-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CS7T0uyQGykaYOmbEZGHkuFa75fMIJqlLqStMyXGvVnfhsQEdTjyK66B/50l1gsE u8JBKAP5EwGbUqyXOTyqsg== 0000914039-01-000098.txt : 20010327 0000914039-01-000098.hdr.sgml : 20010327 ACCESSION NUMBER: 0000914039-01-000098 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010326 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONNECTICUT WATER SERVICE INC / CT CENTRAL INDEX KEY: 0000276209 STANDARD INDUSTRIAL CLASSIFICATION: WATER SUPPLY [4941] IRS NUMBER: 060739839 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-08084 FILM NUMBER: 1578423 BUSINESS ADDRESS: STREET 1: 93 W MAIN ST CITY: CLINTON STATE: CT ZIP: 06413 BUSINESS PHONE: 8606698630 MAIL ADDRESS: STREET 1: 93 WEST MAIN ST CITY: CLINTON STATE: CT ZIP: 06413 10-K 1 y46855e10-k.txt 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K (X) Annual Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended DECEMBER 31, 2000 or ( ) Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to Commission File Number 0-8084 CONNECTICUT WATER SERVICE, INC. (Exact name of registrant as specified in its charter) CONNECTICUT 06-0739839 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 93 WEST MAIN STREET, CLINTON, CT 06413 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code (860) 669-8636 Securities registered pursuant to Section 12(b) of the Act: Title of each Class Name of each exchange on which registered NONE NOT APPLICABLE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve (12) months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229,405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) 2 2 The aggregate market value of the registrant's voting Common Stock, computed on the price of such stock at the close of business on March 1, 2001 is $150,330,000. 5,053,112 Number of shares of Common Stock outstanding, March 1, 2001 (excluding 20,139 common stock equivalent shares) DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Into Which Document Document is Incorporated Definitive Proxy Statement, dated Part III March 19, 2001, for Annual Meeting of Shareholders to be held on April 20, 2001.
3 3 PART I ITEM 1. BUSINESS The Company The Registrant, Connecticut Water Service, Inc. (referred to as "the Company", "we" or "our") was organized in 1956 and is the parent company of three regulated water utility companies, which generate approximately 99% of our consolidated net income. We supply water to over 70,000 customers, or 246,000 people, in 39 towns throughout the State of Connecticut. The Company and its subsidiaries collectively represent the largest domestic investor-owned water system in Connecticut measured by operating revenues and utility plant investment. In addition to our core regulated water business we offer related services on a contract basis to other water utilities, communities, businesses and homeowner associations through a number of unregulated subsidiary companies and through a joint venture formed in 1999 with a well pump service provider. These services range from one-time contracts for a particular service to long-term arrangements for water and wastewater system operation and management. We are also engaged in selling and/or donating our limited excess real estate holdings that are not necessary for our business or to protect our water sources. 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. Our Regulated Business 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 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 $50,000,000 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 $10,647,000 was expended in the last five years. We are currently in compliance with current regulations, but the regulations are subject to change. The costs to comply with future changes 4 4 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. Our water companies derive their 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 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. The rates we charge our water customers are established under the jurisdiction of and are approved by a state regulatory agency. It is our policy to seek rate relief as necessary to enable us to achieve an adequate rate of return. The following table shows information related to each of our water companies' most recent general rate filing.
Date of Last Allowed Allowed Rate Return on Equity Return on Decision Rate Base Connecticut Water 1991 12.7% 10.74% Crystal 1995 12.35% 10.16% Gallup 1994 N/A* N/A*
* Gallup's rates were based on its net income requirement, not on a rate of return methodology. Our Water System(s) Our water infrastructure consists of 27 noncontiguous water systems, all in the State of Connecticut. Our system, in total, consists of 1,120 miles of water main and reservoir storage capacity of 6.9 billion gallons. The safe dependable yield from our 29 active well fields and 19 reservoirs is approximately 45 million gallons per day. Water sources vary among the individual systems but overall approximately 45% of the total dependable yield comes from reservoirs and 55% from wells. Our sources of water supply are more than adequate to meet the present demand. Except for requests for voluntary conservation in the summers of 1988, 1995 and 1999, no restrictions on water use have been required in over 25 years. We supply water, and in most cases, fire protection to all or portions of 39 towns in Connecticut. The following table lists the customer count, operating revenues and customer water consumption for each of our water companies as of December 31, 2000.
Number of Water Customer Water Water Company customers Revenues Consumption ($000's) (millions of gallons) Connecticut Water Company 65,778 $ 39,047 5,613 Crystal Water Company 3,491 1,864 390 Gallup Water Service 1,175 601 79 Total 70,444 $ 41,512 6,082
5 5 The following table breaks down the above total figures by customer class:
Number of Water Customer Water Customer Class customers Revenues Consumption ($000's) (millions of gallons) Residential 62,570 $26,056 4,298 Commercial 4,457 4,920 1,019 Industrial 363 1,905 483 Public Authority 531 1,294 282 Fire Protection 1,221 6,884 0 Other (including non- metered accounts) 925 453 0 Total 70,444 $ 41,512 6,082
Disposition of Property We have established a policy of disposing of various small, discrete parcels of land over the next several years. This excess land, which is no longer required for water supply purposes, totals less than 600 acres as of December 31, 2000. We must comply with many regulatory restrictions before we can dispose of public water company property. There is a movement in Connecticut to protect land for open space purposes. In the extreme case, this movement could lead to a moratorium on all water company land sales. Legislation was passed in 2000 creating a new Connecticut corporate tax credit, which makes the donation of our excess land for protected open space purposes potentially more economically beneficial than a sale of the land. We have taken advantage of the new tax credit by donating 105 acres of land to the Town of Naugatuck in 2000 and 135 acres of land to the Town of Middlebury in January 2001. The new tax credit, in combination with federal and state charitable contribution deductions, resulted in after-tax gains from these transactions of approximately $475,000 and $1,100,000 in 2000 and January 2001, respectively. Competition Our water companies face competition, presently not material, from a few private water systems operating within, or adjacent to, their franchise areas and from municipal and public authority systems whose service areas in some cases overlap portions of Connecticut Water's franchise areas. Employees As of December 31, 2000, we employed a total of 172 persons. Our employees are not covered by collective bargaining agreements. We believe that our relations with our employees are good. 6 6 Expansion into Massachusetts In February 2001 we acquired the Barnstable Holding Company ("Barnstable") which is the parent company of the 7,200 customer Barnstable Water Company located in Barnstable, Massachusetts. In addition to owning a majority interest in the water company, Barnstable owns a majority interest in BARLACO, a real estate company owning approximately 100 acres of residential and commercial land in Hyannis and Barnstable, Massachusetts. The transaction was valued at approximately $6.5 million dollars and will be accounted for using the `pooling of interests' accounting method. The Town of Barnstable and the Hyannis Fire District have notified Barnstable that they are considering the possibility of acquiring the Barnstable Water Company and BARLACO. ITEM 2. PROPERTIES The properties of our water companies 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. Substantially all of the properties owned by our Connecticut Water and Crystal Water companies are subject to liens as security for debt. The net utility plant balances of the water companies at December 31, 2000 are as follows:
Net Utility Plant (000's) Connecticut Water $176,389 Crystal 8,310 Gallup 2,272 Total $186,971
The size of each company's system(s) in terms of miles of mains is as follows:
Miles of Transmission and Distribution Water Mains Connecticut Water 1,037 Crystal 66 Gallup 17 Total 1,120
We believe that our properties are maintained in good condition and in accordance with current standards of good waterworks industry practice. 7 7 ITEM 3. LEGAL PROCEEDINGS We are involved in various legal proceedings. 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 the subject that presents a reasonable likelihood of a material adverse impact on the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS Our Common Stock is traded on the NASDAQ exchange under the symbol "CTWS". Our quarterly high and low stock prices as reported by NASDAQ and the cash dividends we paid during 2000 and 1999 are listed as follows:
PRICE -------------------- DIVIDENDS Period HIGH LOW PAID* ------- ------- --------- 2000 First Quarter $34.000 $27.000 $.29666 Second Quarter 31.000 25.500 $.29666 Third Quarter 35.250 26.750 $.30000 Fourth Quarter 32.750 28.000 $.30000 1999 First Quarter $27.750 $23.750 $.29333 Second Quarter 29.250 19.000 $.29333 Third Quarter 37.000 28.500 $.29666 Fourth Quarter 37.000 27.875 $.29666
* Historic (Excludes the subsequent effect of the 1999 Gallup and Crystal mergers accounted for under the "pooling of interests" accounting method.) As of March 1, 2001 there were approximately 5,000 holders of record of our common stock. We presently intend to pay quarterly cash dividends in the future on March 15, June 15, September 17 and December 17 subject to our earnings and financial condition, regulatory requirements and other factors our Board of Directors may deem relevant. 8 8 ITEM 6. SELECTED FINANCIAL DATA CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES (1999 - 1990 Restated) SUPPLEMENTAL INFORMATION (UNAUDITED)
(Thousands of dollars except where indicated) Years Ended December 31, 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------------ SELECTED FINANCIAL DATA INCOME Operating Revenues $ 41,512 $ 42,624 $ 40,303 $ 40,917 $ 41,013 Operating Expenses $ 30,353 $ 31,397 $ 29,543 $ 30,060 $ 30,274 Operating Income $ 11,159 $ 11,227 $ 10,760 $ 10,857 $ 10,739 Interest and Debt Expense $ 4,541 $ 4,526 $ 4,606 $ 4,602 $ 4,286 Net Income Applicable to Common Stock $ 7,925 $ 7,489 $ 7,159 $ 7,027 $ 6,884 Cash Common Stock Dividends Paid $ 5,822 $ 5,538 $ 5,401 $ 5,324 $ 5,182 Dividend Payout Ratio 73% 74% 75% 76% 75% Weighted Average Common Shares Outstanding 4,852,694 4,845,188 4,835,721 4,824,990 4,796,577 Basic Earnings Per Average Common Share $ 1.63 $ 1.55 $ 1.48 $ 1.46 $ 1.44 Number of Shares Outstanding at Year End 4,852,667 4,847,031 4,836,856 4,828,207 4,818,696 ROE on Year End Common Equity 12.2% 12.0% 11.9% 12.0% 12.2% Declared Common Dividends Per Share* $ 1.193 $ 1.180 $ 1.167 $ 1.153 $ 1.133 * Not restated for subsequent acquisitions accounted for under the "pooling-of-interests" accounting method. BALANCE SHEET Common Stockholders' Equity $ 64,906 $ 62,576 $ 60,374 $ 58,371 $ 56,530 Long-Term Debt $ 64,658 $ 65,399 $ 65,611 $ 58,056 $ 58,034 Preferred Stock (Consolidated, Excluding Current Maturities) $ 772 $ 772 $ 772 $ 772 $ 772 - ------------------------------------------------------------------------------------------------------------------------------------ Total Capitalization $ 130,336 $ 128,747 $ 126,757 $ 117,199 $ 115,336 Stockholders' Equity (Includes Preferred Stock) 50% 49% 48% 50% 50% Long-Term Debt 50% 51% 52% 50% 50% Net Utility Plant $ 186,971 $ 181,342 $ 175,723 $ 172,081 $ 162,186 Book Value - Per Common Share $ 13.37 $ 12.91 $ 12.48 $ 12.09 $ 11.73 OPERATING DATA REVENUE CLASS Residential $ 26,056 $ 27,077 $ 25,495 $ 25,816 $ 25,888 Commercial 4,920 5,160 4,820 4,890 4,931 Industrial 1,905 1,850 1,747 1,962 1,960 Public Authority 1,294 1,374 1,208 1,218 1,215 Fire Protection 6,884 6,788 6,660 6,698 6,720 Other (including non-metered accounts) 453 375 373 333 299 - ------------------------------------------------------------------------------------------------------------------------------------ Total Operating Revenues $ 41,512 $ 42,624 $ 40,303 $ 40,917 $ 41,013 - ------------------------------------------------------------------------------------------------------------------------------------ Number of Customers (Average) 70,067 68,945 67,855 66,787 65,872 Billed Consumption (Millions of Gallons) 6,082 6,430 6,047 6,049 5,907 Number of Employees 172 169 177 178 180
9 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION OVERVIEW Connecticut Water Service, Inc. (the Company) is a non-operating holding company, whose income is derived from the earnings of its seven wholly owned subsidiary companies. Approximately 96% of the Company's earnings are attributable to The Connecticut Water Company, the Company's largest water utility subsidiary with approximately an additional 3% derived from the Company's two other regulated water utility companies, The Gallup Water Service, Incorporated and The Crystal Water Company of Danielson. These three companies supply water to 70,444 customers in 39 towns throughout the State of Connecticut. Each of these companies is subject to regulation by the Connecticut Department of Public Utility Control 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 utilities, the Company owns four unregulated companies; Chester Realty, Inc., a real estate company, Connecticut Water Utility Services, Inc., which provides contract water and sewer operations and other water related services, Connecticut Water Emergency Services, Inc., a provider of drinking and pool water by tanker truck and Crystal Water Utilities Corporation, a holding company which owns The Crystal Water Company of Danielson and three small rental properties. These unregulated companies currently generate 1% of the Company's total earnings. 2000 was the Company's 10th consecutive year of increased earnings and its 31st year of increased dividend payments. REGULATORY MATTERS AND INFLATION The Connecticut Water Company is the Company's largest subsidiary serving over 65,000 of the Company's 70,444 utility customers. Connecticut Water Company's revenues, like the Company's other two regulated water companies, are based on regulated rates that are determined in a regulatory rate proceeding. Connecticut Water's last general rate proceeding was in 1991. The resulting rate decision granted Connecticut Water a 12.7% allowed return on common equity and a 10.74% allowed return on rate base. The Company, like all other businesses, is affected by inflation, most notably by the continually increasing costs required to maintain, improve and expand its service capability. The cumulative effect of inflation results in significantly higher facility replacement costs, which must be recovered from future cash flows. The ability of the Company's water utility subsidiaries to recover this increased investment in facilities is primarily dependent upon future rate increases, which are subject to approval by the Connecticut Department of Public Utility Control. We do not presently plan to petition the DPUC for an increase in permanent rates in 2001. Future economic and financial market conditions, coupled with governmental regulations and fiscal policy, plus other factors which are unpredictable and often beyond our control, will influence when we request revisions to rates charged to our customers. 10 10 OUTLOOK The Company's profitability is primarily attributable to 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. We are continuing our expansion through acquisitions into 2001. In 2000 we signed an agreement to purchase the Barnstable Holding Company ("Barnstable") in a stock-for-stock exchange. Barnstable owns Barnstable Water Company, a regulated water company serving over 7,200 water customers in Barnstable, Massachusetts, and BARLACO, Inc., a separate real estate company owning approximately 100 acres of residential and commercial land in Hyannis and Barnstable, Massachusetts. This acquisition was completed in February of 2001. RESULTS OF OPERATIONS 2000 COMPARED WITH 1999 During 2000 the Company acquired Connecticut Water Emergency Services, Inc. (formerly Pugliese Construction Co., d.b.a. Howie's Water) and accounted for the acquisition as a "pooling of interests". Financial statements have been restated to include the results of the acquired company for all periods presented. Net income applicable to common stock for 2000 increased from that of 1999 by $436,000, or $.08 per average basic share. The increase in earnings is primarily due to tax benefits of a 2000 land donation and higher earnings on non-water sales and services. The following are the components of the 2000 earnings increase: - - Net Other Income (Deductions) increased $519,000: The increase in other income is primarily due to The Connecticut Water Company's 2000 donation of 104.6 acres of land to the Town of Naugatuck, Connecticut. This donation resulted in a net after tax gain of $474,000 resulting from a 50% Connecticut state tax credit in addition to state and federal charitable contribution tax deductions. Net non-water sales earnings increased $88,000, or 74% primarily as a result of our continuing efforts to increase earnings through unregulated activities. One such endeavor initiated in 2000 was our Linebacker(SM) maintenance service program. For a small annual cost to our customers, the Linebacker(SM) program protects them from incurring large expenses if their service lines should break. - - Utility Operating Income decreased $68,000: Operating revenues decreased $1,112,000, or 2.6% in 2000 as compared to 1999. This decrease is due to fluctuations in the summer weather, which directly affect our customers' water usage. The 1999 summer was unusually hot and dry while the 2000 summer was cool and rainy. Lower operation and maintenance expense partially offset the decrease in operating revenues. 11 11 Operation and Maintenance expenses were reduced $784,000, or 4.4% from 1999 levels due to cost containment efforts. Income taxes, classified as operating expenses, decreased $591,000 partially due to the decreased operating income. Depreciation and Taxes other than Income Taxes (primarily property taxes) increased in total by $370,000 primarily as a result of the increased investment in Utility Plant. - - Interest and Debt Expense increased $15,000: The increase in Interest and Debt expense is primarily due to higher interest rates on interim debt. The average weighted cost of this debt was 7.0% in 2000 as compared with 6.8% in 1999. 1999 COMPARED WITH 1998 Net income applicable to common stock for 1999 increased from that of 1998 by $330,000, or $.07 per basic common share, on an increased number of common shares outstanding due primarily to the following: - - Operating revenues increased $2,321,000: - Metered revenues increased $2,191,000 or 6.6% due to customer growth which increased metered revenues approximately $530,000 or 1.6% and an extremely hot, dry 1999 summer which significantly increased our customers' water consumption. - Non-metered revenues increased $130,000 or 1.8% primarily due to increased Public Fire Protection revenues related to our infrastructure additions upon which the revenues are based. - - Operating expenses increased $1,854,000 primarily due to the following: - Increase in Operation and Maintenance expense primarily due to increases in both labor and benefit costs - Increase in Depreciation expense due to higher investment in utility plant - Increase in Income Tax Expense primarily due to higher taxable income - Increase in Property Tax Expense due to our higher investment in utility plant - - Other income (Deductions) decreased $217,000 primarily due to lower gains on land sales and non water sales earnings. - - Interest and debt expense decreased $80,000 primarily from lower average balances of interim bank loans payable outstanding throughout 1999. 12 12 LIQUIDITY AND CAPITAL RESOURCES Interim bank loans payable at year end 2000 were $1,150,000, approximately $1,261,000 lower than at the end of 1999. We consider the current $9,000,000 lines of credit with two banks adequate to finance any expected short-term borrowing requirements that may arise from operations during 2001. Interest expense charged on interim bank loans will fluctuate based on financial market conditions experienced during 2001. The Board of Directors has approved a $8,000,000 construction budget for 2001, net of amounts to be financed by customer advances and contributions in aid of construction. Funds provided by operating activities are expected to finance all of this construction program given normal weather patterns and related operating revenue billings. Refer to Note 10, Utility Plant and Construction Program, in Notes to Consolidated Financial Statements for additional discussion of the Company's future construction program. FORWARD LOOKING INFORMATION This report, including management's discussion and analysis, contains certain forward looking statements regarding the Company's 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 Company's actual results to differ materially from expected results. Our water companies 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, when necessary, and numerous factors over which we have little or no control, such as the quantity of rainfall and temperature, industrial demand, financing costs, energy rates, and compliance with environmental and water quality regulations. 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 reports of Arthur Andersen LLP are included herein on pages F-1 through F-20. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None 13 13 PART III ITEM 10. EXECUTIVE OFFICERS OF THE COMPANY
