplus
to its water supply needs, and therefore would qualify as
Class III land. All of this Class III land, which includes
approximately 570 acres that have never been in rate base, is
available for sale, although all of it may not be marketable. Up to
530 additional acres could become available if the DPHAS approves the
abandonment of a former reservoir system in New Haven County and
reclassifies that existing watershed property as Class III land, as
requested by the Company.
Real property may not be sold or transferred by a water utility
without the prior approval of the DPUC and compliance with other
restrictions imposed by Connecticut law. State laws and regulations
govern, among other things, to whom certain water company lands may be
transferred, with preference given to other water companies, the
municipality in which the property is located and the State of
Connecticut, in that order. Additionally, the disposition of the
proceeds of any permissible sale is subject to state law.
Until changed by statute in 1988, it had been the practice of the
DPUC to apply gains from the sale of surplus water company land that
had ever been in the rate base to ratepayers. In effect, these gains
served as an offset against operating expenses, thereby substituting
profits from the sale of such land for revenues that would otherwise
be provided through rates. Legislation enacted in 1988, the Equitable
Sharing Statute, required the DPUC to use an accounting treatment to
"equitably allocate" the economic benefits of the net proceeds from
the sales of Class III land which was previously in the utility's rate
base between the Company's ratepayers and its shareholders. Ratepayers
do not share in gains from the sale of land that has never been in
rate base.
The Equitable Sharing Statute was clarified by a 1990 amendment
which provides that the economic benefits from the sale of
former-rate-base, Class III land that promotes a perpetual public
interest in open space or recreational use shall be allocated
"substantially in favor" of shareholders when 25 percent or more of
the land sold is to be used for open space or recreational purposes.
In January 1994, the DPUC approved the sale of 7.29 acres of land
in Weston, Connecticut, which BHC had subdivided into three
residential building lots. This subdivision contained no open space
donation. The DPUC provided ratemaking treatment that allocates net
gains 50 percent to shareholders and 50 percent to ratepayers.
In October 1994, the DPUC approved the sale of 20.63 acres of
land in Easton, Connecticut, which BHC had subdivided into eight
residential building lots that will be marketed in 1995. This
subdivision contained an open space donation in excess of 25 percent.
The DPUC provided ratemaking treatment that allocates net gains 67
percent to shareholders and 33 percent to ratepayers.
In November 1994, the DPUC approved the sale of 32.70 acres of
land in Monroe, Connecticut, which BHC had subdivided into five residential
building lots that will be marketed in 1995. This subdivision
contained an open space donation in excess of 25 percent. The DPUC
-14-
<PAGE>
<PAGE>
proved ratemaking treatment that allocates net gains 50
percent to shareholders and 50 percent to ratepayers.
In December 1994, the DPUC approved the sale of 8.65 acres of
land in Weston, Connecticut, which BHC had divided into two
residential building lots that will be marketed in 1995. This parcel
of land had never been in BHC's rate base. The DPUC provided
ratemaking treatment that allocates 100 percent of the net gains to
shareholders.
The Company leases all of its laboratory facilities, except for
the Massachusetts laboratory, which it owns. Aquarion owns 50 percent
of Key Partners III, a partnership that owned IEA's North Carolina
laboratory and headquarters facility. In December 1994, Key Partners
sold the facility for $3,800,000, which produced an after-tax gain to
Aquarion of $283,000. The smallest of IEA's laboratories occupies
approximately 6,750 square feet. The largest, located in Cary, North
Carolina, occupies approximately 30,000 square feet. The Company
believes that the laboratory facilities owned or leased are adequate
for its current and anticipated future needs and that the amounts paid
for all the leases into which it has entered are reasonable.
ITEM 3. LEGAL PROCEEDINGS
- --------------------------
The registrant has nothing to report for this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
The registrant has nothing to report for this item.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
- -----------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Page 43 of the Company's Annual Report to Shareholders for the
year ended December 31, 1994 is incorporated by reference herein
pursuant to Rule 12b-23 of the Securities and Exchange Act of 1934
(the "Act") and to Instruction G(2) to Form 10-K.
Aquarion has declared and paid quarterly dividends on its common
stock without interruption since its organization in 1969 and, prior
thereto, BHC paid dividends annually on its common stock without
interruption since 1890. Dividends, when declared, are normally paid
on the 30th day of January, April, July and October.
The earnings of Aquarion are derived from its investments in its
subsidiaries, particularly BHC. Aquarion's future ability to pay
dividends to holders of its Common Stock is dependent
-15-
<PAGE>
<PAGE>
upon the continued payment by BHC of dividends to Aquarion. BHC's
ability to pay dividends will depend upon timely and adequate rate relief,
compliance with restrictions under certain of the BHC debt instruments
and other factors.
Dividends on Aquarion common stock can be paid only out of its
net profits and surplus. Aquarion's ability to pay dividends is
further restricted by the terms of Aquarion's 5.95 percent unsecured
Senior Note due January 1999 and 7.8 percent unsecured Senior Notes
due June 1997 (the "Aquarion Notes"). As of December 31, 1994, the
applicable restrictions would have permitted payment of additional
dividends on Aquarion's common stock of up to $35,000,000.
While Aquarion's Board of Directors intends to continue the
practice of declaring cash dividends on a quarterly basis, no
assurance can be given as to future dividends or dividend rates since
they will be determined in light of a number of factors, including
earnings, cash flow, and Aquarion and BHC's financial requirements.
See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations--Capital Resources and
Liquidity."
ITEM 6. SELECTED FINANCIAL DATA
- ---------------------------------
See Page 1 ("Selected Financial Data") and Pages 42 - 43
("Supplemental Financial Data") of the Company's Annual Report to
Shareholders for the year ended December 31, 1994, which is
incorporated by reference herein pursuant to Rule 12b-23 of the Act
and Instruction G(2) to Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ---------------------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
See Page 1 ("Selected Financial Data") and Pages 15 - 22 of the
Company's Annual Report to Shareholders for the year ended
December 31, 1994, which is incorporated by reference herein pursuant
to Rule 12b-23 of the Act and Instruction G(2) to Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -----------------------------------------------------
The consolidated financial statements, together with the report
thereon of Price Waterhouse, LLP, dated January 30, 1995, appearing on
Pages 23 - 40 and Page 1 ("Selected Financial Data") and Pages 42 - 43
("Supplemental Financial Data") of the accompanying 1994 Annual Report
to Shareholders of Aquarion Company are incorporated by reference
herein pursuant to Rule 12b-23 of the Act and Instruction G(2) to Form
10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
- ---------------------------------------------------------------------
AND FINANCIAL DISCLOSURE
------------------------
The registrant has nothing to report for this item.
-16-
<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information as to directors required by Item 10 is set forth
at Pages 2 - 9 of the Company's Definitive Proxy Statement, dated
March 22, 1995 relating to the proposed Annual Meeting of Shareholders
to be held on April 25, 1995, filed with the Commission pursuant to
Regulation 14a under the Act, and is incorporated by reference herein
pursuant to Rule 12b-23 of the Act and Instruction G(3) to Form 10-K.
Executive Officers
- ------------------
The executive officers of the registrant are listed below. These
officers were elected to the offices indicated on April 26, 1994,
except as otherwise noted, for a term expiring with the 1995 annual
meeting of directors. Except as indicated, all have been with
registrant and its predecessors in an executive capacity for more than
five years. There are no family relationships among members of the
executive officers. There were no arrangements or undertakings
between any of the officers listed below and any other person pursuant
to which he or she was selected as an officer.
<TABLE>
<CAPTION>
Served
as
Office, Business Experience Officer
Executive Officer Age During Past Five Years Since
- ----------------- --- --------------------------- -------
<S> <C> <C> <C>
Jack E. McGregor 60 President and Chief 1985
Executive Officer of the
Company. Director of Bay
State Gas Company, People's
Bank and Physicians Health
Services, Inc., President,
Director and Chairman of
Executive Committee,
National Association of
Water Companies. Trustee of
Fairfield University and
Mystic Marinelife Aquarium.
Richard K. Schmidt, Ph.D 50 Senior Vice President 1992
(since April 1993) of the
Company; President and
Chief Executive Officer of
IEA (since March 1992);
formerly President and
Chief Operating Officer
(1984-1992) of Mechanical
Technology, Inc.
-17-
<PAGE>
<PAGE>
James S. McInerney 57 Senior Vice President 1989
(since April 1992) of the
Company; President (since
April 1991) and Chief
Operating Officer (since
January 1990) of BHC, and
Chairman and Chief
Executive Officer (since
January 1990) of Stamford
Water Company. Executive
Vice President (1990 to
April 1991) of BHC.
Mr. McInerney is a
Director, President or Vice
President of certain of the
Company's other
subsidiaries.
Janet M. Hansen 52 Senior Vice President 1983
(since April 1993), Chief
Financial Officer (since
April 1992) and Treasurer
(since 1988) of the Company
and Vice President (since
1989), Chief Financial
Officer (since April 1991)
and Treasurer (since 1985)
of BHC; Mrs. Hansen is Vice
President and Treasurer
(since April 1991) of IEA
and Chairman of the Board
and Chief Executive Officer
(since April 1992) of
Timco. Mrs. Hansen is also
Vice President, Chief
Financial Officer and
Treasurer of certain of the
Company's other subsid-
iaries.
Larry L. Bingaman 45 Vice President, Corporate 1990
Relations and Secretary
(since April 1993); Vice
President, Marketing and
Communications (since 1990)
of the Company.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Pages 8 - 13 of the Company's Definitive Proxy Statement, dated
March 22, 1995, relating to the proposed Annual Meeting of Shareholders
to be held on April 25, 1995, filed with the Commission pursuant to
Regulation 14a under the Act are incorporated by reference herein
pursuant to Rule 12b-23 of the Act and Instruction G(3) to Form 10-K.
-18-
<PAGE>
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- ------------------------------------------------------------------------
Pages 4 - 5 of the Company's Definitive Proxy Statement, dated
March 22, 1995, relating to the proposed Annual Meeting of
Shareholders to be held on April 25, 1995, filed with the Commission
pursuant to Regulation 14a under the Act, are incorporated by
reference herein pursuant to Rule 12b-23 of the Act and Instruction
G(3) to Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The registrant has nothing to report for this item.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- -------------------------------------------------------------------------
a) The following documents are filed as part of this report:
<TABLE>
<CAPTION>
Page in
Annual Report*
-------------
<S> <C> <C>
(1) Consolidated Statements of Income for the
three years ended December 31, 1994 23
Consolidated Balance Sheets at December 31, 1994
and 1993 24-25
Consolidated Statements of Cash Flows for the
three years ended December 31, 1994 26
Consolidated Statements of Shareholders' Equity
for the three years ended December 31, 1994 27
Notes to Consolidated Financial Statements
Report of Independent Accountants 28-39
Selected Financial Data 40
Supplemental Financial Information 42-43
* Incorporated by reference from the indicated pages of the 1994
Annual Report to Shareholders.
____________________
</TABLE>
-19-
<PAGE>
<PAGE>
(b) Reports on Form 8-K
The Company did not file a report on Form 8-K for the fourth quarter
of the year ended December 31, 1994.
(c) Exhibits:
Each document referred to below is incorporated by reference to the
files of the Commission, unless the referene is preceded by an
asterisk (*). Each management contract, compensatory plan or
arrangement required to be filed as an exhibit hereto is prescedd by
a double asterisk (**).
3(a) Restated Certificate of Incorporation of Aquarion, as
amended.(1)
3(b) By-laws of Aquarion, as amended. (6)
4(a) Rights Agreement between Aquarion and The Chase Manhattan
Bank, N.A. setting forth description of Preferred Stock
Purchase Rights distributed to holders of Aquarion Common
Stock.(6)
10(a) First Mortgage Indenture of BHC dated June 1, 1924.(2)
10(b) Seventeenth Supplemental Mortgage of BHC dated as September
1, 1960.(2)
10(c) Nineteenth Supplemental Mortgage of BHC dated as of
August 1, 1965.(1)
10(d) Twentieth Supplemental Mortgage of BHC dated as of
November 1, 1968.(1)
10(e) Loan and Trust Agreement of Timco as of November 1,
1984.(1)
10(f) Note Agreement of BHC dated January 24, 1991.(3)
10(g) Note Agreement of Aquarion dated as of May 19, 1992.(5)
**10(h) Aquarion Long-Term Incentive Plan.(1)
10(i) Joint Venture Agreement between John J. Brennan, Jr.,
William A. Brennan and Main Street South Corporation dated
February 23, 1979.(4)
**10(j) Employment Agreement between Aquarion and James S.
McInerney, dated June 1, 1990.(6)
**10(k) Employment Agreement between Aquarion and Janet M. Hansen
dated November 1, 1992.(5)
* **10(l) Agreement between Aquarion and William S. Warner dated
October 15, 1989.
-20-
<PAGE>
<PAGE>
* **10(m) Employment Agreement between Aquarion and Jack E. McGregor
dated January 1, 1990.
* **10(n) Form of Stock Option Award Agreement for options granted
pursuant to Long-Term Incentive Plan.
10(o) Purchase Agreement dated July 28, 1989 by and among
Frederick T. Doane, Heike A. Doane and Aquarion.(3)
10(p) Purchase Agreement dated July 10, 1990 by and among
Robert L. MacDonald and Aquarion.(3)
10(q) Stock Purchase Agreement dated November 5, 1990 between
Paul B. Priest, A C Laboratories, Inc. and Aquarion.(3)
10(r) Stock Purchase Agreement dated as of December 7, 1990
between Aquarion and the sellers listed on Schedule 2. 1
thereof.(3)
**10(s) Employment Agreement between Aquarion and Larry L. Bingaman
dated June 11, 1990.(3)
10(t) Amendment dated September 12, 1991 to the Stock Purchase
Agreement dated as of December 7, 1990.(1)
10(u) Purchase and Sale Agreement dated September 12, 1991, by
and among YWC Technologies, Inc., Bird Corporation, YWC,
Inc., Interim Dewatering Services, Inc., Ad+Soil, Inc. and
Aquarion.(1)
10(v) Agreement for Construction Management Services dated
April 18, 1991 between BHC and Gilbane Building Company.(1)
* **10(w) Employment Agreement between Aquarion and Dr. Richard K.
Schmidt dated April 1, 1994.
**10(x) Employment Agreement between Industrial and Environmental
Analysts, Inc. and David C. Houle dated September 1, 1992.(5)
10(y) Loan Agreement of BHC dated as of June 1, 1990.(6)
10(z) First Mortgage Bonds, Series C and Preferred Stock, 1968
Series, Purchase Agreement of SWC dated July 1968.(5)
10(aa) Revolving Credit Agreement of Aquarion dated May 14, 1993.(7)
*10(bb) Revolving Credit Agreement amendment dated May 12, 1994.
10(cc) Loan Agreement of BHC dated as of June 1, 1993. (7)
10(dd) Loan Agreement of SWC dated September 1, 1993.(8)
-21-
<PAGE>
<PAGE>
10(ee) Loan Agreement of BHC dated December 1, 1993.(9)
10(ff) Note Agreement of Aquarion dated January 4, 1994.(9)
10(gg) Aquarion Stock Incentive Plan.(9)
*13(a) Annual Report to Shareholders for the year ended
December 31, 1994.
*21(a) Subsidiaries of Aquarion
*23(a) Consent of Independent Accountants
*24(a) Power of Attorney
*27(a) Financial Data Schedule
____________________
[FN]
(1) Filed as part of Aquarion's Form 8 Amendment to its
Form 10-Q for the quarter ended September 30, 1991, filed
February 19, 1992.
(2) Filed as an Exhibit to BHC's Registration Statement on
Form S-1, File Number 2-23434, dated April 26, 1965.
(3) Filed as part of the Annual Report of the Company on
Form 10-K for the year ended December 31, 1990.
(4) Filed as part of the Amendment No. 1 to the Company's
Registration Statement as Form S-7, File No. 2-74305, dated
November 5, 1981.
(5) Filed as part of the Company's Annual Report on
Form 10-K for the year ended December 31, 1992.
(6) Filed as part of the Company's Annual Report on
Form 10-K for the year ended December 31, 1991.
(7) Filed as part of the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1993.
(8) Filed as part of the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
(9) Filed as part of the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
-22-
<PAGE>
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Aquarion Company
- ----------------
(Registrant)
By /s/Janet M. Hansen
------------------------------------------ March 23, 1995
Janet M. Hansen
Senior Vice president, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
By *
------------------------------------------ March 23, 1995
William S. Warner
Chairman of the Board of Directors
and Director
By *
----------------------------------------- March 23, 1995
Jack E. McGregor
President, Chief Executive Officer
and Director
By *
------------------------------------------ March 23, 1995
George W. Edwards, Jr.
Director
By
------------------------------------------
Geoffrey Etherington
Director
-23-
<PAGE>
<PAGE>
By *
------------------------------------------ March 23, 1995
Norwick R. G. Goodspeed
Director
By *
------------------------------------------ March 23, 1995
Janet D. Greenwood
Director
By *
------------------------------------------ March 23, 1995
Donald M. Halsted, Jr.
Director
By *
------------------------------------------ March 23, 1995
Eugene D. Jones
Director
By *
------------------------------------------ March 23, 1995
Larry L. Pflieger
Director
By
------------------------------------------
G. Jackson Ratcliffe
Director
By
------------------------------------------
John A. Urquhart
Director
By /s/Janet M. Hansen
------------------------------------------
Janet M. Hansen
Attorney-in-Fact
-24-
<PAGE>
<PAGE>
EXHIBIT 21(a)
-------------
Subsidiaries of the Registrant
------------------------------
. Bridgeport Hydraulic Company, incorporated in the State of Connecticut
. Stamford Water Company, incorporated in the State of Connecticut
. Main Street South Corporation, incorporated in the State of Connecticut
. Timco, Inc., incorporated in the State of Connecticut
. Hydrocorp, Inc., incorporated in the State of Delaware
. Industrial and Environmental Analysts, Inc., incorporated in the
State of Vermont
. Industrial and Environmental Analysts, Inc., Massachusetts,
incorporated in the State of Massachusetts
. Industrial and Environmental Analysts, Inc., New Jersey,
incorporated in the State of Delaware
. Industrial and Environmental Analysts, Inc., Illinois, incorporated
in the State of Delaware
. Industrial and Environmental Analysts, Inc., Florida, incorporated
in the State of Florida
. SRK Holding, Inc., incorporated in the State of Connecticut
. THC Acquisition Corp., incorporated in the State of Delaware
. YWC, Inc., incorporated in the State of Connecticut
. Aquarion Management Services, Inc., incorporated in the State of Delaware
-25-
<PAGE>
<PAGE>
EXHIBIT 23(a)
-------------
Consent of Independent Accountants
----------------------------------
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-
52973) and in the Registration Statement on Form S-8 (No. 33-53473) of
our report dated January 30, 1995, which appears on Page 40 of the
1994 Annual Report to Shareholders of Aquarion Company, which is
incorporated by reference in Aquarion Company's Annual Report on Form
10-K for the year ended December 31, 1994.
Price Waterhouse LLP
Stamford, Connecticut
March 30, 1995
-26-
MANAGEMENT'S DISCUSSION AND ANALYSIS
- ------------------------------------
Management's Discussion and Analysis of Financial Condition and
Results of Operations
The terms "Aquarion Company," "Aquarion," and "the Company" are
used in this section for convenience and reading ease. These
terms do not in all cases describe exact intercompany
relationships among Aquarion and its subsidiaries.
Capital resources and liquidity
- -------------------------------
Capital expenditures. The Company invested $19,800,000 in
property, plant and equipment in 1994, compared with $17,900,000
in 1993 and $24,700,000 in 1992. Aquarion's utility subsidiary,
Bridgeport Hydraulic Company (BHC), and BHC's subsidiary,
Stamford Water Company (SWC), (collectively, the Utilities) ac-
counted for approximately 89 percent of plant additions during
the three-year period, with the balance being invested primarily
in the Company's environmental testing laboratories (Laboratories
or IEA) and forest products and electric cogeneration operations
(Forest Products or Timco). Nonutility capital expenditures
totaled approximately $2,100,000 in 1994. Management estimates
that capital expenditures will total $41,000,000 in 1995, of
which approximately $38,300,000 will be for water utility
construction programs. Nonutility capital expenditures will
approximate $2,700,000 in 1995.
- ----------------------------------------------------------------
Utility Capital Expenditures
(Dollars in thousands)
1992 1993 1994
----- ----- -----
Filtration $12,200 $ 8,000 $ 4,600
Non-Filtration 9,500 8,300 13,100
------- ------- -------
Total $21,700 $16,300 $17,700
- ----------------------------------------------------------------
Federal Safe Drinking Water Act (SDWA) regulations require
water filtration or alternate water treatment measures for BHC's
major unfiltered water supplies. In accordance with SDWA
regulations, construction of filtration facilities for BHC's
Easton Lake Reservoir began in 1990, and those facilities were
completed and placed in service in 1993 at a total project cost
of $26,800,000. Engineering for the construction of filtration
facilities at BHC's Hemlocks Reservoir commenced during 1992, and
construction began in October 1994. The total expected cost of
construction through completion in 1997 will approximate
$50,000,000, without adjustment for inflation. Management
estimates that the future costs of construction on BHC's
Litchfield Division unfiltered surface water supplies, expected
to be completed by 1996, will approximate $6,000,000 without
adjustment for inflation. Expenditures totaling $6,500,000 have
been made for the Hemlocks, Lakeville and Norfolk Reservoirs'
filtration programs through December 31, 1994. Management can
not predict whether future federal, state or local regulations
will require additional capital expenditures.
