FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
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Annual Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 |
for the fiscal year ended December 31, 2007
or
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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 0-8084
Connecticut Water Service, Inc.
(Exact name of registrant as specified in its charter)
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Connecticut
(State or other jurisdiction of
incorporation or organization)
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06-0739839
(I.R.S. Employer
Identification No.) |
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93 West Main Street, Clinton, CT
(Address of principal executive office)
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06413
(Zip Code) |
Registrants telephone number, including area code (860) 669-8636
Registrants website: www.ctwater.com
Securities registered pursuant to Section 12 (b) of the Act:
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Title of each Class
Common Stock, without par value
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Name of each exchange on which registered
The Nasdaq Stock Market, Inc. |
Securities registered pursuant to Section 12 (g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Exchange Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding twelve (12)
months (or for such shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K, (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
o
Accelerated filer þ Non-accelerated filer o Smaller reporting company o
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of
the Exchange Act). Yes o No þ
As of June 30, 2007, the aggregate market value of the registrants voting Common Stock held
by non-affiliates of the registrant was $198,764,170 based on the closing sale price on such date
as reported on the NASDAQ.
Number of shares of Common Stock, no par value, outstanding as of March 1, 2008 was 8,351,867,
excluding 49,679 common stock equivalent shares.
DOCUMENTS INCORPORATED BY REFERENCE
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Part of Form 10-K Into Which |
Document |
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Document is Incorporated |
Definitive Proxy Statement, dated
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Part III |
March 18, 2008, for Annual Meeting
of Shareholders to be held on
May 15, 2008. |
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INDEX TO ANNUAL REPORT ON FORM 10-K
Year Ended December 31, 2007
4
This Form 10-K contains forward-looking statements as defined by the Private Securities
Litigation Reform Act of 1995. Forward-looking statements should be read in conjunction with the
risk factors described in Item 1A below and the cautionary statements included in this Form 10-K in
Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations under
the heading Forward Looking Information.
PART I
ITEM 1. BUSINESS
The Company
The Registrant, Connecticut Water Service, Inc. (referred to as the Company, we or our) was
incorporated in 1974, with The Connecticut Water Company (Connecticut Water) as its largest
subsidiary which was organized in 1956. Connecticut Water Service, Inc. is a non-operating holding
company, whose income is derived from the earnings of its four wholly-owned subsidiary companies.
In 2007, approximately 91% of the Companys earnings from continuing operations were attributable
to water activities carried out within its regulated water company, Connecticut Water. As of
December 31, 2007, Connecticut Water supplied water to 84,418 customers in 41 towns throughout
Connecticut. As a regulated water company Connecticut Water is subject to state regulation
regarding financial issues, rates, and operating issues, and to various other state and federal
regulatory agencies concerning water quality and environmental standards.
In addition to its regulated utility, the Company owns three unregulated companies, two of which
were active and one of which was inactive as of December 31, 2007. In 2007, these unregulated
companies, together with real estate transactions within Connecticut Water, contributed the
remaining 9% of the Companys earnings from continuing operations through real estate transactions
as well as services and rentals. The two active companies are Chester Realty, Inc., a real estate
company in Connecticut; and New England Water Utility Services, Inc. (NEWUS), which provides
contract water and sewer operations and other water related services.
The inactive company is The Barnstable Holding Company (Barnstable Holding), a holding company
which previously owned BARLACO Inc. (BARLACO) and Barnstable Water Company (Barnstable Water).
BARLACO, a real estate company in Massachusetts whose entire inventory of land was sold in 2006;
and Barnstable Water, a company that was a public service company until its assets were sold to the
Town of Barnstable, Massachusetts in 2005; were each merged with and into Barnstable Holding during
2007. As a result of the sale of the assets of Barnstable Water, results of its operations have
been classified as discontinued operations.
Our mission is to provide high quality water service to our customers at a fair return to our
stockholders while maintaining a work environment that attracts, retains and motivates our
employees to achieve a high level of performance.
Our corporate headquarters are located at 93 West Main Street, Clinton, Connecticut 06413. Our
telephone number is 860.669.8636, and our internet address is www.ctwater.com.
The Companys annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K, proxy statements and all amendments to these documents will be made available free
5
of charge through the INVESTOR INFORMATION section of the Companys internet website
(http://www.ctwater.com) as soon as practicable after such material is electronically filed with,
or furnished to, the Securities and Exchange Commission (the SEC). The following documents are also
available through the CORPORATE GOVERNANCE section of our website:
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Code of Conduct Board of Directors |
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Code of Conduct Employees |
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Audit Committee Charter |
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Compensation Committee Charter |
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Corporate Governance Committee Charter |
Copies of each of the Companys SEC filings (without exhibits) and corporate governance documents
mentioned above will also be mailed to investors, upon request, by contacting the Companys
Corporate Secretary at Connecticut Water, 93 West Main Street, Clinton, CT 06413.
Our Regulated Business
On June 29, 2007, the Company announced that its principal operating subsidiary, Connecticut Water,
and its unregulated subsidiary, NEWUS, had entered into definitive purchase agreements to acquire
the regulated water utility assets of Eastern Connecticut Regional Water Company, Inc. (Eastern), a
wholly-owned subsidiary of Birmingham Utilities, Inc. (Birmingham) and the unregulated assets of
Birmingham H2O Services, Inc. (H2O). The agreements called for Connecticut Water and NEWUS to pay
a combined $3.5 million for the assets acquired, which had a book value of $9.9 million. On
November 16, 2007, the Connecticut Department of Public Utility Control (DPUC) issued a final decision
approving the transactions and the accounting treatment described in Note 17 of the Notes to
Consolidated Financial Statements. The transaction was completed on January 16, 2008, at which
point all of the former customers of Eastern became customers of Connecticut Water. The
acquisition of Eastern added more than 2,300 residential customers residing in 14 towns across
Connecticut, some only a few miles from existing Connecticut Water systems. The Company is
currently integrating Easterns customers and employees into Connecticut Waters operations. The
Company expects the integration to be materially complete in the first quarter of 2008. For more
information, please refer to Item 7 Managements Discussion and Analysis of Financial Condition
and Results of Operations and Note 17 of the Notes to Consolidated Financial Statements.
In April 2006, the DPUC approved the Companys application to merge Unionville Water Company
(Unionville) and Crystal Water Company (Crystal) into Connecticut Water. The Company completed
these mergers on May 31, 2006. In July 2006, the Company filed a rate application with the DPUC
for the newly merged Connecticut Water requesting an increase in rates of approximately $14.6
million, or 30%. On January 16, 2007, the DPUC issued its final decision and approved a Settlement
Agreement; negotiated with the Office of Consumer Counsel and the DPUCs Prosecutorial Staff; that
allowed Connecticut Water an increase of revenues of approximately $10,940,000, or 22.3%. The
Settlement Agreement allowed Connecticut Water to defer a portion of the approved rate increase,
approximately $3.8 million. The Company recognized that increase through recording deferred
revenues and a corresponding regulatory asset, as required by the decision. Through December 31,
2007, the Company has recorded approximately $3.8 million in deferred revenues. The second phase of
the increase is expected to
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occur on
April 1, 2008. On January 31, 2008, the Company filed to reopen
the case, a procedure required by the Settlement Agreement, to implement the second phase. In
addition to the approval for the inclusion in current rates of the previously approved deferred
revenues of $3.8 million, the filing includes requested recovery of the costs associated with $15.5
million of additional capital investments made in 2007. This portion of the second phase of the
increase was also called for in the Settlement Agreement.
The total increase associated with this second phase is a request of 12.6%, of which approximately
8.2% is for deferred revenues and 4.4% for the investment in additional capital in 2007.
Additionally, Connecticut Water agreed not to apply for a general rate increase that would become
effective prior to January 1, 2010.
A final decision on this second phase is expected by the end of March 2008.
Our business is subject to seasonal fluctuations and weather variations. The demand for water is
generally greater during the warmer months than the cooler months due to customers high water
consumption related to cooling systems and various outdoor uses such as private and public swimming
pools and lawn sprinklers. Demand will vary with rainfall and temperature levels from year to year
and season to season, particularly during the warmer months.
In general, the profitability of the water utility industry is largely dependent on the timeliness
and adequacy of rates allowed by utility regulatory commissions. In addition, profitability is
affected by numerous factors over which we have little or no control, such as costs to comply with
security, environmental, and water quality regulations. Inflation and other factors also impact
costs for construction, materials and personnel related expenses.
Costs to comply with environmental and water quality regulations are substantial. Since the 1974
enactment of the Safe Drinking Water Act, we have spent approximately $57.6 million in constructing
facilities and conducting aquifer mapping necessary to comply with the requirements of the Safe
Drinking Water Act, and other federal and state regulations, of which $7.4 million was expended in
the last five years. We are presently in compliance with current regulations, but the regulations
are subject to change at any time. The costs to comply with future changes in state or federal
regulations, which could require us to modify existing filtration facilities and/or construct new
ones, or to replace any reduction of the safe yield from any of our current sources of supply,
could be substantial.
Connecticut Water derives its rights and franchises to operate from special state acts that are
subject to alteration, amendment or repeal and do not grant us exclusive rights to our service
areas. Our franchises are free from burdensome restrictions, are unlimited as to time, and
authorize us to sell potable water in all the towns we now serve. There is the possibility that
the State of Connecticut could attempt to revoke our franchises and allow a governmental entity to
take over some or all of our systems. While we would vigorously oppose any such attempts, from
time to time such legislation is contemplated.
The rates we charge our water customers are established under the jurisdiction of and are approved
by the DPUC. It is our policy to seek rate relief as necessary to enable us to achieve an adequate
rate of return. As noted above, on January 16, 2007, the DPUC approved an increase of revenues of
approximately $10,940,000, or 22.3%, for Connecticut Water effective January 1,
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2007. Connecticut Waters allowed return on equity and return on rate base are 10.125% and 8.07%, respectively.
Our Water Systems
Our water infrastructure consists of 28 noncontiguous water systems in the State of Connecticut.
Our system, in total, consists of approximately 1,400 miles of water main and reservoir storage
capacity of 7.0 billion gallons. The safe, dependable yield from our 122 active wells and 18
reservoirs is approximately 49 million gallons per day. Water sources vary among the individual
systems, but overall approximately 35% of the total dependable yield comes from reservoirs and 65%
from wells.
As of December 31, 2007, Connecticut Waters 84,418 customers consumed approximately 7.3 billion
gallons of water generating $59,026,000 in revenue. We supply water, and in most cases, fire
protection to all or portions of 41 towns in Connecticut.
The following table breaks down the above total figures by customer class as of December 31, 2007,
2006 and 2005:
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2007 |
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2006 |
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2005 |
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Customers: |
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Residential |
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75,579 |
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74,253 |
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72,968 |
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Commercial |
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5,532 |
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5,485 |
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5,333 |
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Industrial |
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426 |
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429 |
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428 |
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Public Authority |
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602 |
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587 |
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580 |
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Fire Protection |
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1,599 |
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1,562 |
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1,526 |
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Other
(including non-metered accounts) |
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680 |
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931 |
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928 |
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Total |
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84,418 |
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83,247 |
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81,763 |
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Water Revenues ($000s) |
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Residential(1) |
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$ |
38,354 |
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$ |
29,067 |
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$ |
29,980 |
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Commercial |
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6,762 |
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5,652 |
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5,619 |
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Industrial |
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1,764 |
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1,589 |
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1,538 |
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Public Authority |
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1,924 |
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1,507 |
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1,625 |
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Fire Protection |
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9,482 |
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8,708 |
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8,267 |
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Other
(including non-metered accounts) |
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740 |
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422 |
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424 |
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Total |
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$ |
59,026 |
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$ |
46,945 |
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$ |
47,453 |
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Customer Water Consumption |
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(millions of gallons) |
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Residential |
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5,186 |
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4,933 |
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5,260 |
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Commercial |
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1,259 |
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1,198 |
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1,188 |
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Industrial |
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423 |
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424 |
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423 |
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Public Authority |
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389 |
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363 |
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405 |
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Total |
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7,257 |
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6,918 |
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7,276 |
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(1) Includes $3.8 million of deferred revenues in 2007 as allowed under the 2007 Rate Decision.
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Connecticut Water owns various small, discrete parcels of land that are no longer required for
water supply purposes. At December 31, 2007, this land totaled approximately 250 acres. Over the
past several years, we have been disposing of these land parcels. For more information, please
refer to Segments of Our Business below.
Additional information on land dispositions can be found in Item 7 Managements Discussion and
Analysis of Financial Conditions and Results of Operations Commitments and Contingencies.
Competition
Connecticut Water faces competition from a few small privately-owned water systems operating
within, or adjacent to, our franchise areas and from municipal and public authority systems whose
service areas in some cases overlap portions of our franchise areas.
Employees
As of December 31, 2007, we employed a total of 206 persons. Our employees are not covered by
collective bargaining agreements.
Segments of Our Business
For management and financial reporting purposes we divide our business into three segments: Water
Activities, Real Estate Transactions, and Services and Rentals.
Water Activities The Water Activities segment is comprised of our core regulated water activities
to supply public drinking water to our customers. This segment encompasses all transactions of our
regulated water company with the exception of certain real estate transactions.
Real Estate Transactions Our Real Estate Transactions segment involves the sale or donation for
income tax benefits of our real estate holdings. These transactions can be effected by any of our
subsidiary companies. During 2007, the Company engaged in two land transactions totaling 33 acres
and increased its valuation allowance, resulting in a net profit of $167,000.
In February 2006, the Company sold 109 acres of land that were owned by BARLACO to the Town of
Barnstable, Massachusetts for $1.0 million.
In 2005, the Company sold 74 acres of land in Bristol, Connecticut for $475,000.
In 2005, the Company reduced after-tax profit by $353,000 by recording a reserve for income taxes.
This was due to an examination by the Internal Revenue Service (IRS), which was examining the fair
market value of the property reflected on the Companys 2002, 2003 and 2004 tax returns. The IRS
completed its examination during 2006 and no adjustment to the Companys 2002 2004 tax liability
was needed. As a result, the reserve of $353,000, along with an additional $623,000 in reserves
was reversed in 2006.
A breakdown of the net income of this segment between our regulated and unregulated companies for
the past three years is as follows:
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Income (Loss) from Real Estate Transactions from |
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Continuing Operations |
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Regulated |
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Unregulated |
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Total |
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2005 |
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$ |
(69,000 |
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$ |
8,000 |
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$ |
(61,000 |
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2006 |
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$ |
1,083,000 |
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$ |
980,000 |
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$ |
2,063,000 |
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2007 |
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$ |
199,000 |
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$ |
(32,000 |
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$ |
167,000 |
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Services and Rentals Our Services and Rentals segment provides contracted services to water and
wastewater utilities and other clients and also leases certain of our properties to third parties
through our unregulated companies. The types of services provided include contract operations of
water and wastewater facilities; Linebacker®, our service line protection plan for
public drinking water customers; and providing bulk deliveries of emergency drinking water to
businesses and residences via tanker truck. Our lease and rental income comes primarily from the
renting of residential and commercial property.
Some of the services listed above, including the service line protection plan, have little or no
competition. But there can be considerable competition for contract operations of large water and
wastewater facilities and systems. However, we have sought to develop a niche market by seeking to
serve smaller facilities and systems in our service areas where there is less competition. The
Services and Rentals segment, while relatively new and a small portion of our overall business, has
grown significantly over the past five years and now provides approximately 7% of our overall net
income in 2007. Net income generated by this segment of our business was $651,000, $515,000 and
$463,000 for the years 2007, 2006 and 2005, respectively.
ITEM 1A. RISK FACTORS
Our business, financial condition, operating results and cash flows can be impacted by a number of
factors, including, but not limited to, those set forth below, any one of which could cause our
actual results to vary materially from recent results or anticipated future results. For a
discussion identifying additional risk factors and important factors that could cause actual
results to differ materially from those anticipated, see the discussion in Forward Looking
Information in Item 7 below Managements Discussion and Analysis of Financial Condition and
Results of Operations and Notes to Consolidated Financial Statements at pages F-6 to F-27.
Because we incur significant capital expenditures annually, we depend on the rates we charge our
customers.
The water utility business is capital intensive. On an annual basis, we spend significant sums for
additions to or replacement of property, plant and equipment. Our ability to maintain and meet our
financial objectives is dependent upon the rates we charge our customers. These rates are subject
to approval by the DPUC. The Company is entitled to file rate increase requests, from time to time,
to recover our investments in utility plant and expenses; however as part of our recent Settlement
Agreement with the DPUC, we have agreed not to request rate relief that would become effective
prior to January 2010. Once a rate increase petition is filed with the DPUC, the ensuing
administrative and hearing process may be lengthy and costly. The timing of
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our future rate increase requests are dependent on the terms of our rate case decision on January 16, 2007
(including the second phase of the rate case filed in January 2008) and also partially dependent
upon the estimated cost of the administrative process in relation to the investments and expenses
that we hope to recover through the rate increase to the extent approved. We can provide no
assurances that any future rate increase requests will be approved by the DPUC; and, if approved,
we cannot guarantee that any such rate increase requests will be granted in a timely or sufficient
manner to cover the investments and expenses for which we initially sought the rate increase.
Additionally, the DPUC may rule that a company must reduce its rates.
Under a 2007 law, the DPUC may authorize regulated water companies to use a rate adjustment
mechanism, such as a Water Infrastructure and Conservation Adjustment (WICA), for eligible projects
completed and in service for the benefit of the customers. The Company does not expect to be able
to take advantage of the WICA mechanism until the first quarter of 2009, at the earliest. For more
information related to WICA, please refer to the Executive Overview found in Item 7 of this Form
10-K.
Our operating costs could be significantly increased because of state and federal environmental and
health and safety laws and regulations.
Our water and wastewater services are governed by various federal and state environmental
protection and health and safety laws and regulations, including the federal Safe Drinking Water
Act, the Clean Water Act and similar state laws, and federal and state regulations issued under
these laws by the U.S. Environmental Protection Agency and state environmental regulatory agencies.
These laws and regulations establish, among other things, criteria and standards for drinking water
and for discharges into the waters of the United States and/or Connecticut. Pursuant to these laws,
we are required to obtain various environmental permits from environmental regulatory agencies for
our operations. We cannot assure that we have been or will be at all times in full compliance with
these laws, regulations and permits. If we violate or fail to comply with these laws, regulations
or permits, we could be fined or otherwise sanctioned by regulators.
Environmental laws and regulations are complex and change frequently. These laws, and the
enforcement thereof, have tended to become more stringent over time. While we have budgeted for
future capital and operating expenditures to maintain compliance with these laws and our permits,
it is possible that new or stricter standards could be imposed that will raise our operating costs.
Although these costs may be recovered in the form of higher rates, there can be no assurance that
the DPUC would approve rate increases to enable us to recover such costs. In summary, we cannot be
assured that our costs of complying with, or discharging liabilities under, current and future
environmental and health and safety laws will not adversely affect our business, results of
operations or financial condition.
Our business is subject to seasonal fluctuations which could affect demand for our water services
and our revenues.
Demand for our water during the warmer months is generally greater than during cooler months due
primarily to additional requirements for water in connection with irrigation systems, swimming
pools, cooling systems and other outside water use. Throughout the year, and particularly during
typically warmer months, demand will vary with temperature and rainfall levels. In the event that
temperatures during the typically warmer months are cooler than normal,
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or if there is more rainfall than normal, the demand for our water may decrease and adversely affect our revenues.
Declining per customer residential water usage may reduce our revenues, financial condition and
results of operations in future years.
A trend of
declining per customer residential water usage in Connecticut has been observed, which we would
attribute to the declining household size reported throughout the state, as well as increased water
conservation, including the use of more efficient household fixtures and appliances among
residential users. Our regulated business is heavily dependent on revenue generated from rates we
charge to our residential customers for the volume of water they use. The rate we charge for our
water is regulated by the DPUC and we may not unilaterally adjust our rates to reflect changes in
demand. Declining volume of residential water usage may, thus, have a negative impact on our
operating revenues in the future if regulators do not reflect any usage declines in the rate
setting design process.
Potential drought conditions may impact our ability to serve our current and future customers
demand for water and our financial results.
We depend on an adequate water supply to meet the present and future demands of our customers.
Drought conditions could interfere with our sources of water supply and could adversely affect our
ability to supply water in sufficient quantities to our existing and future customers. An
interruption in our water supply could have a material adverse effect on our financial condition
and results of operations. Moreover, governmental restrictions on water usage during drought
conditions may result in a decreased demand for our water, even if our water reserves are
sufficient to serve our customers during these drought conditions, which may adversely affect our
revenues and earnings.
The failure of, or the requirement to repair, upgrade or dismantle, any of our dams may adversely
affect our financial condition and results of operations.
We own 32 dams throughout the state of Connecticut. While the Company maintains robust dam
maintenance and inspection programs, a failure of any of those dams could result in injuries and
damage to residential and/or commercial property downstream for which we may be responsible, in
whole or in part. The failure of a dam could also adversely affect our ability to supply water in
sufficient quantities to our customers and could adversely affect our financial condition and
results of operations. Any losses or liabilities incurred due to the failure of one of our dams
might not be covered by insurance policies or be recoverable in rates, and such losses may make it
difficult for us to secure insurance in the future at acceptable rates.
Any failure of our reservoirs, storage tanks, mains or distribution networks could result in losses
and damages that may affect our financial condition and reputation.
Connecticut Water distributes water through an extensive network of mains and stores water in
reservoirs and storage tanks located across Connecticut. A failure of major mains, reservoirs, or
tanks could result in injuries and damage to residential and/or commercial property for which we
may be responsible, in whole or in part. The failure of major mains, reservoirs or tanks may also
result in the need to shut down some facilities or parts of our water distribution network in order
to conduct repairs. Such failures and shutdowns may limit our ability to supply water in
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sufficient quantities to our customers and to meet the water delivery requirements prescribed by
governmental regulators, including the DPUC, and adversely affect our financial condition, results
of operations, cash flow, liquidity and reputation. Any business interruption or other losses
might not be covered by insurance policies or be recoverable in rates, and such losses may make it
difficult for us to secure insurance in the future at acceptable rates.
Any future acquisitions we may undertake may involve risks and uncertainties.
An important element of our growth strategy is the acquisition and integration of water systems in
order to move into new service areas and to broaden our current service areas. Connecticut Water
has completed three acquisitions since the beginning of 2007 through the filing of this report on
Form 10-K on March 17, 2008. The acquisitions of Avery Heights, Hilldale Park Homeowners
Association, and Birminghams Eastern Division water systems have increased the Companys customer
base by approximately 2,300 customers. Following these acquisitions, The Connecticut Water Company
now serves more than 86,000 customers, or a population of nearly 300,000 people, in more than 50
Connecticut towns. We will not be able to acquire other businesses if we cannot identify suitable
acquisition opportunities or reach mutually agreeable terms with acquisition candidates. It is our
intent, when practical, to integrate any businesses we acquire with our existing operations. The
negotiation of potential acquisitions as well as the integration of acquired businesses could
require us to incur significant costs and cause diversion of our managements time and resources.
Future acquisitions by us could result in:
|
|
|
dilutive issuances of our equity securities; |
|
|
|
|
incurrence of debt and contingent liabilities; |
|
|
|
|
failure to have effective internal control over financial reporting; |
|
|
|
|
fluctuations in quarterly results; and |
|
|
|
|
other acquisition-related expenses. |
Some or all of these items could have a material adverse effect on our business as well as our
ability to finance our business and comply with regulatory requirements. The businesses we acquire
in the future may not achieve sales and profitability that would justify our investment and any
difficulties we encounter in the integration process, including in the integration of controls
necessary for internal control and financial reporting, could interfere with our operations, reduce
our operating margins and adversely affect our internal controls. In addition, as consolidation
becomes more prevalent in the water and wastewater industries, the prices for suitable acquisition
candidates may increase to unacceptable levels and limit our ability to grow through acquisitions.
Water supply contamination may adversely affect our business.
Our water supplies are subject to contamination, including contamination from the development of
naturally-occurring compounds, chemicals in groundwater systems, pollution resulting from man-made
sources, such as MTBE, and possible terrorist attacks. In the event that our water supply is
contaminated, we may have to interrupt the use of that water supply until we are able to substitute
the flow of water from an uncontaminated water source or provide additional treatment. We may
incur significant costs in order to treat the contaminated source through expansion of our current
treatment facilities, or development of new treatment methods. If we are unable to substitute water
supply from an uncontaminated water source, or to adequately treat the
13
contaminated water source in
a cost-effective manner, there may be an adverse effect on our revenues, operating results and
financial condition. The costs we incur to decontaminate a water source or an underground water
system could be significant and could adversely affect our business, operating results and
financial condition and may not be recoverable in rates. We could also be held liable for
consequences arising out of human exposure to hazardous substances in our water supplies or other
environmental damage. For example, private plaintiffs have the right to bring personal injury or
other toxic tort claims arising from the presence of hazardous substances in our drinking water
supplies. Our insurance policies may not be sufficient to cover the costs of these claims.
The need to increase security may continue to increase our operating costs.
In addition to the potential pollution of our water supply as described above, in the wake of the
September 11, 2001 terrorist attacks and the ongoing threats to the nations health and security,
we have taken steps to increase security measures at our facilities and heighten employee awareness
of threats to our water supply. We have also tightened our security measures regarding the delivery
and handling of certain chemicals used in our business. We have and will continue to bear increased
costs for security precautions to protect our facilities, operations and supplies. These costs may
be significant. We are currently not aware of any specific threats to our facilities, operations or
supplies; however, it is possible that we would not be in a position to control the outcome of
terrorist events should they occur.
Key employee turnover may adversely affect our operating results.
Our success depends significantly on the continued individual and collective contributions of our
management team. The loss of the services of any member of our senior management team or the
inability to hire and retain experienced management personnel could harm our operating results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None
ITEM 2. PROPERTIES
The properties of our regulated water company consist of land, easements, rights (including water
rights), buildings, reservoirs, standpipes, dams, wells, supply lines, treatment plants, pumping
plants, transmission and distribution mains and conduits, mains and other facilities and equipment
used for the collection, purification, storage and distribution of water. In certain cases, our
water company may be a party to limited contractual arrangements for the provision of water supply
from neighboring utilities. We believe that our properties are in good operating condition. Water
mains are located, for the most part, in public streets and, in a few instances, are located on
land that we own in fee simple and/or land utilized pursuant to easement right, most of which are
perpetual and adequate for the purpose for which they are held.
The net utility plant of the Company at December 31, 2007 was solely owned by Connecticut Water.
Connecticut Waters net utility plant balance as of December 31, 2007 was $277,662,000, nearly $15
million more than the balance of net utility plant as of December 31, 2006, due primarily to normal
plant additions.