Period Held or Prior Term of Office Name Age Office Position Expires M. T. Chiaraluce 58 President, Chief Held position of President 2001 Annual Meeting Executive Officer and Chairman of since January, 1992 and the Board position of Chief Executive Officer since July, 1992 D. C. Benoit 43 Vice President - Finance, Chief Held current position or 2001 Annual Meeting Financial Officer and Treasurer other executive position with the company since April, 1996 J. R. McQueen 58 Vice President - Engineering and Held current position or 2001 Annual Meeting Planning other management or engineering position with the Company since October, 1965 T. P. O'Neill 47 Vice President - Operations Held current position or 2001 Annual Meeting other engineering position with the Company since February, 1980 M. P. Westbrook 41 Vice President - Administration Held current position or 2001 Annual Meeting and Government Affairs other management position with the Company since September, 1988 P. J. Bancroft 51 Assistant Treasurer and Controller Held current position or 2001 Annual Meeting other accounting position with the Company since October, 1979 M. G. DiAcri 55 Corporate Secretary Held administrative position 2001 Annual Meeting with the Company since February, 1990
There are no family relationships between any of the Directors and Executive Officers of the Company. 14 14 ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to General Instruction G(3), the information called for by Items 10, (except for information concerning the executive officers of the Company) 11, 12 and 13 is hereby incorporated by reference from the Company's definitive proxy statement filed on EDGAR on or about March 19, 2001. Information concerning the executive officers of the Company is included as Item 10 of this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements: The report of the Company's management, the report of independent public accountants and the Company's 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 & Schedule F-1 Report of Independent Public Accountants F-2 Consolidated Statements of Income for the years Ended December 31, 2000, 1999, and 1998 F-3 Consolidated Balance Sheets at December 31, 2000 and 1999 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 F-5 Notes to Consolidated Financial Statements F-6
15 15 2. Financial Statement Schedules: The following schedules of the Company are included on the attached pages as indicated: Page Report of Independent Public Accountants on Schedule S-1 Schedule II Valuation and Qualifying Accounts and Reserves for the years ended December 31, 2000, 1999 and 1998 S-2 All other schedules provided for in the applicable accounting regulations of the Securities and Exchange Commission have been omitted because of the absence of conditions under which they are required or because the required information is set forth in the financial statements or notes thereto. 3. Exhibits: Exhibits 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. (b) Reports on Form 8-K: On December 6, 2000, the Company filed a Form 8-K dated December 6, 2000, reporting in Item 5, Other Events, that the Company had entered into a merger agreement to acquire Barnstable Holding Company. On February 28, 2001, the Company filed a Form 8-K dated February 23, 2001, reporting in Item 5, Other Events, that the Company had completed the pending merger with Barnstable Holding Company. 16 F-1 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
Page Index to Consolidated Financial Statements and Schedule F-1 Report of Independent Public Accountants F-2 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 F-3 Consolidated Balance Sheets at December 31, 2000, and 1999 F-4 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 F-5 Notes to Consolidated Financial Statements F-6 Report of Independent Public Accountants on Schedule S-1 Valuation and Qualifying Accounts S-2
17 F-2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of Connecticut Water Service, Inc.: We have audited the accompanying consolidated balance sheets of Connecticut Water Service, Inc., (a Connecticut corporation) and Subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Connecticut Water Service, Inc., and Subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Hartford, Connecticut February 9, 2001 18 Connecticut Water Service, Inc. and Subsidiaries F-3 CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts)
(Restated) (Restated) For the Years Ended December 31, 2000 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------------- Operating Revenues $41,512 $42,624 $40,303 -------- ---------- ---------- Operating Expenses Operation and Maintenance 17,028 17,812 17,241 Depreciation 4,500 4,390 4,133 Income Taxes 4,417 5,008 4,089 Taxes Other Than Income Taxes 4,408 4,187 4,080 -------- ---------- ---------- Total Operating Expenses 30,353 31,397 29,543 -------- ---------- ---------- Utility Operating Income 11,159 11,227 10,760 -------- ---------- ---------- Other Income (Deductions), Net of Taxes Gain on Property Transactions 534 97 285 Non-Water Sales Earnings 207 119 172 Allowance for Funds Used During Construction 416 435 434 Other 188 175 152 -------- ---------- ---------- Total Other Income (Deductions), Net of Taxes 1,345 826 1,043 -------- ---------- ---------- Interest and Debt Expenses Interest on Long-Term Debt 3,926 3,943 3,918 Other Interest Charges 396 337 472 Amortization of Debt Expense 219 246 216 -------- ---------- ---------- Total Interest and Debt Expenses 4,541 4,526 4,606 -------- ---------- ---------- Net Income Before Preferred Dividends 7,963 7,527 7,197 Preferred Stock Dividend Requirement 38 38 38 -------- ---------- ---------- Net Income Applicable to Common Stock $ 7,925 $7,489 $ 7,159 ======== ========== ========== Weighted Average Common Shares Outstanding: Basic 4,853 4,845 4,836 Diluted 4,872 4,856 4,836 Earnings Per Common Share: Basic $ 1.63 $ 1.55 $ 1.48 Diluted $ 1.63 $ 1.54 $ 1.48
The accompanying notes are an integral part of these consolidated financial statements. 19 Connecticut Water Service, Inc. and Subsidiaries F-4 CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF DOLLARS)
(Restated) December 31, 2000 1999 - --------------------------------------------------------------------------------------------------- ASSETS Utility Plant $247,643 $240,122 Construction Work in Progress 8,225 5,804 Utility Plant Acquisition Adjustments (1,256) (1,273) --------- ---------- 254,612 244,653 Accumulated Provision for Depreciation (67,641) (63,311) --------- ---------- Net Utility Plant 186,971 181,342 --------- ---------- Other Property and Investments 2,986 2,752 --------- ---------- Cash 262 1,020 Accounts Receivable (Less Allowance, 2000 - $197; 1999 - $455) 4,546 5,434 Accrued Unbilled Revenues 3,179 2,805 Materials and Supplies, at Average Cost 756 761 Prepayments and Other Current Assets 112 237 --------- ---------- Total Current Assets 8,855 10,257 --------- ---------- Unamortized Debt Issuance Expense 5,502 5,722 Unrecovered Income Taxes 9,040 8,843 Postretirement Benefits Other Than Pension 953 1,083 Other Costs 1,092 1,031 --------- ---------- Total Deferred Charges and Regulatory Assets 16,587 16,679 --------- ---------- Total Assets $215,399 $211,030 ========= ========== CAPITALIZATION AND LIABILITIES Common Stockholders' Equity: Common Stock without Par Value: Authorized - 7,500,000 Shares - Issued and Outstanding: 2000 - 4,852,667; 1999 - 4,847,031 $ 44,893 $ 44,666 Retained Earnings 20,013 17,910 --------- ---------- Common Stockholders' Equity 64,906 62,576 Preferred Stock 772 772 Long-Term Debt 64,658 65,399 --------- ---------- Total Capitalization 130,336 128,747 --------- ---------- Interim Bank Loans Payable 1,150 2,411 Current Portion Long-Term Debt 205 194 Accounts Payable 5,769 5,163 Accrued Taxes 717 829 Accrued Interest 640 650 Other Current Liabilities 93 61 --------- ---------- Total Current Liabilities 8,574 9,308 --------- ---------- Advances for Construction 16,982 15,994 --------- ---------- Contributions in Aid of Construction 25,409 24,165 --------- ---------- Deferred Federal Income Taxes 17,894 16,743 --------- ---------- Unfunded Future Income Taxes 8,546 8,349 --------- ---------- Long-Term Compensation Arrangements 5,706 5,713 --------- ---------- Unamortized Investment Tax Credits 1,952 2,011 --------- ---------- Commitments and Contingencies --------- ---------- Total Capitalization and Liabilities $215,399 $211,030 ========= ==========
The accompanying notes are an integral part of these consolidated financial statements. 20 Connecticut Water Service, Inc. and Subsidiaries F-5 CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
(Restated) (Restated) For the Years Ended December 31, 2000 1999 1998 - --------------------------------------------------------------------------------------------------------- Operating Activities: Net Income Before Preferred Dividends $ 7,963 $ 7,527 $ 7,197 -------- -------- -------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation (including $166 in 2000, $140 in 1999, and $139 in 1998 charged to other accounts) 4,666 4,530 4,272 Change in Assets and Liabilities: (Increase) Decrease in Accounts Receivable and Accrued Unbilled Revenues 514 (16) (338) (Increase) Decrease in Other Current Assets 130 (24) (161) (Increase) Decrease in Other Non-Current Items 48 275 (86) Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Current Liabilities 516 714 249 Increase in Deferred Income Taxes and Investment Tax Credits, Net 1,092 1,081 1,068 -------- -------- -------- Total Adjustments 6,966 6,560 5,004 -------- -------- -------- Net Cash Provided by Operating Activities 14,929 14,087 12,201 -------- -------- -------- Investing Activities: Gross Additions to Utility Plant (including Allowance For Funds Used During Construction of $428 in 2000, $454 in 1999 and $476 in 1998) (10,376) (10,289) (7,976) -------- -------- -------- Financing Activities: Proceeds from Interim Bank Loans 1,150 2,411 1,895 Repayment of Interim Bank Loans (2,411) (1,895) (8,811) Proceeds from Issuance of Long-Term Debt -- -- 18,018 Reduction of Long-Term Debt Including Current Portion (730) (442) (10,249) Proceeds from Issuance of Common Stock 227 251 280 Advances, Contributions and Funds from Others for Construction, Net 2,313 2,098 761 Costs Incurred to Issue Long-Term Debt and Common Stock -- -- (1,091) Cash Dividends Paid (5,860) (5,576) (5,438) -------- -------- -------- Net Cash Provided by (Used in) Financing Activities (5,311) (3,153) (4,635) -------- -------- -------- Net Increase (Decrease) in Cash (758) 645 (410) Cash at Beginning of Year 1,020 375 785 -------- -------- -------- Cash at End of Year $ 262 $ 1,020 $ 375 ======== ======== ======== Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (Net of Amounts Capitalized) $ 3,937 $ 4,488 $ 3,385 State and Federal Income Taxes $ 3,440 $ 3,660 $ 3,402
The accompanying notes are an integral part of these consolidated financial statements. 21 F-6 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION -The consolidated financial statements include the accounts of Connecticut Water Service, Inc. an investor-owned holding company (the Company) and its seven wholly owned subsidiaries, listed below: The Connecticut Water Company The Gallup Water Service, Incorporated Crystal Water Utilities Corporation The Crystal Water Company of Danielson Chester Realty, Inc. Connecticut Water Utility Services, Inc. Connecticut Water Emergency Services, Inc. During 2000 the Company acquired the Pugliese Construction Co., d.b.a. Howie's Water and accounted for the acquisition as a "pooling of interests". Accordingly, the Company's financial statements have been restated to include the results of the acquired company for all periods presented. Upon acquisition the acquired company was renamed "Connecticut Water Emergency Services, Inc." Connecticut Water, Gallup, and Crystal (our "water companies") are public water utility companies serving more than 70,400 customers in 39 towns throughout Connecticut. Crystal Water Utilities Corporation is a holding company, owning the stock of Crystal Water Company of Danielson and three small rental properties. Chester Realty, Inc. is a real estate company whose pretax profits from land sales are included in the "Gain on Property Transactions", category in the "Other Income (Deductions)" section of the Consolidated Statements of Income. Chester's pretax profits from rental of property are included in the "Other Income (Deductions)" section of the Income Statement in the "Non-Water Sales Earnings" category. Connecticut Water Utility Services, Inc. is engaged in water related services and contract operations. Its earnings are included in the "Non-Water Sales Earnings" category in the "Other Income (Deductions)" section of the Consolidated Statements of Income. Connecticut Water Emergency Services, Inc. is a provider of emergency drinking water and pool water via tanker trucks. Its net earnings are included in the "Non-Water Sales Earnings" category in the "Other Income (Deductions)" section of the Consolidated Statements of Income. Intercompany accounts and transactions have been eliminated, except those allocating costs for regulatory purposes between our regulated and non-regulated companies. PUBLIC UTILITY REGULATION - Our three water companies are subject to regulation for rates and other matters by the Connecticut Department of Public Utility Control (DPUC) and follow accounting policies prescribed by the DPUC. The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States which includes the provisions of Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation," (FAS 71). FAS 71 requires cost-based, rate-regulated enterprises such as our water companies to reflect the impact of regulatory decisions in their financial statements. The DPUC, through the rate regulation process, can create regulatory assets that result when costs are allowed for ratemaking purposes in a period other than 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 postretirement benefits costs. The Company believes, based on current regulatory circumstances, that the regulatory assets recorded are probable of recovery and that its use of regulatory accounting is appropriate and in accordance with the provisions of FAS 71. USE OF ESTIMATES - The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 - Generally, water customers are billed quarterly, except larger commercial and industrial customers, and public fire protection customers, who are billed monthly. Most customers, except fire protection customers, are metered. Revenues from metered customers are based on their usage times approved regulated rates. Public fire protection charges are based on the length and diameter of the water main and number of hydrants in service. Private fire protection charges are based on the diameter of the connection to the water main. Our water companies accrue an estimate for the amount of revenues relating to sales unbilled at the end of each quarter. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 22 F-7 UTILITY PLANT - Utility plant is stated at the original cost of such property when first devoted to public service. The difference between the original cost and the cost to our water companies is charged or credited to utility plant acquisition adjustments. Utility plant accounts are charged with the cost of improvements and replacements of property including an allowance for funds used during construction. Retired or disposed of depreciable plant is charged to accumulated provision for depreciation together with any costs applicable to retirement, less any salvage received. Maintenance of utility plant is charged to expense. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION - Allowance for Funds Used During Construction (AFUDC) is the cost of funds used to finance the construction of our water companies' utility plant. 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 not to degrade earnings, The Connecticut Water Company has received DPUC approval to record AFUDC on certain of its investments in these systems. Through December 31, 2000 The Connecticut Water Company has capitalized approximately $1,541,000 of AFUDC relating to financing these acquisitions. The allowed rate of return on rate base is used to calculate AFUDC. DEPRECIATION - Over 99.7% of the Company's depreciable plant is owned by its three water companies. Depreciation is computed on a straight line basis at various rates as approved by the DPUC on a company by company basis. Depreciation allows the utility to recover the investment in utility plant over its useful life. The overall consolidated company depreciation rates, based on the average balances of depreciable property, were 2.0% for 2000, 2.1% for 1999 and 2.0% for 1998. CUSTOMERS' ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS IN AID OF CONSTRUCTION Under the terms of construction contracts with real estate developers and others, our water companies receive advances for the costs of new main installations. Refunds are made, without interest, as services are connected to the main, over periods not exceeding fifteen years and not in excess of the original advance. Unrefunded balances, at the end of the contract period, are credited to contributions in aid of construction (CIAC) and are no longer refundable. INCOME TAXES - The Company provided deferred taxes for all temporary book-tax differences using the liability method. Under the liability method, deferred income taxes are recognized at currently enacted income tax rates to reflect the tax effect of temporary differences between the financial reporting and tax bases of assets and liabilities. Such temporary differences are the result of provisions in the income tax law that either require or permit certain items to be reported on the income tax return in a different period than they are reported in the financial statements. To the extent such income taxes increase or decrease future rates, an offsetting regulatory asset or liability has been recorded in the accompanying consolidated balance sheets. The Company believes that all deferred income tax assets will be realized in the future. Approximately $1,200,000 of the December 31, 2000 and $1,300,000 of the December 31, 1999 unfunded future income taxes are related to deferred Federal income taxes. The remaining balance of the unfunded future income taxes is related 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. Connecticut Corporation Business Taxes have been reflected primarily using the flow-through method of accounting for temporary differences in accordance with required DPUC ratemaking policies. MUNICIPAL TAXES - Municipal taxes are expensed over the 12 month period beginning on July 1 following the lien date, corresponding with the period in which the municipal services are provided. OTHER DEFERRED COSTS - In accordance with DPUC ratemaking procedures, costs which benefit future periods, such as tank painting, are expensed over the periods they benefit. UNAMORTIZED DEBT ISSUANCE EXPENSE - The issuance costs of long-term debt, including the remaining balance of issuance costs on long-term debt issues that have been refinanced prior to maturity and related call premiums, are amortized over the respective lives of the outstanding debt, as approved by the DPUC. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 23 F-8 EARNINGS PER SHARE - The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share for the twelve months ended December 31, 2000, 1999, and 1998.