Financing activities. Due to the magnitude of the Company's
construction programs and the capital-intensive nature of the
public water supply business, financing has been provided by both
internal and external sources. Historically, the Company's
ability to finance its capital expenditures has depended
substantially on rate relief.
Connecticut Department of Public Utility Control (DPUC)
regulations allow water utilities to implement a Construction-
Work-in-Progress (CWIP) water rate surcharge to water bills in
order to recover 90 percent of the carrying costs of capital used
in mandated federal SDWA projects, until such time as these
projects are completed and placed into rate base. On December 7,
1994, the DPUC approved a 0.82 percent CWIP rate surcharge in
connection with the construction of the Hemlocks Reservoir
filtration facilities in Fairfield, Connecticut. In January
1995, BHC filed an application to increase this surcharge to
1.26 percent. BHC will file these applications quarterly as
construction continues through 1997, at which time the facility
is expected to be operational and subject to general ratemaking
regulations.
Effective August 1, 1993, the DPUC awarded a 21 percent
water service rate increase designed to provide a $10,400,000
annual increase in revenues and
-15-
<PAGE>
<PAGE>
an 11.6 percent return on common equity. The new rates became
effective at the same time the Easton Lake filtration
construction project was placed into service thereby eliminating
the CWIP rate surcharge for that project. During 1993, BHC
derived revenues of $1,937,000 from the CWIP rate surcharge for
the Easton Lake project, prior to the new rates becoming
effective (Note 2).
The percentage of capital expenditures financed by net cash
from operating activities was 100 percent, 100 percent and
81 percent for the years ended December 31, 1994, 1993 and 1992,
respectively. (See "Consolidated Financial Statements-
Consolidated Statements of Cash Flows.") The remainder has been
provided from external financing sources.
Funds from external sources historically have been borrowed
on a short-term basis and periodically refinanced through long-
term debt or equity issues. In May 1994, Aquarion renewed
unsecured revolving credit agreements with five banks. These
agreements, which are renewed annually, provide $50,000,000
($10,000,000 with each bank) of short-term credit availability on
a committed basis. At December 31, 1994, there were no
outstanding short-term borrowings under the agreements (Note 7).
- -----------------------------------------------------------------
Net Cash Provided by Operating Activities
(Dollars in thousands)
1992 1993 1994
----- ----- -----
$10,091 $25,183 $33,726
- -----------------------------------------------------------------
In April 1994, the Company filed a Form S-3 registration
statement with the Securities and Exchange Commission to enhance
its Dividend Reinvestment and Common Stock purchase plan (the
Plan) and include an additional 750,000 shares (Note 12). As a
result, the Company obtained funds of $2,902,000 through the Plan
in 1994 versus $1,841,000 and $1,564,000 in 1993 and 1992,
respectively. The Utilities also received $1,985,000 from
advances and contributions in aid of construction from developers
and customers in 1994.
- -----------------------------------------------------------------
Proceeds from Div. Reinv. Plan
(Dollars in thousands)
1992 1993 1994
----- ----- -----
$1,564 $1,841 $2,902
- -----------------------------------------------------------------
In June 1993, the Company completed a common stock offering
of 460,000 shares at $25.875 per share. Proceeds of $11,350,500
were realized after deducting underwriting discounts and
commissions of $552,000. Net proceeds of approximately
$11,200,500 were realized after deducting all other expenses of
the issuance. In addition, BHC issued a 5.6 percent $10,000,000
unsecured note under a tax-exempt financing with the Connecticut
Development Authority. Proceeds from both transactions were used
to reduce short-term borrowings, which had been incurred in
connection with the construction of BHC's Easton Lake Reservoir
Filtration Plant.
Over the past two years, the Company took advantage of lower
interest rates through several debt refinancings. In 1994, BHC
redeemed its $10,000,000, 10-3/4 percent note and issued a
$10,000,000, 6.05 percent note. During 1993, BHC redeemed its
$12,000,000, 7.4 percent Series T First Mortgage Bonds and its
$7,700,000, 7-3/4 percent unsecured note and issued unsecured
notes of $12,000,000 and $7,700,000 at 5.5 percent and 5.8
percent, respectively. In September 1993, SWC issued an
$8,980,000 unsecured note at 5.3 percent. SWC used the proceeds
to redeem its $3,000,000, 7-1/2 percent and $5,980,000, 7.6
percent unsecured notes. Additionally, Aquarion issued a
$10,000,000, 5.95 percent Senior Note on January 4, 1994, the
proceeds of which were used to redeem the $10,000,000, 8.5
percent Senior Notes which matured on January 1, 1994. As a
result of the above refinancings, the Company has recognized
annual consolidated interest expense savings of approximately
$1,300,000.
The Utilities' financing activities are targeted over the
long term to maintain an approximate capitalization structure of
50 percent equity and 50 percent long-term debt. At December 31,
1994, the Utilities' combined capitalization structure
approximated 57.5 percent equity and 42.5 percent debt, while the
Company's consolidated capitalization structure approximated
50.9 percent equity and 49.1 percent debt.
-16-
<PAGE>
<PAGE>
The Company has a target dividend payout ratio, over the
long term, of 75 to 80 percent. The dividend payout as a
percentage of net income was 87 percent and 92 percent in 1994
and 1993, respectively, and 31 percent and 40 percent as a
percentage of net cash provided by operating activities in 1994
and 1993, respectively.
- -----------------------------------------------------------------
Interest Expense
(Dollars in thousands)
1992 1993 1994
----- ----- -----
$9,327 $9,242 $8,368
- -----------------------------------------------------------------
Total Debt.
(Dollars in thousands)
1992 1993 1994
----- ----- -----
Total Debt $127,932 $121,153 $115,543
Long-term debt 105,463 115,591 111,466
- -----------------------------------------------------------------
Future financing requirements. As in the past, the Company's
ability to finance future capital expenditures depends
substantially on rate relief. Rate relief has an impact on cash
flow from operating activities and consequently affects the
Company's ability to obtain external financing, since sufficient
operating cash flows are necessary to maintain debt coverage
ratios to allow for the issuance of additional debt securities.
Additionally, rate relief has an impact on the Company's ability
to generate sufficient cash flows to provide a reasonable return
in the form of dividends to Aquarion's shareholders. In light of
the Company's substantial need for additional funds, the Company
will need additional debt and equity capital to finance future
utility construction. The type, amount and timing of new
financings will be based on the Company's general financial
policies regarding capitalization, as well as on market
conditions and other economic factors.
The Company's ability to obtain funding from external
sources will be affected by the terms of certain of the Company's
existing obligations. Under BHC's First Mortgage Indenture (BHC
Indenture), approximately $9,000,000 of First Mortgage Bonds were
outstanding at December 31, 1994. No additional bonds have been
issued under the BHC Indenture since 1980. Substantially all of
BHC's properties are subject to the lien of the BHC Indenture.
Additional long-term debt may be issued by the Company under
the terms of the Senior Notes as long as consolidated long-term
debt (including capitalized lease obligations) does not exceed
66 2/3 percent of its consolidated total capitalization, as
defined. BHC may issue additional long-term debt under the
Senior Notes if it meets a similar 66 2/3 percent long-term debt
to total capitalization test.
The Company's need for future external financing may also be
affected by future net proceeds from its land-disposition
program. BHC has identified approximately 2,700 acres of off-
watershed land, most of which was previously in its rate base, as
surplus to utility operations. Under Connecticut law, net
proceeds from the sale of land which has ever been in a utility's
rate base must be reinvested in the utility plant, and profits
from such transactions are allocated by the DPUC between the
utility's customers and shareholders pursuant to legislative and
regulatory criteria. The after tax gain from the sales of BHC's
surplus, off-watershed land amounted to approximately $813,000,
or 13 cents per share, in 1994 (Note 3).
Other.
- -----
Inflation. Inflation, as measured by the Consumer Price Index,
increased 2.7 percent, 2.7 percent and 2.9 percent in 1994, 1993
and 1992, respectively, and primarily affects the Utilities. The
DPUC allows the recovery of depreciation through revenues solely
on the basis of the historical cost of plant. The replacement
cost of utility plant would be signifi-
-17-
<PAGE>
<PAGE>
cantly higher than the historical cost. While the DPUC gives no
recognition in its ratemaking process to the current cost of
replacing utility plant, the Company believes that, based on past
practices, the Utilities will continue to be allowed to earn a
return on the increased cost of their net investment when prudent
replacement of facilities actually occurs.
Results of operations
- ---------------------
1994 Overview. The Company's consolidated net income for 1994
was $12,221,000 compared with net income of $10,990,000 in 1993.
Net income per share was $1.87 in 1994 on a weighted average of
6,532,627 common shares outstanding, compared with $1.76 in 1993
on a weighted average of 6,237,875 common shares outstanding.
Operating results during 1994 were favorably affected by higher
water rates from BHC due to a 21 percent rate increase, effective
August 1, 1993, and the gain related to the sales of surplus off-
watershed land.
- -----------------------------------------------------------------
Percentage of Revenues by Expense category
(Dollars in thousands)
1994
-----
Operating Expenses 38.9%
General & Administrative 16.6%
Depreciation 9.5%
Interest Expense 6.4%
Other Taxes 10.2%
Income Taxes 8.4%
Net Income 10.0%
(1) Interest expense reduced by AFUDC
- -----------------------------------------------------------------
In 1994 two nonrecurring transactions occurred. On
November 8, 1994, Timco agreed to terminate its long-term rate
order with Public Service Company of New Hampshire (PSNH) under
which Timco sold PSNH electricity produced at its cogeneration
plant. Under the agreement, PSNH paid Timco $8,195,105 in
exchange for the assignment of the rate order to PSNH and a
release of PSNH's obligations to buy power from Timco. The net
after-tax gain on this transaction, after providing for
unrecoverable costs and expenses, was $1,902,000, which
approximates the present value of the income stream Timco would
have received over the remaining life of the contract. As a
result, Timco will not have these revenues in the future.
Revenues from electricity cogeneration were $3,000,000 in 1994
and $3,500,000 in 1993.
Aquarion also recorded a charge of $1,900,000 related to the
Company's investment in a rehabilitation housing unit in
New Hampshire (the "Partnership"). Aquarion has been informed
that the Partnership may require additional capital from each of
the five limited partners beyond the amounts originally agreed
upon. At present, it is not known whether the limited partners
will make the necessary capital contributions to sustain the
operation of the Partnership. Based upon the risk of continued
funding and the project's poor performance, the Company no longer
believes that the value of its Partnership investment is
recoverable. The after-tax effect of these two transactions had
no impact on Aquarion's earnings in 1994.
-18-
<PAGE>
<PAGE>
The following table sets forth information about Aquarion's
operations by industry segment for the years ended December 31,
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
1994 1993 1992
--------------------- -------------------- -------------------
(In thousands, except percentages) Amount % Amount % Amount %
Operating revenues: -------- ------- --------- ------ ---------- -------
Public water supply $ 73,060 59.9% $71,280 66.4% $63,702 62.4%
Environmental laboratories
and utility management
services 24,925 20.4 23,132 21.5 26,061 25.5
Forest products 21,310 17.5 12,298 11.5 12,001 11.8
Real estate 2,678 2.2 645 0.6 262 0.3
-------- ----- -------- ----- --------- -----
Total operating revenues $121,973 100.0% $107,355 100.0% $102,026 100.0%
======== ===== ======== ===== ======== =====
Operating income (1)
Public water supply $ 25,862 $ 26,475 $ 22,475
Environmental laboratories
and utility management
services 933 (705) (29)
Forest products 5,015 1,496 1,437
Real estate 1,605 40 170
------- ------- ---------
Total operating income 33,415 27,306 24,053
Unallocated interest, AFUDC and
other expenses, net (2) (10,923) (9,651) (9,812)
------- ------- --------
Income before income taxes and
cumulative effect of a change in
accounting method $ 22,492 $ 17,655 $ 14,241
======== ======== ========
<FN>
(1) Operating income is defined as operating revenues less total
costs and expenses, other than interest expense, income taxes,
allowance for funds used during construction (AFUDC
dividends and other expenses, net.
(2) Includes goodwill amortization of $402,000 in 1994, 1993 and
1992, and a Partnership charge of $1,900,000 in 1994.
</FN>
</TABLE>
-19-
<PAGE>
<PAGE>
1994 compared with 1993
- -----------------------
Operating revenues. Consolidated operating revenues of
$121,973,000 in 1994 were $14,618,000 higher than 1993. Forest
Products experienced increased revenues during 1994 of $9,012,000
principally due to the termination of the rate order with PSNH,
and to a lesser extent, increased volume and sales prices for
lumber. Revenues from property sales increased $2,033,000 due
to the Company's continued commitment to sell surplus land.
Revenues from the Laboratories increased $1,793,000 in 1994,
reflecting higher sampling receipts in 1994, partially offset by
the sale of the Air Services Division in the fourth quarter of
1993. Revenues from the Utilities increased $1,780,000,
principally due to a 21 percent water service rate increase for
BHC which became effective August 1, 1993, partially offset by
CWIP rate surcharge revenues recorded during the first seven
months of 1993.
- -----------------------------------------------------------------
Percentage of Revenues from Utility Operations
(Dollars in thousands)
1994
-----
Residential 58.9%
Commercial 16.8%
Industrial 5.1%
Fire Protection 13.9%
Wholesale & Municipalities 5.3%
-----
Total 100.0%
- -----------------------------------------------------------------
Operating income. Operating income for 1994 increased $6,109,000
over 1993 levels. The increase was primarily the result of
Forest Products' termination of the rate order with PSNH,
increased property sales in 1994 and higher operating revenues at
the Utilities and Laboratories.
Operating expenses. Operating expenses for 1994 were
$47,416,000, an increase of $7,140,000 over 1993. Forest
Products had higher operating expenses of $5,459,000 compared
with 1993 primarily due to the costs associated with the
termination of the cogeneration operation and higher production
costs associated with an increased sales volume. Operating
expenses from property sales increased by $791,000 due to the
increased activity in the land sales program. The Utilities
experienced an increase in operating expenses of $726,000
principally due to higher costs associated with BHC's Easton Lake
Reservoir Water Treatment Plant, which was placed in service in
June 1993, and higher maintenance costs in 1994. Additional
costs associated with the Laboratories and Utility Management
Services businesses account for the remainder of this variance.
General & administrative expenses. General and administrative
expenses totaled $20,209,000, a $2,004,000 increase over 1993.
This variance is primarily the result of a $1,900,000 charge
related to the investment in the Partnership. Increased expenses
associated with BHC's adoption of Financial Accounting Standards
Board (FASB) Statement No. 106 "Employers' Accounting for
Postretirement Benefits other than Pensions," effective for the
first quarter of 1993, partially offset by lower costs associated
with worker's compensation insurance, outside services and
miscellaneous expenses at the Utilities, account for $203,000 of
this variance. The Laboratories, Forest Products, Real Estate,
Corporate and Utility Management Services businesses account for
the remainder of the variance.
- -----------------------------------------------------------------
Pre-tax Income
(Dollars in thousands)
1992 1993 1994
----- ----- -----
$14,241 $17,655 $22,492
- -----------------------------------------------------------------
Depreciation expense. Depreciation expense in 1994 was
$1,013,000 higher than 1993. This increase is attributable to
the addition of BHC's Easton Lake Reservoir Water Treatment
Plant, which was placed in service in June 1993; a higher
composite annual depreciation rate for BHC effective August 1,
1993; and, routine plant additions by the Utilities, Laboratories
and Forest Products.
-20-
<PAGE>
<PAGE>
Interest expense. Interest expense for 1994 decreased $874,000
primarily due to lower average total debt outstanding coupled
with lower long-term borrowing rates due to the debt refinancing
in 1993.
Taxes other than income taxes. Taxes other than income taxes
were $444,000 higher than 1993. Increased payroll and gross
earnings taxes of $271,000 as well as higher property taxes of
$173,000 attributable to a higher property base in 1994, account
for the variance.
Income taxes. Income taxes for 1994 were $3,606,000 higher than
1993 primarily due to higher taxable income and increased state
taxes on the termination of the cogeneration operation.
Significant changes in balance sheet accounts. Customer accounts
receivable increased by $1,524,000 due primarily to increased
sampling receipts at the Laboratories in the fourth quarter of
1994.
The decrease in miscellaneous receivables results from the
allocation of tax benefits realized from deductions associated
with the laboratory business acquisitions, which serve to reduce
the amount owed to Aquarion by the former shareholders.
The increase in prepaid expense of $1,308,000 was largely
the result of the increase in the net pension credit calculated
under FASB No. 87 "Employers' Accounting for Pensions" (Note 11).
The decrease in short-term borrowings of $5,500,000 is
primarily attributable to the reduction of short-term debt with
the proceeds received from PSNH in connection with the
termination of the cogeneration operation.
Accounts payable and accrued liabilities incurred an
increase of $3,224,000 which was principally the result of higher
general accounts payable at December 31, 1994 and accrued
operational costs associated with the termination of the PSNH
rate order.
The increase of $3,195,000 in income taxes payable is the
result of higher taxable income related to the sale of the rate
order, which occurred in the fourth quarter and did not have to
be reflected in earlier estimated tax payments.
Accrued postretirement benefit cost increased by $1,049,000
due to the Company implementing FASB No. 106 in 1993, whereby the
Company recognizes a net postretirement liability representing
the cumulative difference between each year's charges against
operating results for net periodic postretirement benefit cost,
and each year's cash payments for retiree health care and life
insurance benefits (Note 11).
1993 compared with 1992.
- ------------------------
Operating revenues. Consolidated operating revenues of
$107,355,000 in 1993 were $5,329,000 higher than 1992. Revenues
from the Utilities increased $7,579,000, principally due to a
21 percent water service rate increase for BHC which became
effective August 1, 1993, increased consumption that resulted
from the hot, dry summer weather and, to a lesser extent,
increased CWIP rate surcharge revenues recognized during the
first seven months of the year. Revenues from the Laboratories
decreased $2,945,000 in 1993, reflecting the revenue impact of
the sale of a laboratory in the first quarter and the Air
Services Division in the fourth quarter of 1993 as part of a
previously announced restructuring plan, and increased price
competition throughout the environmental testing industry.
Revenues from property sales increased $382,000 due to the sale
of surplus, off-watershed land during 1993. Forest Products
experienced increased revenues during 1993 of $297,000
principally due to improved lumber volume and cogeneration
output.
Operating income. Operating income for 1993 increased $3,253,000
over 1992 levels. The increase consisted primarily of $4,000,000
from the Utilities due to higher operating revenues offset by
increased operating, depreciation and property tax expenses
associated with the Easton Lake Reservoir Water Treatment Plant,
increased costs associated with the adoption of FASB 106, and
higher gross earnings taxes. Operating income for 1993 was
unfavorably affected by a decrease of $676,000 at the
Laboratories due to the impact of increased price competition.
The remainder was attributable
-21-
<PAGE>
<PAGE>
to the increase of revenues in the Forest Products and real
estate segments.
Operating expenses. Operating expenses decreased $1,401,000 in
1993. The Laboratories had lower operating costs of $2,215,000
compared with 1992 primarily due to the sale of a laboratory in
the first quarter of 1993 and general cost-containment measures.
Offsetting this decrease were increased costs of $558,000 from
the Utilities including fuel costs associated with increased
pumpage during the summer months, and an increase in water main
repair costs, as well as higher chemical expenses resulting from
the operation of BHC's Easton Lake Reservoir Water Treatment
Plant, which was placed in service in June 1993. Additional
costs associated with Forest Products and Real Estate sales
account for the remainder of the variance.
General & administrative expenses. General and administrative
expenses totaled $18,205,000 in 1993, a $1,633,000 increase over
1992. Increased expenses associated with BHC's adoption of FASB
Statement No. 106 for the first quarter of 1993, increased
property and liability insurance, pension and payroll-related
costs, partially offset by lower expenses associated with leases
for the Utilities, account for $801,000 of the increase. An
additional increase of $411,000 from Real Estate operations
resulted from increased expenses associated with the reserve for
an uncollectable note from a prior year sale. The Laboratories
had increased expenses of $241,000 primarily attributable to
higher outside consulting costs. Increased costs associated
with unallocable legal expenses account for the remainder of the
variance.
Depreciation expense. Depreciation expense in 1993 was
$1,103,000 higher than 1992. This increase is attributable to
routine utility plant additions, a higher composite annual
depreciation rate for BHC effective August 1, 1993, and BHC's
Easton Lake Reservoir Treatment Plant, which was placed in
service in June 1993.
Interest expense. Interest expense for 1993 decreased $85,000
primarily due to lower borrowing rates on relatively constant
average outstanding total debt throughout the year.
Taxes other than income taxes. Taxes other than income taxes
were $610,000 higher than 1992. Increased payroll and gross
earnings taxes of $415,000 as well as higher property taxes of
$195,000 attributable to a higher property base in 1993, account
for the variance.
Income taxes. Income taxes for 1993 were $1,033,000 higher than
1992 primarily due to higher taxable income. The Revenue
Reconciliation Act of 1993 increased the top corporate tax rate
from 34 percent to 35 percent, effective for tax years beginning
on or after January 1, 1993. The higher tax rate had an
immaterial effect on overall operating results.
Seasonality. The Company's operating results are subject to
weather variations and seasonal fluctuations due to an increased
demand for both water and environmental testing procedures in the
warmer months (See Supplemental Financial Information to
Consolidated Financial Statements for selected quarterly data for
1994 and 1993.)