14
Sources of water supply owned, maintained, and operated by Connecticut Water include eighteen
reservoirs and fifty-two well fields. In addition, Connecticut Water has an agreement with the
Metropolitan District Commission (MDC) (a public water and sewer authority presently serving the
City of Hartford and portions of surrounding towns), which provides, among other things, for the
operation and maintenance by MDC of a filtration plant to supply up to 650,000 gallons of treated
water per day for Connecticut Waters Collinsville System. Collectively, these sources have the
capacity to deliver approximately forty-seven million gallons of potable water daily to the
fourteen major operating systems in the following table. In addition to the principal systems
identified, Connecticut Water owns, maintains, and operates fourteen small, non-interconnected
satellite and consecutive water systems that, combined have the ability to deliver about one
million gallons of additional water per day to their respective systems. For some small consecutive
water systems, purchased water may comprise substantially all of the total available supply of the
system. During 2006, the Company entered into, and the DPUC approved, a purchased water agreement
with the South Central Connecticut Regional Water Authority (RWA) to purchase up to one million
gallons per day billed at the RWAs wholesale rate. Activation of the interconnection will occur
in 2008 on an as needed basis. As part of the DPUCs decision
approving the purchased water agreement, they allowed the Company to
capitalize $75,000 per year as the cost to reimburse RWA for capital investments needed to provide for
increased water sales. The Company will be allowed to treat these costs as a regulatory
asset.
Connecticut Water owns and operates sixteen water filtration facilities, having a combined
treatment capacity of approximately 29.33 million gallons per day.
The Companys estimated available water supply, not including water purchases or non-principal
systems, is as follows:
|
|
|
|
|
|
|
ESTIMATED |
|
|
AVAILABLE SUPPLY |
|
|
(MILLION GALLONS PER DAY) |
Chester System |
|
|
1.69 |
|
Collinsville System |
|
|
0.65 |
|
Danielson System |
|
|
3.76 |
|
Gallup System |
|
|
0.60 |
|
Guilford System |
|
|
9.31 |
|
Naugatuck System |
|
|
6.91 |
|
Northern Western System |
|
|
16.16 |
|
Plainfield System |
|
|
1.01 |
|
Somers System |
|
|
0.28 |
|
Stafford System |
|
|
1.00 |
|
Terryville System |
|
|
0.94 |
|
Thomaston System |
|
|
0.73 |
|
Thompson System |
|
|
0.29 |
|
Unionville System |
|
|
3.88 |
|
|
|
|
|
|
Total |
|
|
47.21 |
|
|
|
|
|
|
As of December 31, 2007, the transmission and distribution systems of Connecticut Water consisted
of approximately 1,400 miles of main. On that date, approximately 76 percent of our mains were
eight-inch diameter or larger. Substantially all new main installations are cement-lined ductile
iron pipe of eight-inch diameter or larger.
We believe that our properties are maintained in good condition and in accordance with current
regulations and standards of good waterworks industry practice.
15
ITEM 3. LEGAL PROCEEDINGS
We are involved in various legal proceedings from time to time. Although the results of legal
proceedings cannot be predicted with certainty, there are no pending legal proceedings to which we,
or any of our subsidiaries are a party, or to which any of our properties is subject, that presents
a reasonable likelihood of a material adverse impact on the Companys financial condition, results
of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
16
PART II
ITEM 5. MARKET FOR THE COMPANYS COMMON STOCK, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Our Common Stock is traded on the NASDAQ Global Select Market under the symbol CTWS. Our
quarterly high and low stock prices as reported by NASDAQ and the cash dividends we paid during
2007 and 2006 are listed as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Price |
|
Dividends |
Period |
|
High |
|
Low |
|
Paid |
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
25.09 |
|
|
$ |
22.52 |
|
|
$ |
.2150 |
|
Second Quarter |
|
|
25.00 |
|
|
|
23.62 |
|
|
|
.2150 |
|
Third Quarter |
|
|
25.61 |
|
|
|
23.10 |
|
|
|
.2175 |
|
Fourth Quarter |
|
|
25.15 |
|
|
|
22.40 |
|
|
|
.2175 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
$ |
26.43 |
|
|
$ |
23.81 |
|
|
$ |
.2125 |
|
Second Quarter |
|
|
27.71 |
|
|
|
20.29 |
|
|
|
.2125 |
|
Third Quarter |
|
|
24.39 |
|
|
|
21.90 |
|
|
|
.2150 |
|
Fourth Quarter |
|
|
23.18 |
|
|
|
21.35 |
|
|
|
.2150 |
|
As of March 1, 2008, there were approximately 4,200 holders of record of our common stock.
We presently intend to pay quarterly cash dividends in 2008 on March 17, June 16, September 15 and
December 15 subject to our earnings and financial condition, regulatory requirements and other
factors our Board of Directors may deem relevant.
Purchases of Equity Securities by the Company In May 2005, the Company adopted a common stock
repurchase program (Share Repurchase Program). The Share Repurchase Program allows the Company to
repurchase up to 10% of its outstanding common stock, at a price or prices that are deemed
appropriate. As of December 31, 2007, no shares have been repurchased. Currently, the Company has
no plans to repurchase shares under the Share Repurchase Program.
Performance Graph Set forth below is a line graph comparing the cumulative total shareholder
return for each of the years 2002 2007 on the Companys Common Stock, based on the market price
of the Common Stock and assuming reinvestment of dividends, with the cumulative total shareholder
return of companies in the Standard & Poors 500 Index and the Standard and Poors 500 Utility
Index.
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002 |
|
2003 |
|
2004 |
|
2005 |
|
2006 |
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Connecticut Water Service, Inc. |
|
|
100.00 |
|
|
|
112.95 |
|
|
|
111.62 |
|
|
|
106.76 |
|
|
|
102.83 |
|
|
|
110.43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard & Poors 500 Index |
|
|
100.00 |
|
|
|
128.68 |
|
|
|
142.69 |
|
|
|
149.70 |
|
|
|
173.34 |
|
|
|
182.86 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard
& Poors 500 Utilities Index |
|
|
100.00 |
|
|
|
126.26 |
|
|
|
156.91 |
|
|
|
183.34 |
|
|
|
221.82 |
|
|
|
264.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Source: Standard & Poors Institutional Market Service)
18
ITEM
6. SELECTED FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31, (thousands of dollars except per share |
|
|
|
|
|
|
|
|
|
|
amounts and where otherwise indicated) |
|
2007 |
|
2006 |
|
2005 |
|
2004 |
|
2003 |
|
CONSOLIDATED STATEMENTS OF INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Revenues |
|
$ |
59,026 |
|
|
$ |
46,945 |
|
|
$ |
47,453 |
|
|
$ |
46,008 |
|
|
$ |
44,598 |
|
Operating Expenses |
|
$ |
46,324 |
|
|
$ |
39,962 |
|
|
$ |
37,486 |
|
|
$ |
35,487 |
|
|
$ |
33,380 |
|
Other Utility Income, Net of Taxes |
|
$ |
552 |
|
|
$ |
542 |
|
|
$ |
571 |
|
|
$ |
520 |
|
|
$ |
465 |
|
Total Utility Operating Income |
|
$ |
13,254 |
|
|
$ |
7,525 |
|
|
$ |
10,538 |
|
|
$ |
11,041 |
|
|
$ |
11,683 |
|
Interest and Debt Expense |
|
$ |
4,411 |
|
|
$ |
4,461 |
|
|
$ |
3,583 |
|
|
$ |
3,451 |
|
|
$ |
4,369 |
|
Income from Continuing Operations |
|
$ |
8,781 |
|
|
$ |
6,708 |
|
|
$ |
7,166 |
|
|
$ |
9,163 |
|
|
$ |
8,890 |
|
Cash Common Stock Dividends Paid |
|
$ |
7,146 |
|
|
$ |
7,014 |
|
|
$ |
6,773 |
|
|
$ |
6,641 |
|
|
$ |
6,529 |
|
Dividend Payout Ratio from Continuing Operations |
|
|
81 |
% |
|
|
105 |
% |
|
|
95 |
% |
|
|
72 |
% |
|
|
73 |
% |
Weighted Average Common Shares Outstanding |
|
|
8,270,494 |
|
|
|
8,227,953 |
|
|
|
8,094,346 |
|
|
|
7,999,318 |
|
|
|
7,956,426 |
|
Basic Earnings Per Common Share from Continuing Operations |
|
$ |
1.06 |
|
|
$ |
0.81 |
|
|
$ |
0.89 |
|
|
$ |
1.15 |
|
|
$ |
1.12 |
|
Number of Shares Outstanding at Year End |
|
|
8,376,842 |
|
|
|
8,270,394 |
|
|
|
8,169,627 |
|
|
|
8,035,199 |
|
|
|
7,967,379 |
|
ROE on Year End Common Equity |
|
|
8.8 |
% |
|
|
7.0 |
% |
|
|
7.6 |
% |
|
|
10.4 |
% |
|
|
10.7 |
% |
Declared Common Dividends Per Share |
|
$ |
0.865 |
|
|
$ |
0.855 |
|
|
$ |
0.845 |
|
|
$ |
0.835 |
|
|
$ |
0.825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEET |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stockholders Equity |
|
$ |
100,098 |
|
|
$ |
95,938 |
|
|
$ |
94,076 |
|
|
$ |
87,865 |
|
|
$ |
83,315 |
|
Long-Term Debt (Consolidated, Excluding Current Maturities) |
|
|
92,285 |
|
|
|
77,347 |
|
|
|
77,404 |
|
|
|
66,399 |
|
|
|
64,754 |
|
Preferred Stock |
|
|
772 |
|
|
|
772 |
|
|
|
847 |
|
|
|
847 |
|
|
|
847 |
|
|
Total Capitalization |
|
$ |
193,155 |
|
|
$ |
174,057 |
|
|
$ |
172,327 |
|
|
$ |
155,111 |
|
|
$ |
148,916 |
|
Stockholders Equity (Includes Preferred Stock) |
|
|
52 |
% |
|
|
56 |
% |
|
|
55 |
% |
|
|
57 |
% |
|
|
57 |
% |
Long-Term Debt |
|
|
48 |
% |
|
|
44 |
% |
|
|
45 |
% |
|
|
43 |
% |
|
|
43 |
% |
Net Utility Plant |
|
$ |
277,662 |
|
|
$ |
263,187 |
|
|
$ |
247,703 |
|
|
$ |
241,776 |
|
|
$ |
235,098 |
|
Total Assets |
|
$ |
360,813 |
|
|
$ |
328,140 |
|
|
$ |
306,035 |
|
|
$ |
290,940 |
|
|
$ |
281,345 |
|
Book Value Per Common Share |
|
$ |
11.95 |
|
|
$ |
11.60 |
|
|
$ |
11.52 |
|
|
$ |
10.94 |
|
|
$ |
10.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING REVENUES BY
REVENUE CLASS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
$ |
38,354 |
|
|
$ |
29,067 |
|
|
$ |
29,980 |
|
|
$ |
28,974 |
|
|
$ |
27,831 |
|
Commercial |
|
|
6,762 |
|
|
|
5,652 |
|
|
|
5,619 |
|
|
|
5,479 |
|
|
|
5,327 |
|
Industrial |
|
|
1,764 |
|
|
|
1,589 |
|
|
|
1,538 |
|
|
|
1,635 |
|
|
|
1,616 |
|
Public Authority |
|
|
1,924 |
|
|
|
1,507 |
|
|
|
1,625 |
|
|
|
1,430 |
|
|
|
1,302 |
|
Fire Protection |
|
|
9,482 |
|
|
|
8,708 |
|
|
|
8,267 |
|
|
|
8,087 |
|
|
|
8,026 |
|
Other (Including Non-Metered Accounts) |
|
|
740 |
|
|
|
422 |
|
|
|
424 |
|
|
|
403 |
|
|
|
496 |
|
|
Total Operating Revenues |
|
$ |
59,026 |
|
|
$ |
46,945 |
|
|
$ |
47,453 |
|
|
$ |
46,008 |
|
|
$ |
44,598 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Customers (Average) |
|
|
84,023 |
|
|
|
82,552 |
|
|
|
81,211 |
|
|
|
87,259 |
|
|
|
86,145 |
|
Billed Consumption (Millions of Gallons) |
|
|
7,257 |
|
|
|
6,918 |
|
|
|
7,276 |
|
|
|
7,801 |
|
|
|
7,640 |
|
Number of Employees |
|
|
206 |
|
|
|
200 |
|
|
|
191 |
|
|
|
193 |
|
|
|
195 |
|
19
ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Executive Overview
The Company is a non-operating holding company, whose income is derived from the earnings of its
four wholly-owned subsidiary companies: The Connecticut Water Company (Connecticut Water), New
England Water Utility Services, Inc. (NEWUS), Chester Realty Company (Chester Realty), and
Barnstable Holding Company (Barnstable Holding).
In 2007, approximately 91% of the Company earnings from continuing operations were attributable to
the water activities of its largest subsidiary, Connecticut Water, a regulated water utility with
84,418 customers throughout 41 Connecticut towns, as of December 31, 2007. The rates charged for
service by Connecticut Water are subject to review and approval by
the Connecticut Department of Public Utility Control (DPUC).
After 15 years without filing rate cases, the Companys 2007 financial results reflect operations
under a new rate structure. The Company has spent considerable time and effort over the past 18
months to ensure that our corporate structure is aligned with our new strategy that will see us
requesting rate relief on a more consistent basis in the future. This is important because of the
Companys renewed focus on its regulated business as the primary driver of earnings growth and to
ensure that we are allowed a fair rate of return on the utility plant that we use to serve our
customers.
In an effort to stimulate growth, the Company has stepped up its efforts to acquire water companies
near our existing service territories. To that end, the Company announced in June 2007 that
Connecticut Water entered into a definitive purchase agreement to acquire the regulated water
utility assets of Eastern Connecticut Regional Water Company (Eastern), a regulated subsidiary of
Birmingham Utilities, Inc. (Birmingham). The acquisition of Eastern, which closed on January 16,
2008, added more than 2,300 residential customers residing in 14 towns across Connecticut, some
only a few miles from existing Connecticut Water systems. See Our Regulated Business, under Item 1
Business and Note 17 to the Notes to Consolidated Financial Statements for more information
on the acquisition of Eastern. In 2008 and beyond, the Company will continue to look for
acquisition candidates that we would easily be able to tuck-in to existing service territories,
as well as possible acquisitions outside of our service territories, including outside the State of
Connecticut. Additionally, the Company plans to continue its efforts to tie in private well owners
whose homes are in close proximity to our mains. In 2007, Connecticut Water added 303 customers in
our existing service territories. Lastly, the Company will continue to work with developers to
encourage public water use for new residential construction within Connecticut Waters service
areas.
Over the next twenty years, the Environmental Protection Agency expects water companies to spend
over $275 billion in infrastructure costs nationwide to ensure compliance with existing and future
water regulations. Recognizing the importance of timely infrastructure replacement and
improvement, the Company, along with other investor-owned regulated water companies in the state,
campaigned for the passage of the Water Infrastructure and Conservation Adjustment (WICA) Act in
the Connecticut General Assembly in 2007. WICA allows the Company to add a
20
surcharge to customers bills, subject to DPUC approval, to reflect the replacement of certain
types of aging utility plant; principally water mains, meters, service lines and water conservation
related investments; without a full rate proceeding. The signing of WICA into law in June 2007
will help to eliminate the regulatory lag from the time the Company invests in replacement, or
certain qualified new, plant and when it can begin to recover that investment in the rates charged
to customers. The Company, however, does not expect to be able to take advantage of the WICA
mechanism until the first quarter of 2009.
While the Company plans to file more frequent rate cases, continue to make acquisitions and, in the
future, utilize the WICA adjustment to increase its earnings through its regulated subsidiary, it
will also look to NEWUS to increase its earnings in the unregulated business. As part of the
Companys January 2008 acquisition of Eastern, NEWUS
acquired the operation and maintenance contracts of Birmingham H2O Services Inc., an
unregulated business of Birmingham that has nearly 50 contracts for
unregulated water systems in eastern Connecticut, totaling approximately $650,000 in revenues.
The Company will continue
to seek out maintenance and service contracts with new customers and renew existing contracts that
have proven to be beneficial to the Company, as well as to continue the expansion of the
Linebacker® program.
Regulatory Matters and Inflation
The Company, like all other businesses, is affected by inflation, most notably by the continually
increasing costs required to maintain, improve, and expand its service capabilities. The
cumulative effect of inflation over time results in significantly higher operating costs and
facility replacement costs, which must be recovered from future cash flows.
Connecticut Water is also subject to environmental and water quality regulations. Costs to comply
with environmental and water quality regulations are substantial. We are currently in compliance
with current regulations, but the regulations are subject to change at any time. The costs to
comply with future changes in state or federal regulations, which could require us to modify
current filtration facilities and/or construct new ones, or to replace any reduction of the safe
yield from any of our current sources of supply, could be substantial.
Connecticut Waters ability to recover its increased expenses and/or investment in utility plant is
dependent on the regulatory rates we charge our customers. Changes to these rates must be approved
by the DPUC through formal rate proceedings. Due to the subjectivity of certain items involved in
the process of establishing rates such as customer usage, future customer growth, inflation, and
allowed return on investment, we have no assurance that we will be able to raise our rates to a
level we consider appropriate, or to raise rates at all, through any future rate proceeding.
Critical Accounting Policies and Estimates
The Companys consolidated financial statements are prepared in conformity with accounting
principles generally accepted in the United States of America (GAAP) and as directed by the
regulatory commissions to which the Companys subsidiaries are subject. (See Note 1 to the
Consolidated Financial Statements for a discussion of our significant accounting policies). The
21
Company believes the following policies and estimates are critical to the presentation of its
consolidated financial statements.
Public Utility Regulation Statement of Financial Accounting Standards No. 71, Accounting for the
Effects of Certain Types of Regulation (SFAS 71), requires cost based, rate-regulated enterprises
such as Connecticut Water to reflect the impact of regulatory decisions in their financial
statements. The state regulators, through the rate regulation process, can create regulatory
assets that result when costs are allowed for ratemaking purposes in a period after the period in
which costs would be charged to expense by an unregulated enterprise. The balance sheet includes
regulatory assets and liabilities as appropriate, primarily related to income taxes and
post-retirement benefit costs. The Company believes, based on current regulatory circumstances,
that the regulatory assets recorded are likely to be recovered and that its use of regulatory
accounting is appropriate and in accordance with the provisions of SFAS 71. Material regulatory
assets, other than deferred revenue, are earning a return.
Revenue Recognition The Companys accounting policies regarding revenue recognition by segment
are as follows:
Water Activities Most of our water customers are billed quarterly, with the exception of
larger commercial and industrial customers, as well as public and private fire protection customers
who are billed monthly. Most customers, except fire protection customers, are metered. Revenues
from metered customers are based on their water usage multiplied by approved, regulated rates and
are earned when water is delivered. Public fire protection revenues are based on the length of the
water main, and number of hydrants in service and are earned on a monthly basis. Private fire
protection charges are based on the diameter of the connection to the water main. Our water
companies accrue an estimate for metered customers for the amount of revenues earned relating to
water delivered but unbilled at the end of each quarter.
Real Estate Transactions Revenues are recorded when a sale or other transaction has been
completed and title to the real estate has been transferred.
Services and Rentals Revenues are recorded when the Company has delivered the services
called for by contractual obligation.
Benefit Plan Accounting Management evaluates the appropriateness of the discount rate through the
modeling of a bond portfolio which approximates the pension and postretirement plan liabilities.
Management further considers rates of high quality corporate bonds of approximate maturities as
published by nationally recognized rating agencies consistent with the duration of the Companys
pension and postretirement plans.
The discount rate assumption we use to value our pension and postretirement benefit obligations has
a material impact on the amount of expense we record in a given period. Our 2007 and 2006 pension
and postretirement expense was calculated using assumed discount rates of 5.75% and 5.50%,
respectively. In 2008, our pension and postretirement expense will be calculated using an assumed
discount rate of 6.30%. The following table shows how much a one percent change in our assumed
discount rate would have changed our reported 2007 pension and postretirement expense:
22
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
Increase |
|
|
(Decrease) in |
|
(Decrease) in |
|
|
pension expense |
|
postretirement expense |
1% Increase in the discount rate |
|
$ |
(327,000 |
) |
|
$ |
(208,000 |
) |
1% Decrease in the discount rate |
|
$ |
380,000 |
|
|
$ |
252,000 |
|
Outlook
The Companys earnings and profitability are primarily dependent upon the sale and distribution of
water, the amount of which is dependent on seasonal weather fluctuations, particularly during the
summer months when water demand will vary with rainfall and temperature levels. The Companys
earnings and profitability in future years will also depend upon a number of other factors, such as
the ability to maintain our operating costs at current or lower levels, customer growth in the
Companys core regulated water utility business, growth in revenues attributable to non-water sales
operations, and the timing and adequacy of rate relief when requested, from time to time, by our
regulated water company.
The Company believes that the factors described above and those described in detail below under the
heading Commitments and Contingencies may have significant impact, either alone or in the
aggregate, on the Companys earnings and profitability in fiscal years 2008 and beyond. Please
also review carefully the risks and uncertainties described in Item 1A Risk Factors and those
described below under the heading Forward Looking Information.
Based on the Companys current projections, assuming normal weather patterns, the Company believes
that its Net Income from Continuing Operations for the year 2009 will increase from the levels
reported for 2008, primarily as a result of the second phase of the rate increase which we expect
to be approved by the DPUC effective April 1, 2008. During 2009 and subsequent years, the ability
of the Company to maintain and increase its Net Income from Continuing Operations will principally
depend upon the effect on the Company of the factors described above in this Outlook section,
those factors described in the section entitled Commitments and Contingencies and the risks and
uncertainties described in Forward Looking Information.
FINANCIAL CONDITION
Liquidity and Capital Resources
In recent years, we have relied on both internally generated funds and periodic debt and equity
issuances in order to fund our construction budget. Looking forward, we expect construction
expenditures will be in excess of cash generated from operations and funds generated from the
Companys dividend reinvestment plan; therefore, we will require additional external debt
financings. We expect that this funding will initially come in the form of interim bank loans,
with refinancing into long-term debt as the aggregate balance on the interim loans accumulates.
The Company considers both market interest rates and the availability of tax-exempt financing
opportunities through the Connecticut Development Authority. Although the Company believes it will
be able to secure such funding when and as it is needed, we cannot be assured that funding with
favorable interest rates will be available to the Company or that any new debt issuances will be
tax exempt.
23
The following table shows the total construction expenditures excluding non-cash contributed
utility plant for each of the last three years and what we expect to invest on construction
projects in 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
|
|
|
Gross |
|
Funded by |
|
Construction |
|
|
Construction |
|
Developers & |
|
Funded by |
|
|
Expenditures |
|
Others |
|
Company |
2005 |
|
$ |
16,957,000 |
|
|
$ |
2,701,000 |
|
|
$ |
14,256,000 |
|
2006 |
|
$ |
17,792,000 |
|
|
$ |
1,593,000 |
|
|
$ |
16,199,000 |
|
2007 |
|
$ |
19,841,000 |
|
|
$ |
1,092,000 |
|
|
$ |
18,749,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 (Projected) |
|
$ |
23,400,000 |
|
|
$ |
5,000,000 |
|
|
$ |
18,400,000 |
|
During 2007, the Company incurred approximately $19.8 million of construction expenditures. The
Company financed the expenditures through internally generated funds, long-term debt issuances,
proceeds from its dividend reinvestment plan, customers advances, contributions in aid of
construction and short-term borrowings.
The Board of Directors has approved an $18.4 million construction budget for 2008, net of amounts
to be financed by customer advances and contributions in aid of construction. Funds primarily
provided by operating activities, short-term borrowings and long-term debt issuances are expected
to finance this entire construction program given normal weather patterns and related operating
revenue billings.
We currently fund our working capital requirements through our lines of credit with three banks,
which provide liquidity to satisfy ongoing cash needs. We consider the current aggregate
$21,000,000 lines of credit to be adequate to finance any expected short-term borrowing
requirements that may arise in 2008. If additional funding is needed during 2008, the Company does
not foresee any obstacles to obtaining new short-term financing arrangements. The lines of credit
have lives that range from 12 to 29 months, which expire during 2008 and 2009. We expect to renew
the lines as they expire. The interest rates payable are variable and fluctuate over time based on
financial conditions. The weighted average interest rate on the $6,459,000 aggregate balance
outstanding at December 31, 2007 was 5.47%.
In connection with the 2004 issuance of the $12.5 million variable rate bonds, Connecticut Water
entered into an interest rate swap transaction with a counterparty in the notional principal amount
of $12,500,000. The interest rate swap agreement provides that, beginning in April 2004 and
thereafter on a monthly basis, Connecticut Water will pay the counterparty a fixed interest rate of
3.73% on the notional amount for a period of five years. In exchange, the counterparty began in
April 2004 and thereafter on a monthly basis, paying Connecticut Water a floating interest rate
(based on 105% of the U.S. Dollar one-month LIBOR rate) on the notional amount for a period of five
years. The purpose of the interest rate swap is to manage the Companys exposure to fluctuations
in prevailing interest rates.
In November 2005, Connecticut Water borrowed $10 million through the issuance of Water Facilities
Revenue Bonds by the Authority sold in a single series with an interest rate of five percent
maturing on October 1, 2040. The proceeds from the sale of the bonds were used to
24
finance construction and installation of various capital improvements to Connecticut Waters
existing water systems.
In November 2005, Crystal borrowed $5 million through the issuance of Water Facilities Revenue
Bonds by the Authority sold in a single series with an interest rate of five percent maturing on
October 1, 2040. The proceeds from the sale of the bonds were used to finance the construction of
a water treatment plant in the Town of Killingly, CT and to facilitate the interconnection of two
systems in the Town of Killingly. As a result of the merger of Crystal into Connecticut Water,
this debt issuance became a liability of Connecticut Water.
In December 2007, Connecticut Water borrowed $15 million through the issuance of Water Facilities
Revenue Bonds by the Authority sold in a single series with an interest rate of five percent
maturing on December 1, 2037. The proceeds from the sale of the bonds are being used to finance
construction and installation of various capital improvements to the Companys existing water
system.
25
Off-Balance Sheet Arrangements and Contractual Obligations
We do not use off-balance sheet arrangements such as securitization of receivables with any
unconsolidated entities or other parties. The Company does not engage in trading or risk management
activities (other than the interest rate swap agreement discussed above) and does not have material
transactions involving related persons.