Twelve Months Ended 2000 1999 1998 - -------------------------------------------------------------------------------- Basic earnings per share $ 1.63 $ 1.55 $ 1.48 Dilutive effect of unexercised stock options -- (.01) -- - ------------------------------------------------------------------------------- Diluted earnings per share $ 1.63 $ 1.54 $ 1.48 - ------------------------------------------------------------------------------- Numerator (in thousands): - -------------------------------------------------------------------------------- Basic net income $7,925 $7,489 $7,159 Diluted net income $7,925 $7,489 $7,159 Denominator (in thousands): - -------------------------------------------------------------------------------- Basic weighted average shares outstanding 4,853 4,845 4,836 Dilutive effect of unexercised stock options 19 11 N/A - -------------------------------------------------------------------------------- Diluted weighted average shares outstanding 4,872 4,856 4,836 - --------------------------------------------------------------------------------
RECLASSIFICATION - Certain reclassifications have been made to conform previously reported data to the current presentation. NOTE 2: 2000 POOLING OF INTEREST ACQUISITION On November 9, 2000 the Company issued 8,237 shares of its common stock in exchange for all outstanding common stock of Pugliese Construction Co., d.b.a. Howie's Water Company. The acquired company was renamed Connecticut Water Emergency Services, Inc. at the time of the merger. The combined and separate results of Connecticut Water Service and Connecticut Water Emergency Services during the period preceding and after the merger were as follows:
(Thousands of dollars) 2000 1999 1998 - -------------------------------------------------------------------------------- Net Income (Loss) Applicable to Common Stock Connecticut Water Service $7,960 $7,456 $7,136 Connecticut Water Emergency Services (35) 33 23 - -------------------------------------------------------------------------------- Combined Net Income $7,925 $7,489 $7,159 - --------------------------------------------------------------------------------
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 24 F-9 NOTE 3: INCOME TAX EXPENSE Income Tax Expense is comprised of the following:
(Thousands of dollars) 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Federal Classified as Operating Expense $ 3,870 $ 4,322 $ 3,472 Federal Classified as Other Income: Land Sales 31 52 150 Land Donation (132) -- -- Non-Water Sales 107 78 80 Other (21) (91) (10) - ------------------------------------------------------------------------------------------------------------------------------------ Total Federal Income Tax Expense 3,855 4,361 3,692 - ------------------------------------------------------------------------------------------------------------------------------------ State Classified as Operating Expense 547 686 617 State Classified as Other Income: Land Sales 7 12 40 Land Donation (526) -- -- Non-Water Sales 25 16 23 Other 6 -- 10 - ------------------------------------------------------------------------------------------------------------------------------------ Total State Income Tax Expense 59 714 690 - ------------------------------------------------------------------------------------------------------------------------------------ Total Income Tax Expense $ 3,914 $ 5,075 $ 4,382 - ------------------------------------------------------------------------------------------------------------------------------------ The components of the Federal and State income tax provisions are: 2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------------------------ Current: Federal $ 2,763 $ 3,280 $ 2,624 State 59 714 690 - ------------------------------------------------------------------------------------------------------------------------------------ Total Current 2,822 3,994 3,314 - ------------------------------------------------------------------------------------------------------------------------------------ Deferred Income Taxes, Net: Federal Investment Tax Credit (59) (61) (61) Capitalized Interest 42 36 32 Depreciation 1,109 1,106 1,097 - ------------------------------------------------------------------------------------------------------------------------------------ Total Deferred Income Taxes, Net 1,092 1,081 1,068 - ------------------------------------------------------------------------------------------------------------------------------------ Total $ 3,914 $ 5,075 $ 4,382 - ------------------------------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities are categorized as follows on the Consolidated Balance Sheet:
2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Deferred Federal Income Taxes $ 17,894 $ 16,743 Unfunded Future Income Taxes 8,546 8,349 - ------------------------------------------------------------------------------------------------------------------------------------ $ 26,440 $ 25,092 - ------------------------------------------------------------------------------------------------------------------------------------
Deferred income tax liabilities are comprised of the following:
2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Depreciation $ 22,578 $ 21,407 Other 3,862 3,685 - ------------------------------------------------------------------------------------------------------------------------------------ Net deferred income tax liability $ 26,440 $ 25,092 - ------------------------------------------------------------------------------------------------------------------------------------
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 25 F-10 The calculation of Pre-Tax Income is as follows:
2000 1999 1998 - -------------------------------------------------------------------------------- Pre-Tax Income Net Income Before Preferred Dividends $ 7,963 $ 7,527 $ 7,197 Income Taxes 3,914 5,075 4,382 - -------------------------------------------------------------------------------- Total Pre-Tax Income $11,877 $12,602 $11,579 - --------------------------------------------------------------------------------
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:
2000 1999 1998 - ------------------------------------------------------------------------------------------------------------------- Federal Statutory Income Tax Rate 34.0% 34.0% 34.0% Tax Effect of Differences: State Income Taxes Net of Federal Benefit: State Income Tax Excluding Land Donation Credit 3.3% 3.7% 3.9% Land Donation Credit (2.9%) -- -- Depreciation 1.8% 1.2% 1.5% Charitable Contribution - Land Donation (2.1%) -- -- Pension Costs .3% .2% .4% Debt Refinancing Costs .2% .2% (2.6%) Non-deductible Merger Costs .6% .4% -- Bad Debt (.9%) .6% .3% Other (1.3%) -- .3% - ------------------------------------------------------------------------------------------------------------------- Effective Income Tax Rate 33.0% 40.3% 37.8% - -------------------------------------------------------------------------------------------------------------------
NOTE 4: COMMON STOCK The Company has 7,500,000 authorized shares of common stock, no par value. A summary of the changes in the common stock accounts for the period January 1, 1998 through December 31, 2000, appears below:
Issuance (Thousands of dollars except share amounts) Shares Amount Expense Total - ------------------------------------------------------------------------------------------------------------------- Balance, January 1, 1998 (restated) 4,828,207 $45,520 $(1,349) $44,171 Stock Split - fractional shares (587) -- (36) (36) Stock and equivalents issued through Performance Stock Program 7,281 211 -- 211 Stock issued to Employee Savings 401(k) Match Plan 1,955 69 -- 69 - ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1998 (restated) 4,836,856 45,800 (1,385) 44,415 Stock and equivalents issued through Performance Stock Program 10,175 251 -- 251 - ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 1999 (restated) 4,847,031 46,051 (1,385) 44,666 Stock and equivalents issued through Performance Stock Program 5,636 227 -- 227 - ------------------------------------------------------------------------------------------------------------------- Balance, December 31, 2000 (1) 4,852,667 $46,278 $(1,385) $44,893 - -------------------------------------------------------------------------------------------------------------------
(1) Includes 5,221 restricted and 16,398 common stock equivalent shares issued through the Performance Stock Program. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 26 F-11 The Company's 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 Company's 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 Rights will be exercisable only if a person or group acquires 15% or more of the Company's common stock or announces a tender or exchange offer for 15% or more of the Company's 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. Upon the acquisition of 15% or more of the Company's common stock by any person or group, each Right will entitle its holder to purchase, at the Right's purchase price, a number of shares of the Company's common stock having a market value equal to twice the Right's purchase price. In such event, Rights held by the acquiring person will not be allowed to purchase any of the Company's common stock or other securities of the Company. If, after the acquisition of 15% or more of the Company's 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 Right's purchase price, a number of shares of the acquiring Company's common stock having a market value at that time equal to twice the Right's 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. NOTE 5: ANALYSIS OF RETAINED EARNINGS The summary of the changes in Retained Earnings for the period January 1, 1998 through December 31, 2000, appears below:
(Thousands of dollars) 2000 1999 1998 - -------------------------------------------------------------------------------- Balance at Beginning of Year (restated) $17,910 $15,959 $14,200 Income Before Preferred Dividends 7,963 7,527 7,197 - -------------------------------------------------------------------------------- 25,873 23,486 21,397 - -------------------------------------------------------------------------------- Dividends Declared: Cumulative Preferred, Series A, $.80 Per Share 12 12 12 Cumulative Preferred, Series $.90, $.90 Per Share 26 26 26 Common Stock: 2000 $1.20 Per Share 5,822 -- -- 1999 $1.15 Per Share -- 5,538 -- 1998 $1.12 Per Share -- -- 5,400 - -------------------------------------------------------------------------------- 5,860 5,576 5,438 - -------------------------------------------------------------------------------- Balance at End of Year $20,013 $17,910 $15,959 - --------------------------------------------------------------------------------
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 27 F-12 NOTE 6: FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each of the following financial instruments. CASH - The carrying amount approximates fair value. LONG-TERM DEBT - The fair value of the Company's fixed rate long-term debt is based upon borrowing rates currently available to the Company. As of December 31, 2000 and 1999, the estimated fair value of the Company's long-term debt was $62,588,000 and $57,324,000, respectively, as compared to the carrying amounts of $64,658,000 and $65,399,000, respectively. The fair values shown above have been reported to meet the disclosure requirements of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Values of Financial Instruments" and do not purport to represent the amounts at which those obligations would be settled. NOTE 7: LONG-TERM DEBT Long-Term Debt at December 31, consisted of the following:
(Thousands of dollars) 2000 1999 - ------------------------------------------------------------------------------------------------------------------- The Connecticut Water Company First Mortgage Bonds: 5.875% Series R, Due 2022 $14,670 $14,800 6.65% Series S, Due 2020 8,000 8,000 5.75% Series T, Due 2028 5,000 5,000 5.3% Series U, Due 2028 4,550 4,550 6.94% Series V, Due 2029 12,050 12,050 - ------------------------------------------------------------------------------------------------------------------- 44,270 44,400 Unsecured Water Facilities Revenue Refinancing Bonds 5.05% 1998 Series A, Due 2028 9,770 10,000 5.125% 1998 Series B, Due 2028 7,830 8,000 - ------------------------------------------------------------------------------------------------------------------- 17,600 18,000 Other 5.5% Unsecured Promissory Note, Due 2002 71 103 - ------------------------------------------------------------------------------------------------------------------- Total Connecticut Water Company 61,941 62,503 Crystal Water Utilities Corporation 8.0% Cargill Bank (formerly New London Trust), Due 2017 130 133 - ------------------------------------------------------------------------------------------------------------------- Crystal Water Company of Danielson 7.82% Connecticut Development Authority, Due 2020 507 518 8.0% Cargill Bank (formerly New London Trust), Due 2011 2,170 2,298 - ------------------------------------------------------------------------------------------------------------------- Total Crystal 2,677 2,816 Chester Realty 6% Note Payable, Due 2006 115 141 - ------------------------------------------------------------------------------------------------------------------- Total Connecticut Water Service, Inc. 64,863 65,593 Less Current Portion (205) (194) - ------------------------------------------------------------------------------------------------------------------- Total Long-Term Debt $64,658 $65,399 - -------------------------------------------------------------------------------------------------------------------
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 28 F-13 Principal payments required for years 2001 - 2005 are as follows: (Thousands of dollars) 2001 - $205 2002 - $215 2003 - $214 2004 - $221 2005 - $251 Substantially all utility plant is pledged as collateral for long-term debt. There are no mandatory sinking fund payments required on Connecticut Water Company's outstanding First Mortgage Bonds or the Unsecured Water Facilities Revenue Refinancing Bonds. However, the Series R First Mortgage Bonds and the 1998 Series A & B 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 call price of the Series R bonds will reduce annually until the year 2003, when the call price becomes 100%. Series R bonds are callable for redemption at 101.5% from September 1, 2000 through August 31, 2001, then at 101.0% from September 1, 2001 through August 31, 2002. The other outstanding bonds may be initially called for redemption by the Company at the following dates and prices - Series S, December 15, 2003 at 102%; Series T, July 1, 2003 and Series U, September 1, 2003 at 100% plus accrued interest to the date of redemption; Series V, January 1, 2004 at 103.5%, 1998 Series A & B Unsecured Water Facilities Revenue Refinancing Bonds, March 1, 2008 at 100% plus accrued interest. The Crystal Water Company of Danielson's loan with Cargill Bank (formerly New London Trust), with a final maturity date of February 2011; contains a prepayment premium of 1% of the outstanding balance during the fifth year (February 2001) through and including the seventh year (February 2003) of the Loan. NOTE 8: PREFERRED STOCK The Company's Preferred Stock at December 31, consisted of the following:
(Thousands of dollars) 2000 1999 - ------------------------------------------------------------------------------------------------------------------- Cumulative Series A Voting, $20 Par Value; Authorized Issued and Outstanding 15,000 Shares $300 $300 Cumulative Series $.90 Non-Voting, $16 Par Value; Authorized 50,000 Shares, Issued and Outstanding 29,499 Shares 472 472 - ------------------------------------------------------------------------------------------------------------------- Total $772 $772 - -------------------------------------------------------------------------------------------------------------------
All or any part of any series of either class of the Company's issued Preferred Stock may be called for redemption by the Company at any time. The per share redemption prices of the Series A and Series $.90 Preferred Stock, if called by the Company, are $21.00 and $16.00, respectively. The Company is authorized to issue 400,000 shares of an additional class of Preferred Stock, $25 par value, the general preferences, voting powers, restrictions and qualifications of which are similar to the Company's existing Preferred Stock. No shares of the $25 par value Preferred Stock have been issued. The Company is also authorized to issue 1,000,000 shares of $1 par value Preference Stock, junior to the Company's existing Preferred Stock in rights to dividends and upon liquidation of the Company. 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 Company's common stock. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 29 F-14 NOTE 9: BANK LINES OF CREDIT The Company has a total of $9,000,000 in lines of credit provided by two banks. The available lines of credit as of December 31, 2000 was $7,850,000. Bank commitment fees were approximately $24,750, $25,000, and $19,000 in 2000, 1999, and 1998 respectively, on the lines of credit. At December 31, 2000 and 1999, the weighted average interest rates on short-term borrowings outstanding were 6.97% and 6.81%, respectively. NOTE 10: UTILITY PLANT AND CONSTRUCTION PROGRAM The components of utility plant and equipment at December 31, are as follows:
(Thousands of dollars) 2000 1999 - -------------------------------------------------------------------------------- Source of Supply $ 21,210 $ 20,805 Pumping 17,318 16,922 Water Treatment 43,574 42,864 Transmission and Distribution 150,043 144,417 General (including intangible) 15,017 14,505 Held for Future Use 481 609 - -------------------------------------------------------------------------------- Total $247,643 $240,122 - --------------------------------------------------------------------------------
The amounts of depreciable utility plant at December 31, 2000 and 1999 included in total utility plant were $227,680,000 and $219,530,000, respectively. Our water companies are engaged in continuous construction programs. Estimated annual capital expenditures, net of amounts financed by customer advances and contributions in aid of construction, are expected to be approximately $8,000,000 during 2001, $8,250,000 during 2002, and $8,500,000 in 2003. During the period 2004 to 2005, construction expenditures for routine improvements to the water distribution system are expected to be approximately $5,000,000 each year. NOTE 11: TAXES OTHER THAN INCOME TAXES Taxes Other than Income Taxes consist of the following:
(Thousands of dollars) 2000 1999 1998 - -------------------------------------------------------------------------------- Municipal Property Taxes $3,860 $3,644 $3,525 Payroll Taxes 548 543 555 - -------------------------------------------------------------------------------- Total $4,408 $4,187 $4,080 - --------------------------------------------------------------------------------