-22-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Aquarion Company and Subsidiaries
Consolidated Statements of Income
In thousands, except share data
Year ended December 31 1994 1993 1992
- ------------------------------- ------ ------ ------
<S> <C> <C> <C>
Operating revenues $ 121,973 $ 107,355 $ 102,026
--------- --------- ---------
Costs and expenses:
Operating 47,416 40,276 41,677
General and administrative 20,209 18,205 16,572
Depreciation 11,636 10,623 9,520
Interest expense 8,368 9,242 9,327
Taxes other than income 12,421 11,977 11,367
--------- --------- --------
Total costs and expenses 100,050 90,323 88,463
--------- --------- --------
21,923 17,032 13,563
Allowance for funds used during
construction 569 623 678
--------- --------- --------
Income before income taxes and
cumulative effect of a change in
accounting method 22,492 17,655 14,241
Income taxes 10,271 6,665 5,632
--------- --------- --------
Income before cumulative effect of a
change in accounting method 12,221 10,990 8,609
Cumulative effect of a change in
accounting method - - 791
--------- --------- --------
Net income $ 12,221 $ 10,990 $ 9,400
========= ========= ========
Per share before cumulative effect
of a change in accounting method $ 1.87 $ 1.76 $ 1.51
Cumulative effect of a change in
accounting method - - .14
--------- --------- --------
Per share $ 1.87 $ 1.76 $ 1.65
--------- --------- --------
Weighted average common shares
outstanding 6,532,627 6,237,875 5,690,853
========= ========= =========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
-23-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Aquarion Company and Subsidiaries
Consolidated Balance Sheets
Assets
In thousands
December 31, 1994 1993
- ----------------------------- ------ ------
<S> <C> <C>
Property, plant and equipment $378,708 $367,564
Less: accumulated depreciation 123,166 117,191
-------- --------
Net property, plant and equipment 255,542 250,373
-------- --------
Current assets:
Cash and cash equivalents 1,335 90
------- --------
Accounts receivable:
Customers 15,946 14,422
Miscellaneous 1,158 2,439
------- -------
17,104 16,861
Less: allowance for doubtful accounts 2,762 2,935
------- -------
14,342 13,926
Accrued revenues 9,596 8,995
Inventories 3,077 2,885
Prepaid expenses 8,006 6,698
------- -------
Total current assets 36,356 32,594
------- -------
Goodwill 10,283 10,709
Recoverable income taxes 47,099 46,377
Other assets 22,665 22,819
------- -------
$371,945 $362,872
======== ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
-24-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Aquarion Company and Subsidiaries
Consolidated Balance Sheets
Liabilities and Shareholders' Equity
In thousands, except share data
December 31, 1994 1993
- ------------------------------------------ ------ ------
<S> <C> <C>
Shareholders' equity:
Preferred stock, no par value, authorized
2,500,000 shares not to exceed aggregate value
of $25,000,000, issuable in shares--none issued $ - $ -
Common stock, stated value: $1
Authorized--16,000,000 shares
Issued 6,690,013 shares in 1994 and 6,564,533
shares in 1993 6,690 6,565
Capital in excess of stated value 94,152 91,441
Retained earnings 16,628 15,015
-------- --------
117,470 113,021
Less: treasury stock, at cost 2,338 2,540
-------- --------
Total shareholders' equity 115,132 110,481
-------- --------
Redeemable preferred stock of subsidiaries 330 375
-------- --------
Long-term debt and other obligations 111,466 115,591
-------- --------
Current liabilities:
Short-term borrowings, unsecured - 5,500
Current maturities of long-term debt 4,077 62
Accounts payable and accrued liabilities 12,832 9,608
Dividends payable 2,675 2,621
Accrued interest 2,035 2,240
Taxes other than income taxes 1,532 1,354
Income taxes 4,171 976
------- -------
Total current liabilities 27,322 22,361
------- -------
Advances for construction 23,407 22,593
Contributions in aid of construction 21,589 20,883
Deferred land sale gains 427 24
Accrued postretirement benefit cost 2,231 1,182
Recoverable income taxes 6,005 6,123
Deferred income taxes 64,036 63,259
Commitments & contingencies (Note 9) - -
-------- --------
$371,945 $362,872
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
-25-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Aquarion Company and Subsidiaries
Consolidated Statements of Cash Flows
In thousands,
Year ended December 31 1994 1993 1992
- ------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $12,221 $10,990 $ 9,400
Adjustments reconciling net income to net cash
provided by operating activities:
Depreciation and amortization 12,542 11,588 10,799
Provision for losses on accounts receivable 1,067 1,707 1,169
Deferred tax provision 662 1,610 1,693
Cumulative effect of change in accounting method - - (791)
Proceeds from sale of surplus land, net of gains 1,372 333 120
Allowance for funds used during construction (569) (623) (678)
Change in assets and liabilities (Note 15) 6,431 (422) (1,621)
------- ------- -------
Net cash provided by operating activities 33,726 25,183 20,091
------- ------- -------
Cash flows from investing activities:
Capital additions, excluding an allowance for
funds used during construction (19,766) (17,898) (24,710)
Advances and contributions in aid of
construction 1,985 1,398 1,180
Refunds on advances for construction (465) (417) (433)
Other investing activities (178) (605) 1,079
------- ------- -------
Net cash used in investing activities (18,424) (17,522) (22,884)
------- ------- -------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt - 10,000 15,000
Proceeds from the issuance of common stock, net 2,836 12,845 21,395
Net repayments of short-term borrowings (5,500) (12,100) (19,600)
Common dividends paid (10,554) (10,091) (9,137)
Principal and premium payments on long-term debt (68) (5,241) (3,688)
Debt issuance costs (726) (2,174) (85)
Purchase of treasury stock - (1,084) -
Payments for redemption of preferred stock (45) (45) (1,745)
-------- ------- -------
Net cash (used in) provided by financing
activities (14,057) (7,890) 2,140
-------- ------- -------
Net increase (decrease) in cash and cash
equivalents 1,245 (229) (653)
Cash and cash equivalents, beginning of year 90 319 972
------- ------- -------
Cash and cash equivalents, end of year $ 1,335 $ 90 $ 319
======= ======= =======
<FN>
The accompanying notes are an integral part of these consolidated financial statements.
</FN>
</TABLE>
-26-
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Aquarion Company and Subsidiaries
Consolidated Statements of Shareholders' Equity
Common Stock Capital Treasury Stock Total
---------------- in excess --------------- share-
In thousands, except share Number Stated of stated Retained Number holders'
of Shares Value value earnings of Shares Amount equity
- ---------------------------- --------- ------ -------- -------- --------- ------ -------_
<S>
Year ended December 31, 1992 <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1991 4,961,168 $4,961 $58,805 $14,505 98,185 $(2,751) $ 75,520
Net income - - - 9,400 - - 9,400
Proceeds from the issuance
of common stock, net 1,000,000 1,000 18,851 - - - 19,851
Dividends on common stock - - - (9,578) - - (9,578)
Dividend reinvestment plan 70,941 71 1,473 - - - 1,544
Treasury stock transactions - - - - (16,751) 428 428
--------- ----- ------ ------ ------- ------ -------
Balance, December 31, 1992 6,032,109 6,032 79,129 14,327 81,434 (2,323) 97,165
--------- ----- ------ ------ ------- ------ -------
Year ended December 31, 1993
Net income - - - 10,990 - - 10,990
Proceeds from the issuance
of common stock, net 460,000 460 10,741 - - - 11,201
Dividends on common stock - - - (10,302) - - (10,302)
Dividend reinvestment plan 72,424 73 1,571 - - - 1,644
Treasury stock transactions - - - - 10,857 (217) (217)
--------- ----- ------ ------- ------- ------- -------
Year Ended December 31, 1993 6,564,533 6,565 91,441 15,015 92,291 (2,540) 110,481
--------- ----- ------ ------- ------- ------- -------
Year ended December 31, 1994
Net income - - - 12,221 - - 12,221
Dividends on common stock - - - (10,608) - - (10,608)
Dividend reinvestment plan 125,480 125 2,711 - - - 2,836
Treasury stock transactions - - - - (7,299) 202 202
--------- ------ ------- ------- ------- ------- --------
Balance, December 31, 1994 6,690,013 $6,690 $94,152 $16,628 84,992 $(2,338) $115,132
========= ====== ======= ======= ====== ======= ========
<FN>
The accompanying notes are an integral part of these consolidated financial
statements.
</FN>
</TABLE>
-27-
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies
- ---------------------------------------------------
Aquarion Company (Aquarion) is a holding company whose
subsidiaries are engaged both in the regulated utility business
of public water supply and in various nonutility businesses.
Aquarion's utility subsidiary, Bridgeport Hydraulic Company (BHC)
and BHC's subsidiary, Stamford Water Company (SWC),
(collectively, the Utilities) collect, treat and distribute water
to residential, commercial and industrial customers, to other
utilities for resale, and for private and municipal fire
protection. The Utilities provide water to customers in 22
communities in Fairfield, New Haven, and Litchfield Counties in
Connecticut, including communities served by other utilities to
which water is available on a wholesale basis for back-up supply
and peak demand purposes through BHC's Southwest Regional
Pipeline. BHC is the largest investor-owned water company in
Connecticut and, with its SWC subsidiary, is among the ten
largest investor-owned water companies in the nation. The
Utilities are regulated by several Connecticut agencies,
including the Department of Public Utility Control (DPUC).
Aquarion and its subsidiaries (collectively, the Company) are
also engaged in nonutility activities. The Company conducts an
environmental testing laboratory business through its Industrial
and Environmental Analysts, Inc. (IEA) family of six laboratories
which analyze contaminants in hazardous waste, soil, air and
water. Additionally, the Company is engaged in various utility
management service businesses through Hydrocorp, Inc. (Hydrocorp)
and Aquarion Management Services, Inc. (AMS), owns a small forest
products business through Timco, Inc. (Timco) and owns a small
real estate subsidiary, Main Street South Corporation (MSSC).
The Company's accounting policies conform to generally
accepted accounting principles and, as applied in the case of
rate-regulated public utilities, comply with the Uniform System
of Accounts and ratemaking practices prescribed by the DPUC. A
description of Aquarion's principal accounting policies follows.
Principles of consolidation. The consolidated financial
statements include the accounts of the Company and its majority-
owned subsidiaries. Investments in entities in which the Company
owns more than 20 percent but 50 percent or less are accounted
for by the equity method and investments in entities in which the
Company owns less than 20 percent are accounted for at cost. All
non majority-owned investments are included within the caption
"Other assets" in the Consolidated Balance Sheets.
All significant intercompany accounts and transactions have
been eliminated. Certain prior year amounts have been
reclassified in order to conform to the current year
presentation.
Property, plant and equipment. Property, plant and equipment is
stated at cost. The costs of additions to and replacements of
retired units of property are capitalized. Costs include charges
for direct material, labor and services, and indirect charges
related to construction, such as engineering, supervision,
payroll taxes and pension benefits. The Utilities also
capitalize an allowance for funds used during construction
(AFUDC) equivalent to the cost of funds devoted to plant under
construction, except for the portion of federal Safe Drinking
Water Act (SDWA) projects for which it may receive a construction
work in progress water service rate surcharge (CWIP rate
surcharge).
Modifications and improvements to units of property are
capitalized. Expenditures for repairs and maintenance are
charged to expense as incurred.
At the time depreciable utility property is retired or
disposed of, the book cost together with the related costs of
removal, less salvage, is charged to the
-28-
<PAGE>
<PAGE>
reserve for depreciation in accordance with the Uniform System of
Accounts prescribed by the DPUC. Upon disposal or retirement of
depreciable nonutility property, the appropriate plant accounts
and accumulated depreciation are reduced by the related costs.
Any resulting gain or loss is recognized in the Consolidated
Statements of Income.
For financial reporting purposes, depreciation is provided
for principally by use of the straight-line method over the
estimated service lives of the respective assets. Depreciation
is computed based on estimated useful lives of 3 to 81 years for
utility plant and equipment and 3 to 20 years for nonutility
plant and equipment. For income tax depreciation purposes, the
Company, for all property, plant and equipment placed in service
from January 1, 1981 to December 31, 1986, is using the
Accelerated Cost Recovery System. As a result of the Tax Reform
Act of 1986, all plant additions subsequent to December 31, 1986
have used the Modified Accelerated Cost Recovery System.
Statement of cash flows. For purposes of reporting cash flows,
the Company considers all highly liquid investments that have a
maturity of three months or less when purchased to be cash
equivalents.
Earnings per share. Earnings per share is based on the annual
weighted average number of shares outstanding and common share
equivalents. Common share equivalents consist of outstanding
employee stock options, which do not have a significant impact on
the calculation.
Allowance for funds used during construction. AFUDC is
recognized by the Utilities by applying the last allowed rate of
return on rate base approved by the DPUC (9.62 percent for BHC
and 10.69 percent for SWC at December 31, 1994) to construction
projects exceeding $10,000 and requiring more than one month to
complete. AFUDC represents the net cost of borrowed funds used
for construction purposes for the period of construction and a
reasonable rate of return on other funds when so used. AFUDC
represents a noncash credit to income.
Utility plant under construction is not recognized as part
of the Utilities' rate base for ratemaking purposes until such
facilities are placed in service. Accordingly, the Utilities
capitalize AFUDC as a portion of the construction cost of utility
plant until it is completed. Capitalized AFUDC is recovered
through water service rates over the service lives of the
facilities.
Construction-work-in-progress surcharge. DPUC regulations allow
water utilities to implement a CWIP rate surcharge to customer
water bills in order to recover 90 percent of the carrying costs
of capital used in SDWA-mandated projects, until such time as
these projects are completed. The CWIP rate surcharge is in lieu
of AFUDC and is included in water service revenues. In October
1994, BHC filed with the DPUC an application to implement a CWIP
rate surcharge in connection with the construction of its
Hemlocks Reservoir filtration facilities in Fairfield,
Connecticut. BHC will continue to file applications quarterly to
increase this surcharge as construction continues through 1997,
at which time the filtration facilities are expected to be
operational and subject to general ratemaking regulations. BHC
implemented a CWIP rate surcharge in 1990 in connection with the
construction of its Easton Lake Reservoir filtration facilities
in Easton, Connecticut. The CWIP rate surcharge was replaced in
August 1993 by permanent rates (Note 2).
Revenue recognition. The Utilities accrue revenue for the
estimated amount of water sold but not billed at the end of each
period. Certain environmental testing laboratory revenues are
recognized on a percentage-of-completion basis. Forest products
and electricity cogeneration revenues are recognized as the
related forest products are shipped or the electricity is
transmitted to customers. Revenues from sales of real estate are
recognized when the transaction is consummated and title has
passed.
Inventories. Inventories are valued at the lower of cost or
market, with cost being determined on the basis of the "first-in,
first-out" (FIFO) method. Materials and supplies are valued at
average cost.
Other assets. Deferred charges consist primarily of financing
charges, rate case and other expenses. Other assets also include
preliminary survey and investigation costs and certain items
amortized, subject to DPUC approval, over their anticipated
period of recovery.
-29-
<PAGE>
<PAGE>
Deferred rate case expenses are amortized over periods
allowed by the DPUC, generally one to three years. Deferred
financing charges are amortized over the lives of the related
debt issues.
Goodwill. The excess of the cost of investments in subsidiaries
over the fair value of the net assets acquired at December 31,
1994 and 1993 was $10,283,000 and $10,709,000 respectively, net
of accumulated amortization of $3,339,000 and $2,913,000.
Amortization is computed on a straight-line basis over periods
ranging from 10 to 30 years. Amortization expense totaled
$426,000, $474,000 and $474,000 for the years ended December 31,
1994, 1993, and 1992, respectively. At each balance sheet date,
the Company evaluates the realizability of goodwill based upon
estimated undiscounted cash flows for each subsidiary having a
significant goodwill balance. Based upon its most recent
analysis, the Company believes that no impairment of goodwill
exists at December 31, 1994.
Fair value of financial instruments. The carrying amount of cash
and cash equivalents, trade accounts receivable, and short-term
borrowings approximate their fair values due to their short-term
nature. The fair value of long-term debt based on the quoted
market prices for the same or similar issues or on the current
rates offered to the Company for debt of the same remaining
maturities at December 31 was as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
- --------------- ------ ------
<S> <C> <C>
Fair Value $ 90,278 $104,918
Carrying Value 111,466 115,591
</TABLE>
Advances for construction/contributions in aid of construction.
The Utilities receive cash advances from developers and customers
to finance construction of new water main extensions. These
advances are partially refunded over a 10-year contract period as
water revenues are earned from those new customers. Any
remaining unrefunded balances are reclassified to "Contributions
in aid of construction" in the Consolidated Balance Sheets and
are no longer refundable.
Income taxes. In accordance with FASB Statement No. 109,
"Accounting for Income Taxes," which was adopted in the first
quarter of 1992, the Company provides deferred taxes for all
temporary book-tax differences using the liability method. The
liability method requires that deferred tax balances be adjusted
to reflect enacted future tax rates that are anticipated to be in
effect when the temporary differences reverse. In accordance
with generally accepted accounting principles for regulated
industries, the Company reflects as income tax expense the amount
of tax currently payable, except for accelerated depreciation
since 1981 and the tax effect of post-1986 contributions in aid
of construction, for which deferred income taxes have been
provided on an annual basis. This method, known as the flow-
through method of accounting, is consistent with ratemaking
policies of the DPUC. Management believes that these deferred
taxes will be recovered through the rate-making process.
Accordingly, the Company has recorded an off-setting regulatory
asset included in the accompanying Consolidated Balance Sheets as
"Recoverable income taxes." Deferred investment tax credits are
amortized ratably based upon the book life of the property (Note 5).
Note 2 - Regulatory matters
- ---------------------------
Rates. On October 20, 1994, BHC filed with the DPUC an
application to implement a CWIP rate surcharge in order to
recover 90 percent of the carrying costs of capital used in the
construction of a federally mandated filtration plant at its
Hemlocks Reservoir in Fairfield, Connecticut, which is estimated
to cost approximately $50,000,000. BHC will file applications
with the DPUC quarterly to increase this surcharge as
construction continues through 1997, at which time the filtration
facilities are expected to be operational and subject to general
ratemaking regulations. On December 7, 1994, a 0.82 percent CWIP
rate surcharge was approved that will increase BHC's revenues by
$496,000 on an annual basis. In January 1995, BHC filed an
application to increase this surcharge to 1.26 percent, which
would increase BHC's revenues by $762,000 on an annual basis.
On February 5, 1993, BHC filed a rate application with the
DPUC for a 35 percent water service rate increase designed to
provide a $17,500,000 increase in annual water service revenues
and a return on common equity of 12.75 percent. On August 1,
1993, the DPUC awarded BHC a 21 percent water
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<PAGE>
<PAGE>
service rate increase designed to provide a $10,400,000 annual
increase in revenues and an 11.6 percent return on common equity.
Note 3 - Sale of surplus land
- -----------------------------
Proceeds from the sale of land are recorded as revenue at
the time of closing, and portions of pretax gains required to be
deferred by the DPUC are amortized as a reduction in the
Utilities' operating expenses over various time periods as
stipulated by the DPUC.
In 1994, the Company sold approximately 43 acres of surplus
land consisting of 14 building lots from three different
subdivisions located in Shelton and Weston, Connecticut. The
proceeds from these sales totaled $2,185,000. Total gains,
including recognition of deferred gains from prior land sales of
$10,000, approximated $813,000 or 13 cents per share. In
addition, the Company recognized a gain of $283,000 or 4 cents
per share for the sale of a 50 percent ownership interest,
through a joint venture, in a commercial building located in
Cary, North Carolina.
In 1993, the Company sold approximately nine acres of
surplus land in three separate transactions totaling $645,000.
Total gains, including recognition of deferred gains from prior
land sales of $19,000, approximated $312,000, or 5 cents per
share.
During 1992, the Company sold approximately 60 acres of
surplus land in three separate transactions for a total of
$263,000. Total gains, including recognition of deferred gains
from prior land sales of $24,000, approximated $143,000, or 2.5
cents per share.
Note 4 - Acquisitions
- ---------------------
In 1988, Aquarion acquired 25 percent of the outstanding
voting equity in SRK Holding, Inc. (SRK), an environmental
services firm headquartered in Monroe, Connecticut. In December
1990, Aquarion acquired the remaining 75 percent of SRK's voting
equity. At that time, Aquarion commenced integrating SRK's
laboratories in Connecticut, New Jersey and Illinois with its
existing IEA laboratory network and announced its intention to
sell the nonlaboratory businesses of SRK.
Upon acquiring SRK, Aquarion paid $2,900,000 in cash at
closing, and accrued an additional $6,000,000 as the maximum
amount to be paid upon final settlement of the sale of the
nonlaboratory businesses (the final settlement). All proceeds
upon sale or liquidation of the nonlaboratory businesses were to
be directed to the payment of assumed liabilities, transaction
expenses and working capital advanced by Aquarion.
In September 1991 and February 1992, the Company sold a
majority of SRK's nonlaboratory businesses for approximately
$8,000,000 in cash and certain contingent obligations of the
buyer. In connection with this transaction, the SRK selling
shareholders were advanced $1,000,000 toward the final settlement
and the remaining cash was used to pay assumed liabilities and
transaction expenses. There was no gain or loss as a result of
these transactions.
The final settlement of this transaction and the liquidation
of the remaining SRK nonlaboratory assets is not expected to have
a material effect on the Company's future results. Advances to
the SRK selling shareholders, receivables from the buyer of SRK's
nonlaboratory businesses and working capital advances, which
aggregated $210,000 at December 31, 1994, are recorded in
"Accounts receivable: Miscellaneous" in the accompanying
Consolidated Balance Sheets.