The following table summarizes the Companys future contractual cash obligations as of December 31,
2007:
Payments due by Periods
(in thousands of dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less |
|
|
|
|
|
|
|
|
|
More |
|
|
|
|
|
|
than 1 |
|
Years |
|
Years |
|
than 5 |
Contractual Obligations |
|
Total |
|
year |
|
2 and 3 |
|
4 and 5 |
|
years |
Long-Term Debt (LTD) |
|
$ |
92,292 |
|
|
$ |
7 |
|
|
$ |
16 |
|
|
$ |
17 |
|
|
$ |
92,252 |
|
Interest on LTD |
|
|
96,687 |
|
|
|
4,184 |
|
|
|
8,366 |
|
|
|
8,365 |
|
|
|
75,772 |
|
Operating Lease Obligations |
|
|
996 |
|
|
|
302 |
|
|
|
458 |
|
|
|
236 |
|
|
|
|
|
Purchase Obligations (1) (2) |
|
|
101,572 |
|
|
|
999 |
|
|
|
1,881 |
|
|
|
1,977 |
|
|
|
96,715 |
|
Long-Term Compensation
Agreement(3) |
|
|
48,525 |
|
|
|
5,341 |
|
|
|
6,649 |
|
|
|
6,654 |
|
|
|
29,881 |
|
Total (4) (5) |
|
$ |
340,072 |
|
|
$ |
10,833 |
|
|
$ |
17,370 |
|
|
$ |
17,249 |
|
|
$ |
294,620 |
|
|
|
|
(1) |
|
Connecticut Water has an agreement with the South Central Connecticut Regional Water Authority
(RWA) to purchase water from RWA. The agreement was signed on May 13, 2005 and will remain in
effect for a minimum of ten (10) years from that date. Connecticut Water has agreed to purchase at
least three million (3,000,000) gallons of water per calendar year from RWA. Water sales to
Connecticut Water are billed monthly at the most current RWA retail rate. |
|
(2) |
|
Connecticut Water has an agreement with The Metropolitan District (MDC) to purchase water from
MDC. The agreement became effective on October 6, 2000 for a term of fifty (50) years beginning
May 19, 2003, the date the water supply facilities related to the agreement were placed in service. |
|
(3) |
|
Pension and post retirement contributions cannot be reasonably estimated beyond 2008 and may be
impacted by such factors as return on pension assets, changes in the number of plan participants
and future salary increases. The amounts included for pension and post retirement contributions
are managements best estimate. |
|
(4) |
|
We pay refunds on Advances for Construction over a specific period of time based on operating
revenues related to developer-installed water mains or as new customers are connected to and take
service from such mains. After all refunds are paid, any remaining balance is transferred to
Contributions in Aid of Construction. The refund amounts are not included in the above table
because the refund amounts and timing are dependent upon several variables, including new customer
connections, customer consumption levels and future rate increases, which cannot be accurately
estimated. Portions of these refund amounts are payable annually through 2020 and amounts not paid
by the contract expiration dates become non-refundable. |
|
(5) |
|
We intend to fund these contractual obligations with cash flows from operations and liquidity
sources held by or available to us. |
26
RESULTS OF OPERATIONS
Overview of 2007 Results from Continuing Operations
Income from Continuing Operations for 2007 was $8,781,000, or $1.06 per basic share, an increase of
$2,073,000, or $0.25 per basic share, compared to 2006. The increase in earnings was due to higher
net income in our Water Activities segment partially offset by decreases in net income in our Real
Estate Transactions segment. Changes in net income for our segments were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 Net |
|
|
2006 Net |
|
|
Increase |
|
Business Segment |
|
Income |
|
|
Income |
|
|
(Decrease) |
|
Water Activities |
|
$ |
7,963,000 |
|
|
$ |
4,130,000 |
|
|
$ |
3,833,000 |
|
Real Estate |
|
|
167,000 |
|
|
|
2,063,000 |
|
|
|
(1,896,000 |
) |
Services and Rentals Transactions |
|
|
651,000 |
|
|
|
515,000 |
|
|
|
136,000 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
8,781,000 |
|
|
$ |
6,708,000 |
|
|
$ |
2,073,000 |
|
Water Activities
The increase in net income from Water Activities in 2007, over 2006 results was $3,833,000, or
$0.46 per share. A breakdown of the components of this increase was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2007 |
|
|
2006 |
|
|
(Decrease) |
|
Operating Revenues |
|
$ |
59,026,000 |
|
|
$ |
46,945,000 |
|
|
$ |
12,081,000 |
|
Operation and Maintenance |
|
|
29,864,000 |
|
|
|
26,451,000 |
|
|
|
3,413,000 |
|
Depreciation |
|
|
6,525,000 |
|
|
|
5,881,000 |
|
|
|
644,000 |
|
Income Taxes |
|
|
4,195,000 |
|
|
|
2,055,000 |
|
|
|
2,140,000 |
|
Taxes Other than Income Taxes |
|
|
5,740,000 |
|
|
|
5,575,000 |
|
|
|
165,000 |
|
Other Utility Income |
|
|
552,000 |
|
|
|
542,000 |
|
|
|
10,000 |
|
Other (Deductions) Income |
|
|
(972,000 |
) |
|
|
608,000 |
|
|
|
(1,580,000 |
) |
Interest and
Debt Expense (net of AFUDC) |
|
|
4,319,000 |
|
|
|
4,003,000 |
|
|
|
316,000 |
|
|
|
|
|
|
|
|
|
|
|
Total Income from Water Activities |
|
$ |
7,963,000 |
|
|
$ |
4,130,000 |
|
|
$ |
3,833,000 |
|
The 25.7% increase in Operating Revenues was primarily due to the rate increase effective January
1, 2007, specifically:
- |
|
an increase of $9,287,000, or 32.0%, in revenues from residential customers in 2007,
including $3,823,000 in deferred revenues; |
- |
|
a $1,701,000, or 19.4%, increase in all other metered customers, including commercial,
industrial and public authority customers; and |
- |
|
a $1,092,000, or 12.0%, increase in non-metered revenues which was primarily due to increased
fire protection charges related to the expansion of our water system which increased the
number of fire hydrants and revenue generating mains upon which these charges are based. |
The $3,413,000, or 12.9%, increase in Operation and Maintenance expense was due to the following
changes in expenses:
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase |
|
|
|
2007 |
|
|
2006 |
|
|
(Decrease) |
|
Post-retirement medical expense |
|
$ |
1,759,000 |
|
|
$ |
473,000 |
|
|
$ |
1,286,000 |
|
Labor |
|
|
10,842,000 |
|
|
|
10,240,000 |
|
|
|
602,000 |
|
Outside services |
|
|
1,480,000 |
|
|
|
998,000 |
|
|
|
482,000 |
|
Purchased water |
|
|
1,291,000 |
|
|
|
866,000 |
|
|
|
425,000 |
|
Utility costs |
|
|
3,282,000 |
|
|
|
2,947,000 |
|
|
|
335,000 |
|
Vehicle |
|
|
1,214,000 |
|
|
|
942,000 |
|
|
|
272,000 |
|
Rate case cost amortization |
|
|
270,000 |
|
|
|
35,000 |
|
|
|
235,000 |
|
Maintenance |
|
|
1,632,000 |
|
|
|
1,526,000 |
|
|
|
106,000 |
|
Customer |
|
|
709,000 |
|
|
|
606,000 |
|
|
|
103,000 |
|
Other employee benefit costs |
|
|
2,768,000 |
|
|
|
3,697,000 |
|
|
|
(929,000 |
) |
Other |
|
|
4,617,000 |
|
|
|
4,121,000 |
|
|
|
496,000 |
|
|
|
|
|
|
|
|
|
|
|
Total Operation and Maintenance Expense |
|
$ |
29,864,000 |
|
|
$ |
26,451,000 |
|
|
$ |
3,413,000 |
|
Post-retirement medical expense increased over the prior year due to the accounting treatment under
the January 2007 rate decision. Prior to 2007, the Company was able to recover approximately
$473,000 in post-retirement medical expense while deferring any remaining Statement of Financial
Accounting Standards No. 106 (SFAS 106) costs on the balance sheet as a regulatory asset.
Beginning in 2007, the Company fully expensed the costs determined under SFAS 106. The increase
in Labor over 2006 levels was due to normal wage increases and a non-recurring wage adjustment for
a majority of hourly employees made early in 2006. Outside services increased over the prior year
due to increases in audit, legal and other consulting related costs. Purchased water costs have
increased primarily due to increases in the rates charged to the Company by other water utilities.
The Company has seen an increase in its Vehicle costs due to rising gas prices, increased insurance
rates and higher repair costs. Despite efforts to keep our Utility expense down, such as signing
commodity contracts directly with suppliers, Utility costs have increased as our electric providers
continue to increase the rates they charge to customers. When filing for a rate increase, the DPUC
allows companies to defer costs associated with the filing and then to amortize these expenses
through Operation and Maintenance expense. The Company is now seeing an increase in Rate case cost
amortization since it has begun to amortize the costs to file the 2006 rate case during 2007.
Offsetting these increases was a decrease to Other employee benefit costs due to a reduction in
stock based compensation expense and a decrease in pension costs.
The Company saw an increase in Depreciation of $644,000, or 11.0%, due to the Companys
increased capital spending during 2007 in advance of the second phase of the 2006 rate case, filed
in January 2008. The Company expects that this line item will continue to increase as the Company
looks to replace aging infrastructure in order to take advantage of WICA in future years.
The increase in Income Tax expense associated with the Water Activities segment of $2,140,000 was
due primarily to higher pre-tax net income in 2007.
The increase in Taxes Other Than Income Taxes was primarily due to higher property taxes due to
towns charging higher property tax rates on our ever increasing property balances.
28
The increase in Other Utility Operating Income was due to higher income generated from antenna
sites on our utility property leased to telecommunication companies.
The decrease in Other Income was primarily due to the regulatory treatment of income taxes related
to certain compensation and directors fees (disallowed costs) based on the outcome of the Companys
Settlement Agreement approved by the DPUC in January 2007. This change resulted in a reversal of a
regulatory liability of $986,000 in 2006. There was no similar reversal in 2007, and there are
none expected in future years.
Interest and Debt Expense remained relatively flat year over year due to the relatively similar
capital structure during most of 2007 when compared to 2006. In 2008, the Company expects that
Interest and Debt Expense will increase due to the $15 million bond issuance in December 2007.
Real Estate Transactions
The net income generated by the Real Estate Transactions segment decreased $1,896,000, or $0.23 per
share, from 2006 due to the sale of land from BARLACO to the Town of Barnstable, Massachusetts and
the reversal of reserves during 2006 compared to limited real estate activity during 2007. During
2007, the Company sold 33 acres, in two separate transactions, generating approximately $201,000 in
net income. Additionally, upon completion of the 2006 tax return in the third quarter of 2007, the
Company received an additional tax benefit relating to the 2006 BARLACO land sale transaction of
approximately $20,000. Offsetting these gains, the Company increased its valuation allowance by
approximately $54,000 generating an overall net gain in the Real Estate Transactions segment of
$167,000.
The agreement the Town of Barnstable entered into with the Company to purchase Barnstable Waters
assets also included a provision whereby the Town of Barnstable would acquire, through a bargain
sale purchase, all of the land owned by BARLACO for an additional $1 million. The BARLACO land was
sold in February 2006. The Company recorded a gain on the bargain land sale for 2006 of $980,000.
This gain is reported on the Gain (Loss) on Property Transactions line of the 2006 Consolidated
Statements of Income.
Additionally in 2006, the Company reversed $976,000 of reserves related to an examination by the
Internal Revenue Service (IRS) of the Companys Federal Income Tax Returns for the years 2002
2004, which focused primarily on the value of land donated by the Company. The IRS completed its
examination in 2006 without adjustment to the previously filed tax returns.
Income from this business segment is largely dependent on the tax deductions received on
donations/sales of available land. This typically occurs when utility-owned land is deemed to be
not necessary to protect water sources. The Company plans to continue to utilize land donations
and sales in 2008 to generate income for this segment of our business.
Services and Rentals
Net income generated from the Services and Rental segment in 2007 increased $136,000, over 2006
levels, with a $0.02 increase to basic earnings per share. The increased net income was
29
primarily due to increases in the prices we charge our customers and in customer enrollment in our
service line maintenance program.
Overview of 2006 Results from Continuing Operations
Income from Continuing Operations for 2006 was $6,708,000, or $0.81 per basic share, a decrease of
$458,000, or $0.08 per basic share, compared to 2005. The decrease in earnings was due to lower net
income in our Water Activities segment partially offset by increases in net income in our Real
Estate segment. Changes in net income for our segments were as follows:
|
|
|
|
|
|
|
Increase |
|
|
|
(Decrease) |
|
Business Segment |
|
In Net Income |
|
Water Activities |
|
$ |
(2,634,000 |
) |
Real Estate |
|
|
2,124,000 |
|
Services and Rentals |
|
|
52,000 |
|
|
|
|
|
Net (Decrease) |
|
$ |
(458,000 |
) |
Water Activities
The decrease in net income from Water Activities in 2006 was $2,634,000, or $ 0.34 per share, lower
than it was in 2005. A breakdown of the components of this decrease was as follows:
|
|
|
|
|
|
|
Increase |
|
|
|
(Decrease) |
|
Operating Revenues |
|
$ |
(508,000 |
) |
Operation and Maintenance |
|
|
2,591,000 |
|
Depreciation |
|
|
157,000 |
|
Income Taxes |
|
|
(462,000 |
) |
Taxes Other than Income Taxes |
|
|
190,000 |
|
Other Utility Income |
|
|
(29,000 |
) |
Other Income |
|
|
1,320,000 |
|
Interest and Debt Expense (net of AFUDC) |
|
|
941,000 |
|
|
|
|
|
Total (Decrease) |
|
$ |
(2,634,000 |
) |
The 1.0% decrease in Operating Revenues was primarily due to the following:
- |
|
a $947,000, or 2.4%, decrease in revenues from metered customers in 2006 due to decreased
customer water consumption of approximately 4.9%, due to unfavorable weather conditions,
despite an increase in the number of customers served of 1.8%; |
- |
|
off setting the decrease from metered revenues was a $439,000, or 5.1%, increase in
non-metered revenues which was primarily due to increased fire protection charges related to
the expansion of our water system which increased the number of fire hydrants and revenue
generating mains upon which these charges are based. |
30
The $2,591,000, or 10.9%, increase in Operation and Maintenance expense was primarily due to the
following expenses:
|
|
|
|
|
|
|
Increase |
|
|
|
(Decrease) |
|
Labor |
|
$ |
1,464,000 |
|
Other employee benefit costs |
|
|
1,142,000 |
|
Utility costs |
|
|
412,000 |
|
Pension expense |
|
|
254,000 |
|
Other outside services |
|
|
(486,000 |
) |
Legal services |
|
|
(185,000 |
) |
Maintenance |
|
|
(112,000 |
) |
Other |
|
|
102,000 |
|
|
|
|
|
Total Increase |
|
$ |
2,591,000 |
|
The increase in Labor over 2005 levels was due to a non-recurring wage adjustment for a majority of
hourly employees made early in 2006. Other employee benefits increased primarily due to increased
costs associated with medical benefits offered to employees and retirees of the Company. Utility
costs have increased as our power providers continue to increase the rates they charge to
customers. Offsetting these increases was a decrease to Other outside services due to a decrease
in audit fees and general consulting fees.
The decrease in Income Tax expense associated with the Water Activities segment of $462,000 was due
primarily to lower pre-tax net income in 2006, and by flow through accounting related to book/tax
timing differences.
The increase in Taxes Other Than Income Taxes was primarily due to increased payroll taxes related
to increased salaries.
The decrease in Other Utility Operating Income was due to a reduction of income generated from
antenna sites on our utility property leased to telecommunication companies.
The increase in Other Income was primarily due to the regulatory treatment of income taxes related
to certain compensation and directors fees (disallowed costs) based on the outcome of the Companys
Settlement Agreement issued by the DPUC in January 2007. This change resulted in a reversal of a
regulatory liability of $986,000.
The increase in Interest and Debt Expense was due to the following:
|
- |
|
Higher interest expense on long-term debt primarily due to the issuance of $15.0
million in new bonds in November 2005, resulting in a full years worth of expense in
2006 compared to a partial year in 2005; |
|
|
- |
|
Higher other interest charges on interim bank loans with higher interest rates; and |
|
|
- |
|
Amortization of the debt issuance costs of the bonds issued in 2005. |
31
Real Estate Transactions
The net income generated by the Real Estate Transactions segment increased $2,124,000, or $0.26 per
share, in 2006 due to the sale of land from BARLACO to the Town of Barnstable, Massachusetts during
2006. The agreement the Town of Barnstable entered into with the Company to purchase Barnstable
Waters assets also included a provision whereby the Town of Barnstable would acquire, through a
bargain sale purchase, all of the land owned by BARLACO for an additional $1 million. The BARLACO
land was sold in February 2006. The Company recorded a gain on the bargain land sale for 2006 of
$980,000. This gain is reported on the Gain (Loss) on Property Transactions line of the
Consolidated Statements of Income.
Additionally, the Company reversed $976,000 of reserves related to an examination by the IRS of the
Companys Federal Income Tax Returns for the years 2002 2004, which focused primarily on the
value of land donated by the Company. The IRS completed its examination in 2006 without adjustment
to the previously filed tax returns.
Income from this business segment is largely dependent on the tax deductions received on
donations/sales of available land. This typically occurs when utility-owned land is deemed to be
not necessary to protect water sources.
Services and Rentals
Net income generated from the Services and Rental segment in 2006 increased $52,000, over 2005
levels, with no impact on earnings per share. The increased net income was primarily due to
increases in the prices we charge our customers and in customer enrollment in our service line
maintenance program.
COMMITMENTS AND CONTINGENCIES
Security The Bioterrorism Response Act of 2001 required every public water system serving over
3,300 people to prepare Vulnerability Assessments (VA) of their critical utility assets. The last
of these assessments required to be filed by our companies were submitted to the U.S. Environmental
Protection Agency in June 2004 and was followed by updated Emergency Response Plans in December
2004, per statutory requirements. The information within the VA is not subject to release to the
public and is protected from Freedom of Information Act inquiries.
Investment in security-related improvements is a continuing process and management believes that
the costs associated with any such improvements will be eligible for recovery in future rate
proceedings.
Reverse Privatization Connecticut Water derives its rights and franchises to operate from state
laws that are subject to alteration, amendment or repeal, and do not grant permanent exclusive
rights to our service areas. Our franchises are free from burdensome restrictions, are unlimited
as to time, and authorize us to sell potable water in all towns we now serve. There is the
possibility that states could revoke our franchises and allow a governmental entity to take over
some or all of our systems. From time to time such legislation is contemplated.
Environmental and Water Quality Regulation The Company is subject to environmental and water
quality regulations. Costs to comply with environmental and water quality regulations
32
are substantial. We are presently in compliance with current regulations, but the regulations are
subject to change at any time. The costs to comply with future changes in state or federal
regulations, which could require us to modify current filtration facilities and/or construct new
ones, or to replace any reduction of the safe yield from any of our current sources of supply,
could be substantial.
Rate Relief Connecticut Water is a regulated public utility, which provides water services to its
customers. The rates that regulated companies charge their water customers are subject to the
jurisdiction of the regulatory authority of the DPUC.
In July 2006, the Company filed a rate application with the DPUC for Connecticut Water requesting
an increase in rates of approximately $14.6 million or 30%. On January 16, 2007, the DPUC issued
its final decision and approved a Settlement Agreement, negotiated with the Office of Consumer
Counsel and the DPUCs Prosecutorial Staff, that allowed Connecticut Water an increase of revenues
of approximately $10,940,000, or 22.3%. The Settlement Agreement allowed Connecticut Water to
defer a portion of the approved rate increase, approximately $3.8 million. The Company recognized
that increase through recording deferred revenues and a corresponding regulatory asset, as required
by the decision. Through December 31, 2007, the Company has recorded approximately $3.8 million in
deferred revenues. The second phase of the increase is expected to occur on April 1, 2008. On
January 31, 2008, the Company filed to reopen the case, a procedure required by the Settlement
Agreement, to implement the second phase. In addition to the approval for the inclusion in current
rates of the previously approved deferred revenues of $3.8 million, the filing includes requested
recovery of the costs associated with $15.5 million of additional capital investments made in 2007.
This portion of the second phase of the increase was also called for in the Settlement
Agreement.
The total increase associated with this second phase is a request of 12.6%, of which approximately
8.2% is for deferred revenues and 4.4% for the investment in additional capital in 2007.
Additionally, Connecticut Water agreed not to apply for a general rate increase that would become
effective prior to January 1, 2010.
A final decision on this second phase is expected by the end of March 2008.
In June 2007, the State of Connecticut adopted legislation which permits regulated water companies
to recapture money spent on eligible infrastructure improvements without a full rate case
proceeding. The DPUC may authorize regulated water companies to use a rate adjustment mechanism,
such as a Water Infrastructure and Conservation Adjustment (WICA), for eligible projects completed
and in service for the benefit of the customers. Regulated water companies may only charge
customers such an adjustment to the extent allowed by the DPUC based on a water companys
infrastructure assessment report, as approved by the DPUC and upon semiannual filings which reflect
plant additions consistent with such report. The Company does not expect to be able to take
advantage of the WICA mechanism until at least the first quarter of 2009.
In any future rate proceedings, the DPUC may authorize Connecticut Water to charge rates which the
DPUC considers to be sufficient to recover the normal operating expenses and to allow Connecticut
Water an opportunity to earn what the DPUC considers to be a fair and reasonable return on our
invested capital.
33
Land Dispositions The Company and its subsidiaries own additional parcels of land in Connecticut,
which may be suitable in the future for disposition, either by sale or by donation to
municipalities, other local governments or private charitable entities. These additional parcels
would include certain Class I and II parcels previously identified for long term conservation by
the Connecticut DEP, which have restrictions on development and resale based on provisions of the
Connecticut General Statutes.
In previous years, the Company generated a substantial portion of its net income in land donations
and sales. However, land donations are not expected to generate income at historical levels in
future periods. The Company plans to continue to utilize land donations and sales in 2008 to
generate income for this segment of our business.
Capital Expenditures The Company has received approval from its Board of Directors to spend $18.4
million on capital expenditures in 2008.
FORWARD LOOKING INFORMATION
This report, including managements discussion and analysis, contains certain forward-looking
statements regarding the Companys results of operations and financial position. These forward
looking statements are based on current information and expectations, and are subject to risks and
uncertainties, which could cause the Companys actual results to differ materially from expected
results.
Regulated water companies, including Connecticut Water, are subject to various federal and state
regulatory agencies concerning water quality and environmental standards. Generally, the water
industry is materially dependent on the adequacy of approved rates to allow for a fair rate of
return on the investment in utility plant. The ability to maintain our operating costs at the
lowest possible level, while providing good quality water service, is beneficial to customers and
stockholders. Profitability is also dependent on the timeliness of rate relief to be sought from,
and granted by, the DPUC, when necessary, and numerous factors over which we have little or no
control, such as the quantity of rainfall and temperature, customer demand and related conservation
efforts, financing costs, energy rates, tax rates, and stock market trends which may affect the
return earned on pension assets, and compliance with environmental and water quality regulations.
From time to time, the Company may acquire other regulated and/or unregulated water companies.
Profitability is often dependent on identification and consummation of business acquisitions and
the profitable integration of these acquired businesses into the Companys operations. The
profitability of our other revenue sources is subject to the amount of land we have available for
sale and/or donation, the demand for the land, the continuation of the current state tax benefits
relating to the donation of land for open space purposes, regulatory approval of land dispositions,
the demand for telecommunications antenna site leases and the successful extensions and expansion
of our service contract work. We undertake no obligation to update or revise forward-looking
statements, whether as a result of new information, future events, or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary market risk faced by the Company is interest rate risk. As of December 31, 2007, the
Company had no exposure to derivative financial instruments or financial instruments with
34
significant credit risk or off-balance-sheet risks. In addition, the Company is not subject in any
material respect to any currency or other commodity risk.
The Company is subject to the risk of fluctuating interest rates in the normal course of business.
The Companys exposure to interest fluctuations is managed at the Company and subsidiary operations
levels through the use of a combination of fixed rate long-term debt (and variable rate borrowings)
under financing arrangements entered into by the Company and its subsidiaries and the use of the
interest rate swap agreement discussed below. The Company has $21,000,000 current lines of credit
with three banks, under which interim bank loans payable at December 31, 2007 were $6,459,000.
During the first quarter of 2004, Connecticut Water entered into a five-year interest rate swap
transaction in connection with the refunding of its First Mortgage Bonds (Series V). The swap
agreement provides for Connecticut Waters exchange of floating rate interest payment obligations
for fixed rate interest payment obligations on a notional principal amount of $12,500,000. The
purpose of the interest rate swap is to manage the Companys exposure to fluctuations in prevailing
interest rates. See the Liquidity and Capital Resources section of Item 7 Managements
Discussion and Analysis and Results of Operations above for further information. The Company does
not enter into derivative financial contracts for trading or speculative purposes and does not use
leveraged instruments.
Management believes that changes in interest rates will not have a material effect on income or
cash flow during 2008, although there can be no assurances that interest rates will not
significantly change.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of Connecticut Water Service, Inc., and the Notes to
Consolidated Financial Statements together with the report of PricewaterhouseCoopers LLP,
independent registered public accounting firm are included herein on pages F-2 through F-27.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures As of December 31, 2007, management, including the Companys
Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and
operation of the Companys disclosure controls and procedures (as defined in Exchange Act Rule
13a-15(e)). Based upon, and as of the date of that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Companys disclosure controls and procedures were
effective.
Managements Report on Internal Control Over Financial Reporting Internal control over financial
reporting (as defined in Exchange Act Rule 13a-15(f)) is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of
35
financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America.
Management of the Company is responsible for establishing and maintaining adequate internal control
over financial reporting. We have used the criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
conducting our evaluation of the effectiveness of the internal control over financial reporting.
Based on our evaluation, we concluded that the Companys internal control over financial reporting
was effective as of December 31, 2007. The effectiveness of the Companys internal control over
financial reporting as of December 31, 2007 has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which appears herein.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control Over Financial Reporting There were no changes in the Companys
internal control over financial reporting that occurred during the Companys most recent fiscal
quarter that have materially affected, or are reasonably likely to materially affect, the Companys
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None
PART III
Pursuant to General Instruction G(3), the information called for by Items 10, (except for
information concerning the executive officers of the Company) 11, 12, 13 and 14 is hereby
incorporated by reference to the Companys definitive proxy statement to be filed on EDGAR on or
about March 31, 2008. Certain information concerning the executive officers of the Company is
included as Item 10 of this report.