NOTE 12: PENSION AND OTHER POST-RETIREMENT EMPLOYEE BENEFITS GENERAL - As of December 31, 2000 Connecticut Water Company had 159 employees, Gallup 5, Crystal 7, and Connecticut Water Emergency Services 1 employee for a total of 172 employees. The Company's officers are employees of Connecticut Water Company. Employee expenses are charged between companies as appropriate. Connecticut Water Company has a post-retirement benefit plan including pension and post-retirement medical, dental, and life insurance. Crystal has a pension plan, whereas at December 31, 2000, Gallup and Connecticut Water Emergency Services did not have any post-retirement benefits plans. During 2000 the administration of Connecticut Water's and Crystal's plans were combined. Pension benefits were approved for Gallup employees in 2000, effective January 1, 2001. CONNECTICUT WATER: PENSION - Connecticut Water Company has a trusteed, non-contributory defined benefit retirement plan (the Pension Plan) which covers all employees who have completed one year of service. Benefits under the Pension Plan are based on credited years of service and "average earnings", as defined in the Pension Plan. Connecticut Water's policy is to fund accrued pension costs as permitted by Federal income tax regulations. No funding was made for 2000 and 1999. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 30 F-15 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 Water's employees may become eligible for these benefits if they retire on or after age 55 with 10 years of service. The contributions for calendar years 2000, 1999, and 1998, were $473,000 for each year. A deferred regulatory asset has been recorded to reflect the amount which represents the future operating revenues expected to be recovered in customers rates under FAS 106. In 1997 Connecticut Water requested and received approval from the DPUC to include FAS 106 costs in customer rates. The DPUC's 1997 limited reopener of Connecticut Water's general rate proceeding allowed it to increase customer rates $208,000 annually for FAS 106 costs. Connecticut Water's current rates now allow for recovery of $473,000 annually for post-retirement benefits costs other than pension. 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. CONNECTICUT WATER:
PENSION BENEFITS OTHER BENEFITS (Thousands of dollars) 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Change in Benefit Obligation Benefit obligation, beginning of year $ 12,616 $ 12,557 $ 3,863 $ 3,866 Service Cost 478 504 141 173 Interest Cost 995 908 283 268 Actuarial loss/(gain) 1,750 (624) 39 (154) Benefits paid (697) (729) (289) (290) - ------------------------------------------------------------------------------------------------------------------------------------ Benefit obligation, end of year $ 15,142 $ 12,616 $ 4,037 $ 3,863 - ------------------------------------------------------------------------------------------------------------------------------------ Change in Plan Assets Fair Value, beginning of year $ 18,603 $ 16,915 $ 2,459 $ 2,057 Actual return on plan assets 393 2,417 (134) 181 Employer contribution -- -- 473 473 Participant's contributions N/A N/A 36 38 Benefits paid (697) (729) (289) (290) - ------------------------------------------------------------------------------------------------------------------------------------ Fair Value, end of year $ 18,299 $ 18,603 $ 2,545 $ 2,459 - ------------------------------------------------------------------------------------------------------------------------------------ Funded Status $ 3,157 $ 5,987 $ (1,492) $ (1,404) Unrecognized net actuarial gain (5,793) (7,917) (1,440) (1,823) Unrecognized transition obligation (32) (65) 1,979 2,144 Unrecognized prior service cost 888 186 N/A N/A - ------------------------------------------------------------------------------------------------------------------------------------ Accrued Cost $ (1,780) $ (1,809) $ (953) $ (1,083) - ------------------------------------------------------------------------------------------------------------------------------------ Weighted-average assumptions as of December 31: Discount rate 7.5% 7.5% 7.5% 7.5% Expected return on plan assets 9.0% 8.0% 5.4% 5.0% Rate of compensation increase 4.5% 4.5% N/A N/A
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 31 F-16
PENSION BENEFITS OTHER BENEFITS (THOUSANDS OF DOLLARS) 2000 1999 1998 2000 1999 1998 - ------------------------------------------------ ------- ------- ------- ------- ------- ------- Components of net periodic benefit costs Service cost $ 478 $ 504 $ 393 $ 141 $ 173 $ 152 Interest cost 995 908 872 283 268 262 Expected return on plan assets (1,242) (1,093) (928) (110) (94) (63) Amortization of: Unrecognized Net Transition Asset (32) (32) (32) 165 165 165 Unrecognized net (Gain) Loss (260) (121) (118) (135) (106) (113) Unrecognized Prior Service Cost 32 32 32 -- -- -- FAS 88 Early Retirement Costs -- -- -- -- -- -- - ------------------------------------------------ ------- ------- ------- ------- ------- ------- Net Periodic Pension Costs (Income) $ (29) $ 198 $ 219 $ 344 $ 406 $ 403 - ------------------------------------------------ ------- ------- ------- ------- ------- -------
In determining the 1999 and 2000 accumulated post-retirement benefit obligation, health care cost trends of 5.5% were assumed for all future years. Assumed health care costs 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:
1-PERCENTAGE-POINT 1-PERCENTAGE-POINT (Thousands of dollars) INCREASE DECREASE - ----------------------------------------------------------------------------------------------------------------------------------- Effect on total of service and interest cost components $ 64 $ (61) Effect on post-retirement benefit obligation $ 496 $ (462) - -----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN - Connecticut Water provides additional pension benefits to senior management through a supplemental executive retirement plan. At December 31, 2000 the actuarial present value of the projected benefit obligation was $628,000. Expense associated with this plan was $102,000 for 2000, $76,000 for 1999, and $99,000 for 1998. SAVINGS PLAN - The Connecticut Water Company maintains an employee savings plan which allows participants to contribute from 1% to 15% of pre-tax compensation. The Company matches 50 cents for each dollar contributed by the employee up to 4% of the employees' compensation. The contribution charged to expense in 2000, 1999 and 1998 was $139,000, $127,000, and $85,000, respectively. Effective for 1999 the Plan was modified to create 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 starting in 1999. If the specific goal or goals are attained by the end of the year, all employees, except officers and certain key employees, will receive up to an additional 1% of their annual base salary as a direct contribution to their 401(k) account. In 1999 the goal was not met and therefore no incentive contribution was made. An incentive bonus of .6% of base pay, or $37,000, was awarded in 2000. CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 32 F-17 CRYSTAL WATER: PENSION - Crystal has a defined benefit pension plan covering employees who have completed six months of service and who have attained the age of 20 1/2. Accrued pension costs and required contributions to the plan are actuarially calculated annually taking into account the employees' service to date and their expected future earnings. The following tables set forth the plan's funded status as of December 31, 2000 and 1999 and the net pension cost for 2000, 1999, and 1998 of $60,000, ($150,000), and $14,000 respectively.
(Thousands of dollars) 2000 1999 - -------------------------------------------------------------------------------- Actuarial present value of benefit obligations $ 605 $ 576 Projected benefit obligation for salary increase 372 313 - -------------------------------------------------------------------------------- Projected benefit obligation 977 889 Plan assets at fair value 918 764 - -------------------------------------------------------------------------------- Unfunded (overfunding) projected benefits 59 125 Unrecognized gain / (loss) 246 243 Unrecognized prior service cost (319) (334) Unrecognized transition obligation (25) (27) - -------------------------------------------------------------------------------- Accrued (Prepaid) Pension Costs $ (39) $ 7 - -------------------------------------------------------------------------------- Weighted-average assumptions as of December 31: Discount rate 7.5% 7.5% Expected return on plan assets 9.0% 8.0% Rate of compensation increase 4.5% 4.5% - --------------------------------------------------------------------------------
Crystal Water:
(Thousands of dollars) 2000 1999 1998 - -------------------------------------------------------------------------------- Service costs $ 50 $ 48 $ 49 Interest cost of benefit obligation 65 110 73 Return on assets (64) (117) (96) Amortization of unrecognized (gain) / loss (9) (23) (15) Amortization of prior service cost 16 15 1 Amortization of transition asset 2 2 2 Settlement (gain)/loss -- (185) -- - -------------------------------------------------------------------------------- Net pension (income) cost $ 60 $(150) $ 14 - --------------------------------------------------------------------------------
NOTE 13: STOCK BASED COMPENSATION PLANS INCENTIVE OPTIONS - In 1999 the Company's shareholders approved an amendment to its Performance Stock Program to permit the issuance of stock options to officers and key employees. The Company accounts for the plan under APB Opinion No. 25, under which no compensation cost has been recognized in the Consolidated Statements of Income. On a pro forma basis, the Company's net income and earnings per share would have been the following amounts had compensation cost for the plan been determined consistent with SFAS No. 123, "Accounting for Stock Based Compensation FAS 123." Under FAS 123, the Company would have been required to value such options and record such amounts in the financial statements as compensation expense.
(In thousands of dollars, except per share data) 2000 1999 Net income: As reported $7,925 $7,489 Pro forma $7,779 $7,376 Earnings Per Share: As reported $ 1.63 $ 1.55 Pro forma $ 1.60 $ 1.52
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 33 F-18 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 with the following weighted average assumptions used for grants for the years ended December 31, 2000 and 1999.
2000 1999 ------ ------ Expected life (years) 8 8 Interest rate (percentage) 5.12 6.45 Volatility (percentage) 27.19 25.89 Dividend yield 3.9 3.7
Options begin to become exercisable one year from the date of grant.
Number of Number of Exercise Options Options Price Per Exercisable Granted Share Balance at January 1, 1999 -- -- N/A Granted April 23, 1999 15,031 75,150 $ 22.25 Granted December 8, 1999 10,511 52,573 $ 33.50 ------ ------- Balance at December 31, 1999 25,542 127,723 Granted December 6, 2000 -- 29,761 $30.625 ------ ------- Balance at December 31, 2000 25,542 157,484 ------ ------- -------
No options were terminated or exercised in 2000 and 1999. The per share weighted average fair value for stock options granted during 2000 and 1999 were $7.49 and $7.36, respectively. PERFORMANCE STOCK PROGRAM - Under the Company's Performance Stock Program, restricted shares of Common Stock may be awarded annually to officers and key employees. To the extent that the goals established by the Compensation Committee have been attained, the restrictions on the stock are removed. Amounts charged to expense pursuant to this plan were $227,000, $216,000, and $170,000, for 2000, 1999, and 1998, respectively. NOTE 14: SEGMENT REPORTING Our Company operates principally in three segments: water activities, real estate sales and services/rentals. The water segment is comprised of our core regulated water activities to supply water to our customers. Our real estate sales segment involves the selling off of our limited excess real estate holdings. Our services and rentals segment is comprised of providing services on a contract basis and leasing certain of our properties to others. The accounting policies of each reportable segment are the same as those described in the summary of significant accounting policies. Financial data for reportable segments is as follows: CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 34 F-19
Interest Expense and Preferred Other Dividend Operating Other Income (net of Income Net (In thousands) Revenues Depreciation Expenses (Deductions) AFUDC) Taxes Income - ------------------------------- ----------- --------------- ----------- -------------- ------------ --------- --------- Year ended December 31, 2000 Water Activities $41,512 $4,500 $21,459 $161 $4,128 $4,402 $7,184 Real Estate Transactions 144 -- 230 -- -- (620) 534 Services/Rentals 2,320 13 1,945 -- 23 132 207 - ------------------------------- ----------- --------------- ----------- -------------- ------------ --------- --------- Total $43,976 $4,513 $23,634 $161 $4,151 $3,914 $7,925 - ------------------------------- ----------- --------------- ----------- -------------- ------------ --------- --------- Year ended December 31, 1999 Water Activities $42,624 $4,390 $21,999 $65 $4,084 $4,943 $7,273 Real Estate Transactions 447 -- 286 -- -- 64 97 Services/Rentals 1,902 32 1,657 -- 26 68 119 - ------------------------------- ----------- --------------- ----------- -------------- ------------ --------- --------- Total $44,973 $4,422 $23,942 $65 $4,110 $5,075 $7,489 - ------------------------------- ----------- --------------- ----------- -------------- ------------ --------- --------- Year ended December 31, 1998 Water Activities $40,303 $4,133 $21,321 $110 $4,168 $4,089 $6,702 Real Estate Transactions 710 -- 235 -- -- 190 285 Services/Rentals 1,331 33 1,023 -- -- 103 172 - ------------------------------- ----------- --------------- ----------- -------------- ------------ --------- --------- Total $42,344 $4,166 $22,579 $110 $4,168 $4,382 $7,159 - ------------------------------- ----------- --------------- ----------- -------------- ------------ --------- ---------
At December 31, (in thousands) 2000 1999 ----------- ---------- Total Plant and Other Investments Water $189,181 $183,310 Non-water 776 784 ----------- ---------- 189,957 184,094 ----------- ---------- Other Assets Water 24,474 24,535 Non-water 968 2,402 ----------- ---------- 25,442 26,936 ----------- ---------- Total Assets $215,399 $211,030 ----------- ----------
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 35 F-20 NOTE 15: SUBSEQUENT EVENTS (UNAUDITED) BARNSTABLE ACQUISITION - In February 2001 we completed the acquisition of the Barnstable Holding Company. We exchanged 216,656 shares of our common stock for all outstanding shares of Barnstable's common stock. The transaction was valued at approximately $6,500,000 based on the market value of our common stock on February 23, 2001. Barnstable is the parent company of a regulated water utility company, Barnstable Water Company located in Barnstable, Massachusetts serving approximately 7,200 customers. In addition, Barnstable Holding Company owns BARLACO, a real estate company which owns approximately 100 acres of residential and commercial land in Hyannis and Barnstable, Massachusetts. This merger will be accounted for as "pooling-of-interests." LAND DONATION, JANUARY 2001 - On January 18, 2001 we donated 135 acres of undeveloped land to the Town of Middlebury, Connecticut for open space purposes. This donation will reduce our 2001 federal and state income tax expense by approximately $1,100,000. POTENTIAL FUTURE LAND DONATIONS, 2002 - 2004 - On January 31, 2001 we signed an agreement to donate to the Town of Killingly, Connecticut approximately 340 acres of unimproved land for protected open space purposes. This agreement must receive town and state regulatory approvals before the land can be transferred. The proposed land donation would be broken down into three different parcels with one of the parcels being donated each year 2002 through 2004. Under current tax law, these donations in total would result in reduced federal and state income taxes of approximately $2,000,000, if approved and completed as proposed. NOTE 16: QUARTERLY FINANCIAL DATA (UNAUDITED) Selected quarterly financial data for the years ended December 31, 2000 and 1999 appears below: (In thousands except for per share data)
Net Income Basic Earnings Per Utility Applicable to Average Operating Revenues Operating Income Common Stock Common Share 2000 1999 2000 1999 2000 1999 2000 1999 ---------- ----------- ----------- ----------- ----------- ----------- ---------- ---------- First Quarter $ 9,728 $ 9,450 $ 2,447 $ 2,414 $1,532 $1,514 $0.32 $0.31 Second Quarter 10,213 10,233 2,772 2,765 1,849 1,823 0.38 0.38 Third Quarter 11,532 12,892 3,645 3,763 2,677 2,727 0.55 0.56 Fourth Quarter 10,039 10,049 2,295 2,285 1,867 1,425 0.38 0.30 ---------- ----------- ----------- ----------- ----------- ----------- ---------- ---------- Year $41,512 $42,624 $11,159 $11,227 $7,925 $7,489 $1.63 $1.55 ---------- ----------- ----------- ----------- ----------- ----------- ---------- ----------