Results of operations of the acquired laboratory businesses
since the respective acquisition dates are included in the
Consolidated Statements of Income.
Note 5 - Income taxes
- ---------------------
In 1992, the Company elected early adoption of the method of
accounting for income taxes pursuant to FASB Statement No. 109,
which requires a change from the deferred to the liability method
of computing deferred income taxes.
The Company's provision for income taxes for 1994 consists
of $2,284,000 in state taxes and $7,987,000 in federal income
taxes.
Income tax expense for the three years ended December 31,
consisted of the following:
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<PAGE>
<PAGE>
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- ------------------------ ------ ------ ------
<S> <C> <C> <C>
Current:
Federal $ 7,006 $3,441 $2,770
State 2,603 1,614 1,169
------- ------ ------
Total current 9,609 5,055 3,939
Deferred:
Federal 981 1,833 1,809
State (319) (223) (116)
------- ------ ------
Total Deferred 662 1,610 1,693
------- ------ ------
Total income tax expense $10,271 $6,665 $5,632
======= ====== ======
</TABLE>
A reconciliation of income tax expense at the statutory
federal income tax rate to the actual income tax expense for the
years ended December 31, is as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- --------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Tax at statutory rate $ 7,874 $6,181 $4,842
Increases (reductions) in taxes resulting
from:
State taxes, net of federal income taxes 1,485 904 695
Contribution deduction-sale of surplus land (105)
Excess depreciation and basis amortization 662 630 541
Partnership investment 665 - -
Bond premium costs (455) (423) 17
Investment tax credit (152) (152) (152)
Developmental computer costs (71) (235) (175)
Amortization and write-down of goodwill 146 163 136
Other items, net 222 (272) 154
------- ------ ------
Actual income tax expense $10,271 $6,665 $5,632
======= ====== ======
</TABLE>
Deferred tax liabilities (assets) at December 31, were comprised
of the following:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Utility temporary differences $46,703 $45,981 $41,137
Depreciation 15,398 14,712 12,691
Investment tax credits 990 1,023 1,189
Other 945 1,543 1,756
------- ------- -------
Gross referenced tax liabilities 64,036 63,259 56,773
------- ------- -------
Contributions in aid of construction (6,229) (5,654) (5,309)
Alternative minimum tax - (1,279) (1,403)
Other (2,813) (2,215) (2,554)
------- ------- -------
Gross deferred tax assets (9,042) (9,148) (9,266)
------- ------- -------
$54,994 $54,111 $47,507
======= ======= =======
</TABLE>
Note 6 - Long-term debt
- -----------------------
Long-term debt at December 31, consisted of the following:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
- ----------------------------------- ------ ------
<S> <C> <C>
First mortgage bonds
Series Q, 4 5/8%, due August 1, 1995 $ 4,000 $ 4,000
Series R, 6 7/8%, due November 1, 1998 5,000 5000
Notes payable - unsecured
7.8% senior notes due June 1, 1997 15,000 15,000
8 1/2% senior note due January 1, 1994 - 10,000
5.95% senior note due January 4, 1999 10,000 -
9.55% senior notes due February 1, 2021 20,000 20,000
7 1/4% note due June 1, 2020 (a) 7,000 7,000
7 3/4% note due August 1, 2019 - 7,700
10 3/4% note due October 15, 2014 - 10,000
5.5% note due June 1, 2028 (b) 12,000 12,000
5.6% note due June 1, 2028 (b) 10,000 10,000
5.8% note due March 1, 2029 (b) 7,700 7,700
6.05% note due March 1, 2029 (b) 10,000 -
5.3% note due September 1, 2028 8,980 8,980
4 3/4% note due November 1, 2004 (c) 5,700 5,700
7.4%-14.1% capital lease obligations 163 185
-------- --------
115,543 123,265
Less: Amounts due within one year 4,077 62
Balance of 5.8% note proceeds held by trustee - 7,612
-------- --------
$111,466 $115,591
<FN>
(a) BHC has the option to redeem these bonds at redemption prices ranging
from 102 percent on June 1, 2000 to 100 percent on June 1, 2002 and
thereafter.
(b) These BHC financings are insured as to the payment of principal and
interest by the Municipal Bond Investors Assurance Corporation.
(c) This Timco financing bears interest at a rate adjusted each November 1
until such time as Timco elects to convert to a fixed rate. On
November 1, 1994, the interest rate was adjusted from 3 1/2 percent to
4 3/4 percent. Bondholders may elect to have their bonds redeemed at a
price equal to 100 percent of the principal amount on each November 1
until conversion of the interest rate on the bonds to a fixed rate.
</FN>
</TABLE>
-32-
<PAGE>
<PAGE>
In August 1994, BHC issued a $10,000,000 unsecured note at
6.05 percent due on March 1, 2029. BHC has the option to redeem
these bonds at a redemption price ranging from 102 percent on
August 1, 2004 to 100 percent on August 1, 2006 and thereafter.
On October 17, 1994, BHC's $10,000,000, 10.75 percent unsecured
note was redeemed at 103 percent.
On January 4, 1994, Aquarion issued a $10,000,000,
5.95 percent unsecured Senior Note maturing January 4, 1999.
The proceeds from this transaction were used to refund its
$10,000,000, 8 1/2 percent unsecured Senior Note due January 1,
1994. Due to this refunding, the 8 1/2 percent Senior Note is
reflected as long-term debt on the 1993 balance sheet.
In June 1993, BHC issued a $10,000,000 unsecured note in
consideration for a loan of the proceeds from the issuance by
the Connecticut Development Authority (CDA) of an equal amount
of tax-exempt water facilities revenue bonds. The tax-exempt
CDA bonds bearing interest at 5.6 percent, have a 35-year
maturity and are subject to alternative minimum tax. BHC has
the option to have these bonds redeemed at a price ranging from
102 percent on June 1, 2003 to 100 percent on June 1, 2005 and
thereafter. The proceeds of this bond issuance are to be used
to offset costs incurred in the construction of the Easton Lake
Reservoir Water Treatment Plant. Under the terms of the CDA
bonds, proceeds are to be requisitioned from a construction fund
held by a trustee for planned capital improvements. On June 17,
1993, the Company requisitioned the entire amount held by the
trustee and used the proceeds to reduce short-term borrowings
incurred to finance the cost of construction.
BHC's $12,000,000, 7.4 percent Series T bonds due September
1, 2008, were redeemed on September 1, 1993 at 101.5 percent.
In June 1993, BHC issued a $12,000,000 unsecured note at
5.5 percent due in 2028 in consideration for a loan of the
proceeds by the CDA of an equal amount of Water Facilities
Refunding Revenue Bonds for the purpose of refunding the
aforementioned issue. BHC has the option to redeem the
unsecured note at a redemption price ranging from 102 percent on
June 1, 2003 to 100 percent on June 1, 2005 and thereafter.
BHC's $7,700,000, 7 3/4 percent financing contained
optional and mandatory redemption provisions. The bonds were
called for redemption on February 1, 1994 at an early redemption
price of 102 percent. On December 1, 1993, BHC issued a
$7,700,000 unsecured note at 5.8 percent due in 2029 for the
purpose of refunding the aforementioned issue. BHC has the
option to redeem this 5.8 percent note at a redemption price
ranging from 102 percent on December 1, 2003 to 100 percent on
December 1, 2005 and thereafter.
In September 1993, SWC issued a $8,980,000 unsecured note
at 5.3 percent due in 2028 in consideration for a loan of the
proceeds by the CDA of an equal amount of water facilities
refunding revenue Bonds. SWC has the option to redeem the
unsecured note at a redemption price ranging from 102 percent on
September 1, 2003 to 100 percent on September 1, 2005 and
thereafter. On October 1, 1993, SWC redeemed its $3,000,000,
7 1/2 percent unsecured note at an early redemption price of 101
percent with a portion of the proceeds from the aforementioned
issue. The remaining proceeds were used to redeem SWC's
$5,980,000, 7.6 percent unsecured note which was redeemed on
December 1, 1993, at an early redemption price of 102 percent.
Substantially all of BHC's utility plant is subject to the
lien of its first mortgage indenture. The Aquarion and
subsidiaries mortgage bond and note-purchase agreements contain
certain covenants typical of such agreements, the most
restrictive of which are under the 9.55 percent unsecured Senior
Notes (BHC Notes) and the 7.8 percent and 5.95 percent unsecured
Senior Notes (Aquarion Notes) and require the maintenance of
total funded debt to total capital, as defined, of no more than
66 2/3 percent. Additionally, payment of dividends on
Aquarion's common stock is restricted under the Aquarion notes.
At December 31, 1994, approximately $35,000,000 was available to
pay dividends as defined under the Aquarion notes. The
aggregate maturities and sinking fund requirements on long-term
debt, exclusive of capital lease obligations (Note 9), for each
of the five years suc-
-33-
<PAGE>
<PAGE>
ceeding December 31, 1994 are as follows: 1995-$4,000,000; 1996-
$0; 1997-$15,000,000; 1998-$5,000,000; 1999-$10,000,000.
Note 7 - Short-term borrowings
- ------------------------------
In May 1993, the Company entered into unsecured revolving
credit agreements with five banks totaling $50,000,000. The
agreements provide that the Company may select among a variety
of interest rates, including a negotiated rate. In May 1994,
the terms of these agreements were renegotiated. The Company
must now pay a commitment fee of .125 of 1 percent, previously
.225 of 1 percent, on the average daily unused portion of the
commitment for each day during which any unused portion exists.
The utilization fee of .075 of 1 percent was eliminated. The
revolving credit agreements contain covenants similar to those
under previously issued unsecured Senior Notes of Aquarion. The
lines of credit provide for automatic renewal on an annual
basis, but may be terminated at the option of the banks or the
Company upon 90 days notice by either party prior to the annual
anniversary of the agreements.
Short-term borrowings for the years ended December 31, were
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------- ------ ------ ------
(In thousands)
<S> <C> <C> <C>
Borrowings outstanding at December 31 - $ 5,500 $17,600
Weighted average interest rate at December 31 N/A 3.49% 4.04%
Maximum outstanding during the year $15,100 $22,300 $42,200
Average outstanding during the year $5,725 $11,983 $19,358
Weighted average interest rate during the year* 4.84% 4.06% 5.34%
<FN>
* Determined by dividing annual interest expense by average
amount outstanding during the year
</FN>
</TABLE>
Note 8 - Redeemable preferred stock and rights
- ----------------------------------------------
SWC is authorized to issue 60,000 shares of preferred
stock. SWC had outstanding 6,600 and 7,500 shares at December
31, 1994 and 1993, respectively, of $50 par value preferred
stock. Dividends are cumulative and are limited to the fixed
annual rate of 7-1/8 percent. SWC is required to make annual
sinking fund payments of $45,000 and has the option of doubling
sinking fund payments in any one year, at par value, in addition
to the right to redeem the entire issue at $50.50 per share.
SWC is also authorized to issue 400,000 shares of no par
value preference stock, of which none is outstanding.
The Company has reserved 80,000 shares of Preferred Stock
for issuance under its Preferred Stock Purchase Rights Plan.
Each share of common stock is entitled to one right to buy,
under certain circumstances, 1/150th of a share of Series A
Junior Participating Preferred Stock, no par value (Series A
Preferred Stock), at $83.33 per 1/150th of a share.
Each share of Series A Preferred Stock, if issued, would
have dividend, voting and liquidation rights which are at least
150 times the equivalent rights of one share of the common
stock. The rights would become exercisable only if a person or
group acquires 20 percent or more of the outstanding common
stock, or if a person or group announces or commences a tender
or exchange offer for 30 percent or more of the common stock.
If the Company were to be acquired in a merger or other business
combination transaction, each right would entitle its holder to
receive, upon payment of the exercise price, that number of
shares of the acquiring company having a market value equal to
twice the exercise price. If, under certain circumstances, a 20
percent or greater shareholder acquires the Company through a
transaction in which the Company and its common stock survive or
such shareholder engages in certain self-dealing transactions
with the Company, each right holder (other than a 20 percent or
greater shareholder) would be entitled to receive, upon payment
of the exercise price, the greater of (a) the number of shares
of Series A Preferred Stock for which such right was exercisable
immediately prior to such self-dealing transactions, or (b) that
number of shares of Series A Preferred Stock having a market
value equal to twice the exercise price.
-34-
<PAGE>
<PAGE>
The Company may redeem the rights at $.033 per right at any
time until the tenth day after a 20 percent position has been
acquired or a 30 percent tender offer has been commenced. The
redemption period is subject to extension by the Company's Board
of Directors. Until such time as these rights become
exercisable, they will have no dilutive effect on the Company's
earnings.
Note 9 - Commitments and contingencies
- --------------------------------------
Future minimum rental payments required under operating
leases for leaseholds and equipment, having initial or remaining
noncancellable lease terms in excess of one year, aggregated
$5,775,000 at December 31, 1994. Certain facility leases
contain renewal options. Annual payments for each of the five
succeeding fiscal years for future minimum rentals are: 1995 -
$1,395,000; 1996 - $814,000; 1997 - $798,000; 1998 - $719,000;
1999 - $396,000; thereafter - $1,653,000.
Future minimum lease payments under capital leases
approximated $198,000 at December 31, 1994.
Aquarion has proposed to acquire The New Canaan Water
Company (NCWC) and Ridgefield Water Supply Company (RWSC) for
Aquarion common stock with a market value of $3,500,000 and the
repayment of certain indebtedness of The New Canaan Company
(NCC) in an amount not to exceed $130,000, less the amount of
certain transaction costs and liabilities to be paid by Aquarion
at closing. The acquisition and a related property exchange
have been approved by the DPUC but remain contingent upon the
approval of the Department of Public Health and Addiction
Services (DPHAS) for the transfer of the reservoir from the NCWC
to the Second Taxing District (STD). A reservoir transfer
permit is pending. The DPUC subsequently reopened its approval
proceeding to consider the potential impact of the proposed NCWC
land sale on NCWC's ability to retire an existing $1.25 million
loan from a third party lender and appropriate regulatory
treatment of any shortfall between the net proceeds from such a
sale and the amount of the debt and to consider certain
anticipated costs associated with reregistration of RWSC supply
sources. No final decision has yet been issued in the reopened
proceeding. BHC and NCC have agreed that the Acquisition will
close whether or not the sale of land by NCWC and the retirement
of NCWC debt takes place. However, the effect on the
acquisition of any other terms and provisions of a DPUC
approval, not contemplated by the agreement between BHC and NCC,
cannot be predicted. The parties have agreed to extend their
acquisition agreement and the related property exchange
agreement until March 31, 1995. There is no certainty that the
parties will agree to further extensions if the transaction has
not closed by that time.
At December 31, 1994, Aquarion had guaranteed a mortgage
indenture of $1,500,000 in connection with the disposition of
the SRK non-laboratory businesses (Note 4).
Note 10 - Industry segment information
- --------------------------------------
The Company's operations are grouped into four industry
segments as follows:
Public water supply--collection, purification and
distribution of water for domestic commercial and industrial
use, and for fire protection service;
Environmental laboratories and utility management services-
- -environmental testing laboratories and other nonregulated
water-related services;
Forest products--processing, marketing and distribution of
lumber products, and the generation and sale of cogenerated
electricity;
Real estate--ownership and sale of real property.
The following table sets forth information about the
Company's operations by industry segment for the years ended
December 31:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- ----------------------------------- ------ ------ ------
<S> <C> <C> <C>
Operating revenues:
Public water supply $ 73,060 $ 71,280 $ 63,702
Environmental laboratories and
utility management services 24,925 23,132 26,061
Forest products 21,310 12,298 12,001
Real estate 2,678 645 262
-------- -------- --------
Total operating revenues $121,973 $107,355 $102,026
======== ======== ========
-35-
<PAGE>
<PAGE>
Operating income:
Public water supply $ 25,862 $ 26,475 $ 22,475
Environmental laboratories and
utility management services 933 (705) (29)
Forest products 5,015 1,496 1,437
Real estate 1,605 40 170
-------- -------- --------
Industry segment operating income 33,415 27,306 24,053
Other (expenses) income, net (1) (3,097) (1,002) (976)
Interest expense (8,368) (9,242) (9,327)
Allowance for funds used
during construction 569 623 678
Subsidiary preferred dividends (27) (30) (187)
-------- -------- --------
Income before income taxes and
cumulative effect of a change
in accounting method 22,492 17,655 14,241
======== ======== ========
Identifiable assets:
Public water supply 332,498 321,431 300,713
Environmental laboratories and
utility management services 26,751 25,941 29,733
Forest products 4,469 7,718 8,526
Real estate 4,587 5,678 5,537
Corporate 3,640 2,104 3,822
-------- -------- --------
Total identifiable assets $371,945 $362,872 $348,331
======== ======== ========
Capital expenditures:
Public water supply $ 17,739 $ 16,300 $ 21,727
Environmental laboratories and
utility management services 1,525 1,072 2,303
Forest products 502 526 665
Real estate 123 169 154
-------- ------- --------
Total capital expenditures $ 19,889 $ 18,067 $ 24,849
======== ======== ========
Depreciation expense:
Public water supply 9,139 8,054 6,973
Environmental laboratories and
utility management services 1,815 1,895 1,910
Forest products 671 663 626
Real estate 11 11 11
-------- -------- --------
Total depreciation expense $ 11,636 $ 10,623 $ 9,520
======== ======== ========
<FN>
(1) Includes goodwill amortization $402,000 in 1994, 1993 and 1992, and
Partnership charge of $1,900,000 in 1994.
</FN>
</TABLE>
Operating revenues are comprised of sales to unaffiliated
customers. The Company's operations all take place in North
America and no single customer accounts for 10 percent or more
of total operating revenues.
Operating income (loss) is defined as operating revenues
less total costs and expenses, other than interest expense,
other (expenses) income, income taxes, AFUDC and subsidiary
preferred dividends. Identifiable assets by industry segment
are assets used in the Company's operations in each industry
segment. Corporate assets are principally cash, prepaid
expenses, receivables and deferred charges not identifiable with
a specific industry segment.
Note 11 - Employee benefit plans
- --------------------------------
Retirement plans - The Company and certain of its subsidiaries
have a noncontributory pension plan covering qualified
employees. Aquarion's policy is to fund pension costs accrued.
In addition, certain subsidiaries have established defined
contribution salary deferral plans under Section 401(k) of the
Internal Revenue Code.
The following table sets forth the funded status of
Aquarion's Retirement Plan For Employees (the Plan) at
December 31, the Plan's latest valuation date:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
- -------------------------------- ----- ------
<S) <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$15,772 in 1994 and $16,673 in
1993 $ 16,607 $ 17,605
======== ========
Projected benefit obligation $(20,669) $(22,507)
Plan assets at fair value 31,664 33,505
-------- --------
Plan assets in excess of projected
benefit obligation 10,995 10,998
Unrecognized prior service cost 932 957
Unrecognized net asset existing at
January 1, 1986 (3,045) (3,503)
Unrecognized net (gain) from past
experience (3,546) (4,070)
-------- --------
Prepaid pension cost $ 5,336 $ 4,382
======== ========
</TABLE>
-36-
<PAGE>
<PAGE>
Net pension credit for the years ended December 31,
included the following components:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- ------------------------------------- ------ ------ ------
<S> <C> <C> <C>
Service cost - benefits earned during
the period $ 804 $ 763 $ 860
Interest cost on projected benefit
obligation 1,574 1,510 1,485
Actual return on plan assets 675 (2,331) (1,961)
Net amortization and deferral (3,966) (807) (1,106)
------ ------ ------
Net pension credit $ (913) $ (865) $ (722)
====== ====== ======
</TABLE>
The weighted average discount rate was 8.25 percent for
1994 and 7.25 percent for 1993 and 1992. The expected long-term
rate of return on assets was 8.7 percent for 1994 and 8.5
percent for 1993 and 1992. The weighted average rate of
increase in future compensation levels used in determining the
actuarial present value of the projected benefit obligation was
5.9 percent in 1994 and 1993 and 6.9 percent in 1992. The Plan
invests in publicly traded stocks and bonds.
Postretirement health care benefits. In January 1993, the
Company adopted FASB No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This new standard
requires that employers recognize these benefits on an accrual
basis rather than on a cash basis. As allowed by FASB 106, the
Company has elected to recognize the transition obligation of
$10,471,000 over 20 years.
Aquarion and the Utilities provide health and life
insurance benefits for substantially all retired employees.
Only those employees who remain until retirement age are
eligible. Several different health care plans are offered.
Generally, the plans pay stated percentages of covered expenses
after a deductible is met. Both active and retired employees
are required to contribute toward the cost of these benefits.
The Company is funding its postretirement health care benefits
through contributions to a Voluntary Employee Beneficiary
Association Trust (VEBA). The Company's 1994 tax deductible
contribution was $356,000.
The net periodic postretirement benefit cost for the years
ended December 31, was as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
- ---------------------------------------- ------ ------
<S> <C> <C>
Service cost-benefits earned during the
period $ 420 $ 344
Interest cost on benefit obligation 890 820
Net amortization and deferral 524 524
------ ------
Net periodic postretirement benefit cost $1,834 $1,688
====== ======
</TABLE>
Expense recognized for the 12 months ended December 31,
1994 and 1993 amounted to $1,743,000 and $650,000, respectively.
The remaining cost has been recorded as a regulatory asset. BHC
received approval for recovery of these costs from the DPUC in
the rate decision effective August 1, 1993. SWC expects
recovery of these costs in future rate proceedings.