36
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The following is a list of the executive officers of the Company:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Age in |
|
|
|
|
|
Period Held or |
|
Term of Office |
|
Name |
|
2008* |
|
Office |
|
Prior Position |
|
Expires |
|
E. W. Thornburg |
|
|
47 |
|
|
President, Chief |
|
Held position since |
|
2008 Annual Meeting |
|
|
|
|
|
|
Executive Officer |
|
March 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D. C. Benoit |
|
|
51 |
|
|
Vice President - |
|
Held current |
|
2008 Annual Meeting |
|
|
|
|
|
|
Finance, Chief |
|
position or other |
|
|
|
|
|
|
|
|
|
|
Financial Officer |
|
executive position |
|
|
|
|
|
|
|
|
|
|
and Treasurer |
|
with the Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
since April 1996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T. P. ONeill |
|
|
53 |
|
|
Vice President - |
|
Held current |
|
2008 Annual Meeting |
|
|
|
|
|
|
Operations & |
|
position or other |
|
|
|
|
|
|
|
|
|
|
Engineering |
|
engineering |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
position with the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company since |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 1980 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
M. P. Westbrook |
|
|
49 |
|
|
Vice President - |
|
Held current |
|
2008 Annual Meeting |
|
|
|
|
|
|
Administration and |
|
position or other |
|
|
|
|
|
|
|
|
|
|
Government Affairs |
|
management position |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
with the Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
since September |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1988 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
T. R. Marston |
|
|
55 |
|
|
Vice President - |
|
Held current |
|
2008 Annual Meeting |
|
|
|
|
|
|
Business |
|
position or other |
|
|
|
|
|
|
|
|
|
|
Development |
|
position with the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company since June |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D. J. Meaney |
|
|
47 |
|
|
Corporate Secretary |
|
Held current |
|
2008 Annual Meeting |
|
|
|
|
|
|
|
|
|
|
position or other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
communications |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
position with the |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company since |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
August 1994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
K. A. Johnson |
|
|
41 |
|
|
Vice President - |
|
Held current |
|
2008 Annual Meeting |
|
|
|
|
|
|
Human Resources |
|
position or other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
human resources |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
position with the Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
since May 2007 |
|
|
|
|
|
|
|
|
* |
|
- Age shown is as of filing date of March 17, 2008. |
For further information regarding the executive officers see the Companys Proxy Statement dated
March 31, 2008.
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
38
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) |
1. |
|
Financial Statements: |
|
|
|
|
The report of independent registered public accounting firm and the Companys
Consolidated Financial Statements listed in the Index to Consolidated Financial
Statements on page F-1 hereof are filed as part of this report, commencing on page F-2. |
|
|
|
|
|
|
|
|
|
Page |
|
|
Index to Consolidated Financial Statements and Schedule
|
|
F-1 |
|
|
|
|
|
|
|
Report of Independent Registered Public
Accounting Firm
|
|
F-2 |
|
|
|
|
|
|
|
Consolidated Statements of Income for the years
Ended December 31, 2007, 2006, and 2005
|
|
F-3 |
|
|
|
|
|
|
|
Consolidated Statements of Comprehensive Income
for the years ended December 31, 2007, 2006, and 2005
|
|
F-3 |
|
|
|
|
|
|
|
Consolidated Balance Sheets at December 31, 2007
and 2006
|
|
F-4 |
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the
years ended December 31, 2007, 2006, and 2005
|
|
F-5 |
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
|
F-6 |
|
|
|
|
|
2.
|
|
Financial Statement Schedule: |
|
|
|
|
|
|
|
|
|
The following schedule of the Company is included on the
attached page as indicated: |
|
|
|
|
|
|
|
|
|
Schedule II Valuation and Qualifying Accounts
and Reserves for the years ended December 31,
2007, 2006, and 2005
|
|
S-1 |
|
|
|
|
|
|
|
All other schedules provided for in the applicable
regulations of the Securities and Exchange Commission have
been omitted because of the absence of conditions under
which they are required or because the required information
is set forth in the financial statements or notes thereto. |
|
|
39
|
|
|
|
|
|
|
Exhibits for Connecticut Water Service, Inc. are in the
Index to Exhibits
|
|
E-1 |
|
|
|
|
|
|
|
Exhibits heretofore filed with the Securities and
Exchange Commission as indicated below are
incorporated herein by reference and made a part
hereof as if filed herewith. Exhibits marked by
asterisk (*) are being filed herewith. |
|
|
F-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
|
|
|
|
|
|
|
Page |
|
|
|
|
F-1 |
|
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
S-1 |
|
F-2
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Connecticut Water Service, Inc.:
In our opinion, the accompanying consolidated balance sheets and the related consolidated
statements of income, of cash flows and of comprehensive income present fairly, in all material
respects, the financial position of Connecticut Water Service, Inc. and its subsidiaries (the
Company) at December 31, 2007 and 2006, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2007 in conformity with accounting
principles generally accepted in the United States of America. In
addition, in our opinion, the financial statement schedule listed in
the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. Also in our opinion, the Company
maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys
management is responsible for these financial statements and
financial statement schedule, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal control
over financial reporting, included in the accompanying Managements Report on Internal Control
over Financial Reporting. Our responsibility is to express opinions
on these financial statements, on the financial statement schedule, and on the Companys internal control over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material misstatement and
whether effective internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included 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. Our audit of internal control over financial reporting included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal
control based on the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the companys assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
Stamford, Connecticut
March 17, 2008
F-3
Connecticut Water Service, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, (in thousands, except per share data) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Operating Revenues |
|
$ |
59,026 |
|
|
$ |
46,945 |
|
|
$ |
47,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Operation and Maintenance |
|
|
29,864 |
|
|
|
26,451 |
|
|
|
23,860 |
|
Depreciation |
|
|
6,525 |
|
|
|
5,881 |
|
|
|
5,724 |
|
Income Taxes |
|
|
4,195 |
|
|
|
2,055 |
|
|
|
2,517 |
|
Taxes Other Than Income Taxes |
|
|
5,740 |
|
|
|
5,575 |
|
|
|
5,385 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses |
|
|
46,324 |
|
|
|
39,962 |
|
|
|
37,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Operating Revenues |
|
|
12,702 |
|
|
|
6,983 |
|
|
|
9,967 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Utility Income, Net of Taxes |
|
|
552 |
|
|
|
542 |
|
|
|
571 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Utility Operating Income |
|
|
13,254 |
|
|
|
7,525 |
|
|
|
10,538 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Deductions), Net of Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
Gain (Loss) on Real Estate Transactions |
|
|
167 |
|
|
|
2,063 |
|
|
|
(61 |
) |
Non-Water Sales Earnings |
|
|
651 |
|
|
|
515 |
|
|
|
463 |
|
Allowance for Funds Used During Construction |
|
|
92 |
|
|
|
458 |
|
|
|
521 |
|
Other |
|
|
(972 |
) |
|
|
608 |
|
|
|
(712 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Other (Deductions) Income, Net of Taxes |
|
|
(62 |
) |
|
|
3,644 |
|
|
|
211 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and Debt Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
Interest on Long-Term Debt |
|
|
3,500 |
|
|
|
3,526 |
|
|
|
2,929 |
|
Other Interest Charges |
|
|
537 |
|
|
|
514 |
|
|
|
294 |
|
Amortization of Debt Expense |
|
|
374 |
|
|
|
421 |
|
|
|
360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest and Debt Expenses |
|
|
4,411 |
|
|
|
4,461 |
|
|
|
3,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from Continuing Operations |
|
|
8,781 |
|
|
|
6,708 |
|
|
|
7,166 |
|
Discontinued Operations, Net of Tax of $(244) and $1,720
in 2006 and 2005, respectively |
|
|
|
|
|
|
243 |
|
|
|
3,158 |
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
|
8,781 |
|
|
|
6,951 |
|
|
|
10,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock Dividend Requirement |
|
|
38 |
|
|
|
38 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Income Applicable to Common Stock |
|
$ |
8,743 |
|
|
$ |
6,913 |
|
|
$ |
10,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Common Shares Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
8,270 |
|
|
|
8,188 |
|
|
|
8,094 |
|
Diluted |
|
|
8,333 |
|
|
|
8,237 |
|
|
|
8,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic Continuing Operations |
|
$ |
1.06 |
|
|
$ |
0.81 |
|
|
$ |
0.89 |
|
Basic Discontinued Operations |
|
|
|
|
|
|
0.03 |
|
|
|
0.38 |
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income Applicable to Common Stock |
|
$ |
1.06 |
|
|
$ |
0.84 |
|
|
$ |
1.27 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Continuing Operations |
|
$ |
1.05 |
|
|
$ |
0.81 |
|
|
$ |
0.88 |
|
Diluted Discontinued Operations |
|
|
|
|
|
|
0.03 |
|
|
|
0.38 |
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Income Applicable to Common Stock |
|
$ |
1.05 |
|
|
$ |
0.84 |
|
|
$ |
1.26 |
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, (in thousands) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Net Income Applicable to Common Stock |
|
$ |
8,743 |
|
|
$ |
6,913 |
|
|
$ |
10,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
Qualified cash flow hedging instrument net of tax of $(148), $(22),
and $129
in 2007, 2006, and 2005, respectively |
|
|
(222 |
) |
|
|
(45 |
) |
|
|
207 |
|
Adjustment to pension and post-retirement benefits other than pension, net of tax of $56 in 2007 |
|
|
143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
$ |
8,664 |
|
|
$ |
6,868 |
|
|
$ |
10,493 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Connecticut Water Service, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
December 31, (in thousands, except share amounts) |
|
2007 |
|
|
2006 |
|
ASSETS |
|
|
|
|
|
|
|
|
Utility Plant |
|
$ |
384,421 |
|
|
$ |
362,837 |
|
Construction Work in Progress |
|
|
1,407 |
|
|
|
2,755 |
|
|
|
|
|
|
|
|
|
|
|
385,828 |
|
|
|
365,592 |
|
Accumulated Provision for Depreciation |
|
|
(108,166 |
) |
|
|
(102,405 |
) |
|
|
|
|
|
|
|
Net Utility Plant |
|
|
277,662 |
|
|
|
263,187 |
|
|
|
|
|
|
|
|
Other Property and Investments |
|
|
6,652 |
|
|
|
4,905 |
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
|
|
337 |
|
|
|
1,377 |
|
Restricted Cash |
|
|
8,220 |
|
|
|
|
|
Accounts Receivable (Less Allowance, 2007 - $352; 2006 - $285) |
|
|
6,507 |
|
|
|
5,305 |
|
Accrued Unbilled Revenues |
|
|
4,545 |
|
|
|
4,233 |
|
Materials and Supplies, at Average Cost |
|
|
987 |
|
|
|
900 |
|
Prepayments and Other Current Assets |
|
|
2,375 |
|
|
|
2,335 |
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
22,971 |
|
|
|
14,150 |
|
|
|
|
|
|
|
|
Unamortized Debt Issuance Expense |
|
|
7,685 |
|
|
|
7,398 |
|
Unrecovered Income Taxes |
|
|
30,278 |
|
|
|
24,372 |
|
Post-Retirement Benefits Other Than Pension |
|
|
6,410 |
|
|
|
6,023 |
|
Goodwill |
|
|
3,608 |
|
|
|
3,608 |
|
Deferred Charges and Other Costs |
|
|
5,547 |
|
|
|
4,497 |
|
|
|
|
|
|
|
|
Total Regulatory and Other Long-Term Assets |
|
|
53,528 |
|
|
|
45,898 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
360,813 |
|
|
$ |
328,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CAPITALIZATION AND LIABILITIES |
|
|
|
|
|
|
|
|
Common Stockholders Equity: |
|
|
|
|
|
|
|
|
Common Stock Without Par Value: |
|
|
|
|
|
|
|
|
Authorized - 25,000,000 Shares Issued and Outstanding: 2007 8,376,842; 2006 8,270,394 |
|
$ |
62,808 |
|
|
$ |
60,165 |
|
Retained Earnings |
|
|
37,272 |
|
|
|
35,676 |
|
Accumulated Other Comprehensive Income |
|
|
18 |
|
|
|
97 |
|
|
|
|
|
|
|
|
Common Stockholders Equity |
|
|
100,098 |
|
|
|
95,938 |
|
Preferred Stock |
|
|
772 |
|
|
|
772 |
|
Long-Term Debt |
|
|
92,285 |
|
|
|
77,347 |
|
|
|
|
|
|
|
|
Total Capitalization |
|
|
193,155 |
|
|
|
174,057 |
|
|
|
|
|
|
|
|
Interim Bank Loans Payable |
|
|
6,459 |
|
|
|
5,250 |
|
Current Portion of Long-Term Debt |
|
|
7 |
|
|
|
7 |
|
Accounts Payable and Accrued Expenses |
|
|
5,984 |
|
|
|
6,048 |
|
Accrued Taxes |
|
|
1,316 |
|
|
|
464 |
|
Accrued Interest |
|
|
810 |
|
|
|
887 |
|
Other Current Liabilities |
|
|
337 |
|
|
|
314 |
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
14,913 |
|
|
|
12,970 |
|
|
|
|
|
|
|
|
Advances for Construction |
|
|
34,583 |
|
|
|
32,183 |
|
|
|
|
|
|
|
|
Contributions in Aid of Construction |
|
|
47,865 |
|
|
|
47,217 |
|
|
|
|
|
|
|
|
Deferred Federal and State Income Taxes |
|
|
28,616 |
|
|
|
26,002 |
|
|
|
|
|
|
|
|
Unfunded Future Income Taxes |
|
|
25,404 |
|
|
|
20,155 |
|
|
|
|
|
|
|
|
Long-Term Compensation Arrangements |
|
|
14,717 |
|
|
|
13,933 |
|
|
|
|
|
|
|
|
Unamortized Investment Tax Credits |
|
|
1,560 |
|
|
|
1,623 |
|
|
|
|
|
|
|
|
Commitments and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capitalization and Liabilities |
|
$ |
360,813 |
|
|
$ |
328,140 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Connecticut Water Service, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31, (in thousands) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
8,781 |
|
|
$ |
6,951 |
|
|
$ |
10,324 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Revenues |
|
|
(3,823 |
) |
|
|
|
|
|
|
|
|
Gain on Sale of BARLACO Assets Sold |
|
|
|
|
|
|
(980 |
) |
|
|
|
|
Earnings from Discontinued Operations |
|
|
|
|
|
|
(243 |
) |
|
|
(3,158 |
) |
Allowance for Funds Used During Construction |
|
|
(131 |
) |
|
|
(491 |
) |
|
|
(575 |
) |
Depreciation (including $338 in 2007, $396 in 2006,
and $188 in 2005 charged to other accounts) |
|
|
7,173 |
|
|
|
6,277 |
|
|
|
5,912 |
|
Change in Assets and Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
(Increase) Decrease in Accounts Receivable and Accrued Unbilled Revenues |
|
|
(1,513 |
) |
|
|
268 |
|
|
|
(342 |
) |
(Increase) Decrease in Other Current Assets |
|
|
(129 |
) |
|
|
(805 |
) |
|
|
2,600 |
|
Decrease (Increase) in Other Non-Current Items |
|
|
2,072 |
|
|
|
(549 |
) |
|
|
(556 |
) |
Increase (Decrease) in Accounts Payable, Accrued
Expenses and Other Current Liabilities |
|
|
1,258 |
|
|
|
690 |
|
|
|
(3,603 |
) |
Increase (Decrease) in Deferred Income Taxes and
Investment Tax Credits, Net |
|
|
1,893 |
|
|
|
(1,492 |
) |
|
|
2,332 |
|
|
|
|
|
|
|
|
|
|
|
Total Adjustments |
|
|
6,800 |
|
|
|
2,675 |
|
|
|
2,610 |
|
|
|
|
|
|
|
|
|
|
|
Net Cash and Cash Equivalents Provided by Continuing Operations |
|
|
15,581 |
|
|
|
9,626 |
|
|
|
12,934 |
|
Net Cash and Cash Equivalents Provided by (Used In) Discontinued Operations |
|
|
|
|
|
|
243 |
|
|
|
(185 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash and Cash Equivalents Provided by Operating Activities |
|
|
15,581 |
|
|
|
9,869 |
|
|
|
12,749 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Company Financed Additions to Utility Plant |
|
|
(18,749 |
) |
|
|
(16,199 |
) |
|
|
(14,256 |
) |
Advances from Others for Construction |
|
|
(961 |
) |
|
|
(1,102 |
) |
|
|
(1,955 |
) |
|
|
|
|
|
|
|
|
|
|
Net Additions to Utility Plant Used in Continuing Operations |
|
|
(19,710 |
) |
|
|
(17,301 |
) |
|
|
(16,211 |
) |
Release of Restricted Cash |
|
|
|
|
|
|
2,686 |
|
|
|
|
|
Proceeds from Sale of BARLACO Assets Sold (Net of $35 in Transaction Costs) |
|
|
|
|
|
|
965 |
|
|
|
|
|
Proceeds from Sale of Barnstable Water Company Assets (Net of $114 in Transaction Costs) |
|
|
|
|
|
|
|
|
|
|
9,885 |
|
Sale (Purchase) of Short Term Investments |
|
|
|
|
|
|
6,922 |
|
|
|
(6,713 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash and Cash Equivalents Used in Investing Activities in Continuing Operations |
|
|
(19,710 |
) |
|
|
(6,728 |
) |
|
|
(13,039 |
) |
Net Cash and Cash Equivalents Used in Investing Activities in Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
(171 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash Used in Investing Activities |
|
|
(19,710 |
) |
|
|
(6,728 |
) |
|
|
(13,210 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net Proceeds from Interim Bank Loans |
|
|
6,459 |
|
|
|
5,250 |
|
|
|
4,750 |
|
Net Repayment of Interim Bank Loans |
|
|
(5,250 |
) |
|
|
(4,750 |
) |
|
|
(5,650 |
) |
Repayment of Long-Term Debt Including Current Portion |
|
|
(62 |
) |
|
|
(2,381 |
) |
|
|
(665 |
) |
Proceeds from Issuance of Long-Term Debt |
|
|
6,482 |
|
|
|
|
|
|
|
12,282 |
|
Proceeds from Issuance of Common Stock |
|
|
1,238 |
|
|
|
1,401 |
|
|
|
2,038 |
|
Proceeds from Exercise of Stock Options |
|
|
809 |
|
|
|
284 |
|
|
|
455 |
|
Redemption of Preferred Stock |
|
|
|
|
|
|
(75 |
) |
|
|
|
|
Costs Incurred to Issue Long-Term Debt and Common Stock |
|
|
(367 |
) |
|
|
(4 |
) |
|
|
(934 |
) |
Advances from Others for Construction |
|
|
961 |
|
|
|
1,102 |
|
|
|
1,955 |
|
Cash Dividends Paid |
|
|
(7,181 |
) |
|
|
(7,030 |
) |
|
|
(6,838 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash and Cash Equivalents Provided by (Used in)
Financing Activities in Continuing Operations |
|
|
3,089 |
|
|
|
(6,203 |
) |
|
|
7,393 |
|
Net Cash and Cash Equivalents Used in Financing Activities in Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
(3,200 |
) |
|
|
|
|
|
|
|
|
|
|
Net Cash and Cash Equivalents Provided by (Used in) Financing Activites |
|
|
3,089 |
|
|
|
(6,203 |
) |
|
|
4,193 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (Decrease) Increase in Cash and Cash Equivalents |
|
|
(1,040 |
) |
|
|
(3,062 |
) |
|
|
3,732 |
|
Cash and Cash Equivalents at Beginning of Year |
|
|
1,377 |
|
|
|
4,439 |
|
|
|
707 |
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Year |
|
$ |
337 |
|
|
$ |
1,377 |
|
|
$ |
4,439 |
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Investing and Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Contributed Utility Plant (see Note 1 for details) |
|
$ |
2,116 |
|
|
$ |
3,295 |
|
|
$ |
1,231 |
|
Short-term Investment of Bond Proceeds Held in Trust |
|
$ |
8,220 |
|
|
$ |
|
|
|
$ |
2,628 |
|
Supplemental Disclosures of Cash Flow Information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid for Continuing Operations During the Year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
4,398 |
|
|
$ |
4,159 |
|
|
$ |
3,511 |
|
State and Federal Income Taxes |
|
$ |
2,096 |
|
|
$ |
1,176 |
|
|
$ |
3,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Paid for Discontinued Operations During the Year for: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
$ |
|
|
|
$ |
|
|
|
$ |
106 |
|
State and Federal Income Taxes |
|
$ |
|
|
|
$ |
73 |
|
|
$ |
410 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements include the operations of Connecticut
Water Service, Inc. (the Company), an investor-owned holding company and its four wholly-owned
subsidiaries, listed below:
The Connecticut Water Company (Connecticut Water)
Chester Realty, Inc. (Chester Realty)
New England Water Utility Services, Inc. (NEWUS)
Barnstable Holding Company (Barnstable Holding)
Connecticut Water is our sole public water utility company, which served 84,418 customers in 41
towns throughout Connecticut as of December 31, 2007. During 2006, The Crystal Water Company of
Danielson (Crystal) and The Unionville Water Company (Unionville)
subsidiaries were merged with and into
Connecticut Water.
Chester Realty is a real estate company whose net profits from rental of property are included in
the Other Income (Deductions), Net of Taxes section of the Consolidated Statements of Income in the
Non-Water Sales Earnings category.
NEWUS is engaged in water-related services, including the Linebackerâ program, emergency
drinking water, pool water and contract operations. Its earnings are included in the Non-Water
Sales Earnings category the Consolidated
Statements of Income.
Barnstable Holding is an inactive holding company, which previously owned the stock of two other
inactive companies, Barnstable Water Company (Barnstable Water) and BARLACO, Inc. (BARLACO) prior
to their merger with and into Barnstable Holding. BARLACO was a real estate company which held
real estate for sale. In February 2006, BARLACO sold all of its real estate holdings to the Town
of Barnstable, as disclosed in Note 2.
Intercompany accounts and transactions have been eliminated.
PUBLIC UTILITY REGULATION - Our public water utility company is subject to regulation for rates and
other matters by the Connecticut Department of Public Utility Control (DPUC) and follows accounting
policies prescribed by the DPUC. The Company prepares its financial statements in accordance with
accounting principles generally accepted in the United States of America (GAAP), which includes
the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects
of Certain Types of Regulation, (SFAS 71). SFAS 71 requires cost-based, rate-regulated
enterprises, such as Connecticut Water, to reflect the impact of regulatory decisions in their
financial statements. The state regulators, through the rate regulation process, can create
regulatory assets that result when costs are allowed for ratemaking purposes in a period after the
period in which the costs would be charged to expense by an unregulated enterprise. The balance
sheets include regulatory assets and liabilities as appropriate, primarily related to income taxes
and post-retirement benefit costs. In accordance with SFAS 71, costs which benefit future periods,
such as tank painting, are expensed over the periods they benefit. The Company believes, based on
current regulatory circumstances, that the regulatory assets recorded are likely to be recovered
and that its use of regulatory accounting is appropriate and in accordance with the provisions of
SFAS 71. Material regulatory assets are earning a return.
Regulatory assets and liabilities are comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
(in thousands) |
|
2007 |
|
|
2006 |
|
Assets |
|
|
|
|
|
|
|
|
Postretirement benefits |
|
$ |
6,136 |
|
|
$ |
8,317 |
|
Unrecovered
income taxes and other |
|
|
25,404 |
|
|
|
20,155 |
|
Deferred
revenue (included in deferred charges) |
|
|
3,823 |
|
|
|
|
|
Other
(included in deferred charges) |
|
|
1,806 |
|
|
|
1,819 |
|
|
|
|
|
|
|
|
|
|
$ |
37,169 |
|
|
$ |
30,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Investment Tax Credits |
|
$ |
1,560 |
|
|
$ |
1,623 |
|
Unfunded
future income taxes and other |
|
|
25,404 |
|
|
|
20,155 |
|
|
|
|
|
|
|
|
|
|
$ |
26,964 |
|
|
$ |
21,778 |
|
|
|
|
|
|
|
|
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-7
Postretirement
benefits include pension and other postretirement benefit costs. The costs
include actuarially determined pension and post-retirement benefit costs in excess of amounts funded.
Connecticut Water believes these costs will be
recoverable in future years, through rates, as funding is required. The recovery period is dependent
on contributions made to the plans and the discount rate used to value the obligations.
Certain items giving rise to deferred state income taxes, as well as a portion of deferred federal
income taxes related primarily to differences between book and tax depreciation expense, are
recognized for ratemaking purposes on a cash or flow-through basis and will be recovered in rates
as they reverse.
Deferred
revenue
represents a portion of the rate increase granted in Connecticut
Waters 2007 rate decision. The regulators decision
required the Company to defer for future collection, beginning in
2008, a portion of the increase.
Regulatory
liabilities include deferred investment tax credits. These liabilities will be
given back to customers in rates as tax deductions occur in the
future.
USE OF ESTIMATES - The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the reporting period. Actual
results could differ from these estimates.
REVENUES - The Companys accounting policies regarding revenue recognition by segment are as
follows:
Water Activities - Most of our water customers are billed quarterly, with the exception of
larger commercial and industrial customers, as well as public and private fire protection
customers who are billed monthly. Most customers, except fire protection customers, are
metered. Revenues from metered customers are based on their water usage multiplied by approved,
regulated rates and are earned when water is delivered. Public fire protection revenues are
based on the length of the water main, and number of hydrants in service and are earned on a
monthly basis. Private fire protection charges are based on the diameter of the connection to
the water main. Our water companies accrue an estimate for metered customers for the amount of
revenues earned relating to water delivered but unbilled at the end of each quarter, which is
reflected as Accrued Unbilled Revenues in the accompanying balance sheets.
Real Estate Transactions - Revenues are recorded when a sale or other transaction has been
completed and title to the real estate has been transferred.
Services and Rentals - Revenues are recorded when the Company has delivered the services called
for by contractual obligation.
UTILITY PLANT - Utility plant is stated at the original cost of such property when first devoted to
public service. Utility plant accounts are charged with the cost of improvements and replacements
of property including an allowance for funds used during construction. Retired or disposed of
depreciable plant is charged to accumulated provision for depreciation together with any costs
applicable to retirement, less any salvage received. Maintenance of utility plant is charged to
expense. Accounting policies relating to other areas of utility plant are listed below:
Allowance For Funds Used During Construction Allowance for Funds Used During Construction
(AFUDC) is the cost of debt and equity funds used to finance the construction of utility plant.
The amount shown on the Consolidated Statements of Income relates to the equity portion. The
debt portion is included as an off set to Other Interest Charges. Generally, utility plant
under construction is not recognized as part of rate base for ratemaking purposes until
facilities are placed into service, and accordingly, AFUDC is charged to the construction cost
of utility plant. Capitalized AFUDC, which does not represent current cash income, is recovered
through rates over the service lives of the facilities.
In order for certain water system acquisitions made in and after 1995 to not degrade earnings,
Connecticut Water has received DPUC approval to record AFUDC on certain of its investments in
these systems. Through December 31, 2006, Connecticut Water has capitalized approximately $3.9
million of AFUDC relating to financing these acquisitions. As part of the Companys most recent
rate decision, approved on January 16, 2007 and effective as of January 1, 2007, the DPUC has
approved the inclusion of this capitalized amount in rate base. The Company did not record any
AFUDC on water system acquisitions in 2007.