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES 36 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 12, 1999. (Exhibit 3.2 to Form 10-K for the year ended 12/31/99). 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). 4.1 Indenture of Mortgage and Deed of Trust from The Connecticut Water Company to The Connecticut Bank and Trust Company, Trustee, dated as of June 1, 1956. (Exhibit 4.3(a) to Registration Statement No. 2-61843) 4.2 Supplemental Indentures thereto dated as of (i) February 1, 1958 (Exhibit 4.3(b) (i) to Registration Statement No. 2-61843) (ii) September 1, 1962 (Exhibit 4.3(b) (ii) to Registration Statement No. 2-61843) (iii) January 1, 1966 (Exhibit 4.3(b) (iii) to Registration Statement No. 2-61843) (iv) July 1, 1966 (Exhibit 4.3(b) (iv) to Registration Statement No. 2-61843) (v) January 1, 1971 (Exhibit 4.3(b) (v) to Registration Statement No. 2-61843) (vi) September 1, 1974 (Exhibit 4.3(b) (vi) to Registration Statement No. 2-61843) (vii) December 1, 1974 (Exhibit 4.3(b) (vii) to Registration Statement No. 2-61843) (viii) January 1, 1976 (Exhibit 4(b) to Form 10-K for the year ended 12/31/76) (ix) January 1, 1977 (Exhibit 4(b) to Form 10-K for the year ended 12/31/76) (x) September 1, 1978 (Exhibit 2.12(b) (x) to Registration Statement No. 2-66855) (xi) December 1, 1978 (Exhibit 2.12(b) (xi) to Registration Statement No. 2-66855) (xii) June 1, 1979 (Exhibit 2.12(b) (xii) to Registration Statement No. 2-66855) (xiii) December 1, 1983 (Exhibit 4.2 (xiii) to Form 10-K for the year ended 12/31/83) (xiv) January 1, 1987 (Exhibit 4.2 (xiv) to Form 10-K for the year ended 12/31/86) (xv) May 1, 1989 (Exhibit 4.2 (xv) to Form 10-K for year ended 12/31/89) 37 E-2 (xvi) June 1, 1991 (Exhibit 4.2 (xvi) to Form 10-K for year ended 12/31/91) (xvii) August 1, 1992 (Exhibit 4.2 (xvii) to Form 10-K for year ended 12/31/92) (xviii) October 1, 1993 (Exhibit 4.2 (xviii) to Form 10-K for year ended 12/31/93) (xix) June 1, 1993 (Exhibit 4.2 (xix) to Form 10-K for year ended 12/31/93) (xx) September 1, 1993 (Exhibit 4.2 (xx) to Form 10-K for year ended 12/31/93) (xxi) December 1, 1993 (Exhibit 4.2 (xxi) to Form 10-K for year ended 12/31/93) (xxii) March 1, 1994 (Exhibit 4.2 (xxii) to Form 10-K for year ended 12/31/94) 4.3 Loan Agreement dated as of October 1, 1993, between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.3 to Form 10-K for year ended December 31, 1993) 4.4 Loan Agreement dated as of June 1, 1993, between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.4 to Form 10-K for year ended December 31, 1993) 4.5 Loan Agreement dated as of September 1, 1993, between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.5 to Form 10-K for year ended December 31, 1993) 4.6 Loan Agreement dated as of August 1, 1992 between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.10 to Form 10-K for the year ended December 31, 1992) 4.7 Bond Purchase Agreement dated as of December 1, 1993. (Exhibit 4.8 to Form 10-K for year ended December 31, 1993) 4.8 Loan Agreement dated as of March 9, 1998 between the Connecticut Development Authority and The Connecticut Water Company. (Exhibit 4.8 to Form 10-K for the year ended 12/21/98). 4.9 Loan Agreement dated as of April 19, 1990 between the Connecticut Development Authority and The Crystal Water Company of Danielson. (Exhibit 4.9 to Form 10.K for the year ended 12/31/99). 4.10 Loan Agreement dated as of February 9, 1996 between New London Trust, F.S.B. and The Crystal Water Company of Danielson. (Exhibit 4.10 to Form 10-K for the year ended 12/31/99). 38 E-3 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 March 20, 1981. (Exhibit 10.3 to Registration Statement No. 2-74938) 10.4 The Connecticut Water Company Deferred Compensation Agreement dated December 1, 1984. (Exhibit 10.4 to Form 10-K for the year ended December 31, 1984) 10.5 The Connecticut Water Company Amended and Restated Deferred Compensation Agreement dated May 14, 1999. (Exhibit 10.5 to Form 10-K for the year ended 12/31/99). a. Marshall T. Chiaraluce b. David C. Benoit c. James R. McQueen d. Kenneth W. Kells 10.6 The Connecticut Water Company Supplemental Executive Retirement Agreement with William C. Stewart. (Exhibit 10.6a to Form 10-K for year ended December 31, 1991) 10.7.1 The Connecticut Water Company Supplemental Executive Retirement Agreement with Marshall T. Chiaraluce. (Exhibit 10.6b to Form 10-K for year ended December 31, 1991) 10.7.2 The Connecticut Water Company Amended Supplemental Executive Retirement Agreement with Marshall T. Chiaraluce dated August 1, 1999. (Exhibit 10.7.2 to Form 10-K for the year ended 12/31/99). 10.7.3* The Connecticut Water Company Supplemental Executive Retirement Agreement with Michele G. Diacri dated February 28, 2000. 10.8.1 The Connecticut Water Company Supplemental Executive Retirement Agreement - standard form for other officers. (Exhibit 10.6c to Form 10-K for year ended December 31, 1991) 10.8.2 The Connecticut Water Company Amended Supplemental Executive Retirement Agreement - standard form for other officers, dated August 1, 1999. (Exhibit 10.8.2 to Form 10-K for the year ended 12/31/99). 39 E-4 10.9 The Connecticut Water Company Employment Agreements with Officers, amended and restated as of November 18, 1999. (Exhibit 10.9 to Form 10-K for the year ended 12/31/99). a) Marshall T. Chiaraluce b) Michele G. DiAcri c) James R. McQueen d) David C. Benoit e) Peter J. Bancroft f) Maureen P. Westbrook g) Terrance P. O'Neill 10.10 Employment and Consulting Agreement between Richard L. Mercier and Gallup Water Service, Inc. dated April 15, 1999. (Exhibit 10.10 to Form 10-K for the year ended 12/31/99). 10.11 Employment and Consulting Agreement between Roger Engle and Crystal Water Company of Danielson dated September 29, 1999. (Exhibit 10.11 to Form 10-K for the year ended 12/31/99). 10.12 Savings Plan of The Connecticut Water Company, amended and restated effective as of January 1, 1999. (Exhibit 10.10 to Form 10-K for the year ended 12/31/98). 10.12.1* Savings Plan of The Connecticut Water Company, amended and restated effective as of October 1, 2000. 10.13 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). 10.14 Water Supply Agreement dated June 13, 1994, between The Connecticut Water Company and the Hazardville Water Company. (Exhibit 10.15 to Form 10-K for year ended December 31, 1994) 10.15 November 4, 1994 Amendment to Agreement dated December 11, 1957 between The Connecticut Water Company (successor to the Thomaston Water Company) and the City of Waterbury. (Exhibit 10.16 to Form 10-K for year ended December 31, 1994) 10.16 Contract between The Connecticut Water Company and The Rockville Water and Aqueduct Company dated as of January 1, 1976. (Exhibit 9(b) to Form 10-K for the year ended December 31, 1975) 10.17 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 December 31, 1986) 40 E-5 10.18 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) 10.19 Plan of Merger dated December 18, 1978 of Broad Brook Water Company, The Collinsville Water Company, The Rockville Water and Aqueduct Company, The Terryville Water Company and The Thomaston Water Company with and into The Connecticut Water Company. (Exhibit 13 to Form 10-K for the year ended December 31, 1978) 10.20 Bond Exchange Agreements between Connecticut Water Service, Inc., The Connecticut Water Company Bankers Life Company and Connecticut Mutual Life Insurance Company dated October 23, 1978. (Exhibit 14 to Form 10-K for the year ended December 31, 1978) 10.21 Dividend Reinvestment and Common Stock Purchase Plan as amended. (Registration Statement No. 33-53211 as amended) 10.22 Contract for Supplying Bradley International Airport. (Exhibit 10.21 to Form 10-K for the year ended December 31, 1984) 10.23 Report of South Windsor Task Force. (Exhibit 10.23 to Form 10-K for the year ended December 31, 1987) 10.24 Trust Agreement for The Connecticut Water Company Welfare Benefits Plan (VEBA) dated January 1, 1989. (Exhibit 10.21 to Form 10-K for year ended December 31, 1989) 10.25 Performance Stock Program, as amended and restated as of April 23, 1999. (Exhibit A to CTWS Proxy Statement dated March 17, 1999) 24.1* Consent of Arthur Andersen LLP - ---------- Note: Exhibits 10.1 through 10.13, 10.24 and 10.25 set forth each management contract or compensatory plan or arrangement required to be filed as an exhibit to this Form-10K. 41 16 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CONNECTICUT WATER SERVICE, INC. Registrant By /s/ Marshall T. Chiaraluce ---------------------------- Marshall T. Chiaraluce President, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of Connecticut Water Service, Inc. in the capacities and on the dates indicated.
Signature Title Date /s/ Marshall T. Chiaraluce Director, President Chairman March 12, 2001 - ----------------------------------------- of the Board, and Chief Marshall T. Chiaraluce Executive Officer (Principal Executive Officer) /s/ David C. Benoit Vice President - Finance, March 12, 2001 - ----------------------------------------- Chief Financial Officer and David C. Benoit Treasurer (Principal Financial and Accounting Officer)
42 17 /s/ Harold E. Bigler, Jr. Director March 12, 2001 - ------------------------------------------ Harold E. Bigler, Jr. /s/ Roger Engle Director March 13, 2001 - ------------------------------------------ Roger Engle /s/ Mary Ann Hanley Director March 15, 2001 - ------------------------------------------ Mary Ann Hanley /s/ Marcia Hincks Director March 13, 2001 - ------------------------------------------ Marcia Hincks /s/ Ronald D. Lengyel Director March 12, 2001 - ------------------------------------------ Ronald D. Lengyel /s/ Robert F. Neal Director March 10, 2001 - ------------------------------------------ Robert F. Neal /s/ Arthur C. Reeds Director March 12, 2001 - ------------------------------------------ Arthur C. Reeds /s/ Lisa J. Thibdaue Director March 12, 2001 - ------------------------------------------ Lisa J. Thidbaue /s/ Donald B. Wilbur Director March 12, 2001 - ------------------------------------------ Donald B. Wilbur
43 S-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE We have audited, in accordance with accounting principles generally accepted in the United States, the financial statements of Connecticut Water Service, Inc. included in this Form 10-K, and have issued our report thereon dated February 9, 2001. Our audit was made for the purpose of forming an opinion on those statements taken as a whole. The schedule listed in the accompanying index to consolidated financial statements and schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen LLP Hartford, Connecticut February 9, 2001 44 S-2 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
BALANCE ADDITIONS DEDUCTIONS BALANCE BEGINNING CHARGED TO FROM END OF DESCRIPTION OF YEAR INCOME RESERVES (1) YEAR - ----------- --------- ---------- ------------ ------- Allowance for Uncollectible Accounts Year Ended December 31, 2000 $455 $216 $ 474 $197 ==== ==== ====== ==== Year Ended December 31, 1999 $315 $171 $ 31 $455 ==== ==== ====== ==== Year Ended December 31, 1998 $147 $162 $ (6) $315 ==== ==== ====== ====
(1) Amounts charged off as uncollectible after deducting recoveries. 45 EXHIBITS TO ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2000 24.1 Consent of Arthur Andersen LLP EX-10.7.3 2 y46855ex10-7_3.txt EX-10.7.3 1 Exhibit 10.7.3 SUPPLEMENTAL EXECUTIVE RETIREMENT AGREEMENT This Agreement, made this 28th day of February, 2000, by and between THE CONNECTICUT WATER COMPANY (hereinafter referred to as the "Employer") and Michele G. DiAcri (hereinafter referred to as the "Employee"). WITNESSETH THAT: WHEREAS, the Employee is and will be rendering valuable services to the Employer in her capacity as an executive officer, and WHEREAS, the Employer desires to ensure that it will have the benefit of the Employee's services until she reaches retirement, and WHEREAS, the Employer wishes to assist the Employee in providing for the financial requirements of the Employee in the event of her retirement, disability or death. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. SUPPLEMENTAL RETIREMENT BENEFIT a. Normal or Deferred Retirement. If, upon or after the Employee's attainment of age 65 and completion of 20 consecutive years of service with the Employer, the Employee's employment shall be terminated and she shall be eligible to receive a benefit under The Connecticut Water Company Employees' Retirement Plan (hereinafter referred to as the "Retirement Plan"), the Employee shall be entitled to receive pursuant to this Agreement a benefit having a value equal to an annual benefit for her life of (a) 60% of the Employee's Average Earnings reduced by (b) the annual benefit payable to the Employee under the Retirement Plan in the form of a single life annuity for the life of the Employee (whether or not the benefit under the Retirement Plan is actually paid in such form) commencing at the same time as benefits hereunder. For purposes of the foregoing, "Average Earnings" shall have the meaning set forth in the Retirement Plan, except that in determining Average Earnings, Annual Earnings (as defined in the Retirement Plan) shall not be limited to the OBRA '93 annual compensation limit. The calculation of the benefit set forth above, and of all other benefits payable under this Agreement, shall be performed by the Committee under the Retirement Plan, and the calculations and interpretations of such Committee shall be final and binding on the parties hereto. b. Disability Benefit. If the Employee's employment shall be terminated by a disability such that the Employee is considered eligible for a full disability pension under 2 the provisions of the Social Security Act, the Employee shall be entitled to receive pursuant to this Agreement a benefit having a value equal to an annual benefit for her life calculated in the manner set forth above; provided, however, that a reduction factor of .72 shall be applied to such annual benefit if the Employee's benefit commencement date precedes age 62 by more than 7 complete years. If such benefit shall commence to be paid between the ages of 55 and 62 such benefit shall be reduced by 4% for each complete year by which the date of benefit commencement precedes the Employee's attainment of age 65. c. Absence of Other Benefits. No benefits shall be paid to the Employee pursuant to this Agreement other than as provided above. 2. TERMS AND CONDITIONS OF BENEFIT. The annual lifetime benefit calculated in accordance with Section 1 hereof shall be paid in monthly installments on the first day of each month. Such installments shall commence to be paid on the first such day which coincides with or follows the day upon which the Employee's benefit under the Retirement Plan shall commence to be paid. The normal form in which the benefit hereunder shall be paid is, if the Employee is unmarried, an annuity for the life of the Employee only and, if the Employee is married, an annuity for the life of the Employee with the provision that after the Employee's death, 50% of the annual benefit that was payable to the Employee shall be continued to the Employee's surviving spouse for life (a "Joint and Survivor Annuity"). The benefit payable as a Joint and Survivor Annuity shall be calculated by applying to the benefit calculated in accordance with Section 1 .a. or 1 .b. hereof, as appropriate, the factors for the 50% contingent annuity option set forth in the Retirement Plan. Monthly installments of benefits shall cease to be paid as of the first day of the month following the date of the Employee's death, unless a Joint and Survivor Annuity was then in effect, in which event the installments shall cease as of the first day of the month following the death of the Employee's surviving spouse. 3. LIMITATION OF BENEFIT. If the Employee's employment shall be terminated for cause involving fraud, dishonesty, moral turpitude, gross misconduct, gross failure to perform her duties, or disclosure of secret or other confidential information of the Employer to any competitor or to any person not authorized to receive such information, neither the Employee, her spouse nor her estate shall be entitled to receive any benefit under this Agreement. 4. ABSENCE OF FUNDING. Benefits payable pursuant to this Agreement shall not be funded, and the Employer shall not be required to segregate or earmark any of its assets for the benefit of the Employee, her spouse or her estate. Such benefits shall not be subject in any manner to anticipation, alienation, transfer or assignment by the Employee, her spouse or her estate, and any attempt to anticipate, alienate, transfer or assign these benefits shall be void. The Employee, her spouse or her estate shall have only a contractual right against the Employer for the benefits hereunder. Notwithstanding the 3 foregoing, in order to pay benefits pursuant to this Agreement, the Employer may establish a grantor trust (hereinafter the "Trust") within the meaning of Section 671 of the Internal Revenue Code of 1986, as amended. Some or all of the assets of the Trust may be dedicated to providing benefits to the Employee, her spouse or her estate pursuant to this Agreement, but, nevertheless, all assets of the Trust shall at all times remain subject to the claims of the Employer's general creditors in the event of the Employer's bankruptcy or insolvency. 5. MISCELLANEOUS. a. This Agreement may be amended at any time by mutual written agreement of the parties hereto, but no amendment shall operate to give the Employee, her spouse or her estate, either directly or indirectly, any interest whatsoever in any funds or assets of the Employer, except the right to receive the payments herein provided and the right to receive such payments from assets held in the Trust. b. This Agreement shall not supersede any other contract of employment, whether oral or in writing, between the Employer and the Employee, nor shall it affect or impair the rights and obligations of the Employer and the Employee, respectively, thereunder. Nothing contained herein shall impose any obligation on the Employer to continue the employment of the Employee. c. This Agreement shall be construed in all respects under the laws of the State of Connecticut. IN WITNESS WHEREOF, the Employer and the Employee have executed this Agreement as of the day and year above written. EMPLOYEE THE CONNECTICUT WATER COMPANY /s/ Michele G. DiAcri /s/ Marshall T. Chiaraluce - ---------------------- ---------------------------- Michele G. DiAcri Marshall T. Chiaraluce President and CEO