The combined funded status and the related accrual for
postretirement benefits other than pensions as of December 31,
1994 and 1993, were as follows:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
- ------------------------------------- ------ ------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $ 5,576 $ 5,532
Active plan participants eligible for
retirement 2,226 2,300
Other active participants 3,852 4,111
------- -------
Net obligations 11,654 11,943
Plan assets at fair value 356 -
------- -------
Accumulated postretirement obligation
less than plan assets (11,298) (11,943)
Unrecognized net obligation existing at
January 1, 1993 9,423 9,947
Unrecognized net (gain) or loss from
past experience (356) 814
------- -------
Accrued postretirement benefit cost $(2,231) $(1,182)
======= =======
</TABLE>
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation at December 31,
1994 and 1993 was 8.25 percent and 7.5 percent, respectively.
For measurement purposes, a 10.2 percent annual increase in
the per capita cost of covered health care benefits was assumed
for 1994 (10.8 percent for 1993). This rate was assumed to
decrease gradually to six percent for 2001 and remain at that
level thereafter.
-37-
<PAGE>
<PAGE>
If the health care cost trend rate were increased
one percent, the accumulated postretirement benefit obligation
as of December 31, 1994 would increase by 16 percent and the
aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the 12 months ended
December 31, 1994 would increase by 21 percent.
Postemployment benefits. In January 1994, the Company adopted
FASB No. 112 " Employers' Accounting for Postemployment
Benefits," which requires the Company to accrue the cost of
providing benefits to former or inactive employees after
employment but before retirement. These benefits are to be
recognized over the employees' years of service or at the date
of the event giving rise to such benefits. The impact of this
new standard had no material effect on the Company's financial
condition or results of operation.
Note 12 - Incentive Stock Plans; Dividend Reinvestment and
- ----------------------------------------------------------
Common Stock Purchase Plan
- --------------------------
In 1985, shareholders adopted a long-term incentive plan
(Stock Plan) that provides for the granting of incentive stock
options, nonqualified stock options, stock appreciation rights,
restricted stock and performance units to key executives. As
amended by shareholders in 1990, an aggregate of 525,000 shares
of the Company's common stock may be awarded under the Stock
Plan, which expired January 30, 1995.
In 1994, shareholders adopted the Aquarion Company Stock
Incentive Plan ("Incentive Plan") that provides for the granting
of non-qualified stock options, stock appreciation rights,
restricted stock, unrestricted stock and performance units
(collectively, "Awards"), but no more than an aggregate of
525,000 shares of stock may be awarded under the Incentive Plan
or purchased upon the exercise of stock options. No Awards will
be granted after April 25, 1999.
Stock options available under the Stock Plan and Incentive
Plan are exercisable at a price equal to the market value,
unless otherwise indicated, at the date of the grant and remain
exercisable for ten years, conditional on continued employment,
from the date of the grant. The following options have been
awarded to key executives:
<TABLE>
<CAPTION>
Number Option Price
of Shares per Share
- -------------------------------- --------- ------------
<S> <C> <C>
Outstanding at December 31, 1991 273,700 $22.63-$28.28
Granted in 1992 (a) 106,750 $20.63-$24.63
Expired in 1992 (137,700) $22.63-$28.28
Exercised in 1992 (16,400) $22.63-$24.63
--------
Outstanding at December 31, 1992 226,350 $20.63-$28.28
Granted in 1993 (a) 66,550 $25.00-$26.63
Expired in 1993 (1,850) $24.63-$25.00
Exercised in 1993 (29,900) $20.63-$24.63
--------
Outstanding at December 31, 1993 261,150 $20.63-$28.28
Granted in 1994 (a) 271,100 $21.75-$27.13
Expired in 1994 (11,800) $24.63-$27.13
Exercised in 1994 (6,300) $20.63-$25.00
--------
Outstanding at December 31, 1994 514,150 $20.63-$28.28
=======
<FN>
(a) These options became or will become exercisable on
March 17, 1993, January 22, 1994, February 2, 1995 and
December 5, 1995, respectively.
</TABLE>
As of December 31, 1994, 252,050 shares were exercisable
under the Stock Plan. In addition, 4,495 shares of restricted
stock were outstanding as of December 31, 1994, of which 1,921
shares will vest on February 2, 1995.
The Company maintains a Dividend Reinvestment and common
stock Purchase Plan (Reinvestment Plan) which provides holders
of its common stock with a method of purchasing additional
shares without payment of any brokerage or service charges. In
April 1994, the Company amended its Reinvestment Plan to allow
shareholders to make optional cash payments at a 5 percent
discount from the market price and to include an additional
750,000 shares in the plan. The total number of shares reserved
for purchase under the Reinvestment was 1,650,000, of which
905,715 shares were issued at December 31, 1994.
-38-
<PAGE>
<PAGE>
Note 13 - Property, plant and equipment
- ---------------------------------------
Net property, plant and equipment at December 31, consisted
of the following components:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
- ------------------------------------ ------ ------
<S> <C> <C>
Organization $ 185 $ 185
Source of supply 27,446 26,762
Pumping 14,296 13,395
Water treatment 53,371 52,951
Transmission and distribution 214,687 206,865
General 30,249 30,086
Construction work in progress 11,766 5,266
Utility plant held for future use 471 471
Nonutility 26,237 31,583
-------- --------
378,708 367,564
Less: accumulated depreciation 123,166 117,191
-------- --------
$255,542 $250,373
======== ========
</TABLE>
Note 14 - Inventories
- ---------------------
Inventories at December 31, were comprised of the following:
<TABLE>
<CAPTION>
(In thousands) 1994 1993
- ---------------------------------- ------ ------
<S> <C> <C>
Lumber and logs $1,333 $1,314
Materials and supplies 1,744 1,571
------ ------
$3,077 $2,885
====== ======
</TABLE>
Note 15 - Statement of cash flows
- ---------------------------------
Changes in assets and liabilities for the years ended
December 31, net of effects of acquisitions, are set forth
below:
<TABLE>
<CAPTION>
(In thousands) 1994 1993 1992
- -------------------------------- ------ ------ ------
<S> <C> <C> <C>
(Increase) decrease in accounts
receivable $(2,703) $ 339 $ 129
(Increase) decrease in inventory (192) 228 (120)
(Increase) in prepayments (1,308) (1,064) (600)
Increase (decrease) in accounts
payable and accrued liabilities 4,273 575 (551)
Increase (decrease) in interest
and taxes payable 3,168 (241) 340
Net changes in other noncurrent
balance sheet items 3,193 (259) (819)
------- ------ ------
$ 6,431 $ (422) $(1,621)
======= ====== =======
Supplemental cash flow information:
Cash paid for:
Interest $8,733 $9,810 $9,602
Income taxes $6,306 $5,066 $4,214
</TABLE>
-39-
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Aquarion Company
In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of income, of shareholders'
equity and of cash flows present fairly, in all material
respects, the financial position of Aquarion Company and its
subsidiaries at December 31, 1994 and 1993, and the results of
their operations and their cash flows for each of the three
years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles. 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 of
these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
As discussed in Notes 1, 5 and 11, the Company changed its
method of accounting for postretirement benefits other than
pensions in 1993 and income taxes in 1992.
Price Waterhouse LLP
Stamford, Connecticut
January 30, 1995
-40-
<PAGE>
<PAGE>
MANAGEMENT'S STATEMENT ON RESPONSIBILITY
Management's Statement on Responsibility for Financial Information
The management of the Company is responsible for the fairness,
integrity and objectivity of the Company's consolidated
financial statements, including all related information
presented in the annual report. These statements have been
prepared in accordance with generally accepted accounting
principles and include amounts based on management's best
estimates and judgments.
Management maintains and relies on a system of internal
controls, which provides reasonable assurance that assets are
safeguarded and financial records are adequate and can be relied
upon to produce accurate financial statements. The system
includes the hiring and training of qualified personnel, written
accounting and control policies and procedures, clearly drawn
lines of accountability and delegations of authority. In
addition, the Company has an internal audit function that
evaluates existing controls and recommends changes and
improvements deemed necessary.
The Board of Directors' Audit Committee, which is comprised of
five nonmanagement directors, meets periodically with the
Company's senior officers, independent accountants and the
internal auditor. The Audit Committee reviews internal audits,
financial reporting and internal control matters, as well as the
nature and extent of the audit effort.
Management believes that the Company's policies and procedures,
as well as its internal control system and activities of the
internal auditor and independent accountants and the Audit
Committee, provide you, the shareholder, with reasonable
assurance as to the integrity of the Company's consolidated
financial statements.
Jack E. McGregor
President & Chief Executive Officer
Janet M. Hansen
Senior Vice President,
Chief Financial Officer
& Treasurer
January 30, 1995
-41-
<PAGE>
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
- ------------------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Book value per share $17.43 $17.07 $16.33 $15.53 $18.84
Payout ratio (per share) 86.6% 92.0% 98.2% N/A 108.1%
Price/earnings ratio 12.63 16.19 15.2 N/A 14.4
Capitalization:
Long-term debt 49.1% 51.0% 51.9% 55.1% 51.8%
Preferred stock of subsidiaries .2 .2 .2 1.2 1.3
Common equity 50.7 48.8 47.9 43.7 46.9
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
<FN>
(1) Computed at December 31.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Quarterly financial data
(Unaudited)
Income
before
Operating income Net Per
revenues taxes income share(1)
- ---------------- --------- ------ ------ --------
<S> <C> <C> <C> <C>
(In thousands, except share data)
1994
First quarter $ 25,850 $ 4,173 $ 2,574 $.40
Second quarter 29,619 5,943 3,572 .55
Third quarter 29,649 5,626 3,419 .52
Fourth quarter 36,855 6,750 2,656 .40
-------- ------- -------
Total $121,973 $22,492 $12,221
======== ======= =======
1993
First quarter $ 24,687 $ 3,474 $ 2,162 $.36
Second quarter 26,189 4,328 2,694 .44
Third quarter 28,914 5,894 3,772 .58
Fourth quarter 27,565 3,960 2,362 .36
-------- ------- -------
Total $107,355 $17,656 $10,990
======== ======= =======
<FN>
(1) Based on a weighted average of common shares outstanding
during each quarter.
</FN>
</TABLE>
-42-
<PAGE>
<PAGE>
Market and dividend information
- -------------------------------
The following table sets forth the high and low closing
sale prices of the Company common stock as traded on the New
York Stock Exchange (NYSE) and as reported on the NYSE composite
tape, along with dividends paid per share on a quarterly basis.
At December 31, 1994, there were 7,207 shareholders of record.
<TABLE>
<CAPTION>
Period Closing sales prices Dividends paid
- --------------------- ---------------------- ----------------
High Low
- --------------------- ---------- ---------
<S> <C> <C> <C>
1994
First quarter $27 3/4 $24 3/4 $.405
Second quarter 26 7/8 23 .405
Third quarter 26 23 1/2 .405
Fourth quarter 26 1/8 21 5/8 .405
1993
First quarter 27 3/4 24 3/4 .405
Second quarter 27 1/4 25 1/2 .405
Third quarter 28 25 7/8 .405
Fourth quarter 28 3/4 26 .405
</TABLE>
Public water supply segment operations highlights
<TABLE>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Water supplied from
utility operations
(millions of gallons)
Residential 12,463 12,992 12,072 12,657 11,842
Commercial 4,815 4,995 5,269 5,812 5,919
Industrial 3,289 3,647 3,862 4,291 4,668
Non-revenue water 4,369 3,900 4,019 4,039 4,296
------- ------- ------- ------- -------
Total 24,936 25,534 25,222 26,799 26,725
======= ======= ======= ======= =======
Number of customer accounts 125,015 123,915 123,325 122,541 121,571
Population served 496,000 492,000 490,000 487,000 484,000
Full-time employees 276 289 283 285 292
-43-
<PAGE>
<PAGE>
GRAPHICS APPENDIX LIST
----------------------
Page in 1994 Annual Report
to Shareholders where
graphic appears Description of Graphic
------------------------ ----------------------
Page 5 Actual Utility Capital Expenditures
Page 16 Net Cash Provided by Operating Activities
Page 16 Proceeds from Div. Reinv. Plan
Page 17 Interest Expense
Page 17 Total Debt
Page 18 Percentage of Revenues by Expense Category - 1994
Page 20 Percentage of Revenues by utility Operations - 1994
Page 20 Pre tax Income
<PAGE>
</TABLE>
EXHIBIT 10(bb)
Mr. David Popkin February 23, 1995
Bank of Boston
127 Church Street
Exchange Street
New Haven, CT 06510
Dear David:
I would like to confirm our discussion regarding my letter dated
April 27, 1994 proposing a change in the Revolving Credit
Agreement fee structure. The changes we discussed would amend
Section 7 entitled Fees. The new commitment fee would be
computed at a rate per annum of .125 of 1% on the average daily
unused portion of the commitment for each day during which any
unused portion exists. This will replace the current fee of .225
or 1%. The utilization fee of .075 of 1% will be eliminated and
the closing fee of $7,500 was a one time fee paid to the banks at
the initial closing and is not paid again upon renewal.
As a matter of formality, please verify your acceptance of the
new fee structure by signing in the space provided below and
return to me at your earliest convenience.
Sincerely,
Janet M. Hansen
Senior Vice President,
Chief Financial Officer
and Treasurer
Accepted: Bank of Boston Connecticut
By: --------------------------
Title: --------------------------
Date:
<PAGE>
<PAGE>
Ms. Susan Elias February 23, 1995
Shawmut Bank Connecticut
850 Main Street
Bridgeport, CT 06601
Dear Sue:
I would like to confirm our discussion regarding my letter dated
April 27, 1994 proposing a change in the Revolving Credit
Agreement fee structure. The changes we discussed would amend
Section 7 entitled Fees. The new commitment fee would be
computed at a rate per annum of .125 of 1% on the average daily
unused portion of the commitment for each day during which any
unused portion exists. This will replace the current fee of .225
or 1%. The utilization fee of .075 of 1% will be eliminated and
the closing fee of $7,500 was a one time fee paid to the banks at
the initial closing and is not paid again upon renewal.
As a matter of formality, please verify your acceptance of the
new fee structure by signing in the space provided below and
return to me at your earliest convenience.
Sincerely,
Janet M. Hansen
Senior Vice President,
Chief Financial Officer
and Treasurer
Accepted: Shawmut Bank Connecticut
By: --------------------------
Title: --------------------------
Date:
<PAGE>
<PAGE>
Mr. Jeffrey G. Chase February 23, 1995
Vice President
NatWest USA Connecticut Corporation
383 Main Avenue
Norwalk, CT 06851
Dear Jeff:
I would like to confirm our discussion regarding my letter dated
April 27, 1994 proposing a change in the Revolving Credit
Agreement fee structure. The changes we discussed would amend
Section 7 entitled Fees. The new commitment fee would be
computed at a rate per annum of .125 of 1% on the average daily
unused portion of the commitment for each day during which any
unused portion exists. This will replace the current fee of .225
or 1%. The utilization fee of .075 of 1% will be eliminated and
the closing fee of $7,500 was a one time fee paid to the banks at
the initial closing and is not paid again upon renewal.
As a matter of formality, please verify your acceptance of the
new fee structure by signing in the space provided below and
return to me at your earliest convenience.
Sincerely,
Janet M. Hansen
Senior Vice President,
Chief Financial Officer
and Treasurer
Accepted: NatWest USA Connecticut Corporation
By: --------------------------
Title: --------------------------
Date:
<PAGE>
<PAGE>
Mrs. Deborah Breslof February 23, 1995
Mellon Financial Services
Raritan Plaza/Raritan Center
Edison, NJ 08837
Dear Debbie:
I would like to confirm our discussion regarding my letter dated
April 27, 1994 proposing a change in the Revolving Credit
Agreement fee structure. The changes we discussed would amend
Section 7 entitled Fees. The new commitment fee would be
computed at a rate per annum of .125 of 1% on the average daily
unused portion of the commitment for each day during which any
unused portion exists. This will replace the current fee of .225
or 1%. The utilization fee of .075 of 1% will be eliminated and
the closing fee of $7,500 was a one time fee paid to the banks at
the initial closing and is not paid again upon renewal.
As a matter of formality, please verify your acceptance of the
new fee structure by signing in the space provided below and
return to me at your earliest convenience.
Sincerely,
Janet M. Hansen
Senior Vice President,
Chief Financial Officer
and Treasurer
Accepted: Mellon Financial Services
By: --------------------------
Title: --------------------------
Date:
<PAGE>
<PAGE>
Mr. Gerald M. Daniello February 23, 1995
Vice President
Chase Manhattan Bank of CT
Corporate Banking
999 Broad Street
Bridgeport, CT 06604
Dear Gerry:
I would like to confirm our discussion regarding my letter dated
April 27, 1994 proposing a change in the Revolving Credit
Agreement fee structure. The changes we discussed would amend
Section 7 entitled Fees. The new commitment fee would be
computed at a rate per annum of .125 of 1% on the average daily
unused portion of the commitment for each day during which any
unused portion exists. This will replace the current fee of .225
or 1%. The utilization fee of .075 of 1% will be eliminated and
the closing fee of $7,500 was a one time fee paid to the banks at
the initial closing and is not paid again upon renewal.
As a matter of formality, please verify your acceptance of the
new fee structure by signing in the space provided below and
return to me at your earliest convenience.
Sincerely,
Janet M. Hansen
Senior Vice President,
Chief Financial Officer
and Treasurer
Accepted: Chase Manhattan Bank of Connecticut
By: --------------------------
Title: --------------------------
Date:
<PAGE>
EXHIBIT 10(l)
-------------
August 31, 1989
EMPLOYMENT AND CONSULTING AGREEMENT
-----------------------------------
Agreement dated as of the 15th day of October 1989, between
The Hydraulic Company ("THC") and William S. Warner ("Warner").
WHEREAS, Warner has been continuously employed by the
Company since 1948, and is currently employed by THC as Chairman
and Chief Executive Officer and a member of THC's Board and as
Chairman and Chief Executive Officer of Bridgeport Hydraulic
Company ("BHC") and a member of its Board and as Chairman and
Director of Main Street South Corporation, Chairman and Director
of Hydrocorp and Director of Timco, Inc. and Stamford Water
Company (the "Companies"); and
WHEREAS, Warner has reached retirement age on the date
hereof; and
WHEREAS, Warner has gained extensive, unique and valuable
knowledge and experience concerning the business of THC, BHC and
the Companies which THC, BHC and the Companies desire to utilize
in transitioning to new management from the date hereof until
January 1, 1990 and thereafter during the term of this agreement;
and
WHEREAS, Warner is willing to continue serving in his
present capacities with THC, BHC and the Companies through
December 31,1989 and, commencing January 1, 1990 to continue
serving as a Director of THC and to provide consulting services
to THC concerning the businesses of THC, BHC and the Companies as
an independent contractor; and THC desires to retain such
employment and consulting services of Warner;
NOW, THEREFORE, THC and Warner agree as follows:
1. Continued Employment. Consulting Services.
Directorship. THC agrees to employ Warner, and Warner agrees to
continue serving in his present capacities with THC, BHC and the
Companies, through December 31, 1989 ("Employment Term") as a
full-time employee pursuant to the terms of Warner's existing
employment agreement dated as of January 1, 1985 with THC, which
is incorporated herein by reference and made a part hereof.
Effective January 1, 1990 THC hereby retains Warner's consulting
services under this agreement and Warner hereby agrees to render
services to THC as provided herein, from January 1, 1990 to
December 31, 1996 ("Consulting Term"). During the Consulting
Term, Warner agrees to accept renomination and election to the
Board of Directors of THC by the shareholders of THC.
-1-
<PAGE>
<PAGE>
2. Scope of Services. During the Consulting Term Warner
shall act as a business consultant to THC concerning the
businesses of THC, BHC and the Companies. Such consulting
services shall be provided at the times and in the manner
requested by the Chief Executive Officer of THC and agreed to by
Warner, it being expressly understood that Warner will be under
no obligation to render any specific number of hours of service,
and shall render only such services as he shall in good faith
determine to be appropriate. It is anticipated that Warner will
devote not more than 25% of his available time to providing
consulting services pursuant to this agreement, and it is agreed
that the payments required of THC hereunder shall be due and
payable regardless of whether Warner in fact is called upon to
provide any services hereunder.
3. Independent Contractor Status. It is agreed that
Warner shall, at the conclusion of his employment on December 31,
1989 and thereafter during the Consulting Term of this agreement,
act as an independent contractor and not as an employee of THC.
Accordingly, Warner will not be eligible on account of his
services as a consultant, for participation in or for the
benefits of any of the plans and programs provided by THC, BHC or
any of the Companies for their respective active employees.
However, anything set forth in the preceding sentence or
elsewhere herein to the contrary notwithstanding, Warner (or his
estate and/or eligible dependents) will be entitled to all of the
benefits of THC's Supplemental Retirement Plan, adopted by THC's
Board of Directors on May 26, 1987 as amended to the date of
execution of this agreement, together with any subsequent
amendments more favorable to Warner and generally applicable to
THC's retirees. Warner (or his estate and/or eligible
dependents) will also be entitled to all of the benefits
(including, without limitation, Retirement Plan benefits and
insurance benefits) of a retired employee of THC, BHC and the
Companies, and specifically the Companies' medical benefits and
medical insurance coverage at least as favorable as that
currently provided to retires and in effect at the date of
execution of this agreement during the consulting term and
thereafter during his lifetime extending to Warner and his spouse
during Warner's lifetime and continuing for the benefit of his
present souse on his death during her lifetime. Moreover, so
long as Warner serves as a Director of THC (or any of its
affiliates) after December 31, 1989, his compensation for such
service shall be the same as the Director's fees payable to other
non-employee Directors for such service and shall be payable to
Warner in addition to the compensation payable under Section 5 of
this agreement.