Connecticut Waters allowed rate of return on rate base is used to calculate its AFUDC.
Customers Advances For Construction, Contributed Plant and Contributions In Aid Of Construction
-Under the terms of construction contracts with real estate developers and others, Connecticut
Water periodically receives either advances for the costs of new main installations or title to
the main after it is constructed and
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-8
financed by the developer. Refunds are made, without interest, as services are connected to the
main, over periods not exceeding fifteen years and not in excess of the original advance.
Unrefunded balances, at the end of the contract period, are credited to contributions in aid of
construction (CIAC) and are no longer refundable.
Utility Plant is added in two ways. The majority of the Companys plant additions occur from
direct investment of Company funds that originated through operating activities or financings. The
Company manages the construction of these plant additions. These plant additions are part of the
Companys depreciable utility plant and are generally part of rate base. The Companys rate base
is a key component of how its regulated rates are set, and is recovered through the depreciation
component of the Companys rates. The second way in which plant additions occur are through
developer advances and contributions. Under this scenario either the developer funds the additions
through payments to the Company, who in turn manages the construction of the project, or the
developer pays for the plant construction directly and contributes the asset to the Company after
it is complete. Plant additions that are financed by a developer, either directly or indirectly,
are excluded from the Companys rate base and not recovered through the rates process, and are also
not depreciated.
The components that comprise Net Additions to Utility Plant during the last three years are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Additions to Utility Plant: |
|
|
|
|
|
|
|
|
|
|
|
|
Company Financed |
|
$ |
18,749 |
|
|
$ |
16,199 |
|
|
$ |
14,256 |
|
Allowance for Funds Used During Construction |
|
|
131 |
|
|
|
491 |
|
|
|
575 |
|
|
|
|
|
|
|
|
|
|
|
Subtotal Utility Plant Increase to Rate Base |
|
|
18,880 |
|
|
|
16,690 |
|
|
|
14,831 |
|
Advances from Others for Construction |
|
|
961 |
|
|
|
1,102 |
|
|
|
1,955 |
|
|
|
|
|
|
|
|
|
|
|
Net Additions to Utility Plant Continuing
Operations |
|
|
19,841 |
|
|
|
17,792 |
|
|
|
16,786 |
|
Plus: Discontinued Operations |
|
|
|
|
|
|
|
|
|
|
171 |
|
|
|
|
|
|
|
|
|
|
|
Net Additions to Utility Plant |
|
$ |
19,841 |
|
|
$ |
17,792 |
|
|
$ |
16,957 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation - Depreciation is computed on a straight-line basis at various rates as approved by
the state regulator on a company by company basis. Depreciation allows the Company to recover
the investment in utility plant over its useful life. The overall consolidated company
depreciation rate, based on the average balances of depreciable property, was 2.0% for 2007,
2006, and 2005.
INCOME TAXES - The Company provides income tax expense for its utility operations in accordance
with the regulatory accounting policies of the applicable jurisdictions. The Connecticut DPUC
requires the flow-through method of accounting for most state tax temporary differences as well as
for certain federal temporary differences.
The Company computed deferred tax liabilities for all temporary book-tax differences using the
liability method prescribed in Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under the liability method, deferred income taxes are recognized at currently
enacted income tax rates to reflect the tax effect of temporary differences between the financial
reporting and tax bases of assets and liabilities. Such temporary differences are the result of
provisions in the income tax law that either require or permit certain items to be reported on the
income tax return in a different period than they are reported in the financial statements.
Deferred tax liabilities that have not been reflected in tax expense due to regulatory treatment
are reflected as Unfunded Future Income Taxes, and are expected to be recoverable in future years
rates.
The Company believes that all deferred income tax assets will be realized in the future. The
majority of all unfunded future income taxes relate to deferred state income taxes.
Deferred Federal Income Taxes consist primarily of amounts that have been provided for accelerated
depreciation subsequent to 1981, as required by federal income tax regulations. Deferred taxes
have also been provided for temporary differences in the recognition of certain expenses for tax
and financial statement purposes as allowed by DPUC ratemaking policies.
The
Company adopted FIN 48 Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109
in 2007. See Note 4.
MUNICIPAL TAXES - Municipal taxes which are reflected as Taxes Other than Income Taxes are
generally expensed over the twelve-month period beginning on July 1 following the lien date,
corresponding with the period in which the municipal services are provided.
STOCK OPTIONS - In the past, the Company has issued stock options to certain employees; but has not
done so since 2003. For more information regarding stock based compensation, please see Note 14,
Stock Based Compensation Plans.
UNAMORTIZED DEBT ISSUANCE EXPENSE - The issuance costs of long-term debt, including the remaining
balance of issuance costs on long-term debt issues that have been refinanced prior to maturity, and
related call premiums, are amortized over the respective lives of the outstanding debt, as approved
by the state regulator.
GOODWILL - As part of the purchase of the Unionville Water Company in October 2002, the Company
recorded goodwill of $3.6 million representing the amount of the purchase price over net book value
of the assets acquired. The Company accounts for goodwill in accordance with Statement of
Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142).
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-9
In accordance with SFAS 142, goodwill must be allocated to reporting units and reviewed for
impairment at least annually. The Company utilized a net income valuation approach in the
performance of the annual goodwill impairment test. As of December 31, 2007, there was no
impairment of the Companys goodwill.
EARNINGS PER SHARE The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share for the years ended December 31, 2007, 2006, and 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Basic Earnings per Share from Continuing
Operations |
|
$ |
1.06 |
|
|
$ |
0.81 |
|
|
$ |
0.89 |
|
Dilutive Effect of Stock Awards |
|
|
0.01 |
|
|
|
|
|
|
|
0.01 |
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share |
|
$ |
1.05 |
|
|
$ |
0.81 |
|
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
Numerator (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic Income from Continuing Operations |
|
$ |
8,781 |
|
|
$ |
6,708 |
|
|
$ |
7,166 |
|
Diluted Income from Continuing Operations |
|
$ |
8,781 |
|
|
$ |
6,708 |
|
|
$ |
7,166 |
|
Denominator (in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
Basic Weighted Average Shares Outstanding |
|
|
8,270 |
|
|
|
8,188 |
|
|
|
8,094 |
|
Dilutive Effect of Stock Awards |
|
|
63 |
|
|
|
49 |
|
|
|
49 |
|
|
|
|
|
|
|
|
|
|
|
Diluted Weighted Average Shares Outstanding |
|
|
8,333 |
|
|
|
8,237 |
|
|
|
8,143 |
|
|
|
|
|
|
|
|
|
|
|
RECLASSIFICATIONS AND REVISIONS Certain reclassifications have been made to conform previously
reported data to the current presentation. Included in these
reclassifications are amounts for deferred income tax liabilities and
regulatory assets.
NEW ACCOUNTING PRONOUNCEMENTS - In September 2006, the FASB issued Statement of Financial
Accounting Standards No. 157, Fair Value Measurement (SFAS 157). SFAS 157 provides guidance for
using fair value to measure assets and liabilities. This statement clarifies the principle that
fair value should be based on the assumptions that market participants would use when pricing the
asset or liability. SFAS 157 establishes a fair value hierarchy, giving the highest priority to
quoted prices in active markets and the lowest priority to unobservable data. SFAS 157 applies
whenever other standards require assets or liabilities to be measured at fair value. SFAS 157 also
provides for certain disclosure requirements, including, but not limited to, the valuation
techniques used to measure fair value and a discussion of changes in valuation techniques, if any,
during the period. This statement is effective in fiscal years beginning after November 15, 2007,
except for nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at
fair value on a recurring basis, for which the effective date is fiscal years beginning after
November 15, 2008. The Company is currently evaluating the
impact of adopting SFAS 157 and believes
that the adoption of this standard will not have a material effect on its financial position and
results of operations.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, Fair Value
Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement
No. 115 (SFAS 159), which gives entities the option to measure eligible financial assets,
financial liabilities and firm commitments at fair value on an instrument-by-instrument basis, that
are otherwise not permitted to be accounted for at fair value under other accounting standards. The
election to use the fair value option is available when an entity first recognizes a financial
asset or financial liability or upon entering into a firm commitment. Subsequent changes (i.e.,
unrealized gains and losses) in fair value must be recorded in earnings. Additionally, SFAS 159
allows for a one-time election for existing positions upon adoption, with the transition adjustment
recorded to beginning retained earnings. This statement is effective for fiscal years beginning
after November 15, 2007. The Company is currently assessing the potential impact that the adoption
of SFAS 159 will have on its financial position and results of operations.
In December, 2007, the FASB issued Statement of Financial Accounting Standards No. 141 (Revised
2007) Business Combinations (SFAS 141(R)), which establishes principles and requirements for how
the acquirer shall recognize and measure in its financial statements the identifiable assets
acquired, liabilities assumed, any noncontrolling interest in the acquiree and goodwill acquired in
a business combination. This statement is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. The Company is currently assessing the potential impact that the adoption
of SFAS 141(R) will have on its financial position and results of operations.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 160,
Noncontrolling Interests in Consolidated Financial Statements an Amendment of ARB No. 51 (SFAS
160), which establishes and expands accounting and reporting standards for minority interests,
which will be recharacterized as noncontrolling interests, in a subsidiary and the deconsolidation
of a subsidiary. SFAS 160 is effective for business combinations for which the
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-10
acquisition date is on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. This statement is effective for fiscal years beginning on or after
December 15, 2008. The Company is currently assessing the potential impact that the adoption of
SFAS 160 will have on its financial position and results of operations.
NOTE 2: SALE OF BARNSTABLE WATER COMPANY ASSETS DISCONTINUED OPERATIONS
On May 20, 2005, the Company completed the sale of the assets of one of its Massachusetts
subsidiaries, Barnstable Water, to the Town of Barnstable, Massachusetts. Upon completion of the
sale, the Town of Barnstable and Barnstable Water entered into a one year management contract for
Barnstable Water to provide the Town with full operating and management services for the water
systems operations. Under the terms of the one year management contract, Barnstable Water was
paid $130,000 a month for operating and management services performed by Barnstable Water for the
Town of Barnstable. This management contract could be terminated within the 12 month period by 30
days written notice by either party. In January 2006, the Company received notice of termination.
The last day of the operating contract was February 7, 2006.
The Company received $10.0 million in gross proceeds from the sale of its water utility assets,
advances, and contributions in aid of construction. The gain, net of income taxes of $1.6 million
was $3.0 million in 2005 and has been included in Net Income from Discontinued Operations.
The sale of Barnstable Waters assets has been classified as Discontinued Operations in the
Consolidated Statements of Income as there will be no continuing involvement due to the termination
of the management contract with the Town of Barnstable. All of the results of Barnstable Water,
including current and prior years and the gain on the sale of the utilitys assets, have been
reclassified and are included as Discontinued Operations.
There were no Discontinued Operations during the year ending December 31, 2007. The Net Income
from Discontinued Operations for the years ending December 31,
2006 and 2005 would have been presented in the 2006 and 2005
financial statements, as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
(in thousands) |
|
2006 |
|
|
2005 |
|
Water Activities: |
|
|
|
|
|
|
|
|
Operating Revenues |
|
$ |
|
|
|
$ |
802 |
|
Income Taxes |
|
|
(244 |
) |
|
|
( 9 |
) |
Net Income from Water Activites |
|
|
243 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
Services and Rentals: |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
|
|
|
$ |
1,067 |
|
Income Taxes |
|
|
(12 |
) |
|
|
132 |
|
Net Income from Services and Rentals |
|
|
|
|
|
|
213 |
|
|
|
|
|
|
|
|
|
|
Gain on Sale of Assets: |
|
|
|
|
|
|
|
|
Income Taxes |
|
$ |
|
|
|
$ |
1,597 |
|
Gain on Sale of Assets |
|
|
|
|
|
|
2,956 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Income from Discontinued Operations |
|
$ |
243 |
|
|
$ |
3,158 |
|
|
|
|
|
|
|
|
NOTE 3: SALE OF BARLACO ASSETS
The agreement the Town of Barnstable entered into with the Company to purchase Barnstable Waters
assets also included a provision whereby the Town of Barnstable would acquire, through a bargain
sale purchase, all of the land owned by BARLACO for an additional $1 million. The BARLACO land was
sold in February 2006. The Company has recorded a gain on the bargain land sale for 2006 of
$980,000. This gain is reported on the Gain (Loss) on Property Transactions line of the
Consolidated Statements of Income.
NOTE 4: INCOME TAX EXPENSE
In June 2006, the FASB issued interpretation No. 48, Accounting for Uncertainty in Income Taxes,
an Interpretation of FASB Statement No. 109 (FIN 48), which became effective for the Company as of
January 1, 2007. FIN 48 addresses the determination of how tax benefits claimed or expected to be
claimed on a tax return should be recorded in the
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-11
financial statements. Under FIN 48, we must recognize the tax benefit from an uncertain tax
position only if it is more likely than not that the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position are measured based on the largest
benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The
reassessment of our tax positions in accordance with FIN 48 did not have an impact on our results
of operations, financial condition or liquidity. From time to time, the Company is assessed
interest and penalties by taxing authorities. In those cases, the charges would appear on the
Other line item on the Income Statement. During 2007, the Company was
charged approximately $2,000 in interest relating to the 2003 federal tax
examination. There were no such charges for the years ending December
31, 2006 and 2005. Additionally, there were no accruals relating to interest or penalties as
of December 31, 2007 and 2006. The Company remains subject to examination by federal authorities
for the 2005 through 2007 tax years and by state authorities for the
tax years 2003 through 2007.
Income Tax Expense from Continuing Operations for the years ended December 31, is comprised of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Federal Classified as Operating Expense from Continuing Operations |
|
$ |
3,834 |
|
|
$ |
2,080 |
|
|
$ |
2,400 |
|
Federal Classified as Other Utility Income from Continuing Operations |
|
|
238 |
|
|
|
232 |
|
|
|
251 |
|
Federal Classified as Other Income from Continuing Operations |
|
|
|
|
|
|
|
|
|
|
|
|
Land Sales |
|
|
61 |
|
|
|
287 |
|
|
|
132 |
|
Land Donations |
|
|
83 |
|
|
|
(892 |
) |
|
|
87 |
|
Non-Water Sales |
|
|
332 |
|
|
|
264 |
|
|
|
216 |
|
Other |
|
|
(529 |
) |
|
|
(981 |
) |
|
|
179 |
|
|
|
|
|
|
|
|
|
|
|
Total Federal Income Tax Expense from Continuing Operations |
|
|
4,019 |
|
|
|
990 |
|
|
|
3,265 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State Classified as Operating Expense from Continuing Operations |
|
|
361 |
|
|
|
(26 |
) |
|
|
(62 |
) |
State Classified as Other Utility Income from Continuing Operations |
|
|
57 |
|
|
|
68 |
|
|
|
60 |
|
State Classified as Other Income from Continuing Operations |
|
|
|
|
|
|
|
|
|
|
|
|
Land Sales |
|
|
14 |
|
|
|
89 |
|
|
|
31 |
|
Land Donations |
|
|
(199 |
) |
|
|
(902 |
) |
|
|
225 |
|
Non-Water Sales |
|
|
79 |
|
|
|
79 |
|
|
|
59 |
|
Other |
|
|
(101 |
) |
|
|
(191 |
) |
|
|
34 |
|
|
|
|
|
|
|
|
|
|
|
Total State Income Tax Expense from Continuing Operations |
|
|
211 |
|
|
|
(883 |
) |
|
|
347 |
|
|
|
|
|
|
|
|
|
|
|
Total Income Tax Expense from Continuing Operations |
|
$ |
4,230 |
|
|
$ |
107 |
|
|
$ |
3,612 |
|
|
|
|
|
|
|
|
|
|
|
The components of the Federal and State income tax provisions from Continuing Operations are:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Current from Continuing Operations |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
1,938 |
|
|
$ |
1,165 |
|
|
$ |
1,758 |
|
State |
|
|
158 |
|
|
|
221 |
|
|
|
(377 |
) |
|
|
|
|
|
|
|
|
|
|
Total Current from Continuing Operations |
|
|
2,096 |
|
|
|
1,386 |
|
|
|
1,381 |
|
|
|
|
|
|
|
|
|
|
|
Deferred Income Taxes from Continuing Operations, Net |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
|
|
|
|
|
|
|
|
|
|
|
Investment Tax Credit |
|
|
(63 |
) |
|
|
(63 |
) |
|
|
(62 |
) |
Deferred Revenue |
|
|
1,202 |
|
|
|
|
|
|
|
|
|
Land Donations |
|
|
260 |
|
|
|
(501 |
) |
|
|
388 |
|
Depreciation |
|
|
1,206 |
|
|
|
1,173 |
|
|
|
721 |
|
Other |
|
|
(524 |
) |
|
|
(784 |
) |
|
|
459 |
|
|
|
|
|
|
|
|
|
|
|
Total Federal from Continuing Operations |
|
|
2,081 |
|
|
|
(175 |
) |
|
|
1,506 |
|
|
|
|
|
|
|
|
|
|
|
State |
|
|
|
|
|
|
|
|
|
|
|
|
Land Donations |
|
|
(108 |
) |
|
|
(134 |
) |
|
|
(25 |
) |
Other |
|
|
161 |
|
|
|
(970 |
) |
|
|
750 |
|
|
|
|
|
|
|
|
|
|
|
Total State from Continuing Operations |
|
|
53 |
|
|
|
(1,104 |
) |
|
|
725 |
|
|
|
|
|
|
|
|
|
|
|
Total
Deferred Income Taxes from Continuing Operations |
|
|
2,134 |
|
|
|
(1,279 |
) |
|
|
2,231 |
|
|
|
|
|
|
|
|
|
|
|
Total from Continuing Operations |
|
$ |
4,230 |
|
|
$ |
107 |
|
|
$ |
3,612 |
|
|
|
|
|
|
|
|
|
|
|
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-12
Deferred income tax (assets) and liabilities are categorized as follows on the Consolidated Balance
Sheets:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2007 |
|
|
2006 |
|
Unrecovered Income Taxes |
|
$ |
(30,278 |
) |
|
$ |
(24,372 |
) |
Deferred Federal and State Income Taxes |
|
|
28,616 |
|
|
|
26,002 |
|
Unfunded Future Income Taxes |
|
|
25,404 |
|
|
|
20,155 |
|
Unamortized Investment Tax Credit |
|
|
1,560 |
|
|
|
1,623 |
|
Other |
|
|
(80 |
) |
|
|
(80 |
) |
|
|
|
|
|
|
|
Net Deferred Income Tax Liability |
|
$ |
25,222 |
|
|
$ |
23,328 |
|
|
|
|
|
|
|
|
Deferred income tax (assets) and liabilities are comprised of the following:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2007 |
|
|
2006 |
|
Charitable Contribution Carryforward (1) |
|
$ |
(2,977 |
) |
|
$ |
(3,048 |
) |
Valuation Allowance |
|
|
1,888 |
|
|
|
1,722 |
|
Tax Credit Carryforward (2) |
|
|
(1,436 |
) |
|
|
(1,349 |
) |
Alternative Minimum Tax Carryforward |
|
|
|
|
|
|
(4 |
) |
Prepaid Income Taxes on CIAC |
|
|
(209 |
) |
|
|
(72 |
) |
Prepaid FIT on Services |
|
|
(174 |
) |
|
|
(171 |
) |
Other Comprehensive Income |
|
|
(29 |
) |
|
|
63 |
|
Accelerated Depreciation |
|
|
26,975 |
|
|
|
25,822 |
|
Net of AFUDC and Capitalized Interest |
|
|
211 |
|
|
|
186 |
|
Unamortized Investment Tax Credit |
|
|
1,560 |
|
|
|
1,623 |
|
Other |
|
|
(587 |
) |
|
|
(1,444 |
) |
|
|
|
|
|
|
|
Net Deferred Income Tax Liability |
|
$ |
25,222 |
|
|
$ |
23,328 |
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
2007 charitable contribution carryover expires beginning in 2008 and ending in 2011. |
|
(2) |
|
State tax credit carry-forwards expire beginning 2016 and ending in 2019. |
The calculation of Pre-Tax Income from Continuing Operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Pre-Tax Income |
|
|
|
|
|
|
|
|
|
|
|
|
Income From Continuing Operations |
|
$ |
8,781 |
|
|
$ |
6,708 |
|
|
$ |
7,166 |
|
Income Taxes |
|
|
4,230 |
|
|
|
107 |
|
|
|
3,612 |
|
|
|
|
|
|
|
|
|
|
|
Total Pre-Tax Income From Continuing Operations |
|
$ |
13,011 |
|
|
$ |
6,815 |
|
|
$ |
10,778 |
|
|
|
|
|
|
|
|
|
|
|
In accordance with required regulatory treatment, deferred income taxes are not provided for
certain timing differences. This treatment, along with other items, causes differences between the
statutory income tax rate and the effective income tax rate. The differences between the effective
income tax rate recorded by the Company and the statutory federal tax rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
Federal Statutory Tax Rate |
|
|
34.0 |
% |
|
|
34.0 |
% |
|
|
34.0 |
% |
Tax Effect Differences: |
|
|
|
|
|
|
|
|
|
|
|
|
State Income Taxes Net of Federal Benefit |
|
|
1.1 |
% |
|
|
(0.1 |
%) |
|
|
2.1 |
% |
Reversal of Regulatory Liability |
|
|
|
|
|
|
(14.4 |
%) |
|
|
|
|
Adjustment to Taxes Due to Closed IRS Examination |
|
|
|
|
|
|
(14.3 |
%) |
|
|
|
|
Depreciation |
|
|
1.7 |
% |
|
|
2.6 |
% |
|
|
1.6 |
% |
Charitable Contributions Land Donation (Net of
Valuation Allowance) |
|
|
0.4 |
% |
|
|
(7.7 |
%) |
|
|
0.8 |
% |
Pension Costs |
|
|
(5.3 |
%) |
|
|
7.7 |
% |
|
|
(3.3 |
%) |
Allowance for Funds Used During Construction |
|
|
(0.3 |
%) |
|
|
(2.9 |
%) |
|
|
(1.4 |
%) |
Change in Estimate of Prior Year Income Tax
Expense |
|
|
0.2 |
% |
|
|
0.6 |
% |
|
|
(2.5 |
%) |
Rate Case Expense |
|
|
0.6 |
% |
|
|
(3.6 |
%) |
|
|
|
|
Other |
|
|
0.1 |
% |
|
|
(0.3 |
%) |
|
|
2.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective Income Tax Rate for Continuing
Operations |
|
|
32.5 |
% |
|
|
1.6 |
% |
|
|
33.5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-13
NOTE 5: COMMON STOCK
The Company has 25,000,000 authorized shares of common stock, no par value. A summary of the
changes in the common stock accounts for the period January 1, 2005 through December 31, 2007,
appears below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance |
|
|
|
|
|
|
|
(in thousands, except share data) |
|
Shares |
|
|
Amount |
|
|
Expense |
|
|
Total |
|
Balance, January 1, 2005 |
|
|
8,035,199 |
|
|
$ |
57,111 |
|
|
$ |
(1,597 |
) |
|
$ |
55,514 |
|
Stock and equivalents issued through
Performance Stock
Program |
|
|
29,379 |
|
|
|
99 |
|
|
|
|
|
|
|
99 |
|
Dividend Reinvestment Plan |
|
|
60,486 |
|
|
|
1,529 |
|
|
|
|
|
|
|
1,529 |
|
Stock Options Exercised and Expensed |
|
|
44,563 |
|
|
|
865 |
|
|
|
(2 |
) |
|
|
863 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2005 |
|
|
8,169,627 |
|
|
$ |
59,604 |
|
|
$ |
(1,599 |
) |
|
$ |
58,005 |
|
Stock and equivalents issued through
Performance Stock
Program |
|
|
23,058 |
|
|
|
323 |
|
|
|
|
|
|
|
323 |
|
Dividend Reinvestment Plan |
|
|
60,747 |
|
|
|
1,401 |
|
|
|
|
|
|
|
1,401 |
|
Stock Options Exercised and Expensed |
|
|
16,962 |
|
|
|
441 |
|
|
|
(2 |
) |
|
|
439 |
|
Other Paid in Capital |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006 |
|
|
8,270,394 |
|
|
$ |
61,766 |
|
|
$ |
(1,601 |
) |
|
$ |
60,165 |
|
Stock and equivalents issued through
Performance Stock
Program, Net of Forfeitures |
|
|
13,975 |
|
|
|
420 |
|
|
|
|
|
|
|
420 |
|
Dividend Reinvestment Plan |
|
|
54,567 |
|
|
|
1,326 |
|
|
|
|
|
|
|
1,326 |
|
Stock Options Exercised and Expensed |
|
|
37,906 |
|
|
|
902 |
|
|
|
(5 |
) |
|
|
897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 1 |
|
|
8,376,842 |
|
|
$ |
64,414 |
|
|
$ |
(1,606 |
) |
|
$ |
62,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 |
|
Includes 36,279 restricted shares and 68,425 common stock equivalent shares issued
through the Performance Stock Programs through December 31, 2007. |
The Companys Shareholder Rights Plan was authorized by the Board of Directors on August 12, 1998.
Pursuant to the Plan, the Board authorized a dividend distribution of one Right to purchase one
one-hundredth of a share of Series A Junior Participating Preference Stock of the Company for each
outstanding share of the Companys common stock. The distribution was effected October 11, 1998.
Upon the terms of the Shareholder Rights Plan, each Right will entitle shareholders to buy one
one-hundredth of a share of Series A Junior Participating Preference Stock at a purchase price of
$90, and the Rights will expire October 11, 2008. The Company is considering whether to extend or
let terminate its Shareholder Rights Plan in 2008. The Rights will be exercisable only if a person
or group acquires 15% or more of the Companys common stock, or announces a tender or exchange
offer for 15% or more of the Companys common stock. The Board will be entitled to redeem the
Rights at $0.01 per Right at any time before such acquisition occurs, and upon certain conditions
after such a position has been acquired.
Additionally, upon the acquisition of 15% or more of the Companys common stock by any person or
group, each Right will entitle its holder to purchase, at the Rights purchase price, a number of
shares of the Companys common stock having a market value equal to twice the Rights purchase
price. In such event, Rights held by the acquiring person will not be allowed to purchase any of
the Companys common stock or other securities of the Company. If, after the acquisition of 15% or
more of the Companys common stock by any person or group, the Company should consolidate with or
merge with and into any person and the Company should not be the surviving company, or if the
Company should be the surviving company and all or part of its common stock should be exchanged for
the securities of any other person, or if more than 50% of the assets or earning power of the
Company were sold, each Right (other than Rights held by the acquiring person, which will become
void) will entitle its holder to purchase, at the Rights purchase price, a number of shares of the
acquiring Companys common stock having a market value at that time equal to twice the Rights
purchase price.