EX-10.12.1 3 y46855ex10-12_1.txt EX-10.12.1 1 EXHIBIT 10.12.1 SAVINGS PLAN OF THE CONNECTICUT WATER COMPANY SUMMARY PLAN DESCRIPTION ====================================================== CONNECTICUT WATER SERVICE, INC. THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. October 1, 2000 2 INTRODUCTION Effective 10/01/2000, Connecticut Water Company has amended the Savings Plan of the Connecticut Water Company designed to help you meet your financial needs during your retirement years. The Plan was originally effective on 01/01/1985 and its plan sequence number is 003. The plan sequence number identifies the number of qualified plans that Connecticut Water Company currently maintains or has previously maintained. On October 1, 2000, the Connecticut Water Company amended the Plan to, among other things, allow you to invest your Employee 401(k) contributions in the common stock, no par value, of Connecticut Water Service, Inc., the parent corporation of the Connecticut Water Company (the Company Stock) beginning on December 18, 2000. The addition of Company Stock as an investment option under the Plan with respect to your Employee 401(k) Contributions requires that a Registration Statement be filed with the Securities and Exchange Commission covering the Company Stock to be purchased under the terms of the Plan. Connecticut Water Service, Inc. has filed with the Securities and Exchange Commission a registration statement on Form S-8 to register [200,000] shares of Company Stock and related participation interests in the Plan. The registration statement covering [200,000] shares of Company Stock and related participation interests was filed on December 8, 2000 (Form S-8 File No. 333-______). As used in this document, the term "Company" refers to the Connecticut Water Company; the term "Parent Company" refers to Connecticut Water Service, Inc.; and the term "Company Stock" means common stock of Connecticut Water Service, Inc. To become a Participant in the Plan, you must meet the Plan's eligibility requirements. Once you become a Participant, Connecticut Water Company will maintain an Individual Account for you. Each Plan Year your account will be adjusted to reflect contributions, gains, losses, etc. The percentage of your account to which you will be entitled when you terminate employment depends on the Plan's vesting schedule. These features are explained further in the following pages. The actual Plan is a complex legal document that has been written in the manner required by the Internal Revenue Service (IRS) and is referred to as the Basic Plan Document. This document is called a Summary Plan Description (SPD) and explains and summarizes the important features of the Basic Plan Document. Connecticut Water Company may make contributions to this Plan. In addition, you may be able to elect to reduce your annual taxable income by deferring a portion of your Compensation into the Plan as Employee 401(k) Contributions. You should consult the Basic Plan Document for technical and detailed Plan provisions. The legal operation of the Plan is controlled by the Basic Plan Document and not this SPD. If at any time you have specific questions about the Plan as it applies to you, please bring them to the attention of the Plan Administrator whose address and telephone number appear in Section One of this SPD. You may also examine the Basic Plan Document itself at a reasonable time by making arrangements with the Plan Administrator. INCORPORATION BY REFERENCE This Summary Plan Description (SPD), the current Appendix to the SPD and any subsequent Appendix to the SPD, and the documents incorporated by reference in the registration statement on Form S-8 for the Plan constitute a prospectus that meets the requirements of Section 10(a) of the Securities Act of 1933. The following documents filed by the Parent Company with the SEC are incorporated by reference in the registration statement: - - The Parent Company's annual report on Form 10-K for the fiscal year ended December 31, 1999, which contains audited financial statements for the fiscal year ended December 31, 1999; - - The Parent Company's quarterly reports on Form 10-Q for the quarters ended March 31, 2000; June 30, 2000, and September 30, 2000; - - The Parent Company's definitive proxy statement pursuant to Schedule 14A filed with the SEC on March 14, 2000; and - - The description of the Parent Company's common stock which is contained in its Form S-4 registration statement on Form S-4 filed on June 17, 1999, including any amendment or report filed for the purpose of updating such description. 1 3 Any statement contained in a document incorporated or deemed to be incorporated by reference into this SPD will be deemed to be modified or superseded for purposes of this SPD to the extent that a statement contained in this SPD or any other subsequently filed document that is deemed to be incorporated by reference into this SPD modifies or supersedes the statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this SPD. AVAILABLE INFORMATION A copy of the Parent Company's annual report to stockholders for each fiscal year, and copies of all reports, proxy statements, and other communications distributed to stockholders of the Parent Company generally, will be delivered to each employee who receives this SPD unless such employee otherwise receives a copy of such annual report as a stockholder of the Parent Company, in which case the Parent Company will furnish a copy to the employee on written request. The Company will provide without charge to each person to whom a copy of this SPD is delivered, upon the written or oral request of any such person, a copy of any or all of the above documents incorporated by reference in the registration statement (other than exhibits to such documents, unless such exhibits are specifically incorporated by reference into the information or documents which the SPD incorporates). Requests should be directed to: Plan Administrator of the Savings Plan for the Connecticut Water Company c/o Connecticut Water Company 93 West Main Street Clinton, CT 06413 Telephone Number: (860) 669-8630 The Parent Company files reports, proxy statements and other information with the SEC. Copies of such Parent Company reports, proxy statements and other information may be inspected and copied at the public reference facilities maintained by the SEC at: Judiciary Plaza Citicorp Center Seven World Trade Center Room 1024 500 West Madison Street 13th Floor 450 Fifth Street, N.W. Suite 1400 New York, New York 10048 Washington, D.C. 20549 Chicago, Illinois 60661
Reports, proxy statements and other information concerning the Parent Company may also be inspected at: The National Association of Securities Dealers 1735 K Street, N.W. Washington, D.C. 20006 Copies of these materials can also be obtained by mail at prescribed rates from the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. The SEC maintains a Website that contains reports, proxy statements and other information regarding the Parent Company. The Internet address of the SEC Website is http://www.sec.gov. THE SHARES OF COMPANY STOCK TO BE ISSUED TO PARTICIPANTS IN THE PLAN HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. 2 4 CONTENTS OF THE SUMMARY PLAN DESCRIPTION SECTION ONE DEFINITIONS SECTION TWO ELIGIBILITY AND PARTICIPATION Information in this section includes: Service Requirements How Hours of Service Are Counted When You Can Participate in the Plan SECTION THREE FUNDING & ADMINISTRATION OF THE PLAN Information in this section includes: Plan Contribution Sources, Allocations and Limitations Compensation Plan Administration and Management Self Direction of Investments SECTION FOUR DISTRIBUTION OF BENEFITS AND VESTING Information in this section includes: Benefit Eligibility Distribution of Benefits Determining Your Vested Amount Restrictions or Penalties on Distributions Payouts to Your Beneficiaries SECTION FIVE CLAIMS PROCEDURE Information in this section includes: What to do to Receive Benefits How to File a Claim SECTION SIX MISCELLANEOUS Information in this section includes: Borrowing From the Plan Plan Termination Break in Service Situations SECTION SEVEN RIGHTS UNDER ERISA Information in this section includes: The Rights and Protections a Plan Participant is Entitled to Under the Employee Retirement Income Security Act
3 5 SECTION ONE: DEFINITIONS The following definitions are used in the text of this SPD. These words and phrases are capitalized throughout the SPD for ease of reference. COMPENSATION - means the earnings paid to you by Connecticut Water Company. EMPLOYEE - means any person employed by Connecticut Water Company. EMPLOYEE 401(k) CONTRIBUTIONS - means the dollars you put into the Plan through before-tax payroll deductions. EMPLOYER - means Connecticut Water Company, the corporation maintaining this Plan. EMPLOYER CONTRIBUTION - means the amount contributed to the Plan on your behalf by Connecticut Water Company. INDIVIDUAL ACCOUNT - means the contribution account established and maintained for you which is made up of all contributions made by you or on your behalf. MATCHING CONTRIBUTION - means a contribution made by Connecticut Water Company to the 401(k) Plan on your behalf based upon your Employee 401(k) Contributions. PARTICIPANT - means an Employee who has met the eligibility requirements, has entered the Plan, and has become eligible to make or receive a contribution to his or her Individual Account. PAYROLL DEDUCTION FORM - means the agreement you sign to authorize Connecticut Water Company to deduct your Employee 401(k) Contributions from your Compensation and put them into the 401(k) Plan. PLAN - means the Savings Plan of The Connecticut Water Company. The Plan is governed by a legal document containing various technical and detailed provisions. The Plan Administrator has a copy of the Plan document. PLAN ADMINISTRATOR - The Plan Administrator is responsible for directly administering the Plan. Connecticut Water Company is the Plan Administrator of this Plan and is therefore responsible for the day-to-day administration and management of the Plan. To ensure efficient and sound operation and management of the Plan, Connecticut Water Company has the discretionary authority to appoint other persons as may be necessary to act on its behalf or assist in performing these responsibilities. The address and phone number of Connecticut Water Company are listed below. Connecticut Water Company 93 West Main Street Clinton, CT 06413 860-669-8630 PLAN YEAR - means the twelve month period ending on 12-31. SECTION TWO: ELIGIBILITY AND PARTICIPATION SERVICE REQUIREMENTS Employee 401(k) Contributions You will become eligible to enter the Plan and begin making Employee 401(k) Contributions after your have completed 6 months of service for Connecticut Water Company. 4 6 Matching Contributions You will become eligible to enter the Plan and receive Matching Contributions after you have performed 6 months of service for Connecticut Water Company. Profit Sharing Contributions You will become eligible to enter the Plan and receive Profit Sharing Contributions after you have performed 6 months of service for Connecticut Water Company. HOW HOURS OF SERVICE ARE COUNTED Your hours of service are generally counted on the basis of the actual number of hours you work or for which you are entitled to Compensation. For each type of contribution for which you are required to perform a fractional Year of Eligibility Service, instead of counting hours of service for purposes of determining your number of Years of Eligibility Service, you will receive credit for the period of time during which you are paid or entitled to pay from Connecticut Water Company. However, since this is an amendment and restatement of an existing Plan, you will not be required to satisfy the eligibility requirements stated above if you were a Participant in the prior Plan. You will continue to participate in the Plan as long as you do not incur a break in service. A break in service is a 12 consecutive month period during which you fail to work in excess of 1 hours. However, no break in service will occur if the reason you did not work more than the required number of hours was because of certain absences due to birth, pregnancy or adoption of children, military service or other service during a national emergency during which your re-employment under a federal or state law is protected and you do, in fact, return to work within the time required by law. SECTION THREE: PLAN FUNDING AND ADMINISTRATION PLAN CONTRIBUTION SOURCES, ALLOCATIONS AND LIMITATIONS Employee 401(k) Contributions Effective 10/01/2000 (or the date you begin participating in the Plan, if later), you may make before-tax contributions to the Plan through payroll deduction. Such contributions are called Employee 401(k) Contributions. To begin making Employee 401(k) Contributions, you must complete and sign a Payroll Deduction Form. Once you become eligible to participate in the Plan, Connecticut Water Company will provide you with such form. For example, assume your compensation is $15,000. You wish to make an Employee 401(k) Contribution to the Plan and sign a Payroll Deduction Form authorizing an Employee 401(k) Contribution of 5% of your Compensation. As a result, Connecticut Water Company will pay you $14,250 as gross taxable income and will deposit your 5% Employee 401(k) Contribution (i.e., $750) into the Plan for you. Limits on Employee 401(k) Contributions Federal tax laws and plan documents govern the amount of Employee 401(k) Contributions which you may make. Specifically, federal law places two annual limits on the amount you may defer into a 401(k) plan - an individual limit and an average limit. 5 7 Individual Limit Federal tax law limits the amount you can put into the Plan during each of your tax years (generally, a calendar year). This amount is indexed periodically for changes in the cost-of-living index (e.g., 2000 limit of $10,500). This limit applies to all Employee 401(k) Contributions you make during your tax year to any 401(k) plans maintained by your present or former employers. If you defer more than you are allowed, you must submit in writing for the return of the excess to Connecticut Water Company no later than March 1. The excess amount and any earnings you may have received on the excess must be taken out of the Plan by April 15 of the year following the year the money went into the Plan. The excess amounts will appear on your Form W-2 and will be taxable income for the year in which you put the excess into the Plan. If the excess is not removed from the Plan by April 15, you will have to pay additional income tax. EXAMPLE: You deferred $100 more than the law allows in your tax year and you had earnings of $10 on the excess. You removed your $100 excess and the $10 earnings by April 15 of the following year. The excess will be reported on your Form W-2 for the year deferred and you will pay income tax on that amount. Average Limits Tax law defines a group of an employer's employees known as highly compensated employees. Highly compensated employees making Employee 401(k) Contributions are limited in the percent of their compensation which they defer based on the average percent of compensation deferred by the non-highly compensated group of employees during the Plan Year. If these limits apply to you, Connecticut Water Company can give you additional information about them. Plan Specific Limitations Upon completion of a Payroll Deduction Form, your compensation will be reduced each pay period by the percent you specify. Connecticut Water Company permits you to defer a percentage of your Compensation from 1% to 15% in increments of 1% each Plan Year. To change the amount of your Employee 401(k) Contributions, you must complete and sign a revised Payroll Deduction Form and return it to Connecticut Water Company at least 30 days before the change will take effect or a lesser number of days if Connecticut Water Company permits. You may change your Payroll Deduction Form as of the first day of any quarter. To discontinue making Employee 401(k) Contributions, you must complete and sign a revised Payroll Deduction Form. You may discontinue making Employee 401(k) Contributions as of the first day of any quarter. If you stop making deferrals, you must wait until the beginning of the next quarter before you may begin making deferrals again. Matching Contributions Individual Limits Matching Contributions are Employer Contributions which are contributed to the Plan based on your Employee 401(k) Contributions. Effective 10/01/2000 (or the date you begin participating in the Plan, if later), Connecticut Water Company will make Matching Contributions to the Plan equal to 50% of your Employee 401(k) Contributions. However, Matching Contributions will not be made with respect to your contributions in excess of 4% of your compensation. To share in the Matching Contribution, you must be a Participant in the Plan on at least one day of the Plan Year and make Employee 401(k) Contributions. 6 8 Average Limits Tax law defines a group of an employer's employees known as highly compensated employees. Highly compensated employees receiving Matching Contributions are limited in the amount of Matching Contributions which they may receive based on the average Matching Contribution (as a percent of compensation) received by the non-highly compensated group of employees during the Plan Year. If these limits apply to you, Connecticut Water Company can give you additional information about them. Profit Sharing Contributions Each year, the managing body of Connecticut Water Company will determine the amount, if any, which it will contribute to the Plan. CONNECTICUT WATER COMPANY'S Employer Contributions to a the Plan will range from 0% to 1% of participants' compensation each year. In addition, you must work at least 1000 hours of service during the Plan Year to receive a contribution. The hour of service requirement will be waived, however, if you die, or if you separate from service after attaining normal retirement age or after becoming disabled. Finally, in order to be eligible to receive a profit sharing contribution, you must be employed on the last day of the Plan Year. The last day requirement will be waived, however, if you die, or if you separate from service after attaining normal retirement age or becoming disabled. Please note, employees who are participants in the Connecticut Water Service, Inc. Performance Stock Program will not be eligible to receive an allocation of any Employer Profit Sharing Contribution made pursuant to Section 11 of the Adoption Agreement. If you satisfy the requirements and are entitled to a profit sharing contribution, you will receive a pro rata allocation based on your Compensation in relation to the Compensation of all Participants entitled to profit sharing contributions. For example, assume you are one of 10 Participants in the Plan and your Compensation is $10,000. Assume further the Compensation of all Participants when added together equals $100,000. The ratio of your Compensation ($10,000) to that of all Participants ($100,000) is 1/10. Therefore, 1/10 of the contribution made by your Employer to the Plan will be allocated to your account. Qualified Nonelective Contributions (QNECs) QNECs may be made by Connecticut Water Company to satisfy special nondiscrimination rules which apply to the Plan. These contributions are fully vested when made and are subject to the same restrictions on withdrawals applicable to Employee 401(k) Contributions. Rollover and Transfer Contributions Connecticut Water Company allows you to make rollover contributions, regardless of whether you have become a Participant in the Plan. You are 100% vested in your rollover contributions at all times and may withdraw them from the Plan at any time. Connecticut Water Company allows you to make transfer contributions, regardless of whether you have become a Participant in the plan. You are 100% vested in your transfer contributions and may withdraw them from the Plan at any time. However, assets transferred from a money purchase pension plan to this Plan may not be distributed before your retirement, death, disability or severance from employment or prior to plan termination. 