-2-
<PAGE>
<PAGE>
4. Non-Exclusive Employment. Warner will not be required
to devote his entire time and attention to providing consulting
services to THC and will be permitted to engage in any other
occupation or business during the Consulting Term; provided,
however, that he shall not engage in any occupation or business
which would result in a conflict with his then existing duties
and obligations under this agreement or as a member of the Board
of Directors of THC or any of its affiliates.
5. Compensation and Consulting Fees. THC agrees to pay
Warner as sole consideration for Warner's covenant against
competition reflected in Paragraph 4 above, the sum of $175,000,
payable to him or his designated beneficiary in eighty-four equal
monthly installments, with the first such installment payable on
January 1, 1990. Warner's "designated beneficiary" shall be such
person or persons as he may designate in and by a written
instrument signed by him and delivered to THC or, in default of
any such designation, his estate. This payment shall be made
regardless of whether Warner performs any actual services and
shall survive his death or his total or partial disability.
Consulting services pursuant to this agreement shall commence
upon the conclusion of Warner's full-time employment on
January 1, 1990. In addition to the foregoing payments, from the
commencement of such services and during the Consulting Term,
Warner shall be paid for such services during his lifetime and
notwithstanding any total or partial disability at the rate of
$25,000 per year, payable in equal monthly installments.
6. Reimbursement of Expenses. THC agrees to reimburse
Warner for all reasonable expenses which he incurs in providing
services under this agreement during the Consulting Term
including but not limited to:
(a) travel expenses;
(b) lodging expenses;
(c) reasonable entertainment expenses; and
(d) membership fees in business related clubs
including the Algonquin Club and dining only
membership in the Fairfield County Hunt Club.
THC also agrees to reimburse Warner for all reasonable expenses
incurred in consulting with attorneys, an actuary, and a
financial advisor in regard to this agreement, and the cost of
drafting and concluding this agreement and any Will and Trust
revisions related thereto.
-3-
<PAGE>
<PAGE>
7. Logistical Support. THC shall, during the Term hereof
as agreed upon from time to time between Warner and the Chief
Executive Officer of THC, either provide Warner with suitable
office space, furnishings and equipment in the executive suite of
THC with qualified secretarial help as needed at no cost or
expense to Warner, or reimburse Warner for comparable office
facilities and secretarial service at another location of his
choice. Such reimbursement will be at mutually agreed amounts,
equal to THC's cost for public utility ratemaking purposes of
comparable office facilities and the expense incurred by THC for
comparable secretarial service.
8. Company Vehicle. THC shall either (i) provide Warner
with the exclusive use of a suitable company vehicle during the
Employment Term and Consulting Term for business and personal use
("Suitable" as used herein is intended to mean comparable to
vehicles provided THC's senior officers) or (ii) alternatively at
Warner's option during the Consulting Term, reimburse Warner
quarterly in an amount equal to the annual lease costs of such a
suitable vehicle. Under either option mileage attributed to
Warner's personal use shall be accounted for in the same manner
as that for THC's senior officers. THC shall provide all
maintenance, insurance, fuel and associated service with respect
to such vehicle, except that, should Warner elect alternative
(ii), THC shall reimburse Warner for the expense of insurance on
the vehicle. At the end of the Consulting Term, Warner may
purchase his then vehicle, if owned by THC, at the Company's then
book value.
9. Life Insurance. THC shall provide for Warner's benefit
until his death a supplemental death benefit of $50,000 (which is
equal to the death benefit Warner is presently entitled to under
THC's CBIA Key Man Insurance policy), such benefit to be
available under that policy or such other policy or self-
insurance plan as THC may elect.
10. Other Benefits. Warner shall be entitled to such other
fringe benefits as are normally provided to consultants by THC
during the Consulting Term hereof.
11. Term of This Agreement. This agreement shall continue
in effect until December 31, 1996, notwithstanding any total or
partial disability of Warner. Certain retirement and other
benefits shall survive such date should Warner or his spouse
survive December 31, 1996, as more particularly referenced
herein.
12. Entire Agreement. This agreement has been executed in
counterparts, each of which shall be deemed an original, and
contains all of the terms and conditions agreed upon by the
parties hereto; and no other agreements oral or otherwise
regarding the subject matter of this
-4-
<PAGE>
<PAGE>
agreement shall be deemed to exist or bind either of the parties
hereto except the Employment Agreement between THC and Warner
incorporated herein by reference. Connecticut Law shall govern.
IN WITNESS WHEREOF, the parties have duly executed this
agreement as of the date first above written.
DATE OF EXECUTION THE HYDRAULIC COMPANY
____________________________
Witness:
__________________________ By: __________________________________
Witness:
__________________________ __________________________________
William S. Warner
-5-
<PAGE>
EXHIBIT 10(m)
-------------
EMPLOYMENT AGREEMENT
between
THE HYDRAULIC COMPANY
and
JACK E. MCGREGOR
dated as of January 1, 1990
<PAGE>
THIS AGREEMENT, made effective as of January 1, 1990 by and
between THE HYDRAULIC COMPANY (the "Company"), a Delaware
corporation, and JACK E. McGREGOR, of 863 Old Academy Road,
Fairfield, Connecticut (the "Executive"),
WITNESSETH THAT:
WHEREAS:
1. The Executive is a principal officer of the Company and
an integral part of its senior management who participates in the
decision-making process relative to short and long-term planning
and policy for the Company;
2. The Board of Directors of the Company, at its meeting
on December 19, 1989, determined that it would be in the best
interests of the Company and its shareholders to assure
continuity in the management of the Company's administration and
operations by entering into an employment agreement to retain the
services of the Executive on an extended basis during a period of
intended diversification; and
3. The Executive is willing to continue to serve the
Company as a member of its senior management on the terms and
conditions set forth herein;
NOW THEREFORE, it is hereby agreed by and between the
parties hereto as follows:
1. Employment. The Company agrees to continue the
Executive in its employ, and the Executive agrees to remain in
the employ of the Company, for the period stated in Paragraph 3
hereof and upon the other terms and conditions herein provided.
2. Position and Responsibilities. During the period of
his employment hereunder, the Executive agrees to serve as
President of the Company for the period for which he is and shall
from time to time be elected, as its Chief Executive Officer, and
to be responsible for the general management of the affairs of
the Company, reporting directly to the Board of Directors of the
Company. During said period the Executive agrees to perform such
services not inconsistent with his position as shall from time to
time be requested of him by the Board of Directors including
service, if elected, as an officer and director of any subsidiary
or affiliate of the Company.
3. Term and Duties.
(a) Term of Employment. The term of the Executive's
employment under this Agreement shall be deemed to have commenced
as of the date first above written and shall continue for a
period of thirty-six full calendar months thereafter, subject to
extension as hereinafter provided. On the first day of each month
following the date first above written, the
-1-
<PAGE>
<PAGE>
term of the Executive's employment under this Agreement shall be
automatically extended unless prior thereto the Company shall
deliver to the Executive or the Executive shall deliver to the
Company written notice that such term of employment shall not be
extended, in which case such term shall end at the expiration of
the then existing term of employment under this Agreement,
including any previous extensions, and shall not be further
extended except by agreement of the Company and the Executive.
Any such automatic extension shall be for one additional full
calendar month (for a total term upon such extension of thirty-
six full calendar months), unless the Executive will attain age
62 prior to completion of thirty-six full calendar months
following the extension date, in which case the term of the
Executive's employment under this Agreement shall terminate on
the last day of the month in which the Executive attains age 62.
(b) Duties. During the period of employment
hereunder and except for illness or incapacity and reasonable
vacation periods (which shall not be less than 25 days in any
calendar year), the Executive's business time, attention, skill
and efforts shall be exclusively devoted to the business and
affairs of the Company and its subsidiaries; provided, however,
that nothing in this Agreement shall preclude the Executive from
devoting time during reasonable periods required for
(i) serving as an officer, director or member of a
committee of any company or organization involving
no conflict of interest with the Company or any of
its subsidiaries or affiliates,
(ii) delivering lectures and fulfilling speaking
engagements, and
(iii) engaging in charitable and community activities,
provided that such activities do not materially
affect or interfere with the performance of the
Executive's obligations to the Company.
4. Compensation.
(a) For all services rendered by the Executive in any
capacity during employment under this Agreement, including
services as an executive, officer, director, or member of any
committee of the Company or any subsidiary or affiliate thereof,
the Company shall pay the Executive a base salary at the rate of
not less than $200,000 per year, subject to such periodic
increases as the Board shall deem appropriate in accordance with
the Company's customary procedures and practices regarding the
salaries of senior management employees. Such salary shall be payable
in accordance with the customary payroll practices of the Company, but
-2-
<PAGE>
<PAGE>
in no event less frequently than monthly. Such
periodic increases in salary, once granted, shall not be subject
to revocation.
(b) Executive shall be entitled to participate in any
Company incentive or bonus plan covering some or all of its
executive officers that is in effect during the period of his
employment hereunder and to receive benefits thereunder on a
basis consistent with the overall administration and intent of
any such plan and with past practice, if any, under such plan.
(c) Nothing in this Agreement shall preclude or affect
any rights or benefits that may now or hereafter be provided for
the Executive or for which the Executive may be or become
eligible under any other form of compensation or employee benefit
plan now existing or that may hereafter be adopted or awarded by
the Company or mandated by law. Specifically, the Executive
shall:
(i) Participate in the Company's Retirement Plan for
Employees of The Hydraulic Company as well as any
related program under any "excess benefit plan"
that may be adopted during the period of the
Executive's employment hereunder and in which the
Executive is designated by the Company's Board of
Directors to participate (hereinafter referred to
collectively as the "Retirement Program");
(ii) participate to the permitted extent the Executive
wishes in The Employee Savings and Investment Plan
of the Company and related program under any
excess benefit plan (hereinafter referred to
collectively as the "Thrift and Savings Program");
(iii) participate in any Employee Stock Ownership Plan
that may subsequently be adopted by the Company;
(iv) participate in the salary continuation program in
the event of death in accordance with Board policy
for Company officers;
(v) participate in the Company's death and disability
benefit plans and its medical, dental and health
and welfare plans;
and
(vi) participate in equivalent successor plans of the
Company for which senior management employees are
eligible;
-3-
<PAGE>
<PAGE>
provided, however, that, subject to Paragraph 7(c)(iv), nothing
in this Agreement shall preclude the Company from emending or
terminating any such plan or program, on the condition that such
amendment or termination is applicable to all of the Company's
senior management employees generally.
(d) In addition to any life insurance benefits
included in Paragraph 4(c) hereof, during the term of employment
hereunder the Company agrees to obtain and maintain, for the
purpose of providing a supplemental retirement benefit to the
Executive, a policy of life insurance on the life of the
Executive in the face amount of $300,000 (Guardsman Life
Insurance Policy number U 800004942). The Company shall be the
owner and beneficiary of said policy and shall receive all
payments made under said policy as a means of funding the
benefits payable under this Paragraph 4(d). Amounts payable to
the Executive or to such beneficiary as he may designate in
writing to the Company (the "Executives Beneficiary") under this
Paragraph 4(d) shall be in addition to any retirement benefits
which may be paid to the Executive under the Retirement Plan for
Employees of The Hydraulic Company or any successor plan and
shall be distributed in accordance with the following options and
conditions:
(i) Upon retirement at age 62, the Executive shall
receive, at his option, which shall be exercised
not later than October 1, 1996, either
(A) the amount of $44,000 each year for a period
of ten years, which amount would continue to
be paid to the Executive's Beneficiary for
the remainder of said ten-year period in the
event of the Executive's death during said
period, or
(B) the amount of $33,200 each year for the
remainder of his life;
(ii) Should the Executive die while employed by the
Company before reaching the age of 62, the
Executive's Beneficiary shall receive, in addition
to any other benefits which may be payable
pursuant to any provision of Paragraphs 4(c) or 6
of this Agreement in connection with his death,
the amount of $44,000 each year for a period of
ten years following the Executive's death;
(iii) If the Executive's employment with the Company is
terminated for any reason other than one of those
specified in Paragraph 7(a) of this Agreement by
either the Company or the Executive before the Executive
-4-
<PAGE>
<PAGE>
reaches the age of 62, the Executive may
elect, by notice to the Company upon such
termination, either
(A) to be paid each year for a period of ten
years the amount which corresponds to his
years of service (which service shall, in the
event of termination pursuant to Paragraph
7(c) of this Agreement, include credit for
the unexpired portion of the term of
employment provided for in Paragraph 3(a) of
this Agreement) as an employee of the Company
as set forth on Exhibit A hereto, which
amount would continue to be paid to the
Executive's Beneficiary for the remainder of
said ten-year period in the event of the
Executive's death during said period,
(B) to be paid each year for the remainder of his
life the amount which corresponds to his
years of service (which service shall, in the
event of termination pursuant to Paragraph
7(c) of this Agreement, include credit for
the unexpired portion of the term of
employment provided for in Paragraph 3(a) of
this Agreement) as an employee of the Company
as set forth on Exhibit B hereto, or
(C) to take ownership of said Guardsman life
insurance policy and any cash value therein
at the time of termination of employment, in
which event the Executive shall, if prior to
April 1, 1991, assume any remaining premium
obligations and shall pay the Company such
amount as may be necessary to achieve an
equitable adjustment between the cash value
of said policy at such time (which, in the
event of termination pursuant to Paragraph
7(c) of this Agreement, shall be extended to
the expiration of the term of employment
provided for in Paragraph 3(a) of this
Agreement) and the actuarial value of the
benefits which would otherwise have been
payable to the Executive pursuant to
Paragraph 4(d)(iii)(A) or (B) hereof;
-5-
<PAGE>
<PAGE>
(iv) One-twelfth of the amount of annual benefits
payable to the Executive pursuant to this
Paragraph 4(d) shall, unless otherwise set forth
in this Agreement or otherwise subsequently agreed
to in writing by the parties hereto, be paid to
the Executive on the first day of each month
during the period in which such benefits are
payable commencing with the month following the
Executive's 62nd birthday or death, whichever is
applicable, and continuing until all such benefits
have been paid;
(v) After April 1, 1991 the Executive, if still
employed by the Company, may, as an alternative to
the payment of benefits otherwise provided in this
Paragraph 4(d), elect to take ownership of said
Guardsman life insurance policy in its entirety
subject, however, to a right of reversion to the
Company in the event of forfeiture of benefits as
set forth in Paragraph 4(d)(vi) hereof, which
shall be reflected in an appropriate endorsement
to said policy;
(vi) Notwithstanding any provisions herein to the
contrary, all supplemental retirement benefits and
all other benefits provided pursuant to this
Paragraph 4(d) and by or in connection with said
Guardsman life insurance policy to the Executive
or the Executive's Beneficiary shall be forfeited
by the Executive if he remains in the employment
of the Company after the month in which he reaches
the age of 62, and the Company shall be entitled
to surrender said Guardsman life insurance policy
for its then cash value.
5. Business Expenses. The Company shall pay or reimburse
the Executive for all reasonable travel and other expenses
incurred in connection with the performance of the Executive's
duties under this Agreement in accordance with such procedures as
the Company may from time to time establish. The Company further
agrees to furnish the Executive with a private office and a
private secretary and such other assistance and accommodations,
including an automobile and appropriate club membership, as shall
be suitable to the character of the Executive's position with the
Company and adequate for the performance of the Executive's
duties under this Agreement.
6. Additional Benefits. Nothing in this Agreement shall
affect the Executive's eligibility to participate in all group
health, dental, hospitalization, life, travel or accident or other
-6-
<PAGE>
<PAGE>
insurance plans or programs and all other perquisites,
fringe benefits or retirement plans or additional compensation,
including termination pay programs, which the Company may now or
hereafter, in its sole and absolute discretion, make available to
its senior management employees generally, and the Executive
shall be eligible to receive, during the period of employment
under this Agreement, all benefits and emoluments for which key
employees are eligible under every such plan, program, perquisite
or arrangement to the extent permissible under the general terms
and provisions thereof.
7. Termination of Employment. Notwithstanding any of
the provision of this Agreement, the Executive's employment under
this Agreement may be terminated:
(a) by the Company, in the event of the Executive's
serious, willful misconduct in respect of the Executive's duties
under this Agreement, including conviction for a felony or
perpetration of a common law fraud which has resulted or is
likely to result in material economic damage to the Company or
any of its subsidiaries, by written notice to the Executive,
specifying the event relied upon for such termination;
(b) by either the Company or the Executive, if the
Executive accepts employment or a consulting position with
another Company; or
(c) by the Executive, in the event any (i) failure to
elect or reelect or to appoint or reappoint the Executive to the
offices of President and Chief Executive Officer of the Company
or other material change by the Company of the Executive's
functions, duties or responsibilities which change would cause
the Executive's position with the Company to become of less
dignity, responsibility, importance or scope from the position
and attributes thereof described in Paragraph 2 above, (ii)
assignment or reassignment by the Company or by one of its
subsidiaries of the Executive to another place of employment
outside of Fairfield County, Connecticut, (iii) liquidation,
dissolution, consolidation, or acquisition or merger of the
Company, or transfer of all or substantially all of its assets
other than a transaction in which a successor corporation with a
net worth at least equal to that of the Company assumes this
Agreement and all obligations and undertakings of the Company
hereunder, or (iv) reduction in the Executive's total
compensation and benefits, as specified in Paragraph 4 above and
as currently provided, or other material breach of this Agreement
by the Company or any of its subsidiaries, by thirty (30) days
written notice to the Company, specifying the event relied upon
for such termination and given within 180 days after such event.
-7-
<PAGE>
<PAGE>
8. Payments Upon Termination of Employment. In the
event of any termination by the Executive pursuant to Paragraph
7(c) above, or in the event the Executive's employment under this
Agreement is terminated by the Company for any reason other than
one of those specified in Paragraphs 7(a) or 7(b) above, the
Company shall, as liquidated damages or severance pay, or both,
promptly pay to the Executive and provide the Executive and the
dependents, beneficiaries and estate of the Executive as follows:
(a) The Company shall pay the Executive, at his
option, either as a lump sum or in equal monthly installments
over the unexpired portion of the term of employment provided for
in Paragraph 3(a) above, a cash amount equal to the present value
of the excess of (i) the salary provided in Paragraph 4(a) above,
including the increases therein provided, for the unexpired
portion of the term of employment provided for in Paragraph 3(a)
above (commencing with the month in which termination shall have
occurred) less the amounts, if any, the Executive would have paid
in cash in respect of employee benefits provided for in Paragraph
4(c)(v) above if the Executive were still employed, over (ii) the
amounts, if any, paid to the Executive pursuant to any severance
or termination pay program or arrangement of the Company or any
of its subsidiaries, provided, however, that in no event shall
the amount paid hereunder exceed 2.9 times the Executive's annual
salary.
(b) The Company shall also pay the Executive a lump
sum cash amount equal to the present value of the excess of (i)
the aggregate benefit that would have been paid under the
Retirement Program described in Paragraph 4(c)(i) above as in
effect on the date first above written, if the Executive had
continued to be employed at an annual rate of compensation equal
to that used to calculate the payments provided by Paragraph 7(a)
above, and to be entitled to service credit for eligibility and
benefit purposes during the unexpired portion of the term of
employment provided for in Paragraph 3(a) above, said benefit to
be calculated on the basis of the higher of the Executive's
salary for the 12 months immediately preceding the month in which
termination shall have occurred or the compensation amount used
in the benefit formula under said Retirement Program, and
assuming that the Executive is fully vested in such benefit, over
(ii) the aggregate benefit actually payable under the Retirement
Program and any successor retirement program of the Company
consisting of a tax-qualified pension plan and a related excess
benefit plan. In clarification of the immediately preceding
sentence, the aggregate benefit that would have been paid under
the Retirement Program shall be calculated as of the normal or early
-8-
<PAGE>
<PAGE>
retirement date for which the Executive would have
qualified, assuming the Executive were still employed on that
date and were fully vested in such benefit, and which would
produce the highest present value.
(c) The Company shall also pay the Executive a limp
sum cash amount equal to the present value of the aggregate
contributions or payments, if any, that would have been made by
the Company or any of its subsidiaries under the Thrift and
Savings Program and Employee Stock Ownership Plan described in
Paragraph 4(c)(ii) and (iii) above or any successor program of
the Company in effect on the date on which termination shall have
occurred, if the Executive had continued to be employed, and to
participate in the Thrift and Savings Program and Employee Stock
Ownership Plan or such successor programs to the same extent as
the Executive participated for the last month during which the
Executive was permitted to participate, during the unexpired
portion of the term of employment provided for in Paragraph 3(a)
above at an annual rate of compensation equal to that used to
calculate the payments provided by Paragraph 7(a) above.
(d) For purposes of calculating the lump sum cash
payments provided by Paragraphs 7(a), (b) and (c) above, present
value shall be determined by using a discount factor equal to one
percentage point below the prime rate as published in The Wall
Street Journal as of the date on which termination shall have
occurred.
(e) For a period of 24 months (commencing with the
month in which termination shall have occurred), the Executive
shall continue to be entitled to all employee benefits provided
for in Paragraph 4(c)(v) above, as if the Executive were still
employed during such period under this Agreement, with benefits
based upon the compensation used to calculate the payments
provided by Paragraph 8(a) above, and if and to the extent that
such benefits shall not be payable or provided under any such
plan, the Company shall pay or provide such benefits on an
individual basis. The medical, dental, health and welfare
benefits provided for in Paragraph 4(c)(v) above, in accordance
with this Paragraph 8(e) shall be secondary to any comparable
benefits provided by another employer provided that an
appropriate refund is made of any reduction in the amount paid
pursuant to Paragraph 8(a)(i) which had assumed that such
benefits would be primary.