The Company may not pay any dividends on its common stock unless full cumulative dividends to the
preceding dividend date for all outstanding shares of Preferred Stock of the Company have been paid
or set aside for payment. All such Preferred Stock dividends have been paid.
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-14
NOTE 6: RETAINED EARNINGS
The summary of the changes in Retained Earnings for the period January 1, 2005 through December 31,
2007, appears below:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands, except per share data) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Balance, beginning of year |
|
$ |
35,676 |
|
|
$ |
35,777 |
|
|
$ |
32,264 |
|
Net Income |
|
|
8,781 |
|
|
|
6,951 |
|
|
|
10,324 |
|
|
|
|
|
|
|
|
|
|
|
Sub-total |
|
|
44,457 |
|
|
|
42,728 |
|
|
|
42,588 |
|
Dividends declared: |
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Preferred Stock, Series A, $0.80 per share |
|
|
12 |
|
|
|
12 |
|
|
|
12 |
|
Cumulative Preferred Stock, Series $0.90, $0.90 per share |
|
|
26 |
|
|
|
26 |
|
|
|
26 |
|
Common Stock: |
|
|
|
|
|
|
|
|
|
|
|
|
2007 $0.865 per Common Share |
|
|
7,147 |
|
|
|
|
|
|
|
|
|
2006 $0.855 per Common Share |
|
|
|
|
|
|
7,014 |
|
|
|
|
|
2005 $.0845 per Common Share |
|
|
|
|
|
|
|
|
|
|
6,773 |
|
|
|
|
|
|
|
|
|
|
|
Total Dividends Declared |
|
|
7,185 |
|
|
|
7,052 |
|
|
|
6,811 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
$ |
37,272 |
|
|
$ |
35,676 |
|
|
$ |
35,777 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 7: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of each of the following
financial instruments.
CASH AND CASH EQUIVALENTS Cash equivalents consist of highly liquid instruments with original
maturities at the time of purchase of three months or less. The carrying amount approximates fair
value.
RESTRICTED CASH - As part of the December 2007 bond offering, described in Note 8 to the Notes to
the Consolidated Financial Statements, the Company recorded unused proceeds from this bond issuance
as restricted cash as the funds can only be used for certain capital expenditures. The Company
expects to use the proceeds during 2008.
LONG-TERM DEBT - The fair value of the Companys fixed rate long-term debt is based upon borrowing
rates currently available to the Company. As of December 31, 2007 and 2006, the estimated fair
value of the Companys long-term debt was $91,109,000 and $78,574,000, respectively, as compared to
the carrying amounts of $92,285,000 and $77,347,000, respectively.
The fair values shown above have been reported to meet the disclosure requirements of Statement of
Financial Accounting Standards No. 107, Disclosures About Fair Values of Financial Instruments
and do not purport to represent the amounts at which those obligations would be settled.
INTEREST RATE SWAP In 2004, Connecticut Water entered into a five-year interest rate swap
associated with its $12.5 million 2004 series variable rate unsecured water facilities revenue
refinancing bonds to manage the Companys exposure to fluctuations in prevailing
interest rates. The swap agreement qualifies for hedge treatment under Statement of Financial
Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities. The
fair value of the interest rate swap included in the Companys Consolidated Balance sheet in
Deferred Charges and Other Costs was approximately $45,000 and $414,000 at December 31, 2007 and
December 31, 2006, respectively. Changes in the fair value of this derivative instrument are
recorded in Other Comprehensive Income in Common Stockholders Equity.
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-15
NOTE 8: LONG-TERM DEBT
Long-Term Debt at December 31, consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
|
|
|
2007 |
|
|
2006 |
|
Connecticut Water Company |
|
|
|
|
|
|
|
|
Unsecured Water Facilities Revenue Bonds |
|
|
|
|
|
|
|
|
|
5.05 |
% |
|
1998 Series A, Due 2028 |
|
$ |
9,640 |
|
|
$ |
9,640 |
|
|
5.125 |
% |
|
1998 Series B, Due 2028 |
|
|
7,635 |
|
|
|
7,635 |
|
|
4.40 |
% |
|
2003A Series, Due 2020 |
|
|
8,000 |
|
|
|
8,000 |
|
|
5.00 |
% |
|
2003C Series, Due 2022 |
|
|
14,915 |
|
|
|
14,930 |
|
|
Var. |
|
|
2004 Series Variable Rate, Due 2029 |
|
|
12,500 |
|
|
|
12,500 |
|
|
Var. |
|
|
2004 Series A, Due 2028 |
|
|
5,000 |
|
|
|
5,000 |
|
|
Var. |
|
|
2004 Series B, Due 2028 |
|
|
4,550 |
|
|
|
4,550 |
|
|
5.00 |
% |
|
2005 A Series, Due 2040 |
|
|
14,960 |
|
|
|
15,000 |
|
|
5.00 |
% |
|
2007 A Series, Due 2037 |
|
|
15,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Connecticut Water Company |
|
|
92,200 |
|
|
|
77,255 |
|
Chester Realty |
|
|
|
|
|
|
|
|
Regulated Secured |
|
|
|
|
|
|
|
|
|
5.45 |
% |
|
Westbank, Due 2017 |
|
|
92 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Chester Realty |
|
|
92 |
|
|
|
99 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Connecticut Water Service, Inc. |
|
|
92,292 |
|
|
|
77,354 |
|
|
|
|
|
Less Current Portion |
|
|
(7 |
) |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Long-Term Debt |
|
|
$92,285 |
|
|
|
$77,347 |
|
|
|
|
|
|
|
|
|
|
|
|
The Companys principal payments required for years 2008 2012 are as follows:
|
|
|
|
|
(in thousands) |
2008 |
|
$ |
7 |
|
2009 |
|
$ |
8 |
|
2010 |
|
$ |
8 |
|
2011 |
|
$ |
8 |
|
2012 |
|
$ |
9 |
|
In December 2007, Connecticut Water borrowed $15 million through the issuance of Water Facilities
Revenue Bonds by the Connecticut Development Authority (Authority) sold in a single series with an
interest rate of five percent maturing on December 1, 2037. The proceeds from the sale of the
bonds have been used to finance construction and installation of various capital improvements to
the Companys existing water system.
In November 2005, Connecticut Water borrowed $10 million through the issuance of Water Facilities
Revenue Bonds by the Authority sold in a single series with an interest rate of five percent
maturing on October 1, 2040. The proceeds from the sale of the bonds have been used to finance
construction and installation of various capital improvements to the Companys existing water
system.
In November 2005, Crystal borrowed $5 million through the issuance of Water Facilities Revenue
Bonds by the Authority sold in a single series with an interest rate of five percent maturing on
October 1, 2040. The Crystal Water Company Series A Water Facility Revenue Bonds may be initially
called for redemption on October 1, 2009 at 100% plus accrued interest. The proceeds of the sale
of the bonds have been used to finance the construction of a water treatment plant in the Town of
Killingly, CT and to facilitate the interconnection of two systems in the Town of Killingly. In
the table above, the $5 million Water Facilities Revenue Bonds has been combined with Connecticut
Water $10 million Water Facilities Revenue Bonds. The $14.96 million shown in the table above for
2007 includes a partial pay-down of the debt during 2007.
In connection with the 2004 issuance of the $12.5 million variable rate bonds, Connecticut Water
entered into an interest rate swap transaction with a counterparty in the notional principal amount
of $12,500,000. The interest rate swap agreement provides that, beginning in April 2004 and
thereafter on a monthly basis, Connecticut Water will pay the counterparty a fixed interest rate of
3.73% on the notional amount for a period of five years. In exchange, the counterparty will,
beginning in April 2004 and thereafter on a monthly basis, pay Connecticut Water a floating
interest rate (based on 105% of the U.S. Dollar one-month LIBOR rate) on the notional amount for a
period of five years. The purpose of the interest rate swap is to manage the Companys exposure to
fluctuations in prevailing interest rates. See Note 7.
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-16
There are no mandatory sinking fund payments required on Connecticut Waters outstanding Unsecured
Water Facilities Revenue Refinancing Bonds. However, the 1998 Series A and B and the 2003 Series A
and C Unsecured Water Facilities Revenue Refinancing Bonds provide for an estate redemption right
whereby the estate of deceased bondholders or surviving joint owners may submit bonds to the
Trustee for redemption at par, subject to a $25,000 per individual holder and a 3% annual aggregate
limitation.
The outstanding Unsecured Water Facility Revenue Bonds of Connecticut Water may be initially called
for redemption at the following dates and prices 1998 Series A and B, March 1, 2008 at 100% plus
accrued interest; 2003 Series A, December 15, 2008 at 100% plus accrued interest; 2003 Series C,
September 1, 2008 at 100% plus accrued interest; and 2005 A Series, October 1, 2009 at 100% plus
accrued interest.
Financial
Covenants - The Company is required to comply with certain covenants
in connection with various long term loan agreements. The covenants are normal and customary in bank and loan
agreements. The Company is in compliance with the covenants at
December 31, 2007.
NOTE 9: PREFERRED STOCK
The Companys Preferred Stock at December 31, consisted of the following:
|
|
|
|
|
|
|
|
|
(in thousands, except share data) |
|
2007 |
|
|
2006 |
|
Connecticut Water Service, Inc. |
|
|
|
|
|
|
|
|
Cumulative Series A Voting, $20 Par Value; Authorized, Issued and Outstanding 15,000
Shares |
|
$ |
300 |
|
|
$ |
300 |
|
Cumulative Series $0.90 Non-Voting, $16 Par Value; Authorized 50,000 Shares, Issued
and
Outstanding 29,999 |
|
|
472 |
|
|
|
472 |
|
|
|
|
|
|
|
|
Total Preferred Stock |
|
$ |
772 |
|
|
$ |
772 |
|
|
|
|
|
|
|
|
All or any part of any series of either class of the Companys issued Preferred Stock may be called
for redemption by the Company at any time. The per share redemption prices of the Series A and
Series $.90 Preferred Stock, if called by the Company, are $21.00 and $16.00, respectively.
The Company is authorized to issue 400,000 shares of an additional class of Preferred Stock, $25
par value, the general preferences, voting powers, restrictions and qualifications of which are
similar to the Companys existing Preferred Stock. No shares of the $25 par value Preferred Stock
have been issued.
The Company is also authorized to issue 1,000,000 shares of $1 par value Preference Stock, junior
to the
Companys existing Preferred Stock in rights to dividends and upon liquidation of the Company.
150,000 of such shares have been designated as Series A Junior Participating Preference Stock.
Pursuant to the Shareholder Rights Plan, described in Note 4, the Company keeps reserved and
available for issuance one one-hundredth of a share of Series A Junior Participating Preference
Stock for each outstanding share of the Companys common stock.
NOTE 10: BANK LINES OF CREDIT
The Companys total available lines of credit totaled $21,000,000 and $15,000,000 at December 31,
2007 and 2006, respectively. The Company increased these lines because of an increased
construction spending program and to partially fund previously announced acquisitions. The lines
of credit have lives that range from 12 to 29 months, which will expire throughout 2008 and 2009.
The Company expects the lines of credit to be renewed upon their expiration. As of December 31,
2007 and 2006, the outstanding bank lines of credit were $6,459,000 and $5,250,000 respectively.
At December 31, 2007 and 2006, the weighted average interest rates on these short-term borrowings
outstanding were 5.47% and 5.735%, respectively.
NOTE 11: UTILITY PLANT AND CONSTRUCTION PROGRAM
The components of utility plant and equipment at December 31, were as follows:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2007 |
|
|
2006 |
|
Land |
|
$ |
9,507 |
|
|
$ |
9,443 |
|
Source of supply |
|
|
25,876 |
|
|
|
25,132 |
|
Pumping |
|
|
24,999 |
|
|
|
24,531 |
|
Water treatment |
|
|
52,919 |
|
|
|
52,785 |
|
Transmission and distribution |
|
|
246,676 |
|
|
|
230,252 |
|
General |
|
|
25,235 |
|
|
|
21,486 |
|
Held for future use |
|
|
429 |
|
|
|
428 |
|
Acquisition Adjustment |
|
|
(1,220 |
) |
|
|
(1,220 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
384,421 |
|
|
$ |
362,837 |
|
|
|
|
|
|
|
|
The amounts of depreciable utility plant at December 31, 2007 and 2006 included in total utility
plant were $336,204,000 and $313,736,000, respectively. Non-depreciable plant is primarily funded
through CIAC.
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-17
NOTE 12: TAXES OTHER THAN INCOME TAXES
Taxes Other than Income Taxes consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Municipal Property Taxes |
|
$ |
4,903 |
|
|
$ |
4,743 |
|
|
$ |
4,708 |
|
Payroll Taxes |
|
|
837 |
|
|
|
832 |
|
|
|
677 |
|
|
|
|
|
|
|
|
|
|
|
Total Taxes Other than Income Taxes |
|
$ |
5,740 |
|
|
$ |
5,575 |
|
|
$ |
5,385 |
|
|
|
|
|
|
|
|
|
|
|
NOTE 13: LONG-TERM COMPENSATION ARRANGEMENTS
The Company has accrued for the following long-term compensation arrangements as of December 31,
2007 and 2006:
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2007 |
|
|
2006 |
|
Defined Benefit Pension Plan |
|
$ |
2,199 |
|
|
$ |
3,524 |
|
Post Retirement Benefit Other than Pension |
|
|
6,464 |
|
|
|
6,107 |
|
Supplemental Executive Retirement |
|
|
4,055 |
|
|
|
2,414 |
|
Deferred
Officers Wages |
|
|
1,325 |
|
|
|
1,239 |
|
Other Long-Term Compensation |
|
|
674 |
|
|
|
649 |
|
|
|
|
|
|
|
|
Long-Term Compensation Arrangements |
|
$ |
14,717 |
|
|
$ |
13,933 |
|
|
|
|
|
|
|
|
The Company adopted the recognition provisions of Statement of Financial Accounting
Standards No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement
Plans, (SFAS 158) as of December 31, 2006, which requires that the funded status of defined
benefit pension and other postretirement plans be fully recognized in
the balance sheet. The supplemental executive retirement, deferred
officers' wages and other long-term compensation
arrangements do not follow APB 12.
In its 2006 Form 10-K filed with the SEC on March 16, 2007, the Company misapplied SFAS 158 related
to the recognition of the funded status of the pension and post-retirement medical plans related to
certain former employees. The Company reported its adjustment to initially apply SFAS 158 of
$152,000 in its Consolidated Statements of Comprehensive Income. It should have only been reported
directly to Accumulated Other Comprehensive Income in the Capitalization and Liabilities section of
the Balance Sheets, where it was correctly presented. The misapplication had no impact on the
Consolidated Statements of Net Income, Balance Sheets or Statements of Cash Flows. The Company has
updated its 2006 Consolidated Statement of Comprehensive Income in order to correct the
misapplication of SFAS 158.
Investment Strategy - The Pension Trust and Finance Committee (the Committee) reviews and approves
the investment strategy of the investments made on behalf of various pension and post-retirement
benefit plans existing under the Company and certain of its subsidiaries.
The targeted asset allocation ratios for those plans as set by the Committee at December 31, 2007
and 2006 were:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Equity |
|
|
65 |
% |
|
|
65 |
% |
Fixed Income |
|
|
35 |
% |
|
|
35 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
The Committee recognizes that a variation of up to 5% in either direction from its targeted asset
allocation mix is acceptable due to market fluctuations.
Our expected long-term rate of return on the various benefit plan assets is based upon the plans
expected asset allocation, expected returns on various classes of plan assets as well as historical
returns. The expected long-term rate of return on the Companys pension plan is 8%.
PENSION
Defined Benefit Plans - The Company and certain of its subsidiaries have noncontributory defined
benefit pension plans covering qualified employees. In general, the Companys policy is to fund
accrued pension costs as permitted by federal income tax and Employee Retirement Income Security
Act of 1974 regulations. The Company amortizes actuarial gains and losses over the average
remaining service period of active participants, without regard to a specified corridor of a
percentage of the greater of the obligation or market-related value of assets. A contribution of
$45,000 was made in 2007 for the 2006 plan year. A contribution of approximately $3,500,000 is
expected to be made in 2008 for plan year 2007.
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-18
The following tables set forth the benefit obligation and fair value of the assets of the Companys
retirement plans at December 31, the latest valuation date:
Pension Benefits
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2007 |
|
|
2006 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year |
|
$ |
31,539 |
|
|
$ |
30,509 |
|
Service cost |
|
|
1,277 |
|
|
|
1,228 |
|
Interest cost |
|
|
1,789 |
|
|
|
1,681 |
|
Actuarial gain |
|
|
(2,415 |
) |
|
|
(208 |
) |
Benefits paid |
|
|
(1,825 |
) |
|
|
(1,671 |
) |
|
|
|
|
|
|
|
Benefit obligation, end of year |
|
$ |
30,365 |
|
|
$ |
31,539 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value, beginning of year |
|
$ |
28,015 |
|
|
$ |
24,846 |
|
Actual return on plan assets |
|
|
1,931 |
|
|
|
2,390 |
|
Employer contributions |
|
|
45 |
|
|
|
2,450 |
|
Benefits paid |
|
|
(1,825 |
) |
|
|
(1,671 |
) |
|
|
|
|
|
|
|
Fair value, end of year |
|
$ |
28,166 |
|
|
$ |
28,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status |
|
$ |
(2,199 |
) |
|
$ |
(3,524 |
) |
|
|
|
|
|
|
|
|
|
Amount Recognized in Consolidated Balance Sheets Consisted of: |
|
|
|
|
|
|
|
|
Non-current asset |
|
$ |
|
|
|
$ |
|
|
Current liability |
|
|
|
|
|
|
|
|
Non-current liability |
|
|
(2,199 |
) |
|
|
(3,524 |
) |
|
|
|
|
|
|
|
Net amount recognized |
|
$ |
(2,199 |
) |
|
$ |
(3,524 |
) |
|
|
|
|
|
|
|
The accumulated benefit obligation for all defined benefit pension plans was approximately
$23,934,000 and $24,593,000 at December 31, 2007 and 2006, respectively.
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Weighted-average assumptions used to determine
benefit obligations at December 31: |
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.30 |
% |
|
|
5.75 |
% |
Rate of compensation increase |
|
|
4.50 |
% |
|
|
4.50 |
% |
Weighted-average assumptions used to determine
net periodic cost for years ended December 31: |
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.75 |
% |
|
|
5.50 |
% |
Expected long-term return on plan assets |
|
|
8.00 |
% |
|
|
8.00 |
% |
Rate of compensation increase |
|
|
4.50 |
% |
|
|
4.50 |
% |
The discount rate is based on interest rates for long-term, high quality, fixed income investments.
The Company looks at the general trends of several different bond indices.
The following table shows the components of periodic benefit costs:
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Components of net periodic benefit costs |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
1,277 |
|
|
$ |
1,228 |
|
|
$ |
1,050 |
|
Interest cost |
|
|
1,789 |
|
|
|
1,681 |
|
|
|
1,552 |
|
Expected return on plan assets |
|
|
(2,017 |
) |
|
|
(1,836 |
) |
|
|
(1,645 |
) |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Net transition obligation |
|
|
2 |
|
|
|
2 |
|
|
|
10 |
|
Net loss |
|
|
69 |
|
|
|
75 |
|
|
|
322 |
|
Prior service cost |
|
|
345 |
|
|
|
491 |
|
|
|
98 |
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Pension Benefit Costs |
|
$ |
1,465 |
|
|
$ |
1,641 |
|
|
$ |
1,387 |
|
|
|
|
|
|
|
|
|
|
|
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-19
The following table shows the other changes in plan assets and benefit obligations recognized as a
regulatory asset (liability):
Pension Benefits
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2007 |
|
|
2006 |
|
Change in net (gain) |
|
$ |
(2,329 |
) |
|
|
|
|
Amortization of transition obligation |
|
|
(2 |
) |
|
|
|
|
Amortization of prior service cost |
|
|
(69 |
) |
|
|
|
|
Amortization of net loss (gain) |
|
|
(345 |
) |
|
|
2,585 |
|
|
|
|
|
|
|
|
Total
changes recognized to Regulatory Asset (Liability) |
|
|
(2,745 |
) |
|
|
2,585 |
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Amounts Recognized as a Regulatory
Asset (Liability) at December 31: |
|
|
|
|
|
|
|
|
Transition obligation |
|
$ |
9 |
|
|
$ |
11 |
|
Prior service cost |
|
|
585 |
|
|
|
655 |
|
Net (gain) loss |
|
|
(754 |
) |
|
|
1,919 |
|
|
|
|
|
|
|
|
Total
Recognized as a Regulatory Asset (Liability) |
|
$ |
(160 |
) |
|
$ |
2,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Estimated Net Periodic Benefit Cost Amortizations for the periods January 1
- December 31,: |
|
|
|
|
|
|
|
|
Amortization of transition obligation |
|
|
|
|
|
$ |
2 |
|
Amortization of prior service cost |
|
|
|
|
|
|
69 |
|
Amortization of net loss (gain) |
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
|
Total
Estimated Net Periodic Benefit Cost Amortizations |
|
|
|
|
|
$ |
172 |
|
Plan Assets
The Companys pension plan weighted-average asset allocations at December 31, 2007, and 2006 by
asset category were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Equity |
|
|
64 |
% |
|
|
66 |
% |
Fixed Income |
|
|
36 |
% |
|
|
34 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
The Plans expected future benefit payments are:
|
|
|
|
|
(in thousands) |
|
|
|
|
2008 |
|
$ |
1,651 |
|
2009 |
|
$ |
1,621 |
|
2010 |
|
$ |
1,853 |
|
2011 |
|
$ |
1,642 |
|
2012 |
|
$ |
2,592 |
|
Years 2013 - 2017 |
|
$ |
14,745 |
|
POST-RETIREMENT BENEFITS OTHER THAN PENSION (PBOP) - In addition to providing pension benefits, Connecticut Water, provides certain medical, dental and life insurance benefits to
retired employees partially funded by a 501(c)(9) Voluntary Employee Beneficiary Association Trust
that has been approved by the DPUC. Substantially all of Connecticut Waters employees may become
eligible for these benefits if they retire on or after age 55 with 10 years of service. The
contribution for calendar years 2007 and 2006 was $1,758,600 and $473,100, respectively.
A regulatory asset has been recorded to reflect the amount which represents the future SFAS 106
costs expected to be recovered in customer rates. In 1997, Connecticut Water requested and
received approval from the DPUC to include SFAS 106 costs in customer rates. The DPUCs 1997
limited reopener of Connecticut Waters general rate proceeding allowed it to increase customer
rates $208,000 annually for SFAS 106 costs. Prior to the January 2007 rate decision, Connecticut
Waters rates allowed for recovery of $473,100 annually for post-retirement benefit costs other
than pension. As a result of the January 2007 rate decision, the Company will follow the
provisions of SFAS 158 for regulated companies that allows the creation of a regulatory asset for
costs that will be recovered in the future under provisions of SFAS 71.
The Company amortizes actuarial gains and losses over the average remaining service period of
active participants, without regard to a specified corridor of a percentage of the greater of the
obligation or market-related value of assets. Connecticut Water has elected to recognize the
transition obligation on a delayed basis over a period equal to the plan participants 21.6 years
of average future service.
The Company has concluded that the postretirement welfare plans benefits will be considered
actuarially equivalent to the benefits provided by Medicare Part D. The Company does not intend to
apply for the government subsidy for postretirement prescription drug benefits, because the costs
associated with the administration of Medicare Part D would have outweighed the benefits received
by the Company. Therefore, the impact of the subsidy on the plans liabilities is not reflected in
the December 31, 2007 disclosure.
Another subsidiary company, Barnstable Water, also provides certain health care benefits to
eligible retired employees. Substantially all Barnstable Water employees may become eligible for
these benefits if they retire on or after age 65 with at least 15 years of service. Post-65
medical coverage is provided for employees up to a maximum coverage of $500 per quarter. Barnstable
Waters PBOP currently is not funded. Barnstable Water no longer has any employees; therefore, no
new participants will be entering Barnstable Waters PBOP.
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-20
The following tables set forth the benefit obligation and fair value of the assets of the Companys
post-retirement health care benefits at December 31, the latest valuation date:
PBOP Benefits
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2007 |
|
|
2006 |
|
Change in benefit obligation: |
|
|
|
|
|
|
|
|
Benefit obligation, beginning of year |
|
$ |
10,283 |
|
|
$ |
8,253 |
|
Service cost |
|
|
651 |
|
|
|
599 |
|
Interest cost |
|
|
610 |
|
|
|
485 |
|
Plan participant contributions |
|
|
138 |
|
|
|
99 |
|
Actuarial loss |
|
|
1,083 |
|
|
|
1,343 |
|
Benefits paid |
|
|
(449 |
) |
|
|
(496 |
) |
|
|
|
|
|
|
|
Benefit obligation, end of year |
|
$ |
12,316 |
|
|
$ |
10,283 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets: |
|
|
|
|
|
|
|
|
Fair value, beginning of year |
|
$ |
4,260 |
|
|
$ |
3,845 |
|
Actual return on plan assets |
|
|
198 |
|
|
|
339 |
|
Employer contributions |
|
|
1,759 |
|
|
|
473 |
|
Participants contributions |
|
|
138 |
|
|
|
99 |
|
Benefits paid |
|
|
(449 |
) |
|
|
(496 |
) |
|
|
|
|
|
|
|
Fair value, end of year |
|
$ |
5,906 |
|
|
$ |
4,260 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded Status |
|
$ |
6,410 |
|
|
$ |
6,023 |
|
|
Amount Recognized in Consolidated Balance Sheets Consisted of: |
|
|
|
|
|
|
|
|
Non-current asset |
|
$ |
|
|
|
$ |
|
|
Current liability |
|
|
|
|
|
|
|
|
Non-current liability |
|
|
6,410 |
|
|
|
6,023 |
|
|
|
|
|
|
|
|
Net amount recognized |
|
|
6,410 |
|
|
$ |
6,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Weighted-average assumptions used to determine
benefit obligations at December 31: |
|
|
|
|
|
|
|
|
Discount rate |
|
|
6.30 |
% |
|
|
5.75 |
% |
Weighted-average assumptions used to determine
net periodic cost for years ended December 31: |
|
|
|
|
|
|
|
|
Discount rate |
|
|
5.75 |
% |
|
|
5.50 |
% |
Expected long-term return on plan assets |
|
|
5.00 |
% |
|
|
5.00 |
% |
The discount rate is based on interest rates for long-term, high quality, fixed income investments.
The Company looks at the general trends of several different bond indices.