7 9 Annual Additions Limitation In spite of the contribution/allocation formulas described earlier, federal law limits the annual amount which may be allocated to your account to the lesser of $30,000 or 25% of your Compensation. COMPENSATION The definition of compensation for plan purposes can vary for many reasons. For example, federal tax law may require use of one definition of compensation for nondiscrimination testing and another definition for contribution allocation purposes. In addition, federal tax law permits employers such as Connecticut Water Company to choose the definition of compensation which will be used for other purposes. Regardless of the various definitions of compensation which may be required or allowed, however, in the event your Compensation exceeds $170,000 per year, only the first $170,000 will be counted as Compensation under the Plan. This $170,000 cap will be adjusted periodically by the Internal Revenue Service for increases in the cost-of-living. In spite of the definitions of compensation listed above, compensation with respect to any source of money will include only that compensation from the time you become a Participant in the Plan for ADP/ACP testing and other general Plan purposes. PLAN ADMINISTRATION AND MANAGEMENT All contributions made to the Plan on your behalf will be placed in a trust fund established to hold dollars for the benefit of all Participants. Connecticut Water Company will establish and maintain an Individual Account for you and all Participants. Your Individual Account will be used to track your share in the total trust fund. INVESTMENT OF CONTRIBUTIONS As a Participant in this Plan, you direct the investment of your account (s). Your Plan provides a menu of investment options from which you may select your investments. You may modify your investment elections, transfer existing account balances, and obtain information regarding your investments on a daily basis. The Plan Administrator has selected investment funds in which you and the other participants may choose to invest. A Company Stock Fund has been added as an investment option beginning ____________ ___, 2000. A brief description of each current investment fund available under the Plan is contained in the Appendix to this SPD. There is no minimum or maximum percentage of your Plan account which may be invested in the Company Stock Fund or any other investment fund offered under the Plan; however, investment advisors often recommend that participants consider diversifying investments and not investing more than 20% of their overall investment assets in the stock of a single company. The Plan Administrator or the 401(k) Plan Committee may from time to time add new investment funds or eliminate existing investment funds AND MAY CHANGE OR ADD AN ADDITIONAL INVESTMENT MANAGER. You will be notified in the event any such action is taken by the Plan Administrator. The investment options range from a relatively low risk fund generally with lower returns, to a higher risk equity fund, with the potential for higher returns. Before you make your investment decision, you should carefully consider your investment goals. The Plan Administrator will provide you with information in a current Appendix to the SPD that summarizes the general investment goals and the past investment performance of the investment funds as they exist from time to time. In addition, you may request from the Plan Trustee(s) copies of prospectuses, financial statements or any other materials relating to the funds, to the extent such information is provided to this Plan, and a description of the annual operating expenses of each fund, such as investment management fees, administration fees and transaction costs. The Company intends to pay the administrative costs of the Plan, such as Trustee and accounting fees, but reserves the right to have the Plan pay part or all of such costs at any future time. 8 10 This Plan is intended to constitute a plan described in section 404(c) of the Employee Retirement Income Security Act of 1974, as amended (ERISA) and Title 29 of the Code of Federal Regulations section 2550.404c-1. As a result, the fiduciaries of this Plan may be relieved of liability for any losses which are the direct and necessary result of investment instructions given by you or your beneficiary. You will receive written reports on the status of your Plan account on a quarterly basis, and you may obtain daily information on a daily basis by using the Voice Response System or the Internet site. You should be aware that your investment decisions will ultimately affect the retirement benefits to which you will become entitled. Your Employer and the Plan Trustee(s) cannot provide you with investment advice, nor are they obligated to reimburse any participant for any investment loss that may occur as a result of his or her investment decisions. There is no guarantee that any of the investment options available in this Plan will retain their value or appreciate. You should also remember that all investments have some element of risk. Therefore, you should select your investments based on your own financial and retirement needs. In addition, it is important to remember that, like the stock market, stock investments can go down as well as up. If that should happen, as it probably will from time to time, the dollar value of all amounts invested in stock will decrease. SECTION FOUR: DISTRIBUTION OF BENEFITS AND VESTING BENEFIT ELIGIBILITY Certain events must occur before you can withdraw money from the Plan. In general, benefits may be withdrawn upon termination of employment after attaining normal retirement age or upon Plan termination. Normal retirement age under this Plan is age 65. In addition, you may withdraw your Employee 401(k) Contributions if you: - attain age 59 1/2 but continue to work - incur a financial hardship - terminate employment before attaining normal retirement age - become disabled - qualify for in-service distributions on account of financial hardship You will satisfy the Plan's early retirement age requirements upon attainment of age 55. Under your Plan, the only financial needs which are considered to meet the financial hardship requirements are the following items: deductible medical expenses for you or your immediate family, purchase of your principal residence, payment of tuition and related educational fees for the next 12 months for you or your immediate family, or to prevent eviction from your home or foreclosure upon your principal residence. A hardship distribution cannot exceed the amount of your immediate and heavy financial need and you must have obtained all distributions and all nontaxable loans from all Plans maintained by Connecticut Water Company prior to qualifying for a hardship distribution. Hardship distributions are subject to a 10% penalty tax if received before you reach age 59 1/2. Your Elective Deferrals will be suspended for 12 months after receipt of the hardship distribution. 9 11 DISTRIBUTION OF BENEFITS Form of Payment Payments from the Plan that are eligible rollover distributions can be taken in two ways. You may have all or any portion of your eligible rollover distribution either (1) paid in a direct rollover to an IRA or another employer plan or (2) paid to you. If you choose to have your Plan benefits paid to you, you will receive only 80% of the payment, because Connecticut Water Company is required to withhold 20% of the payment and send it to the IRS as income tax withholding to be credited against your taxes. Connecticut Water Company will give you more information about your options around the time you request your payout from the Plan. That information will, among other things, define an eligible rollover distribution. If your vested Individual Account (i.e., the amount of money in the Plan you are entitled to) is no more than $5,000, your benefits will be paid, either directly to you or as a direct rollover to an IRA or another plan, in a single lump sum payment. If your vested Individual Account is more than $5,000, your benefits under the Plan will be made in a form other than an annuity. Timing of Benefit Payments If the value of your Individual Account is no more than $5,000, Connecticut Water Company may direct that your benefits be paid within 90 days after the end of the Plan Year in which you become eligible to receive them. If your account is more than $5,000, your funds may be left in the Plan until you submit a written request to Connecticut Water Company for payment. However, you must begin taking required minimum distributions at age 70 1/2 if you are a five- percent or more owner of your Employer. If you are not a five percent or more owner, you must begin taking required minimum distributions from the Plan by April 1 of the year after the year in which you turn age 70 1/2 or, if later, April 1 of the year after the year in which you separate from service. Connecticut Water Company can provide you with the proper request forms. Once you have returned the completed request to Connecticut Water Company, payment will be made no later than 90 days after the close of the Plan Year in which Connecticut Water Company received your request. Required Minimum Distributions The tax laws and regulations require you to start taking minimum distributions from the Plan by April 1 of the year after the year in which you turn 70 1/2 years of age if you are a five percent or more owner of your Employer. If you are not a five percent or more owner, you must begin taking minimum distributions from the Plan by April 1 of the year after the year in which you turn age 70 1/2 or, if later, April 1 of the year after the year in which you separate from service. Minimum distributions must continue every year thereafter and must be taken by December 31. In general, the amount of the annual minimum distribution is determined by dividing the balance in your Individual Account by your life expectancy or the joint life expectancy of you and your Plan beneficiary. DETERMINING YOUR VESTED AMOUNT CONNECTICUT WATER COMPANY HAS SELECTED THE 100% VESTING SCHEDULE UNDER WHICH ALL PARTICIPANTS ARE 100% VESTED AT ALL TIMES. RESTRICTIONS OR PENALTIES ON DISTRIBUTIONS If you receive a distribution before reaching age 59 1/2, you must pay an additional 10% penalty tax on dollars included in income. There are, however, exceptions to the 10% early distribution penalty. Your tax advisor can assist you in determining if one of the exceptions applies to your distribution. If the value of your Individual Account is greater than $5,000, your beneficiary will receive a payout(s) in a form other than an annuity. 10 12 SECTION FIVE: CLAIMS PROCEDURE WHAT TO DO TO RECEIVE BENEFITS You or your beneficiary must file a written request with the Plan Administrator in order to start receiving benefits when you become eligible for them or when you die. HOW TO FILE A CLAIM A claim should be filed with Connecticut Water Company. You may claim a benefit to which you think you are entitled by filing a written request with Connecticut Water Company. The claim must set forth the reasons you believe you are eligible to receive benefits and authorize Connecticut Water Company to conduct such examinations and take such steps as may be necessary to evaluate the claim. If your claim is turned down, Connecticut Water Company will provide you or your beneficiary with a written notice of the denial within 60 days of the date your claim was filed. This notice will give you the specific reasons for the denial, the specific provisions of the Plan upon which the denial is based, and an explanation of the procedures for appeal. You or your beneficiary will have 60 days from receipt of the notice of denial in which to make written application for review by Connecticut Water Company. You may request that the review be in the nature of a hearing. You may be represented by an attorney if you so desire. Connecticut Water Company will issue a written decision on this review within 60 days after receipt of the application for review. SECTION SIX: MISCELLANEOUS TAX INFORMATION The Company believes that the Plan is qualified under Section 401(a) of the Internal Revenue Code and that the trust is exempt under Section 501(a) of the Internal Revenue Code. Some of the major tax consequences of a qualified plan are described briefly below. However, this is not intended to be an all-inclusive description of the tax impact of plan participation. Since the tax laws are complex and subject to change, you should consult with your own personal tax adviser as to the specific tax consequences. 1. Contributions made by the Company (including your Employee 401(k) Contributions) on your behalf are generally not taxable to you when they are made. You do not report them as income at that time. However, Employee 401(k) Contributions are subject when earned to social security and unemployment taxes. 2. Any investment earnings or profits received by the Trustee and allocated to your Individual Account are generally not taxable when they are realized by the trust fund or allocated to your Individual Account. 3. Distributions from your Individual Account to you will generally be taxed to you when received by you. If the distribution is eligible to be rolled over to a traditional individual retirement account or other qualified plan, in what is known as an "eligible rollover distribution," you may make such a rollover and avoid current taxation. At the time of a distribution to you, you will receive a special notice describing in general terms the tax consequences associated with your distribution. 4. With certain exceptions, distributions or withdrawals from your Individual Account prior to your attainment of age 59 1/2 will be subject to an additional excise tax equal to 10% of the taxable amount of the distribution or withdrawal. Under one of the exceptions, you will not be subject to the 10% penalty if the distribution is made following separation from service if separation from service occurs after attaining age 55. 11 13 5. If you receive a lump sum distribution from the Plan following attainment of age 59 1/2 or following separation from service that includes Company Stock, special rules may apply to the increase in the value of that Company Stock while it was held by the Plan. Generally, you would not be required to pay tax on the increase in value until the shares are sold. 6. Your participation in the Plan may affect your ability to make tax-deductible contributions to a traditional individual retirement account. You should consult your personal tax adviser for further details. 7. Under federal law, distributions generally must be made or commence by April 1 of the year following the year the Participant attains 70 1/2 or retires, whichever is later. 8. Generally, contributions made by the Company to the Plan, including your Employee 401(k) Contributions, matching contributions, and profit sharing contributions, are deductible for corporate income tax purposes by the Company when contributed. COMPANY STOCK The Plan offers you a Company Stock Fund along with the other investment fund options. Participants' assets invested in the Company Stock Fund are carried by the Trustee on a unit value accounting system. This means that each participant's interest in the Company Stock Fund is represented by "units" credited by the Trustee to his account in the Company Stock Fund. That is, the participant does not own any of the actual Company stock in the Company Stock Fund, but rather has a participating interest in the cash equivalents (money market investments) and Company stock held in the Company Stock Fund represented by the number of units in the Company Stock Fund credited to his account. The number of units a participant's contributions buy depends on the price of one unit, called the "unit value". To develop the unit value, the Trustee determines the market value of the total number of shares of Company stock in the Company Stock Fund, adds the amount of any cash equivalents and divides this by the total number of units held by all participants who have invested in the Company Stock Fund. Hence, the units in a participant's account represent a pro-rata share of all the assets held in the Company Stock Fund. Company stock is acquired by the Trustee on a nondiscretionary basis. The Trustee maintains a specific percentage of the Company Stock Fund in cash equivalent assets so as to satisfy requests for participant distributions, transfers to other investment funds, etc. If the cash equivalent assets exceed the specified percentage (for example, because of contributions or transfers from other funds), the Trustee buys Company stock until the specified percentage is reached. Conversely, should the cash equivalent assets fall below the specified level (for example, to make distributions to participants), the Trustee sells Company stock until the specified percentage is reached. Thus, the Trustee does not try to time any purchases or sales of Company stock, which are driven solely by the amount of, or the need for, liquidity of the Company Stock Fund. The value of the Company Stock Fund, and hence the value of the units in a participant's account, will move with the fluctuations in the market value of the Company stock. In certain cases, the value of the participant's account could, at various times, be less than the dollar amount of the contributions invested by a participant. BORROWING FROM THE PLAN Effective Date As a Participant in this Plan, you may be able to borrow a portion of your vested account balance. The loan program adopted by Connecticut Water Company is effective 10/1/2000 and is available on a uniform basis to all parties in interest to the Plan who meet loan qualification requirements. Loan Program Administrator If you have questions regarding the loan program you should contact The Plan Administrator, the person responsible for administering your loan program. 12 14 Loan Application Procedure To apply for a loan under this Plan, you must complete and return to The Plan Administrator a Loan Application Form, furnishing all information requested and pay any required loan application processing fees. Collateral Pledge A percentage of your vested account balance equal to the amount borrowed divided by your vested account balance is pledged as security for repayment of loans under this program. Limitations on Loan Types Loans from this Plan may be used for any purpose. Loan Approval Standards Decisions approving or denying loans from this Plan will be based on the value of your vested individual account balance. Loan Principal Limitations The minimum amount you may borrow from this Plan is $1,000.00. The maximum amount you may borrow from this Plan is one-half of your vested account balance or $50,000. Loan Principal Limitations The minimum amount you may borrow from this Plan is $1,000.00. You may have two outstanding loans at a time. Interest Calculations Interest on Loans from this Plan will be equal to Prime rate as of the end of the calendar quarter, plus 1.00%. Default Provisions You will be deemed to have defaulted on your loan if you fail to remit payment in a timely manner as required under the Loan Agreement, breach any of your obligations or duties under the Loan Agreement, or terminate employment. Upon default, The Plan Administrator is entitled to foreclose its security interest in your vested account balance pledged for repayment upon the occurrence of an event which triggers a distribution of your benefits. In addition, The Plan Administrator will report as taxable any amounts which are deemed distributed as a result of failing to make loan payments. PLAN TERMINATION Connecticut Water Company expects to continue the Plan indefinitely. However, in the unlikely event Connecticut Water Company must terminate the Plan, you will become 100% vested in the aggregate value of your Individual Account regardless of whether your vesting years of service are sufficient to make you 100% vested under the vesting schedule(s). If the Plan terminates, benefits are not insured by the Pension Benefit Guaranty Corporation (PBGC). Under the law, PBGC insurance does not cover the type of plans called defined contribution plans. This Plan is a defined contribution plan and, therefore is not covered. 