9. Source of Payments; Interest. All payments provided for
in Paragraphs 4, 5, 6 and 8 above shall be paid in cash from the
general funds of the Company. Any payments not
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<PAGE>
<PAGE>
made within thirty (30) days after termination or such time as they may
otherwise be due hereunder shall bear interest at the interest
rate used to establish the discount factor provided for in
Paragraph 8(d). The Company shall not be required to establish a
special or separate fund or other segregation of assets to assure
such payments.
10. Litigation Expenses.
(a) In the event of any litigation or other proceeding
between the Company and the Executive with respect to the subject
matter of this Agreement and the enforcement of rights hereunder,
the Company shall reimburse the Executive for all reasonable
costs and expenses relating to such litigation or other
proceeding, including reasonable attorney's fees and expenses,
provided that such litigation or proceeding results in any
(i) settlement requiring the Company to make a payment
to the Executive, or
(ii) judgment or order in favor of the executive
enforcing any provision of this Agreement or
awarding any payment or other consideration to the
Executive, regardless of whether such judgment or
order is subsequently reversed on appeal or in a
collateral proceeding.
In no event shall the Executive be required to reimburse the
Company for any of the costs and expenses relating to such
litigation or other proceeding. The obligation of the Company
under this Paragraph 10 shall survive the termination for any
reason of this Agreement (whether such termination is by the
Company, by the Executive, upon the expiration of this Agreement
or otherwise).
11. Income Tax Withholding. The Company may withhold from
any payments made under this Agreement all Federal, State, City
or other taxes as shall be required pursuant to any law or
governmental regulation or ruling.
12. Entire Understanding. This Agreement contains the
entire understanding between the Company and the Executive with
respect to the subject matter hereof and supersedes any prior
employment agreement between the Company and the Executive,
including the employment agreement dated as of January 1, 1986,
except that this Agreement shall not affect or operate to reduce
any benefit or compensation inuring to the Executive of a kind
elsewhere provided and not expressly provided in this Agreement.
13. Severability. If, for any reason, any one or more of
the provisions or part of a provision contained in this Agreement
shall be held to be invalid, illegal or unenforceable in any
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<PAGE>
respect, such invalidity, illegality or unenforceability shall
not affect any other provision or part of a provision of this
Agreement not held so invalid, illegal or unenforceable, and each
other provision or part of a provision shall to the full extent
consistent with law continue in full force and effect. If this
Agreement is held invalid or cannot be enforced, then to the full
extent permitted by law any prior agreement between the Company
and the Executive shall be deemed reinstated as if this Agreement
had not been executed.
14. Consolidation, Merger, or Sale of Assets. Nothing in
this Agreement shall preclude the Company from consolidating or
merging into or with or transferring all or substantially all of
its assets to, another corporation or acquiring entity which
assumes this Agreement and all obligations and undertakings of
the Company hereunder. Upon such a consolidation, merger or
transfer of assets and assumption, the term, "the Company", as
used herein shall mean such other corporation or acquiring entity
and this Agreement shall continue in full force and effect.
15. Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be given in
writing and shall be deemed to have been duly given if delivered
or mailed, postage prepaid, first class as follows:
(a) to the Company:
The Hydraulic Company
835 Main Street
Bridgeport, Connecticut 06601
Attention: Secretary
(b) to the Executive:
Mr. Jack E. McGregor
863 Old Academy Road
Fairfield, Connecticut 06430
or to such other address as either party shall have previously
specified in writing to the other.
16. No Attachment. Except as required by law, no right to
receive payments under this Agreement shall be subject to
anticipation, commutation, alienation, sale, assignment,
encumbrances, charge, pledge, or hypothecation or to execution,
attachment, levy, or similar process or assignment by operation
of law, or any attempt, voluntary or involuntary, to effect any
such action shall be null, void and of no effect.
17. Binding Agreement. This Agreement shall be binding
upon, and shall inure to the benefit of, the Executive and the
Company and their respective permitted successors and assigns.
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<PAGE>
<PAGE>
18. Modification and Waiver. This Agreement may not be
modified or amended except by an instrument signed by the parties
hereto. No term or condition of this Agreement shall be deemed
to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement except by written
instrument signed by the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing
waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for
the future or as to any act other than that specifically waived.
19. Headings of No Effect. The Paragraph headings
contained in this Agreement are included solely for convenience
of reference and shall not in any way affect the meaning or
interpretation of any of the provisions of this Agreement.
20. Governing Law. This Agreement and its validity
interpretation, performance, and enforcement shall be governed by
the laws of the State of Connecticut.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed and its seal to be affixed hereunto by its officers
thereunto duly authorized, and the Executive has signed this
Agreement, all as of the date first above written.
ATTEST: THE HYDRAULIC COMPANY
____________________________ By _____________________________
William S. Warner
Chairman of the Board
______________________________
Jack E. McGregor
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<PAGE>
EXHIBIT 10(n)
-------------
THE HYDRAULIC COMPANY
STOCK OPTION AGREEMENT
Pursuant to the
LONG-TERM INCENTIVE PLAN
NONQUALIFIED STOCK OPTION
<PAGE>
<PAGE>
The Hydraulic Company
STOCK OPTION AGREEMENT pursuant to
LONG-TERM INCENTIVE PLAN
OPTION NUMBER: DATE OF OPTION GRANT:
September 26, 1989
NUMBER OF SHARES: OPTION TERMINATION DATE:
September 26, 1999
OPTION PRICE PER SHARE:
$ [September 26, 1989
Fair Market Value]
Optionee may purchase the shares underlying his Option on or
after the date(s) stated in the following schedule:
CUMULATIVE NUMBER
DATE PERCENT OF GRANT NUMBER OF SHARES OF SHARES
- ------- ---------------- ---------------- -----------------
9/26/90 50%
9/26/91 50%
TOTAL 100%
The Hydraulic Company (the "Company"), pursuant to The
Hydraulic Company Long-Term Incentive Plan (the "Plan"), hereby
grants to:
NAME (THE "OPTIONEE"):
ADDRESS:
CITY:
STATE: ZIP CODE:
an option (the "Option") to purchase from the Company the number
of shares specified above (the "Shares") of the Company's Common
Stock (the "Common Stock") at the Option price per Share
specified above.
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<PAGE>
<PAGE>
1. EXERCISE PERIOD
---------------
Subject to Paragraph 4 hereof and the limitations
specified on Page 1 of this Agreement, Optionee may exercise the
Option prior to the close of business on the Option Termination
Date. The Option may be exercised only with respect to full
shares of Common Stock, and shall be void and of no effect after
the Option Termination Date.
2. HOW TO EXERCISE THE OPTION
--------------------------
The Option may be exercised by delivery of the Notice
of Exercise of Option to the Company (attached to this Agreement
as Appendix A) stating the number of shares with respect to which
it is being exercised and accompanied by payment of the Option
Price of the Shares being purchased pursuant to the Option (a) in
United States dollars in cash or by certified check, bank draft
or money order payable to the order of the Company, (b) through
the delivery to the Company of whose shares of its Common Stock
(including, at Optionee's election, shares of Restricted Stock)
with an aggregate Fair Market Value (as defined in the Pan) on
the date of exercise equal to the Option Price, subject to such
limitations and prohibitions on the use of Common Stock to
exercise an Option as the Compensation Committee of the Board of
Directors (the "Committee") may have adopted at the time of
exercise, or (c) by any combination of the above methods of
payment, and, in any case, payment or arrangement for payment of
any Federal, state or local income or other taxes incurred by
reason of the exercise, required to be withheld by the Company.
3. DELIVERY OF STOCK TO THE OPTIONEE AFTER EXERCISE
------------------------------------------------
As soon as practicable after receipt of notice of
exercise of the Option and payment of the Option Price, the
Company shall, without transfer or issue tax or other incidental
expense to the Optionee, deliver to the Optionee at the offices
of the Company at 835 main Street, Post Office Box 702,
Bridgeport, Connecticut or, at the election of the Optionee, by
first-class insured mail addressed to the Optionee at the address
shown in the applicable Notice of Exercise a certificate or
certificates for shares of its Common Stock.
4. TERMINATION OF EMPLOYMENT PRIOR TO END OF EXERCISE PERIOD
---------------------------------------------------------
(a) General Rule. If prior to the Option Termination
Date, the Optionee ceases to be employed by the company or its
subsidiaries (other than by reason of death or Total Disability,
as such term is defined in the Plan), Optionee may exercise the
Option, to the extent he shall have been entitled to do so at the
date of such termination of employment, within three months after
the date of termination of employment, but in no event later than
September 26, 1999.
(b) Total Disability. If an Optionee ceases to be
employed by the Company by reason of Total Disability and such
Optionee has not died within three months thereafter, the
Optionee may exercise the Option, to the extent he shall have
been entitled to do so at the date of such cessation of
employment, within 12 months after the date of cessation of
employment, but in no event later than September 26, 1999.
(c) Death. In the event of the death of the Optionee
(i) while an employee of the company or (ii) within three months
after cessation of employment by reason of Total Disability, the
Option may be exercised, to the extent the Optionee shall have
been entitled to do so on the date of death or such cessation of
employment by reason of Total Disability, by the person or
persons to whom the Optionee's rights under each Option pass by
will or by the applicable laws of descent and distribution,
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<PAGE>
at any time prior to the earlier of the Option Termination Date or
the first anniversary of the date of the Optionee's death. Any
person or persons to whom an Optionee's rights under an Option
have passed by will or by the applicable laws of descent and
distribution shall be subject to all terms and conditions of the
Plan and this Agreement applicable to the Optionee.
5. EFFECT OF CHANGE ON CONTROL
---------------------------
Upon the occurrence of a Change of Control, all
outstanding Options which are not then exercisable shall become
immediately exercisable in full. Each option shall, to the
extent exercisable after giving effect to the prior sentence,
have a limited right of surrender allowing the Optionee to
surrender that Option within the 30-day period following a Change
in Control and to receive cash, in lieu of exercising the Option,
in the amount by which the highest market value during the 60
days preceding the date on which the Change of Control occurs of
the number of shares of Common Stock covered by the Option
exceeds the Option Price for the shares of Common Stock covered
by the Option. For this purpose, the fair market value of the
Common Stock means the opening price of one share of Common Stock
as reported on the New York Stock Exchange--Composite Tape. If
the Common Stock is not listed or admitted to trading on the New
York Stock Exchange, the fair market value of the Common Stock
shall be the opening price of one share of Common Stock on the
principal national securities exchange which the Common Stock is
listed or admitted to trading, or, if the Common Stock is not
listed or admitted to trading on any national securities
exchange, the opening price of one share of Common Stock as
furnished by the National Association of Securities Dealers, Inc.
through the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or similar organization if NASDAQ is
no longer reporting that information. If the Common Stock is not
quoted by any such organization, the fair market value of the
Common Stock shall be determined in good faith by the Continuing
Directors.
For this purpose, a Change of Control shall be deemed
to have occurred in the following circumstances unless the event
in question has been approved in advance by the Continuing
Directors:
(a) The acquisition by any person (including a group,
within the meaning of Section 13(d) or 14(d)(2) of the Securities
Exchange Act of 1934) of beneficial ownership of 15% or more of
the Company's then outstanding voting securities;
(b) The first purchase under a tender offer or
exchange offer, pursuant to which shares of the Company's Common
Stock have been purchased;
(c) The first day on which less than two-thirds of the
total membership of the Board of Directors of the Company are
Continuing Directors; or
(d) Approval by stockholders of the Company of a
merger, consolidation, liquidation or dissolution of the Company,
or of the sale of all or substantially all of the assets of the
Company.
A Continuing Director shall mean any director of the
Company who either is a member of the Board of Directors on
September 26, 1989 or is recommended or elected to the Company's
Board of Directors by a majority of the Continuing Directors.
6. OPTION CANNOT BE ASSIGNED
-------------------------
The Option shall, during the Optionee's lifetime, be
exercisable only by the Optionee, and neither it nor any right
hereunder shall be transferable otherwise than by will or the
laws of descent and distribution, or be subject to attachment,
execution or other similar process. If the Optionee should
attempt to alienate, assignee, pledge, hypothecate or otherwise
dispose of this Option or of any right
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<PAGE>
hereunder, except as provided for in the Plan, or in the event of
any levy or any attachment, execution or similar process upon the
rights or interest conferred by the Option, the Company may terminate the
Option by Notice to the Optionee and the Option shall thereupon
become null and void.
7. GENERAL RULES
-------------
Neither the grant nor the exercise of the Option shall
confer on the Optionee any right to be retained in the employ of
the Company or its subsidiaries, or to receive subsequent stock
options or other awards under the Plan. The right of the Company
or any subsidiary to terminate (whether by dismissal, discharge,
retirement or otherwise) the Optionee's employment with it at any
time or as otherwise provided by any agreement between the
Company or subsidiary and the Optionee, is specifically reserved.
Neither the Optionee nor any person entitled to
exercise the Optionee's rights in the event of his death shall
have any of the rights of a shareholder with respect to the
Shares except to the extent that certificates for the Shares
shall have been issued or transferred upon the exercise of the
Option.
This Option is granted pursuant to the Plan, and is
governed by the terms and conditions of that Plan. The Optionee
agrees to be bound by those terms and conditions of the Agreement
and the Plan (a copy of which the Optionee acknowledges he has
received) and future amendments in the Plan which do not
adversely affect the Optionee's rights hereunder or thereunder.
-4-
<PAGE>
<PAGE>
The Optionee shall notify the Company in writing,
within thirty days of any disposition (whether by sale, exchange,
gift or otherwise) of Shares within one year of the issuance or
transfer of the Shares to the Optionee.
THE HYDRAULIC COMPANY
By ________________________________
The foregoing Option is hereby accepted on the terms
and conditions set forth therein.
____________________________ ________________________________
Date Optionee
NOTE: The Optionee will please sign the attached duplicate
hereof and mail the same immediately to The Hydraulic
Company, 835 Main Street, Post Office Box 702,
Bridgeport, Connecticut 06601, ATTENTION: Anthony M.
Macleod.
-5-
<PAGE>
<PAGE>
APPENDIX A
----------
NOTICE OF EXERCISE OF OPTION
UNDER THE HYDRAULIC COMPANY
LONG-TERM INCENTIVE PLAN
The Hydraulic Company
835 Main Street
Post Office Box 702
Bridgeport, CT 06601-2353
ATTENTION: Anthony M. Macleod
Reference:
Option Number:
Date of Grant: September 26, 1989
Gentlemen:
I hereby exercise my option to purchase Common Stock
(the "Common Stock") of The Hydraulic Company (the "Company")
under the terms and conditions of the above-referenced option to
purchase Common Stock as follows:
(1) Number of Shares: _______________________________
(2) Option Price per share: $________________________
(3) Aggregate purchase price [(1) X (2)]: ___________
Enclosed is payment in the form of:
(a) Cash. Cash, certified check, bank draft or money
order in United States dollars payable to the
order of the Company in the amount of the
aggregate purchase price [(3) above].
(b) Common Stock. Certificates duly endorsed in blank
for shares of Common Stock (including shares of
Restricted Stock) of the Company with an aggregate
value per share equal to the closing price for one
share of the Common Stock on the New York Stock
Exchange--Composite Tape for trading on the date
of exercise.
(c) Any combination of cash and Common Stock.
Note: If any portion of the payment is to be made in Common
Stock, please consult the Company prior to submitting
this form as to the proper method of payment.
I hereby confirm the representations and agreements
contained in the above-referenced Option Agreement.
For a period of one year from this date, I hereby agree
to respond to any Company questionnaire regarding the sale or
disposition of the shares purchased under this exercise of option
and to notify the Company in writing, within thirty days of any
disposition (whether by sale, exchange, gift or otherwise) of
Shares within one year of the transfer of the shares to me.
-1-
<PAGE>
<PAGE>
Please issue the certificates in my name and deliver
the certificates (including those representing excess shares
submitted) and/or any excess cash to:
Issue to: Mail or Deliver to:
Name: Name:
Address: Address:
City: City:
State: State:
Zip Code: Zip Code:
Social Security Number: Social Security Number:
Dated: ____________________ Signature: _____________________
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<PAGE>
EXHIBIT 10(w)
-------------
EMPLOYMENT AGREEMENT
between
AQUARION COMPANY
and
RICHARD K. SCHMIDT
dated as of April 1, 1994
<PAGE>
<PAGE>
THIS AGREEMENT, made effective April 1, 1994 by and
between AQUARION COMPANY (the "Company"), a Delaware corporation,
and RICHARD K. SCHMIDT, of 113 Lochinvar Court, Cary, North
Carolina 27511 (the "Executive"),
WITNESSETH THAT:
WHEREAS:
1. The Executive is a principal officer of the Company's
subsidiary, Industrial and Environmental Analysts, Inc. ("IEA")
and an integral part of its senior management who participates in
the decision making process relative to short and long term
planning and policy for the Company;
2. The Board of Directors of the Company, at its meeting
on February 22, 1994 determined that it would be in the best
interests of the Company and its shareholders to assure
continuity in the management of the Company's administration and
operations by entering into an employment agreement to retain the
services of the Executive, on terms and conditions comparable to
those contained in employment agreements between the Company and
other members of its senior management;
3. It is not intended to alter materially the compensation
and benefits currently being provided to the Executive but merely
to clarify the meaning and intent of certain of the terms and
conditions thereof and to provide for the continued employment of
the Executive by the Company on such terms and conditions; and
4. The Executive is willing to continue to serve the
Company as a member of its senior management on the terms and
conditions set forth herein;
NOW, THEREFORE, it is hereby agreed by and between the
parties hereto as follows:
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<PAGE>
<PAGE>
1. Employment. The Company agrees to continue the
----------
Executive in its employ, and the Executive agrees to remain in
the employ of the Company, for the period stated in Paragraph 3
hereof and upon the other terms and conditions herein provided.
2. Position and Responsibilities. During the period of
-----------------------------
employment hereunder, the Executive agrees to serve the Company
as President of IEA or in such executive capacity or capacities
involving duties and responsibilities at least equal in
importance and scope to those of the Executive's present position
as the Board of Directors, or the President and Chief Executive
Officer may from time to time determine. During said period, the
Executive also agrees to serve, if elected, as an officer and
director of any other subsidiary or affiliate of the Company.
3. Term and Duties.
---------------
(a) Term of Employment. The term of the Executive's
employment under this Agreement shall be deemed to have commenced
as of the date first above written and shall continue until
March 31, 1996, subject to extension as hereinafter provided. On
the first day of each month following the date first above
written, the term of the Executive's employment under this
Agreement shall be automatically extended unless prior thereto
the Company shall deliver to the Executive or the Executive shall
deliver to the Company written notice that such term of
employment shall not be extended, in which case such term shall
end at the expiration of the then existing term of employment
under this Agreement, including any previous extensions, and
shall not be further extended except by agreement of the Company
and the Executive. Any such automatic extension shall be for one
additional full calendar month (for a total term upon such
extension of twenty-four full calendar months), unless the
Executive will attain age 65 prior to completion of twenty-four
full calendar months following the extension date, in which case the
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<PAGE>
term of the Executive's employment under this Agreement shall
terminate on the last day of the month in which the Executive
attains age 65.
(b) Duties. During the period of employment hereunder
and except for illness or incapacity and reasonable vacation
period (which shall not be less than 20 days in any calendar
year), the Executive's business time, attention, skill and
efforts shall be exclusively devoted to the business and affairs
of the Company and its subsidiaries; provided, however, that
nothing in this Agreement shall preclude the Executive from
devoting time during reasonable periods required for
(i) serving as an officer, director or member
of a committee of any company or
organization involving no conflict of
interest with the company or any of its
subsidiaries or affiliates,
(ii) delivering lectures and fulfilling speaking
engagements, and
(iii) engaging in charitable and community
activities, provided that such activities
do not materially affect or interfere with
the performance of the Executive's
obligations to the Company.
4. Compensation.
------------
(a) For all services rendered by the Executive in any
capacity during employment under this Agreement, including
services as an executive, officer, director, or member of any
committee of the Company or any subsidiary or affiliate thereof,
the Company shall pay the Executive base salary at the rate of
not less than $161,250 per year, subject to such periodic
increases as the Board of Directors of the Company, or a committee
designated by said Board, shall deem appropriate in accordance with the
Company's customary procedures and practices regarding the salaries of
senior management employees. Such salary shall be payable in
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<PAGE>
accordance with the customary payroll practices of the Company, but in
no event less frequently than monthly. Such periodic increases in salary,
once granted, shall not be subject to revocation.
(b) Executive shall be entitled to participate in any
Company incentive or bonus plan covering some or all of its
executive officers that is in effect during the period of his
employment hereunder and to receive benefits thereunder on a
basis consistent with the overall administration and intent of
any such plan and with past practice, if any, under such plan.