The following table shows the components of periodic benefit costs:
PBOP Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands) |
|
2007 |
|
|
2006 |
|
|
2005 |
|
Components of net periodic benefit costs |
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
|
$ |
651 |
|
|
$ |
599 |
|
|
$ |
460 |
|
Interest cost |
|
|
610 |
|
|
|
485 |
|
|
|
405 |
|
Expected return on plan assets |
|
|
(189 |
) |
|
|
(178 |
) |
|
|
(168 |
) |
Other |
|
|
225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
Net transition obligation |
|
|
120 |
|
|
|
120 |
|
|
|
120 |
|
Recognized net loss |
|
|
342 |
|
|
|
273 |
|
|
|
164 |
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Post Retirement Benefit Costs |
|
$ |
1,759 |
|
|
$ |
1,299 |
|
|
$ |
981 |
|
|
|
|
|
|
|
|
|
|
|
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-21
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
Amounts Recognized as a Regulatory Asset at
December 31: |
|
|
|
|
|
|
|
|
Transition obligation |
|
$ |
602 |
|
|
$ |
723 |
|
Prior service cost |
|
|
|
|
|
|
|
|
Net (gain) loss |
|
|
3,611 |
|
|
|
2,878 |
|
|
|
|
|
|
|
|
Total Recognized as a Regulatory Asset |
|
$ |
4,213 |
|
|
$ |
3,601 |
|
|
|
|
|
|
|
|
There were no other changes in plan assets and benefit obligations recognized as a regulatory
asset.
|
|
|
|
|
|
|
2008 |
Estimated
Benefit Cost Amortizations for the periods January 1 -
December 31,: |
|
|
|
|
Amortization of transition obligation |
|
$ |
121 |
|
Amortization of prior service cost |
|
|
|
|
Amortization of net loss (gain) |
|
|
360 |
|
|
|
|
Total
Estimated Net Periodic Benefit Cost Amortizations |
|
$ |
481 |
|
|
|
|
|
Assumed health care cost trend rates at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
|
Medical |
|
Dental |
|
Medical |
|
Dental |
Health care cost trend rate assumed for next year |
|
|
10.0 |
% |
|
|
10.0 |
% |
|
|
9.0 |
% |
|
|
9.0 |
% |
Rate to which the cost trend rate is assumed to
decline |
|
|
5.0 |
% |
|
|
5.0 |
% |
|
|
4.5 |
% |
|
|
4.5 |
% |
Year that the rate reaches the ultimate trend rate |
|
|
2017 |
|
|
|
2017 |
|
|
|
2016 |
|
|
|
2016 |
|
Assumed health care cost trend rates have a significant effect on the amounts reported for the
health care plans. A one-percentage-point change in assumed health care cost trend rates would
have the following effects on Connecticut Waters plan and would have no impact on the Barnstable
Water plan:
|
|
|
|
|
|
|
|
|
|
|
1 Percentage-Point |
(in thousands) |
|
Increase |
|
Decrease |
Effect on total of service and interest cost
components |
|
$ |
216 |
|
|
$ |
(176 |
) |
Effect on post-retirement benefit obligation |
|
$ |
1,648 |
|
|
$ |
(1,380 |
) |
Plan Assets
Barnstable Waters other post-retirement benefit plan has no assets. Connecticut Waters other
post-retirement benefit plan weighted-average asset allocations at December 31, 2007 and 2006 by
asset category were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
Equity |
|
|
44 |
% |
|
|
63 |
% |
Fixed Income |
|
|
56 |
% |
|
|
37 |
% |
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
The Company made a contribution of $1,758,600 on December 28, 2007. In the table above, this
contribution is classified as fixed income as there was not enough time for these funds to be
invested in line with the plans target allocation.
Cash Flows
Connecticut Water contributed $1,758,600 to its other post-retirement benefit plan in 2007 for plan
year 2007 and expects to contribute $1,954,000 in 2008 for plan year 2008.
Expected future benefit payments are:
|
|
|
|
|
(in thousands) |
|
|
|
|
2008 |
|
|
$ |
446 |
2009 |
|
|
$ |
505 |
2010 |
|
|
$ |
547 |
2011 |
|
|
$ |
599 |
2012 |
|
|
$ |
669 |
Years 2013 - 2017 |
|
|
$ |
4,513 |
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP) - The Company and certain of its subsidiaries provide
additional pension benefits to senior management through supplemental executive retirement
contracts. At December 31, 2007 and 2006, the actuarial present value of the projected benefit
obligation of these contracts were $3,109,000 and $2,870,000, respectively. Expense associated
with these contracts was approximately $1,363,000 for 2007, $503,000 for 2006, and $194,000 for
2005 and is reflected in Other Income (Deductions) in the Statements of Income.
Included in Other Property and Investments at December 31, 2007 and 2006 is $3,513,000 and $1,836,000 of marketable securities purchased by the Company to fund these obligations.
SAVINGS PLAN (401(k)) - The Company and certain of its subsidiaries maintain an employee savings
plan which allows participants to contribute from 1% to 15% of pre-tax compensation plus for those
aged 50 years and older catch-up contributions as allowed by law. The Company matches 50 cents for
each dollar contributed by the employee up to 4% of the employees compensation. The Company
contribution charged to expense in 2007, 2006 and 2005 was $213,000, $186,000, and $168,000,
respectively.
The Plan creates the possibility for an incentive bonus contribution to the 401(k) plan tied to
the attainment of a specific goal or goals to be identified each year. If the specific goal or
goals are attained by the end of the year, all eligible employees, except officers and certain key
employees, may receive up to an additional 1% of their annual base salary as a direct contribution
to their 401(k) account. No incentive bonus was awarded in 2007 or 2006. An incentive bonus of .6%
of base pay, or a total of $50,000 was accrued for 2005 and paid in 2006.
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-22
NOTE 14: STOCK BASED COMPENSATION PLANS
The Company adopted the provisions of Statement of Financial Accounting Standards No. 123(R) Share
Based Payments (SFAS 123(R)) as of January 1, 2006 using the modified prospective transition
method, which does not require restatement of prior year results. The resulting impact on the
income statement for the fiscal year ended December 31, 2006 was an expense of approximately
$32,000, net of tax benefits of $75,000. SFAS 123(R) requires that all share-based payments to
employees, including grants of stock options, be recognized as compensation expense in the
financial statements based on their fair value.
Prior to January 1, 2006, the Company followed Accounting Principles Board Opinion No. 25 (APB No.
25) and the disclosure requirements for SFAS 123(R) with pro forma disclosures of net income and
earnings per share, as if the fair value-based method of accounting as defined in SFAS 123(R) had
been applied. The Companys consolidated financial statements as
of and for the year ended
December 31, 2006 reflect the impact of adopting SFAS 123(R). The total compensation cost related
to non-vested stock option awards recognized during 2007 was
approximately $25,000. There are no stock option costs to be
recognized in future years.
For purposes of calculating the fair value of each stock grant at the date of grant, the Company
used the Black Scholes Option Pricing model. Under the Plans, options begin to become exercisable
one year from the date of grant. Vesting periods range from one to five years. The maximum term
ranges from five to ten years.
Under the Companys Performance Stock Plan (PSP), restricted shares of Common Stock, common stock
equivalents or cash units may be awarded annually to officers and key employees. Based upon the
occurrence of certain events, including the achievement of goals established by the Compensation
Committee, the restrictions on the stock can be removed. Amounts charged to expense on account of
restricted shares of Common Stock, common stock equivalents or cash units pursuant to the PSP were
$542,000, $702,000 and $265,000, for 2007, 2006 and 2005, respectively.
The Companys 2004 Performance Stock Program (2004 PSP), approved by shareholders in 2004,
authorizes the issuance of up to 700,000 shares of Company Common Stock. As of December 31, 2007,
there were 626,711 shares available for grant. In total, under the original Plans (1994 Plans)
there were 700,000 shares authorized and 222,033 shares available for payment of dividend
equivalents on shares already awarded under the 1994 Plan as performance shares at December 31,
2007. There are four forms of awards under the 2004 PSP. Stock options are one form of award.
The Company has not issued any stock options since 2003, and does not anticipate issuing any
for the foreseeable future. The other three forms of award which the Company has continued to
issue are: Restricted Stock, Performance Shares and Cash Units.
STOCK OPTIONS - The Company issued stock options between 1999 and 2003 and accounted for those
options under APB No. 25 through December 31, 2005, under which no compensation cost has been
recognized in the Consolidated Statements of Income. Beginning January 1, 2006, compensation
expense was recognized when SFAS 123(R) became effective. If SFAS 123(R) had been followed for
2005, the impact on Net Income and Earnings per Share would have been negligible.
For purposes of this calculation, the Company arrived at the fair value of each stock grant at the
date of grant by using the Black Scholes Option Pricing model. Options began to become exercisable
one year from the date of grant. Vesting periods ranged from one to five years. The maximum term
ranged from five to ten years.
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-23
No stock options were awarded or issued during 2007, 2006 or 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
2005 |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
|
|
|
Exercise |
|
|
Shares |
|
Price |
|
Shares |
|
Price |
|
Shares |
|
Price |
|
|
|
|
|
|
|
For the Years Ended December 31: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of year |
|
|
180,853 |
|
|
$ |
24.62 |
|
|
|
202,271 |
|
|
$ |
24.04 |
|
|
|
251,835 |
|
|
$ |
22.85 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terminated |
|
|
(36,286 |
) |
|
|
27.71 |
|
|
|
(4,456 |
) |
|
|
27.95 |
|
|
|
(5,001 |
) |
|
|
25.78 |
|
Exercised |
|
|
(37,906 |
) |
|
|
21.33 |
|
|
|
(16,962 |
) |
|
|
16.76 |
|
|
|
(44,563 |
) |
|
|
17.11 |
|
|
|
|
|
|
|
|
Outstanding, end of year |
|
|
106,661 |
|
|
$ |
24.74 |
|
|
|
180,853 |
|
|
$ |
24.62 |
|
|
|
202,271 |
|
|
$ |
24.04 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year |
|
|
106,661 |
|
|
$ |
24.74 |
|
|
|
171,840 |
|
|
$ |
24.39 |
|
|
|
175,685 |
|
|
$ |
23.44 |
|
|
|
|
|
|
|
|
The intrinsic value of options exercised during the year ended December 31, 2007 was $120,000. The
following table summarizes the price ranges of the options outstanding and options exercisable as
of December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding and Exercisable |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
Average |
|
Weighted |
|
|
|
|
|
|
Remaining |
|
Average |
|
|
|
|
|
|
Contractual |
|
Exercise |
|
|
Shares |
|
Life (years) |
|
Price |
|
|
|
Range of prices: |
|
|
|
|
|
|
|
|
|
|
|
|
$12.00 - $14.99 |
|
|
6,059 |
|
|
|
1.3 |
|
|
$ |
14.83 |
|
$15.00 - $17.99 |
|
|
|
|
|
|
|
|
|
|
|
|
$18.00 - $20.99 |
|
|
14,074 |
|
|
|
2.9 |
|
|
|
20.42 |
|
$21.00 - $23.99 |
|
|
23,214 |
|
|
|
1.9 |
|
|
|
22.33 |
|
$24.00 - $26.99 |
|
|
22,535 |
|
|
|
4.9 |
|
|
|
25.78 |
|
$27.00 - $29.99 |
|
|
40,779 |
|
|
|
4.9 |
|
|
|
28.51 |
|
|
|
|
|
|
|
106,661 |
|
|
|
3.8 |
|
|
$ |
24.74 |
|
|
|
|
The intrinsic value of exercisable options as of December 31, 2007 was approximately $130,000. The
average remaining contractual term of exercisable options as of December 31, 2007 was approximately
3.8 years.
RESTRICTED STOCK AND COMMON STOCK EQUIVALENTS - The Company has granted restricted shares of Common
Stock and Performance Shares to key members of management under the 2004 PSP. These Common Stock
share awards provide the grantee with the rights of a shareholder, including the right to receive
dividends and to vote such shares, but not the right to sell or otherwise transfer the shares
during the restriction period. The value of these restricted shares is based on the market price
of the Companys Common Stock on the date of grant and compensation expense is recorded on a
straight-line basis over the awards vesting periods. The adoption of SFAS No. 123(R) had no impact
on the Companys recognition of stock-based compensation expense associated with the restricted
stock awards.
RESTRICTED STOCK (Non-Performance-Based Awards) - The following tables summarize the
non-performance-based restricted stock amounts and activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Number of |
|
|
Average Fair |
|
|
Number of |
|
|
Average |
|
For the years ended December 31, |
|
Shares |
|
|
Value |
|
|
Shares |
|
|
Fair Value |
|
Non-vested at beginning of year |
|
|
26,495 |
|
|
$ |
25.20 |
|
|
|
21,988 |
|
|
$ |
25.24 |
|
Granted |
|
|
|
|
|
|
|
|
|
|
4,507 |
|
|
|
25.00 |
|
Vested |
|
|
(9,359 |
) |
|
|
25.24 |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(2,044 |
) |
|
|
25.24 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at end of year |
|
|
15,092 |
|
|
$ |
25.17 |
|
|
|
26,495 |
|
|
$ |
25.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-24
There were no vested restricted stock shares as of December 31, 2006. The shares began vesting
during 2007. There have been 2,044 forfeitures of non-performance-based restricted stock for the year
ended December 31, 2007. We do not expect any shares to be forfeited in the first quarter
of 2008.
Total stock-based compensation recorded in the statement of income related to the
non-performance-based restricted stock awards was $48,000 and $187,000 during the years ended
December 31, 2007 and 2006, respectively, including accelerated vesting for an approved retirement
during 2006. The Compensation Committee of the Board of Directors may approve retirements of key
employees that trigger accelerated vesting. There was no expense recognized in the first nine
months of 2005 because the program was initiated in the fourth quarter of 2005. Total expense for
2005 was $5,000.
As of
December 31, 2007, $380,000 of unrecognized compensation costs related to
non-performance-based restricted stock is expected to be recognized over a straight-line basis for
a period of 6 years.
RESTRICTED STOCK AND COMMON STOCK EQUIVALENTS (Performance-Based) - The following tables summarize
the performance-based restricted stock amounts and activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
Grant Date |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
Number of |
|
|
Average |
|
|
Number of |
|
|
Average |
|
For the years ended December 31, |
|
Shares |
|
|
Fair Value |
|
|
Shares |
|
|
Fair Value |
|
Non-vested at beginning of year |
|
|
18,059 |
|
|
$ |
25.90 |
|
|
|
7,667 |
|
|
$ |
26.73 |
|
Granted |
|
|
13,186 |
|
|
$ |
22.38 |
|
|
|
18,059 |
|
|
$ |
24.93 |
|
Vested |
|
|
(7,666 |
) |
|
$ |
24.26 |
|
|
|
(6,087 |
) |
|
$ |
24.51 |
|
Forfeited |
|
|
(4,780 |
) |
|
$ |
24.93 |
|
|
|
(1,580 |
) |
|
$ |
24.51 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested at end of year |
|
|
18,799 |
|
|
$ |
25.11 |
|
|
|
18,059 |
|
|
$ |
25.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of performance-based restricted shares vested during the year ended December 31,
2007 was $151,000.
Total stock based compensation recorded in the Consolidated Statements of Income related to
performance-based restricted stock awards was $484,000 and $515,000 for the year ended December 31,
2007 and 2006, respectively.
The
Company is estimating a forfeiture rate of 30%. Upon meeting specific performance targets,
17,100 shares, reduced for actual performance targets achieved in 2007, will begin vesting in the
first quarter of 2008 and the remaining earned shares will vest over four years. The cost is being
recognized ratably over the vesting period. The aggregate intrinsic value of performance-based
restricted stock as of December 31, 2007 was $263,000.
NOTE 15: SEGMENT REPORTING
Our Company operates principally in three segments: water activities, real estate transactions, and
services and rentals. The water segment is comprised of our core regulated water activities to
supply water to our customers. Our real estate transactions segment involves selling or donating
for income tax benefits our limited excess real estate holdings. Our services and rentals segment
provides services on a contract basis and also leases certain of our properties to third parties.
The accounting policies of each reportable segment are the same as those described in the summary
of significant accounting policies.
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-25
Financial data for reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
|
|
Income |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
Expense |
|
|
|
|
|
(Loss) from |
|
|
|
|
|
|
|
|
|
|
Operating |
|
Other Income |
|
(net of |
|
Income |
|
Continuing |
(in thousands) |
|
Revenues |
|
Depreciation |
|
Expenses |
|
(Deductions) |
|
AFUDC) |
|
Taxes |
|
Operations |
|
For the year ended
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water Activities |
|
$ |
60,025 |
|
|
$ |
6,525 |
|
|
$ |
35,755 |
|
|
$ |
(1,641 |
) |
|
$ |
4,281 |
|
|
$ |
3,860 |
|
|
$ |
7,963 |
|
Real Estate Transactions |
|
|
227 |
|
|
|
|
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
(41 |
) |
|
|
167 |
|
Services and Rentals |
|
|
4,411 |
|
|
|
25 |
|
|
|
3,304 |
|
|
|
|
|
|
|
20 |
|
|
|
411 |
|
|
|
651 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
64,663 |
|
|
$ |
6,550 |
|
|
$ |
39,160 |
|
|
$ |
(1,641 |
) |
|
$ |
4,301 |
|
|
$ |
4,230 |
|
|
$ |
8,781 |
|
|
For the year ended
December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water Activities |
|
$ |
47,927 |
|
|
$ |
5,881 |
|
|
$ |
32,166 |
|
|
$ |
(598 |
) |
|
$ |
3,969 |
|
|
$ |
1,183 |
|
|
$ |
4,130 |
|
Real Estate Transactions |
|
|
1,002 |
|
|
|
|
|
|
|
359 |
|
|
|
|
|
|
|
|
|
|
|
(1,420 |
) |
|
|
2,063 |
|
Services and Rentals |
|
|
4,092 |
|
|
|
36 |
|
|
|
3,189 |
|
|
|
|
|
|
|
8 |
|
|
|
344 |
|
|
|
515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
53,021 |
|
|
$ |
5,917 |
|
|
$ |
35,714 |
|
|
$ |
(598 |
) |
|
$ |
3,977 |
|
|
$ |
107 |
|
|
$ |
6,708 |
|
|
For the year ended
December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Water Activities |
|
$ |
48,441 |
|
|
$ |
5,724 |
|
|
$ |
29,351 |
|
|
$ |
(481 |
) |
|
$ |
3,266 |
|
|
$ |
2,855 |
|
|
$ |
6,764 |
|
Real Estate Transactions |
|
|
495 |
|
|
|
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
|
|
475 |
|
|
|
(61 |
) |
Services and Rentals |
|
|
3,244 |
|
|
|
36 |
|
|
|
2,463 |
|
|
|
|
|
|
|
|
|
|
|
282 |
|
|
|
463 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
52,180 |
|
|
$ |
5,760 |
|
|
$ |
31,895 |
|
|
$ |
(481 |
) |
|
$ |
3,266 |
|
|
$ |
3,612 |
|
|
$ |
7,166 |
|
|
The Revenues shown in Water Activities above consist of revenues from water customers of
$59,026,000, $46,945,000 and $47,453,000 in the years 2007, 2006 and 2005, respectively.
Additionally, there were revenues associated with utility plant leased to others of $999,000,
$982,000 and $988,000 in the years 2007, 2006 and 2005, respectively.
|
|
|
|
|
|
|
|
|
At December 31 (in thousands): |
|
2007 |
|
|
2006 |
|
Total Plant and Other Investments: |
|
|
|
|
|
|
|
|
Water |
|
$ |
283,641 |
|
|
$ |
267,395 |
|
Non-Water |
|
|
673 |
|
|
|
697 |
|
|
|
|
|
|
|
|
Total Plant and Other Investments |
|
|
284,314 |
|
|
|
268,092 |
|
|
|
|
|
|
|
|
|
|
Other Assets: |
|
|
|
|
|
|
|
|
Water |
|
|
75,441 |
|
|
|
56,663 |
|
Non-Water |
|
|
1,058 |
|
|
|
3,385 |
|
|
|
|
|
|
|
|
Total Other Assets |
|
|
76,499 |
|
|
|
60,048 |
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
360,813 |
|
|
$ |
328,140 |
|
|
|
|
|
|
|
|
NOTE 16: COMMITMENTS AND CONTINGENCIES
Security The Bioterrorism Response Act of 2001 required every public water system serving over
3,300 people to prepare Vulnerability Assessments (VA) of their critical utility assets. The last
of these assessments required to be filed by our companies were submitted to the U.S. Environmental
Protection Agency in June 2004 and was followed by updated Emergency Response Plans in December
2004, per statutory requirements. The information within the VA is not subject to release to the
public and is protected from Freedom of Information Act inquiries.
Investment in security-related improvements is a continuing process and management believes that
the costs associated with any such improvements will be eligible for recovery in future rate
proceedings.
Reverse Privatization Connecticut Water derives its rights and franchises to operate from state
laws that are subject to alteration, amendment or repeal, and do not grant permanent exclusive
rights to our service areas. Our franchises are free from burdensome restrictions, are unlimited
as to time, and authorize us to sell potable water in all towns we now serve. There is the
possibility that states could revoke our franchises and allow a governmental entity to take over
some or all of our systems. From time to time such legislation is contemplated.
Environmental and Water Quality Regulation The Company is subject to environmental and water
quality regulations. Costs to comply with environmental and water quality regulations are
substantial. We are presently in compliance with current regulations, but the regulations are
subject to change at any time. The costs to comply with
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-26
future changes in state or federal regulations, which could require us to modify current filtration
facilities and/or construct new ones, or to replace any reduction of the safe yield from any of our
current sources of supply, could be substantial.
Rate Relief - Connecticut Water is a regulated public utility, which provides water services to its
customers. The rates that regulated companies charge their water customers are subject to the
jurisdiction of the regulatory authority of the DPUC.
In July 2006, the Company filed a rate application with the DPUC for Connecticut Water requesting
an increase in rates of approximately $14.6 million or 30%. On January 16, 2007, the DPUC issued
its final decision and approved a Settlement Agreement, negotiated with the Office of Consumer
Counsel and the DPUCs Prosecutorial Staff, that allowed Connecticut Water an increase of revenues
of approximately $10,940,000, or 22.3%. The Settlement Agreement allowed Connecticut Water to
defer a portion of the approved rate increase, approximately $3.8 million. The Company recognized
that increase through recording deferred revenues and a corresponding regulatory asset, as required
by the decision. Through December 31, 2007, the Company has recorded approximately $3.8 million in
deferred revenues. The second phase of the increase is expected to occur on April 1, 2008. On
January 31, 2008, the Company filed to reopen the case, a procedure required by the Settlement
Agreement, to implement the second phase. In addition to the approval for the inclusion in current
rates of the previously approved deferred revenues of $3.8 million, the filing includes requested
recovery of the costs associated with $15.5 million of additional capital investments made in 2007.
This portion of the second phase of the increase was also called for in the Settlement
Agreement.
The total increase associated with this second phase is a request of 12.6%, of which approximately
8.2% is for deferred revenues and 4.4% for the investment in additional capital in 2007.
Additionally, Connecticut Water agreed not to apply for a general rate increase that would become
effective prior to January 1, 2010.
A final decision on this second phase is expected by the end of March 2008.
In June 2007, the State of Connecticut adopted legislation which permits regulated water companies
to recapture money spent on eligible infrastructure improvements without a full rate case
proceeding. The DPUC may authorize regulated water companies to use a rate adjustment mechanism,
such as a Water Infrastructure and Conservation Adjustment (WICA), for eligible projects completed
and in service for the benefit of the customers. Regulated water companies may only charge
customers such an adjustment to the extent allowed by the DPUC based
on a water companys
infrastructure assessment report, as approved by the DPUC and upon semiannual filings which reflect
plant additions consistent with such report. The Company does not expect to be able to take
advantage of the WICA mechanism until at least the first quarter of 2009.
In any future rate proceedings, the DPUC may authorize Connecticut Water to charge rates which the
DPUC considers to be sufficient to recover the normal operating expenses and to allow Connecticut
Water an opportunity to earn what the DPUC considers to be a fair and reasonable return on our
invested capital.
Land Dispositions - The Company and its subsidiaries own additional parcels of land in Connecticut,
which may be suitable in the future for disposition, either by sale or by donation to
municipalities, other local governments or private charitable entities. These additional parcels
would include Class I and II parcels previously identified for long term conservation by the
Connecticut DEP, which have restrictions on development and resale based on provisions of the
Connecticut General Statutes.
In previous years, the Company generated a substantial portion of its net income in land donations
and sales. However, land donations are not expected to generate income at historical levels in
future periods. The Company plans to continue to utilize land donations and sales in 2008 to
generate income for this segment of our business.
Capital Expenditures - The Company has received approval from its Board of Directors to spend $18.4
million on capital expenditures in 2008.
NOTE 17: SUBSEQUENT EVENTS
ACQUISITIONS - On June 29, 2007, the Company announced that its principal operating subsidiary,
Connecticut Water, and its unregulated subsidiary, NEWUS, have entered into definitive purchase
agreements to acquire the regulated water utility assets of Eastern Connecticut Regional Water
Company, Inc. (Eastern), a wholly-owned subsidiary of Birmingham Utilities, Inc. (Birmingham) and
the unregulated assets of Birmingham H2O Services, Inc. (H2O). The agreements called for
Connecticut Water and NEWUS to pay a combined $3.5 million for the assets
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
F-27
acquired, which had a book value of $9.9 million. On November 16, 2007, the DPUC issued a final
decision approving the transactions. The transaction was completed January 16, 2008, at which
point all of the former customers of Eastern became customers of Connecticut Water.