13 15 BREAK IN SERVICE SITUATIONS If you quit your job, incur a break in service and then return to work, your date of participation depends on whether you had a vested interest in contributions (other than your Employee 401(k) Contributions) at the time you quit and incurred a break in service. If you had a vested interest, you will participate again upon your return to employment. In addition, your vesting years of service accumulated prior to the time you quit and incurred a break in service will be counted in figuring your vested interest. If you did not have a vested interest, any eligibility years of service occurring before the break in service will be taken into account and you will begin to participate again upon your return to service unless the number of consecutive one year breaks in service equals or exceeds the greater of five years, or the aggregate number of eligibility years of service preceding the breaks in service. If your period of consecutive breaks in service exceeds your period of prior service, you will be treated as a new employee and will participate again when you satisfy the Plan's eligibility requirements. In addition, any vesting years of service occurring before the break in service will be taken into account in computing your vested interest under the Plan unless the number of consecutive one year breaks of service equals or exceeds the greater of five years or the aggregate number of vesting years of service preceding the breaks in service. For example, if you work for two years, quit without being vested, and then return to employment after a break of two years of more, the Plan will give you vesting credit for the initial two-year period. SECTION SEVEN: RIGHTS UNDER ERISA THE RIGHTS AND PROTECTIONS A PLAN PARTICIPANT IS ENTITLED TO UNDER THE EMPLOYEE RETIREMENT INCOME SECURITY ACT As a Participant in this Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 (ERISA). ERISA provides that all Plan Participants shall be entitled to do the following: 1. Examine, without charge, at the Plan Administrator's office and at other specified locations, all Plan documents, and copies of all documents filed by Connecticut Water Company with the U.S. Department of Labor, such as detailed annual reports and Plan descriptions. 2. Obtain copies of all Plan documents and other Plan information upon written request to Connecticut Water Company. Connecticut Water Company may make a reasonable charge for the copies. 3. Receive a summary of the Plan's annual financial report. Connecticut Water Company is required by law to furnish each participant with a copy of this Summary Annual Report. 4. Obtain, once a year, a statement of the total pension benefits accrued and the nonforfeitable (vested) pension benefits (if any) or the earliest date on which benefits will become nonforfeitable (vested). The Plan may require a written request for this statement, but it must provide the statement free of charge. In addition to creating rights for Plan Participants, ERISA imposes duties upon the people who are responsible for the operation of the employee benefit plan. The people who operate your Plan, called fiduciaries of the Plan, have a duty to do so prudently and in the interest of you and other Plan Participants and beneficiaries. No one, including Connecticut Water Company, or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a pension benefit or exercising your rights under ERISA. 14 16 If your claim for a benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have Connecticut Water Company review and reconsider your claim. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from Connecticut Water Company and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require Connecticut Water Company to provide the materials and pay you up to $110 day until you receive the materials, unless the materials were not sent because of reasons beyond the control of Connecticut Water Company. If you have a claim for benefits which is denied, or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that Plan fiduciaries misuse the Plan's money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay the costs and fees. If you lose, the court may order you to pay these costs and fees. For example, if the court finds your claim is frivolous, expenses may be assessed against you. If you have any questions about your Plan, you should contact Connecticut Water Company. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest area office of the Pension and Welfare Benefit Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquires, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue, N. W., Washington, D. C. 30210. Further, if this Plan is maintained by more than one employer, you can obtain, in writing, information as to whether a particular employer is participating in this Plan and, if so, the participating Employer's address. In addition, you may request, in writing, a complete list of Employers participating in this Plan. You may obtain such information by making a written request to Connecticut Water Company. Connecticut Water Company is the most significant (parent) employer of the group of employers maintaining this Plan. Employer Information Name: Connecticut Water Company Address: 93 West Main Street Clinton, CT 06413
Business Telephone: 860-669-8630 Employer Identification Number: 06-0713930 Employer's Income Tax Year End: 12/31
Agent for Service of Legal Process The Agent for Service of Legal Process is the person upon whom any legal papers can be served. Service of legal process may be made upon a Plan Trustee, the Employer or the Plan Administrator. Name: Connecticut Water Company Address: 93 West Main Street Clinton, CT. 06413
Trustee Information Name: PW Trust Company Address: 1200 Harbor Blvd, Sixth Floor Weehawken, New Jersey 07087
15 17 APPENDIX TO SUMMARY PLAN DESCRIPTION This Appendix supplements the Summary Plan Description (SPD) dated December 18, 2000 that has been provided to all employees of Connecticut Water Company (the "Company") eligible to participate in the Savings Plan of the Connecticut Water Company (the "Plan"). The information contained in this Appendix is to be read in conjunction with the SPD. To the extent that the information contained in this Appendix is inconsistent with information contained in the SPD, the information contained in this Appendix supersedes and replaces the corresponding information in the SPD. If you have misplaced or discarded your SPD, please request an additional booklet from the Company's Human Resources Department and one will be provided to you. INVESTMENT INFORMATION Your salary deferral contributions, matching contributions made by the Company, any profit sharing contributions made to the Plan by the Company and rollover contributions will be invested in accordance with your directions in one or more of the funds listed on the attached fund information sheets. You are provided periodically with summaries of each fund containing more detailed information than the attached summaries, except for the Company Stock Fund, for which bid and asked prices are quoted each weekday in the Wall Street Journal; [Company Stock prices are also available from NASDAQ.com or by contacting the Company's Corporate Secretary at 1-800-428-3985, ext. 3015. Shares of Company Stock will be purchased at market prices in transactions over securities exchanges as soon as practicable after receiving contributions to the Company Stock Fund. The purchase price of the Company Stock will include brokerage fees and commissions, transfer taxes, and related expenses. Brokers who make such transactions are selected by the Trustee. However, the Trustee may also purchase newly issued or treasury stock from the Company at such prices and on such terms as it deems proper. There is no guarantee as to the rate of return or preservation of principal for contributions made to the Company Stock Fund. Dividends (if any) and other distributions received on Company Stock, net of Plan expenses attributable to Company Stock held in the Fund, will be reinvested in Company Stock by the Trustee, and each participant's accounts invested in the Company Stock Fund will be credited with the proportionate number of shares. VOTING RIGHTS To the extent participant's Plan accounts are invested in Company Stock, each participant may instruct the Trustee how to vote shares of Company Stock. In addition, each participant may decide whether or not to tender shares of Company Stock held in his Plan accounts in case of a tender offer. Before each stockholder's meeting, each participant will receive the voting materials necessary to vote shares of Company Stock held in his Plan accounts. The Company has established procedures that are intended to ensure that each participant's voting and, if applicable, his tender instructions relating to shares of Company Stock are confidential by providing that voting and tender forms are sent directly to each participant by the Company's transfer agent and by providing that his instructions are sent directly back to the transfer agent. The transfer agent then tabulates the instructions and forwards the results to the Trustee for its action. Subject to its fiduciary responsibilities under ERISA, the Trustee will vote shares that are not voted by participants in the same portion as shares voted by participants and will not tender shares for which no instructions are received. NO GUARANTEE OF FUND RESULTS No assurance can be given that results of the various investment funds in future periods will be the same or similar to those reflected in the foregoing paragraphs with respect to fund results in prior periods. Changes in the market value of underlying securities and interest and dividend income, among other things, 18 may cause the rates of return and therefore the value of participants' accounts constantly to vary, sometimes significantly. Accordingly, no past period is necessarily indicative of future performance. RESTRICTIONS ON RESALE There are generally no restrictions on resale of Company Stock acquired pursuant to the Plan except for employees who are deemed to be "affiliates" of the Company, and directors or officers of the Company who are subject to Section 16 of the Securities Exchange Act of 1934 ("Exchange Act"). An affiliate may resell Company Stock acquired under the Plan either pursuant to a registration statement or pursuant to Rule 144 or another applicable exemption under the Securities Act of 1933. For purposes of reselling, an affiliate is basically defined as a control person or one who, directly or indirectly, has the power to direct or cause the direction of the management and policies of the Company. Under Section 16 of the Exchange Act, any profit realized by a director or officer of the Company through the purchase and sale, or any sale and purchase, of any equity security of the Company within a period of six months might be recoverable by the Company. If an employee thinks that he or she might be an affiliate of the Company, or subject to the provisions of Section 16 of the Exchange Act, an attorney should be consulted to determine what steps should be taken to accomplish any such resale under securities laws. 19 FUND INFORMATION FOR CONNECTICUT WATER COMPANY SAVINGS PLAN NAME OF FUND TOTAL RETURNS (%) BASED ON CALENDAR YEAR - ------------ ---------------------------------------- EUROPACIFIC GROWTH 2000* 1999 1998 1997 ---------------------------------------- -10.76 56.97 15.54 9.19 ---------------------------------------- DESCRIPTION OF FUND - ------------------- Seeks long-term growth of capital by investing in companies based outside the United States. * Through 09/30/00 - -------------------------------------------------------------------------------- NAME OF FUND TOTAL RETURNS (%) BASED ON CALENDAR YEAR - ------------ ---------------------------------------- AIM AGGRESSIVE GROWTH 2000* 1999 1998 1997 ---------------------------------------- 23.96 45.06 4.99 12.16 ---------------------------------------- DESCRIPTION OF FUND - ------------------- This fund seeks aggressive capital growth by investing in small and mid-sized companies that management believes will have earnings growth well in excess of the general economy. * Through 09/30/00 - -------------------------------------------------------------------------------- NAME OF FUND TOTAL RETURNS (%) BASED ON CALENDAR YEAR - ------------ ---------------------------------------- DREYFUS FOUNDERS DISCOVERY 2000* 1999 1998 1997 ---------------------------------------- 12.28 94.59 14.19 11.95 ---------------------------------------- DESCRIPTION OF FUND - ------------------- The fund seeks capital appreciation through the pursuit of targeting small and relatively unknown companies w/high growth potential. * Through 09/30/00 - -------------------------------------------------------------------------------- NAME OF FUND TOTAL RETURNS (%) BASED ON CALENDAR YEAR - ------------ ---------------------------------------- FRANKLIN BALANCE SHEET INVESTMENT 2000* 1999 1998 1997 ---------------------------------------- 12.79 -1.53 -0.61 25.98 ---------------------------------------- DESCRIPTION OF FUND - ------------------- The fund will seek capital appreciation and/or high income primarily through investment in securities that the portfolio managers believe are undervalued in the marketplace and trading at a low price-to-book value. * Through 09/30/00 - -------------------------------------------------------------------------------- NAME OF FUND TOTAL RETURNS (%) BASED ON CALENDAR YEAR - ------------ ---------------------------------------- AIM BLUE CHIP 2000* 1999 1998 1997 ---------------------------------------- 2.07 25.6 30.45 31.96 ---------------------------------------- DESCRIPTION OF FUND - ------------------- The fund seeks long term capital growth by investing in large established companies which are considered to be market leaders. The companies must exhibit strong earnings growth potential or be attractively valued relative to their fundamentals. * Through 09/30/00 - -------------------------------------------------------------------------------- NAME OF FUND TOTAL RETURNS (%) BASED ON CALENDAR YEAR - ------------ ---------------------------------------- MASSACHUSETTES INVESTORS GROWTH 2000* 1999 1998 1997 STOCK FUND ---------------------------------------- 7.43 38.76 40 48.15 ---------------------------------------- DESCRIPTION OF FUND - ------------------- The fund seeks long term growth of capital and future income, rather than current income. The fund invests primarily in common stocks exhibiting above-average prospects for long term growth. * Through 09/30/00 - ----------------------------------------------------------------------------- 20 NAME OF FUND WASHINGTON MUTUAL INVESTORS
- ---------------------------------------- TOTAL RETURNS (%) BASED ON CALENDAR YEAR - ---------------------------------------- 2000* 1999 1998 1997 - ---------------------------------------- 2.4 1.16 19.37 33.29 - ----------------------------------------
DESCRIPTION OF FUND Seeks current income and an opportunity for growth of principal consistent with sound common-stock investing. *Through __ 09/30/00 - -------------------------------------------------------------------------------- NAME OF FUND AMERICAN BALANCED
- ---------------------------------------- TOTAL RETURNS (%) BASED ON CALENDAR YEAR - ---------------------------------------- 2000* 1999 1998 1997 - ---------------------------------------- 7.48 3.47 11.13 21.04 - ----------------------------------------
DESCRIPTION OF FUND The fund seeks conservation of capital, current income and long term growth of capital and income by investing in stocks, bonds, and fixed-income securities. *Through __ 09/30/00 - -------------------------------------------------------------------------------- NAME OF FUND OPPENHEIMER QUEST OPPORTUNITY VALUE
- ---------------------------------------- TOTAL RETURNS (%) BASED ON CALENDAR YEAR - ---------------------------------------- 2000* 1999 1998 1997 - ---------------------------------------- 1.02 9.27 7.66 20.14 - ----------------------------------------
DESCRIPTION OF FUND The fund seeks long term growth of capital utilizing a flexible approach within the portfolio which can contain stocks, bonds, and cash equivalents. *Through __ 09/30/00 - -------------------------------------------------------------------------------- NAME OF FUND PIMCO TOTAL RETURN
- ---------------------------------------- TOTAL RETURNS (%) BASED ON CALENDAR YEAR - ---------------------------------------- 2000* 1999 1998 1997 - ---------------------------------------- 6.69 -0.82 9.25 10.17 - ----------------------------------------
DESCRIPTION OF FUND The fund is a core bond strategy which seeks maximum total return by focusing on an intermediate-term, high quality bond *Through __ 09/30/00 - -------------------------------------------------------------------------------- NAME OF FUND PW TRUST COMPANY STABLE VALUE
- ---------------------------------------- TOTAL RETURNS (%) BASED ON CALENDAR YEAR - ---------------------------------------- 2000* 1999 1998 1997 - ---------------------------------------- 5.76 5.19 5.54 5.86 - ----------------------------------------
DESCRIPTION OF FUND The fund's objective is to generate a total return in excess of the average monthly yield to maturity of one-year Treasury bills and to provide stability of principal while maximizing current income. *Through __ 09/30/00 - -------------------------------------------------------------------------------- NAME OF FUND COMPANY STOCK FUND
- ------------------------------------------------- CLOSING PRICE BASED ON CALENDAR YEAR - ------------------------------------------------- 9/30/2000* 1999 1998 1997 - ------------------------------------------------- $32.25 $32.00 $27.00 $21.66 - -------------------------------------------------
DESCRIPTION OF FUND Invests solely in common stock of Connecticut Water Service, Inc., the parent company of Connecticut Water Company. The Company Stock is traded on the NASDAQ under the symbol "CTWS." *Closing bid price on 9/30/00 - -------------------------------------------------------------------------------- EX-24.1 4 y46855ex24-1.txt EX-24.1 1 EXHIBIT 24.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports included in this Form 10-K, into the Company's previously filed Registration Statements File Nos. 33-53211, 333-94525, 333-51702, and 333-54418. /s/ Arthur Andersen LLP Hartford, Connecticut March 20, 2001 -----END PRIVACY-ENHANCED MESSAGE-----