(c) Nothing in this Agreement shall preclude or affect
any rights or benefits that may now or hereafter be provided by
IEA for the Executive or for which the Executive may be or become
eligible under any other form of compensation or employee benefit
plan now existing at IEA or that may hereafter be adopted or
awarded by IEA. Specifically, the Executive shall:
(i) be entitled to participate in IEA's 401(k)
Plan as well as any related program under
any "excess benefit plan" that may be
adopted during the period of the
Executive's employment hereunder and in
which the Executive is designated by the
Company's Board of Directors to participate
(hereinafter referred to collectively as
the "Savings Program");
(ii) participate in the salary continuation
program in the event of death in accordance
with Board policy for Company officers;
(iii) participate in any group life, health and
welfare plans as may now be or hereafter
become applicable to IEA employees' and
(iv) participate in equivalent successor plans
of the plans listed above in this
Paragraph 4(c);
-4-
<PAGE>
<PAGE>
provided, however, that, subject to Paragraph 7(c)(iv), nothing
in this Agreement shall preclude the Company from amending or
terminating any such plan or program, on the condition that such
amendment or termination is applicable to all of the Company's
senior management employees generally.
(d) If aggregate pre-tax earnings ("EBT") of IEA for
the period from 1994 through 1996 ("aggregate EBT") equal or
exceed $695,000, the Executive shall be entitled to a non-
recurring turn around bonus, payable on or before March 31, 1997,
to be calculated as follows: (i) 7% of the first $8.5 million of
aggregate EBT and 15.75% of aggregate EBT in excess of
$8.5 million and (ii) with respect to the four goals identified
in the IEA Management Incentive Plan for 1994 through 1996, for
each goal achieved during said period, an additional 0.75% of
aggregate EBT up to $8.5 million and 1.6875% of aggregate EBT in
excess of $8.5 million. For purposes of this Agreement, EBT will
be based on the Company's audited year end financial statements
for each of the three years included in said period and will be
calculated at the operating level, exclusive of acquisition-
related interest expense, goodwill, amortization and any turn-
around bonus payment. In the event of a sale of the Business or
a merger of Employer into another entity which is not controlled
by Aquarion, Employer will calculate the turn-around bonus, which
shall under such circumstances not be less than $150,000, based
on results to the date of such sale or merger. In the event that
Employer terminates Employee's employment prior to December 31,
1996 for any reason other than one of those specified in
Paragraphs 7(a) or 7(b) below, the turn-around bonus, if any,
shall be calculated based on results to the date of termination.
5. Business Expenses. The Company shall pay or reimburse
-----------------
the Executive for all reasonable travel and other expenses
incurred in connection with the performance of the
-5-
<PAGE>
<PAGE>
Executive's duties under this Agreement in accordance with such
procedures as the Company may from time to time establish. The Company
further agrees to furnish the Executive with a private office and a
private secretary and such other assistance and accommodations,
including an automobile and appropriate club membership, as shall
be suitable to the character of the Executive's position with the
Company and adequate for the performance of the Executive's
duties under this Agreement.
6. Additional Benefits. Nothing in this Agreement shall
-------------------
affect the Executive's eligibility to participate in all group
health, dental, hospitalization, life, travel or accident or
other insurance plans or programs and all other perquisites,
fringe benefits or retirement plans or additional compensation,
including termination pay programs, which the Company may
hereafter, in its sole and absolute discretion, elect to make
available to IEA management employees generally, and the
Executive shall be eligible to receive, during the period of
employment under this Agreement, all benefits and emoluments for
which key IEA employees are eligible under every such plan,
program, perquisite or arrangement to the extent permissible
under the general terms and provisions thereof.
7. Termination of Employment. Notwithstanding any other
provision of this Agreement, the Executive's employment under
this Agreement may be terminated:
(a) by the Company, in the event of the Executive's
serious, willful misconduct in respect to the Executive's duties
under this Agreement, including conviction for a felony or
perpetration of a common law fraud which has resulted or is
likely to result in material economic damage to the Company or
any of its subsidiaries, by written notice to the Executive,
specifying the event relied upon for such termination;
-6-
<PAGE>
<PAGE>
(b) by either the Company or the Executive, if the
Executive accepts employment or a consulting position with
another company; or
(c) by the Executive, in the event of any (i) material
change by the Company of the Executive's functions, duties or
responsibilities which change would cause his position with the
Company to become of less dignity, responsibility, importance or
scope from the position and attributes thereof described in
Paragraph 2 above, (ii) assignment or reassignment by the Company
or by one of its subsidiaries of the Executive to another place
of employment more than 35 miles from the location of IEA's
facilities in Cary, North Carolina, (iii) liquidation,
dissolution, consolidation, or acquisition or merger of the
Company, or transfer of all or substantially all of its assets
other than a transaction in which a successor corporation with a
net worth at least equal to that of the Company assumes this
Agreement and all obligations and undertakings of the Company
hereunder, or (iv) reduction in the Executive's total
compensation and benefits, as specified in Paragraph 4 above and
as currently provided, or other material breach of this Agreement
by the Company or any of its subsidiaries, by thirty (30) days
written notice to the Company, specifying the event relied upon
for such termination and given within 180 days after such event.
8. Payments Upon Termination of Employment. In the event
---------------------------------------
of any termination by the Executive pursuant to Paragraph 7(c)
above, or in the event the Executive's employment under this
Agreement is terminated by the Company for any reason other than
one of those specified in Paragraphs 7(a) or 7(b) above, the
Company shall, as liquidated damages or severance pay, or both,
promptly pay to the Executive and provide the Executive and the
dependents, beneficiaries and estate of the Executive as follows:
-7-
<PAGE>
<PAGE>
(a) The Company shall pay the Executive, at his
option, either as a lump sum or in equal monthly installments
over the unexpired portion of the term of employment provided for
in Paragraph 3(a) above, a cash amount equal to the present value
of the excess of (i) the salary provided in Paragraph 4(a) above,
including the increases therein provided, for the unexpired
portion of the term of employment provided for in Paragraph 3(a)
above (commencing with the month in which termination shall have
occurred) less the amounts, if any, the Executive would have paid
in cash in respect of employee benefits provided for in
Paragraph 4(c)(iii) above if the Executive were still employed,
over (ii) the amounts, if any, paid to the Executive pursuant to
any severance or termination pay program or arrangement of the
Company or any of its subsidiaries, provided, however, that in no
event shall the amount paid hereunder exceed 1.5 times the
Executive's annual salary.
(b) The Company shall also pay the Executive a lump
sum cash amount equal to the present value of the aggregate
contributions or payments, if any, that would have been made by
the Company or any of its subsidiaries under the Savings Program
described in Paragraph 4(c)(i) above, or any successor program of
IEA in effect on the date on which termination shall have
occurred, if the Executive had continued to be employed, and to
participate in the Savings Program or such successor program to
the same extent as the Executive participated for the last month
during which the Executive was permitted to participate, during
the unexpired portion of the term of employment provided for in
Paragraph 3(a) above, at an annual rate of compensation equal to
that used to calculate the payments provided by Paragraph 8(a)
above.
(c) For purposes of calculating the lump sum cash
payments provided by Paragraphs 8(a) and 8(b) above, present
value shall be determined by using a discount factor
-8-
<PAGE>
<PAGE>
equal to one percentage point below the prime rate as published in
The Wall Street Journal as of the date on which termination shall have
occurred.
(d) For a period of 24 months (commencing with the
month in which termination shall have occurred), the Executive
shall continue to be entitled to any such employee benefits
provided for in Paragraph 4(c)(iii) above as may be in effect on
the date of termination, as if the Executive were still employed
during such period under this Agreement, with benefits based upon
the compensation used to calculate the payments provided by
Paragraph 8(a) above, and if and to the extent that any such
benefits, if in effect on the date of termination, shall not be
payable or provided under any such plan after the date of
termination, the Company shall pay or provide such benefits on an
individual basis. The health and welfare benefits provided for
in Paragraph 4(c)(iii) above, in accordance with this
Paragraph 8(d) shall be secondary to any comparable benefits
provided by another employer provided that an appropriate refund
is made of any reduction in the amount paid pursuant to
Paragraph 8(a)(i) which had assumed that such benefits would be
primary.
9. Source of Payments; Interest. All payments provided
----------------------------
for in Paragraphs 4, 5, 6 and 8 above shall be paid in cash from
the general funds of the Company. Any payments not made within
thirty (30) days after termination or such time as they may
otherwise be due hereunder shall bear interest at the interest
rate used to establish the discount factor provided for in
Paragraph 8(c). The Company shall not be required to establish a
special or separate fund or other segregation of assets to assure
such payments.
10. Litigation Expenses.
-------------------
(a) In the event of any litigation or other proceeding
between the Company and the Executive with respect to the subject
matter of this Agreement and the enforcement of rights
-9-
<PAGE>
<PAGE>
hereunder, the Company shall reimburse the Executive for all reasonable
costs and expenses relating to such litigation or other
proceeding, including reasonable attorneys' fees and expenses,
provided that such litigation or proceeding results in any
(i) settlement requiring the Company to make a
payment to the Executive, or
(ii) judgment or order in favor of the Executive
enforcing any provision of this Agreement
or awarding any payment or other
consideration to the Executive, regardless
of whether such judgment or order is
subsequently reversed on appeal or in a
collateral proceeding.
In no event shall the Executive be required to reimburse the
Company for any of the costs and expenses relating to such
litigation or other proceeding. The obligation of the Company
under this Paragraph 10 shall survive the termination for any
reason of this Agreement (whether such termination is by the
Company, by the Executive, upon the expiration of this Agreement
or otherwise).
11. Income Tax Withholding. The Company may withhold
----------------------
from any payments made under this Agreement all federal, state,
city or other taxes as shall be required pursuant to any law or
governmental regulation or ruling.
12. Non-Disclosure of Proprietary Information. The
-----------------------------------------
Executive will gain, with respect to the Company and its
affiliates, including IEA, detailed knowledge of all affairs,
trade secrets, discoveries, plans, development work in process,
cost information, outstanding bid and bid proposal information,
customer requirements, contractual provisions, employee
capabilities and proposed marketing initiatives, other
confidential information and the like (the "Proprietary
-10-
<PAGE>
<PAGE>
Information") in the course of the Executive's employment
hereunder and under any prior employment agreement with the
Company or IEA, and the Executive will necessarily continue to
have the fullest knowledge of such matters. Disclosure to or
utilization of such knowledge and Proprietary Information to any
person, firm, business, organization, corporation, agency or
other entity, whether or not engaged in any line of business
competing in any respect with the business of the Company as now
constituted, or as the same may be developed will cause
irreparable injury and damage to the business of the Company.
The Executive covenants and agrees that he will not at any time,
during and after the period of his employment hereunder, except
as may be required by law, disclose any of the Proprietary
Information to, or utilize such information on behalf of, any
person, firm, business, organization, corporation, agency or
other entity (other than an employee or agent of the Company
entitled to receive the same). The Executive's obligations under
this Paragraph 12 shall not apply to information which is or
becomes part of the public domain through no fault of the
Executive. Further, upon termination of his employment
hereunder, the Executive agrees that he will deliver to the
Company, or any affiliated company designated by the Company, any
and all records, files, lists or other documents containing
information within the scope of the foregoing description,
including, without limitation, the Executive's records of
contracts with customers and potential customers, and all copies
of the same, and shall not retain any copies of Proprietary
Information.
13. Executive's Inventions. The Executive will
----------------------
promptly submit to the Company written disclosures of all
inventions, improvements and discoveries relating to the
business, whether or not patentable (hereinafter "Inventions")
which are made or conceived by him, along or jointly with others,
while in the Company's employ. Title to all such Inventions that
shall be within the existing or contemplated scope of the
Company's business at the time such Inventions
-12-
<PAGE>
<PAGE>
are made or conceived or which result from or are suggested by
any work he may do for or on behalf of the Company, together with such
patent, patents or other legal protections as may be obtained
thereon in the United States of America and all foreign
countries, shall belong to the Company. The Executive will
assign such title to the Company and, upon the request of the
Company and after the Executive's termination for any reason,
execute all proper papers for use in applying for, obtaining,
maintaining and enforcing such patents or other legal protections
as the Company may desire and will execute and deliver all proper
assignments thereof, when so requested, without further
remuneration but at the expense of the Company.
14. Non-Competition Agreement.
-------------------------
(a) The Executive covenants and agrees that, for a
period ending either (i) two years from the commencement of the
Executive's employment pursuant to this Agreement or one year
after the termination of this Agreement, whichever is later, or
(ii) upon any sooner change in control of either IEA or of the
Company, he will not engage in any business competitive in any
respect with any business of the Company, its successors or
assigns, as such business is now constituted or as the same may
be developed during the Executive's employment in the geographic
area designated in Paragraph 14(c). As used herein, "Change in
Control" shall mean (i) the sale of substantially all of the
stock or assets of IEA; (ii) the acquisition by any person (as
such term is defined in Section 13(d) of the Securities Exchange
Act of 1934), other than the Company or a wholly-owned subsidiary
of the Company, of the beneficial ownership (within the meaning
of said Section) of 20% or more of the voting shares of the
Company (calculated, in the case of rights to acquire such
shares, as provided under said Section and the rules promulgated
pursuant thereto); (iii) the occurrence of a transaction
requiring shareholders' approval for the acquisition of the
Company through purchase of stock or assets, or by merger or
otherwise; or (iv) the election, during any period of 24 months
or less, of a majority of the Board without the approval of two-
thirds of the Board members as constituted at the beginning of
such period.
(b) The Executive shall be deemed to be engaged in
such business directly or indirectly if he is a sole proprietor
or an employee, officer, director, trustee, agent or partner of,
or a consultant or advisor to or for, a person, firm,
corporation, association, trust or other entity (other than the
Company or any affiliate, including IEA) which is engaged in such
business. This restriction shall not apply to the ownership of
five percent (5%) or less of the total outstanding issue of any
class of securities listed in the over-the-counter market or a
national securities exchange.
(c) Except as provided below, the geographic scope of
the Executive's covenant not to compete shall be:
(i) the states of North Carolina, Florida,
Connecticut, New Jersey, Massachusetts and
Illinois; and
(ii) the following states: Indiana, Ohio,
Michigan, Wisconsin, New York,
Pennsylvania, South Carolina, Virginia,
Georgia, Alabama; and
(iii) any state in the United States of America
in which the Executive is rendering
services for the Company at the time of
termination of his employment.
(d) For the term set forth in Paragraph 14(a) above,
the Executive covenants and agrees that, he will not, directly or
indirectly, solicit any person who is employed by the Company or
any subsidiary at the time of termination of Executive's
employment or within the preceding six-month period to leave the
employ of the Company or any subsidiary or to render
-13-
<PAGE>
<PAGE>
services to any business which competes with the environmental testing
laboratory business of IEA or any non-utility business of the
Company or any subsidiary.
(e) The Executive agrees that the remedy at law for
any breach of the covenant contained in Paragraph 14 will be
inadequate and that any breach would cause such immediate and
permanent damages as would be impossible to ascertain, and,
therefore, the Executive agrees and consents that in the event of
any breach of any provision of such covenant by him, in addition
to any and all legal and equitable remedies available to the
Company, any subsidiary and their successors and assigns for such
breach, including a recovery of damages, the Company, any
subsidiary and their successors and assigns shall be entitled to
obtain preliminary injunctive relief without the necessity of
proving actual damages by reason of such breach and, to the
extent permitted by applicable statutes and rules of procedure, a
temporary restraining order (or similar procedural device) may be
granted immediately upon the commencement of such action.
(f) To the extent that any obligation to refrain from
competing within an area, for a period of time or with respect to
a product or service, as provided in Paragraph 14 is invalid or
unenforceable, it shall, to the extent that it is invalid or
unenforceable, be deemed void ab initio, and the remaining
obligations imposed by the provisions of this Agreement shall be
fully enforceable as if such invalid or unenforceable provisions
had not been included herein.
15. Entire Understanding. This Agreement contains the
--------------------
entire understanding between the Company and the Executive with
respect to the subject matter hereof and supersedes any prior
employment agreement between the Company and the Executive,
except that this Agreement shall not affect or operate to reduce
any benefit or compensation inuring to the Executive of a kind
elsewhere provided and not expressly provided in this Agreement.
-14-
<PAGE>
<PAGE>
16. Severability. If, for any reason, any one or more
------------
of the provisions or part of a provision contained in this
Agreement shall be held to be invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of a provision of
this Agreement not held so invalid, illegal or unenforceable, and
each other provision or part of a provision shall to the full
extent consistent with law continue in full force and effect. If
this Agreement is held invalid or cannot be enforced, then to the
full extent permitted by law any prior agreement between the
Company and the Executive shall be deemed reinstated as if this
Agreement had not been executed.
17. Consolidation, Merger, or Sale of Assets. Nothing
----------------------------------------
in this Agreement shall preclude the Company from consolidating
or merging into or with, or transferring all or substantially all
of its assets to, another corporation or acquiring entity which
assumes this Agreement and all obligations and undertakings of
the Company hereunder. Upon such a consolidation, merger or
transfer of assets and assumption, the term, "the Company", as
used herein shall mean such other corporation or acquiring entity
and this Agreement shall continue in full force and effect.
18. Notices. All notices, requests, demands and other
-------
communications required or permitted hereunder shall be given in
writing and shall be deemed to have been duly given if delivered
or mailed, postage prepaid, first class as follows:
(a) to the Company:
Aquarion Company
835 Main Street
Bridgeport, Connecticut 06601
ATTENTION: Secretary
-15-
<PAGE>
(b) to the Executive:
Richard K. Schmidt
113 Lochinvar Court
Cary, North Carolina 27511
or to such other address as either party shall have previously
specified in writing to the other.
19. No Attachment. Except as required by law, no
-------------
right to receive payments under this Agreement shall be subject
to anticipation, commutation, alienation, sale, assignment,
encumbrances, charge, pledge, or hypothecation or to execution,
attachment, levy, or similar process or assignment by operation
of law, or any attempt, voluntary or involuntary, to effect any
such action shall be null, void and of no effect.
20. Binding Agreement. This Agreement shall be
-----------------
binding upon, and shall inure to the benefit of, the Executive
and the Company and their respective permitted successors and
assigns.
21. Modification and Waiver. This Agreement may not
-----------------------
be modified or amended except by an instrument in writing signed
by the parties hereto. No term or condition of this Agreement
shall be deemed to have been waived, nor shall there be any
estoppel against the enforcement of any provision of this
Agreement except by written instrument signed by the party
charged with such waiver or estoppel. No such written waiver
shall be deemed a continuing waiver unless specifically stated
therein, and each such waiver shall operate only as to the
specific term or condition waived and shall not constitute a
waiver of such term or condition for the future or as to any act
other than that specifically waived.
22. Headings of No Effect. The paragraph headings
---------------------
contained in this Agreement are included solely for convenience
of reference and shall not in any way affect the meaning or
interpretation of any of the provisions of this Agreement.
-16-
<PAGE>
<PAGE>
23. Governing Law. This Agreement and its validity,
-------------
interpretation, performance, and enforcement shall be governed by
the laws of the State of Connecticut.
IN WITNESS WHEREOF, the Company has caused this Agreement
to be executed and its seal to be affixed hereunto by its
officers thereunto duly authorized, and the Executive has signed
this Agreement, all as of the date first above written.
AQUARION COMPANY
ATTEST:
____________________________ By ___________________________
Secretary Jack E. McGregor
Chief Executive Officer
___________________________
RICHARD K. SCHMIDT
-17-
<PAGE>
EXHIBIT 25(a)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Jack E. McGregor and Janet M. Hansen, and each
of them, his or her true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, to act, without the
other, for him or her and in his or her name, place and stead, in any and
all capacities, to sign the Annual Report on Form 10-K of the registrant,
Aquarion Company, for the year ended December 31, 1994, and to file the
same, with all exhibits thereto, and other documents therewith, with the
Securities and Exchange Commission, granting unto attorneys-in-fact
and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
--------- ----- ----
/s/William S. Warner
- --------------------------
William S. Warner Chairman of the February 21, 1995
Board of Directors
and Director
/s/Jack E. McGregor
- --------------------------
Jack E. McGregor President, Chief Executive February 21, 1995
Officer and Director
(Principal Executive
Officer)
/s/Janet M. Hansen
- --------------------------
Janet M. Hansen Senior Vice President and February 21, 1995
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/George W. Edwards, Jr.
- --------------------------
George W. Edwards, Jr. Director February 21, 1995
- -------------------------
Geoffrey Etherington Director February 21, 1995
/s/Norwick R. G. Goodspeed
- ----------------------------
Norwick R. G. Goodspeed Director February 21, 1995
/s/Janet D. Greenwood
- ---------------------------
Janet D. Greenwood Director February 21, 1995
/s/Donald M. Halsted, Jr.
- --------------------------
Donald M. Halsted, Jr. Director February 21, 1995
/s/Eugene D. Jones
- -------------------------
Eugene D. Jones Director February 21, 1995
/s/Larry L. Pfieger
- -------------------------
Larry L. Pflieger Director February 21, 1995
- -------------------------
G. Jackson Ratcliffe Director February 21, 1995
- -------------------------
John A. Urquhart Director February 21, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1994, AQUARION COMPANY FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 1335
<SECURITIES> 0
<RECEIVABLES> 15946
<ALLOWANCES> 2762
<INVENTORY> 3077
<CURRENT-ASSETS> 36356
<PP&E> 378708
<DEPRECIATION> 123166
<TOTAL-ASSETS> 371945
<CURRENT-LIABILITIES> 27322
<BONDS> 111466
<COMMON> 6690
330
0
<OTHER-SE> 108442
<TOTAL-LIABILITY-AND-EQUITY> 371945
<SALES> 121973
<TOTAL-REVENUES> 121973
<CGS> 0
<TOTAL-COSTS> 91682
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1067
<INTEREST-EXPENSE> 8368
<INCOME-PRETAX> 22492
<INCOME-TAX> 10271
<INCOME-CONTINUING> 12221
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12221
<EPS-PRIMARY> 1.87
<EPS-DILUTED> 1.87
</TABLE>