NOTE 18: QUARTERLY FINANCIAL DATA (Unaudited)
Selected quarterly financial data for the years ended December 31, 2007 and 2006 appears below:
(in thousands, except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Fourth Quarter |
|
|
2007 |
|
2006 |
|
|
2007 |
|
2006 |
|
|
2007 |
|
2006 |
|
|
2007 |
|
2006 |
|
|
|
|
|
|
|
|
|
|
Operating Revenues |
|
$ |
13,162 |
|
|
$ |
10,458 |
|
|
|
$ |
14,446 |
|
|
$ |
11,428 |
|
|
|
$ |
16,951 |
|
|
$ |
13,346 |
|
|
|
$ |
14,467 |
|
|
$ |
11,713 |
|
Total Utility
Operating Income |
|
|
2,412 |
|
|
|
1,581 |
|
|
|
|
2,969 |
|
|
|
2,092 |
|
|
|
|
5,021 |
|
|
|
3,513 |
|
|
|
|
2,852 |
|
|
|
339 |
|
Income from Continuing
Operations |
|
|
1,475 |
|
|
|
1,697 |
|
|
|
|
1,862 |
|
|
|
977 |
|
|
|
|
3,899 |
|
|
|
3,503 |
|
|
|
|
1,545 |
|
|
|
531 |
|
Discontinued Operations |
|
|
|
|
|
|
19 |
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
|
|
|
215 |
|
|
|
|
|
|
|
|
3 |
|
Net Income |
|
|
1,475 |
|
|
|
1,716 |
|
|
|
|
1,862 |
|
|
|
983 |
|
|
|
|
3,899 |
|
|
|
3,718 |
|
|
|
|
1,545 |
|
|
|
534 |
|
Basic Earnings per
Common Share -
Continuing Operations |
|
|
0.18 |
|
|
|
0.21 |
|
|
|
|
0.22 |
|
|
|
0.12 |
|
|
|
|
0.47 |
|
|
|
0.42 |
|
|
|
|
0.19 |
|
|
|
0.06 |
|
Basic Earnings per
Common Share -
Discontinued
Operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.03 |
|
|
|
|
|
|
|
|
|
|
Basic Earnings per
Common Share |
|
|
0.18 |
|
|
|
0.21 |
|
|
|
|
0.22 |
|
|
|
0.12 |
|
|
|
|
0.47 |
|
|
|
0.45 |
|
|
|
|
0.19 |
|
|
|
0.06 |
|
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
E-1
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
3.1
|
|
Certificate of Incorporation of Connecticut Water Service, Inc. amended and
restated as of April, 1998. (Exhibit 3.1 to Form 10-K for the year ended 12/31/98). |
|
|
|
3.2
|
|
By-Laws, as amended, of Connecticut Water Service, Inc. as amended and restated
as of August 17, 2007. (Exhibit 3.1 to Form 8-K filed on August 21, 2007). |
|
|
|
3.3
|
|
Certification of Incorporation of The Connecticut Water Company effective April,
1998. (Exhibit 3.3 to Form 10-K for the year ended 12/31/98). |
|
|
|
3.4
|
|
Certificate of Amendment to the Certificate of Incorporation of Connecticut Water Service,
Inc. dated August 6, 2001. (Exhibit 3.4 to Form 10-K for the year ended 12/31/01). |
|
|
|
3.5
|
|
Certificate of Amendment to the Amended and Restated Certificate of Incorporation of
Connecticut Water Service, Inc. dated April 23, 2004. (Exhibit 3.5 to Form 10-Q for the
quarter ended 3/31/03). |
|
|
|
4.1
|
|
Loan Agreement dated as of October 1, 2003 between the Connecticut Development Authority and
The Connecticut Water Company. (Exhibit 4.12 to Form 10-K for the year ended 12/31/03). |
|
|
|
4.2
|
|
Indenture of Trust dated as of October 1, 2003 between the Connecticut Development Authority
and The Connecticut Water Company. (Exhibit 4.13 to Form 10-K for the year ended 12/31/03). |
|
|
|
4.3
|
|
Loan Agreement dated as of October 1, 2003 between the Connecticut Development Authority and
The Connecticut Water Company. (Exhibit 4.14 to Form 10-K for the year ended 12/31/03). |
|
|
|
4.4
|
|
Indenture of Trust dated as of October 1, 2003 between the Connecticut Development Authority
and The Connecticut Water Company. (Exhibit 4.15 to Form 10-K for the year ended 12/31/03). |
|
|
|
4.5
|
|
Bond Purchase Agreement dated as of October 10, 2003 among Connecticut Development Authority,
The Connecticut Water Company and A.G. Edwards and Sons, Inc. (Exhibit 4.16 to Form 10-K for
the year ended 12/31/03). |
|
|
|
4.6
|
|
Line of Credit Agreement dated as of March 12, 2004 between Webster Bank and Connecticut
Water Service, Inc. (Exhibit 4.17 to Form 10-Q for the quarter ended 3/31/04). |
|
|
|
4.7
|
|
Bond Purchase Agreement dated as of March 12, 2004, among The Connecticut
Water Company and A.G. Edwards & Sons, Inc. (Exhibit 4.18 to Form 10-Q for the
quarter ended 3/31/04). |
E-2
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
4.8
|
|
Indenture of Trust, dated as of March 1, 2004, between The Connecticut Water Company and U.S.
Bank National Association, as Trustee. (Exhibit 4.19 to Form 10-Q for the quarter ended
3/31/04). |
|
|
|
4.9
|
|
Reimbursement and Credit Agreement, dated as of March 1, 2004, between The Connecticut Water
Company and Citizens Bank of Rhode Island. (Exhibit 4.20 to Form 10-Q for the quarter ended
3/31/04). |
|
|
|
4.10
|
|
Letter of Credit issued by Citizens Bank of Rhode Island, dated as of March 4, 2004.
(Exhibit 4.21 to Form 10-Q for the quarter ended 3/31/04). |
|
|
|
4.11
|
|
Agreement No. DWSRF 200103-C Project Loan Agreement between the State of Connecticut and
Unionville Water Company under the Drinking Water State Revolving Fund (DWSRF) Program, dated
as of April 19, 2004. (Exhibit 4.22 to Form 10-Q for the quarter ended 6/30/04). |
|
|
|
4.12
|
|
Collateral Assignment of Water Service Charges and Right to Receive Water Service Expense
Assessments and Security Agreement between Unionville Water Company and the State of
Connecticut, dated as of June 3, 2004. (Exhibit 4.23 to Form 10-Q for the quarter ended
6/30/04). |
|
|
|
4.13
|
|
Bond Purchase Agreement, dated September 1, 2004, among The Connecticut Water Company,
Connecticut Development Authority, and A.G. Edwards & Sons, Inc. (Exhibit 4.24 to Form 10-Q
for the quarter ended 9/30/04). |
|
|
|
4.14
|
|
Indenture of Trust, dated August 1, 2004, between The Connecticut Water Company and U.S. Bank
National Association, as Trustee, 2004A Series. (Exhibit 4.25 to Form 10-Q for the quarter
ended 9/30/04). |
|
|
|
4.15
|
|
Indenture of Trust, dated August 1, 2004, between The Connecticut Water Company and U.S. Bank
National Association, as Trustee, 2004B Series. (Exhibit 4.26 to Form 10-Q for the quarter
ended 9/30/04). |
|
|
|
4.16
|
|
Loan Agreement, dated August 1, 2004, between The Connecticut Water Company and Connecticut
Development Authority for 2004 Series. (Exhibit 4.27 to Form 10-Q for the quarter ended
9/30/04). |
|
|
|
4.17
|
|
Loan Agreement, dated August 1, 2004, between The Connecticut Water Company and Connecticut
Development Authority for 2004B Series. (Exhibit 4.28 to Form 10-Q for the quarter ended
9/30/04). |
|
|
|
4.18
|
|
Reimbursement and Credit Agreement, dated as of August 1, 2004, between The Connecticut Water
Company and Citizens Bank of Rhode Island, 2004A Series. (Exhibit 4.29 to Form 10-Q for the
quarter ended 9/30/04). |
|
|
|
4.19
|
|
Reimbursement and Credit Agreement, dated as of August 1, 2004, between The Connecticut Water
Company and Citizens Bank of Rhode Island, 2004B Series. (Exhibit 4.30 to Form 10-Q for the
quarter ended 9/30/04). |
E-3
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
4.20
|
|
Letters of Credit, each dated September 2, 2004, between The Connecticut Water Company and
Citizens Bank of Rhode Island, with respect to each of the 2004A and 2004B Series Bonds.
(Exhibit 4.31 to Form 10-Q for the quarter ended 9/30/04). |
|
|
|
4.21
|
|
Bond Purchase Agreement, dated October 28, 2005, among The Connecticut Water Company,
Connecticut Development Authority and A.G. Edwards & Sons, Inc., Connecticut Water 2005A
Series. (Exhibit 4.24 to Form 10-K for the year ended 12/31/05). |
|
|
|
4.22
|
|
Loan Agreement, dated October 1, 2005, between The Connecticut Water Company and Connecticut
Development Authority, Connecticut Water 2005A Series. (Exhibit 4.25 to Form 10-K for the year
ended 12/31/05). |
|
|
|
4.23
|
|
Indenture of Trust, dated October 1, 2005, between Connecticut Development Authority and U.S.
Bank National Association, as Trustee, Connecticut Water 2005A Series. (Exhibit 4.26 to Form
10-K for the year ended 12/31/05). |
|
|
|
4.24
|
|
Insurance Agreement, dated November 30, 2005, between The Connecticut Water Company and
Financial Guaranty Insurance Company, as Insurer for The Connecticut Water 2005A Series.
(Exhibit 4.27 to Form 10-K for the year ended 12/31/05). |
|
|
|
4.25
|
|
Bond Purchase Agreement, dated November 16, 2005, among The Crystal Water Company of
Danielson, Connecticut Water Service, Inc., Connecticut Development Authority and A.G. Edwards
& Sons, Inc., Crystal Water 2005A Series. (Exhibit 4.28 to Form 10-K for the year ended
12/31/05). |
|
|
|
4.26
|
|
Guaranty dated as of October 1, 2005 from Connecticut Water Service, Inc. to U.S. Bank
National Association, as Trustee, Crystal Water 2005A Series. (Exhibit 4.29 to Form 10-K for
the year ended 12/31/05). |
|
|
|
4.27
|
|
Loan Agreement, dated October 1, 2005, between The Crystal Water Company of Danielson and
Connecticut Development Authority, Crystal Water 2005A Series. (Exhibit 4.30 to Form 10-K for
the year ended 12/31/05). |
|
|
|
4.28
|
|
Indenture of Trust, dated October 1, 2005, between Connecticut Development Authority and U.S.
Bank National Association, as Trustee, Crystal Water 2005A Series. (Exhibit 4.31 to Form 10-K
for the year ended 12/31/05). |
|
|
|
4.29
|
|
Insurance Agreement, dated November 30, 2005, between The Crystal Water Company of Danielson
and Financial Guaranty Insurance Company, as Insurer for the Crystal Water 2005A Series.
(Exhibit 4.32 to Form 10-K for the year ended 12/31/05). |
|
|
|
4.30
|
|
First Amendment to Reimbursement and Credit Agreement, dated as of April 28, 2006, between
The Connecticut Water Company and Citizens Bank of Rhode Island, 2004A Series. (Exhibit 10.1
to Form 10-Q for the period ending 3/31/06). |
E-4
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
4.31
|
|
First Amendment to Reimbursement and Credit Agreement, dated as of April 28, 2006, between
The Connecticut Water Company and Citizens Bank of Rhode Island, 2004B Series. (Exhibit 10.2
to Form 10-Q for the period ending 3/31/06). |
|
|
|
4.32
|
|
First Amendment to Reimbursement and Credit Agreement, dated as of April 28, 2006, between
The Connecticut Water Company and Citizens Bank of Rhode Island, 2004 Series Variable Rate,
due 2029. (Exhibit 10.3 to Form 10-Q for the period ending 3/31/06). |
|
|
|
4.33*
|
|
Bond Purchase Agreement, dated December 5, 2007, among The Connecticut Water Company,
Connecticut Development Authority, and Edward Jones and Company, L.P. water facilities Revenue
Bonds 2007A Series (AMT). |
|
|
|
4.34*
|
|
Loan Agreement dated as of December 5, 2007, among The Connecticut Water Company, and
Connecticut Development Authority, Water Facilities Revenue Bonds 2007A Series (AMT). |
|
|
|
4.35*
|
|
Indenture of Trust dated as of December 5, 2007, among The Connecticut Water Company, and
Connecticut Development Authority, Water Facilities Revenue Bonds 2007A Series (AMT). |
|
|
|
10.1
|
|
Pension Plan Fiduciary Liability Insurance for The Connecticut Water Company Employees
Retirement Plan and Trust, The Connecticut Water Company Tax Credit Employee Stock Ownership
Plan, as Amended and Restated, Savings Plan of The Connecticut Water Company and The
Connecticut Water Company VEBA Trust Fund. (Exhibit 10.1 to Registration Statement
No. 2-74938). |
|
|
|
10.2
|
|
Directors and Officers Liability and Corporation Reimbursement Insurance. (Exhibit 10.2 to
Registration Statement No. 2-74938). |
|
|
|
10.3
|
|
Directors Deferred Compensation Plan, effective as of January 1, 1980, as amended as of
January 1, 2008. (Exhibit 10.7 to Form 8-K filed on January 30, 2008). |
|
|
|
10.4
|
|
Savings Plan of The Connecticut Water Company, amended and restated effective
as of October 1, 2000. (Exhibit 10.12 to Form 10-K for the year ended 12/31/01). |
|
|
|
10.4a
|
|
Trust Agreement between Connecticut Water Company and Riggs Bank N.A.,
Trustee, dated as of June 1, 2002. (Exhibit 10.12.1 to Form 10-K for the year ended
12/31/03). |
|
|
|
10.4b
|
|
Post-EGTRRA Amendment to the Savings Plan of The Connecticut Water Company, effective
January 1, 2002. (Exhibit 10.12.2 to Form 10-K for the year
ended 12/31/03). |
|
|
|
10.4c
|
|
Supplemental Participation Agreement to the Savings Plan of The Connecticut Water Company
between The Unionville Water Company and Connecticut Water Company, dated December 30, 2003.
(Exhibit 10.12.3 to Form 10-K for the year ended 12/31/03). |
E-5
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
10.4d
|
|
Supplemental Participation Agreement to the Savings Plan of The Connecticut Water Company
between The Crystal Water Company of Danielson and Connecticut Water Company, dated December
30, 2003. (Exhibit 10.12.4 to Form 10-K for the year ended 12/31/03). |
|
|
|
10.4e
|
|
Supplemental Participation Agreement to the Savings Plan of The Connecticut Water Company
between Unionville Water Company and Connecticut Water Company, dated February 23, 2004.
(Exhibit 10.12.5 to Form 10-K for the year ended 12/31/04). |
|
|
|
10.5
|
|
The Connecticut Water Company Employees Retirement Plan as amended and restated as of
January 1, 1997. (Exhibit 10.11 to Form 10-K for the year ended 12/31/98). |
|
|
|
10.5a
|
|
First Amendment, dated August 16, 2000 to the amended and restated Connecticut Water Company
Employees Retirement Plan effective January 1, 1997. (Exhibit 10.13.1 to Form 10-K for the
year ended 12/31/02). |
|
|
|
10.5b
|
|
Second Amendment, dated November 14, 2000 to the amended and restated Connecticut Water
Company Employees Retirement Plan effective January 1, 1997. (Exhibit 10.13.2 to Form 10-K
for the year ended 12/31/02). |
|
|
|
10.5c
|
|
Third Amendment, dated November 14, 2001 to the amended and restated Connecticut Water
Company Employees Retirement Plan effective January 1, 1997. (Exhibit 10.13.3 to Form 10-K
for the year ended 12/31/02). |
|
|
|
10.5d
|
|
Fourth Amendment, dated August 14, 2002 to the amended and restated Connecticut Water
Company Employees Retirement Plan effective January 1, 1997. (Exhibit 10.13.4 to Form 10-K
for the year ended 12/31/02). |
|
|
|
10.5e
|
|
Fifth Amendment, dated August 14, 2002 to the amended and restated Connecticut Water Company
Employees Retirement Plan effective January 1, 1997. (Exhibit 10.13.5 to Form 10-K for the
year ended 12/31/02). |
|
|
|
10.5f
|
|
Sixth Amendment, dated November 10, 2003 to the amended and restated Connecticut Water
Company Employees Retirement Plan effective November 12, 2003. (Exhibit 10.13.6 to Form 10-K
for the year ended 12/31/03). |
|
|
|
10.5g
|
|
Seventh Amendment, dated May 12, 2004 to the amended and restated Connecticut Water
Employees Retirement Plan effective January 1, 1997. (Exhibit 10.13.7 to Form 10-K for the
year ended 12/31/04). |
|
|
|
10.5h*
|
|
Eighth Amendment, effective March 28, 2005, to the amended and restated Connecticut Water
Company Employees Retirement Plan effective January 1, 1997. |
E-6
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
10.5i*
|
|
Ninth Amendment, effective August 9, 2006, to the amended and restated Connecticut Water
Company Employees Retirement Plan effective January 1, 1997. |
|
|
|
10.6
|
|
November 4, 1994 Amendment to Agreement dated December 11, 1957 between The Connecticut Water
Company (successor to the Thomaston Water Company) and the City of Waterbury. (Exhibit 10.16
to Form 10-K for year ended 12/31/94). |
|
|
|
10.7
|
|
Agreement dated August 13, 1986 between The Connecticut Water Company and the Metropolitan
District. (Exhibit 10.14 to Form 10-K for the year ended 12/31/86). |
|
|
|
10.8
|
|
Report of the Commission to Study the Feasibility of Expanding the Water Supply Services of
the Metropolitan District. (Exhibit 14 to Registration Statement No. 2-61843). |
|
|
|
10.9
|
|
Bond Exchange Agreements between Connecticut Water Service, Inc., The Connecticut Water
Company Bankers Life Company and Connecticut Mutual Life Insurance Company dated October 23,
1978. (Exhibit 14 to Form 10-K for the year ended 12/31/78). |
|
|
|
10.10
|
|
Dividend Reinvestment and Common Stock Purchase Plan, amended and restated as of November
15, 2001. (Exhibit 99.1 to post-effective amendment filed on December 5, 2001 to Form S-3,
Registration Statement No. 33-53211). |
|
|
|
10.11
|
|
Contract for Supplying Bradley International Airport. (Exhibit 10.21 to Form 10-K for the
year ended 12/31/84). |
|
|
|
10.12
|
|
Report of South Windsor Task Force. (Exhibit 10.23 to Form 10-K for the year ended
12/31/87). |
|
|
|
10.13
|
|
Trust Agreement for The Connecticut Water Company Welfare Benefits Plan (VEBA) dated
January 1, 1989. (Exhibit 10.21 to Form 10-K for year ended 12/31/89). |
|
|
|
10.14
|
|
1994 Performance Stock Program, as amended and restated as of April 26, 2002.
(Exhibit A to Proxy Statement dated 3/19/02). |
|
|
|
10.14a
|
|
First Amendment to The Connecticut Water Service, Inc. Performance Stock Program Amended and
Restated as of April 26, 2002 (the Plan) dated December 1, 2005. (Exhibit 10.22a to Form
10-K for the year ended 12/31/05). |
|
|
|
10.14b
|
|
Second Amendment to The Connecticut Water Service, Inc. Performance Stock Program Amended
and Restated as of April 26, 2002 (the Plan) dated January 1, 2008. (Exhibit 10.5 to 8-K
filed on 1/30/08). |
E-7
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
10.15
|
|
2004 Performance Stock Program, as of April 23, 2004. (Appendix A to Proxy Statement dated
3/12/04). |
|
|
|
10.15a
|
|
First Amendment to The Connecticut Water Service, Inc. 2004 Performance Stock Program, dated
January 7, 2004. (Exhibit 10.23f to Form 10-K for the year ended 12/31/05). |
|
|
|
10.15b
|
|
Second Amendment to The Connecticut Water Service, Inc. 2004 Performance Stock Program,
dated January 1, 2008. (Exhibit 10.6 to Form 8-K filed on 1/30/08). |
|
|
|
10.15c
|
|
Connecticut Water Service, Inc. Performance Stock Program Incentive Stock Option Grant Form.
(Exhibit 10.1 to Form 10-Q for the quarter ended 9/30/04). |
|
|
|
10.15d
|
|
Connecticut Water Service, Inc. Performance Stock Program Non-Qualified Stock Option Grant
Form. (Exhibit 10.2 to Form 10-Q for the quarter ended 9/30/04). |
|
|
|
10.15e
|
|
Restricted Stock Agreement, standard form for officers, dated December 1, 2005
(Exhibit 10.1 to Form 8-K dated 1/13/06). |
|
|
|
10.15f
|
|
Long-Term Performance Award Agreement, standard form for officers, dated January 11, 2006
(Exhibit 10.2 to Form 8-K dated 1/13/06). |
|
|
|
10.15g
|
|
Performance Award Agreement, standard form for officers, dated January 11, 2006 (Exhibit
10.3 to Form 8-K dated 1/13/06). |
|
|
|
10.16
|
|
Settlement Agreement between Connecticut Water Company, Mary J. Healey, Office of Consumer
Counsel of the State of Connecticut, and the Prosecutorial Staff of the DPUC, dated December
4, 2006. (Exhibit 10.1 to Form 8-K dated 12/6/06). |
|
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10.16a
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Revised Settlement Agreement between Connecticut Water Company, Mary J. Healey, Office of
Consumer Counsel of the State of Connecticut, and the Prosecutorial Staff of the DPUC, dated
December 20, 2006. (Exhibit 99.1 to Form 8-K dated 1/18/07). |
|
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10.16b
|
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Final Decision of the Connecticut DPUC, Docket No. 06-07-08, dated January 16, 2007.
(Exhibit 99.2 to Form 8-K dated 1/18/07). |
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10.17
|
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Connecticut Water Service, Inc. and Subsidiaries Employee Code of Conduct, January 1, 2007. |
|
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10.18
|
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Asset Purchase Agreement between The Connecticut Water Company and the Eastern Connecticut
Regional Water Company, Inc., dated as of June 29, 2007 (Exhibit 99.1 to Form 8-K filed on
July 3, 2007). |
|
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10.19
|
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Asset Purchase Agreement between New England Water Utility Services, Inc. and Birmingham H2O
Services Inc., dated as of June 29, 2007 (Exhibit 99.2 to Form 8-K filed on July 3, 2007). |
E-8
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Exhibit |
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Number |
|
Description |
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10.20
|
|
Employment agreement between The Connecticut Water Company and Connecticut Water Service,
Inc. with Nicholas A. Rinaldi amended and restated as of November 5, 2007 (Exhibit 10.1 to
Form 8-K dated on November 9, 2007). |
|
|
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10.21
|
|
Form of Amended Restated Employment Agreement with the Companys executive officers (Exhibit
10.1 to Form 8-K filed on January 30, 2008, including: |
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a) Peter J. Bancroft |
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b) David C. Benoit |
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c) Kristen A. Johnson |
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d) Thomas R. Marston |
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e) Daniel J. Meaney |
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f) Terrance P. ONeill |
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g) Nicholas A. Rinaldi |
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h) Eric W. Thornburg |
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i) Maureen P. Westbrook |
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10.22
|
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Form of Amended and Restated Supplemental Executive Retirement Agreement with the Companys
executive officers (Exhibit 10.2 to Form 8-K filed on January 30, 2008), including: |
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a) Peter J. Bancroft |
|
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b) David C. Benoit |
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c) Kristen A. Johnson |
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d) Thomas R. Marston |
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e) Daniel J. Meaney |
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f) Terrance P. ONeill |
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g) Nicholas A. Rinaldi |
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h) Eric W. Thornburg |
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i) Maureen P. Westbrook |
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10.23
|
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Form of Amended and Restated Deferred Compensation Agreement with the Companys executive
officer (Exhibit 10.3 to Form 8-K filed on January 30, 2008), including: |
|
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a) Peter J. Bancroft |
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b) David C. Benoit |
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c) Kristen A. Johnson |
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d) Thomas R. Marston |
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e) Daniel J. Meaney |
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f) Terrance P. ONeill |
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g) Nicholas A. Rinaldi |
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h) Eric W. Thornburg |
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i) Maureen P. Westbrook |
E-9
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Exhibit |
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|
Number |
|
Description |
|
|
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10.24
|
|
Employment agreement between The Connecticut Water Company and Connecticut Water Service,
Inc. with Kristen A. Johnson amended and restated as of January 24, 2008 (Exhibit 10.1 and
10.2 to Form 8-K dated on January 30, 2008). |
|
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10.25
|
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Employment agreement between The Connecticut Water Company and Connecticut Water Service,
Inc. with Thomas R. Marston amended and restated as of January 24, 2008 (Exhibit 10.1 and 10.2
to Form 8-K dated on January 30, 2008). |
|
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21*
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Connecticut Water Service, Inc. Subsidiaries Listing |
|
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23.1*
|
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Consent of Independent Registered Public Accounting Firm |
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31.1*
|
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Rule 13a-14 Certification of Eric W. Thornburg, Chief Executive Officer. |
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31.2*
|
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Rule 13a-14 Certification of David C. Benoit, Chief Financial Officer. |
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32.1*
|
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Certification of Eric W. Thornburg, Chief Executive Officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
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32.2*
|
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Certification of David C. Benoit, Chief Financial Officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
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* = filed herewith |
|
Note: |
|
Exhibits 10.1 through 10.5i, 10.13 through 10.15g, and 10.20 through 10.25 set forth each
management contract or compensatory plan or arrangement required to be filed as an exhibit to
this Form 10-K. |
40
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
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CONNECTICUT WATER SERVICE, INC.
Registrant
|
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By |
/s/ Eric W. Thornburg
|
|
March 17, 2008 |
|
Eric W. Thornburg |
|
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President and Chief Executive Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed by the following persons on behalf of Connecticut Water Service, Inc. in the capacities and
on the dates indicated.
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Signature |
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Title |
|
Date |
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|
/s/ Eric W. Thornburg |
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Eric W. Thornburg (Principal Executive Officer)
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President, Director, and Chief Executive Officer
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March 17, 2008 |
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/s/ David C. Benoit |
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David C. Benoit
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Vice President Finance,
|
|
March 17, 2008 |
(Principal Financial
and Accounting Officer)
|
|
Chief Financial Officer and Treasurer |
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41
|
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Signature |
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Title |
|
Date |
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/s/ Mary Ann Hanley
|
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Director
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March 10, 2008 |
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Mary Ann Hanley |
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/s/ Heather Hunt
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Director
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March 12, 2008 |
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Heather Hunt |
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/s/ Mark G. Kachur
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Director
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March 7, 2008 |
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Mark G. Kachur |
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/s/ Ronald D. Lengyel
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Director
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March 10, 2008 |
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Ronald D. Lengyel |
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/s/ David A. Lentini
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Director
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March 10, 2008 |
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David A. Lentini |
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/s/ Arthur C. Reeds
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Director
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March 8, 2008 |
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Arthur C. Reeds |
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/s/ Lisa J. Thibdaue
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Director
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March 10, 2008 |
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Lisa J. Thibdaue |
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/s/ Carol P. Wallace
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Director
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March 12, 2008 |
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Carol P. Wallace |
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/s/ Donald B. Wilbur
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Director
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|
March 7, 2008 |
|
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|
|
Donald B. Wilbur |
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|
|
S-1
CONNECTICUT WATER SERVICE, INC. and SUBSIDIARIES
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance |
|
|
Additions |
|
|
Deductions |
|
|
Balance |
|
(in thousands) |
|
Beginning |
|
|
Charged to |
|
|
From |
|
|
End of |
|
Description |
|
of Year |
|
|
Income |
|
|
Reserves(1) |
|
|
Year |
|
Allowance for Uncollectible
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 |
|
$ |
285 |
|
|
$ |
265 |
|
|
$ |
198 |
|
|
$ |
352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2006 |
|
$ |
256 |
|
|
$ |
225 |
|
|
$ |
196 |
|
|
$ |
285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2005 |
|
$ |
212 |
|
|
$ |
156 |
|
|
$ |
112 |
|
|
$ |
256 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Amounts charged off as uncollectible after deducting recoveries. |