-----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, CnlK9QueEhpfSkQKNYJT7E06ktnOp5k2nyGOlI/Ihvmx1oXps1ASvOa23s8CohNV 8jeXWCBK80C4XgwA347tKQ== 0000914039-99-000484.txt : 19991115 0000914039-99-000484.hdr.sgml : 19991115 ACCESSION NUMBER: 0000914039-99-000484 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 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-Q SEC ACT: SEC FILE NUMBER: 000-08084 FILM NUMBER: 99747617 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-Q 1 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (Mark One) (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number 0-8084 Connecticut Water Service, Inc. (Exact name of registrant as specified in its charter) Connecticut 06-0739839 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 93 West Main Street, Clinton, CT 06413-1600 (Address of principal executive offices) (Zip Code) (860) 669-8636 (Registrant's telephone number, including area code) Not Applicable (Former name, address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a count. Yes No ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. 4,838,688 Number of shares of common stock outstanding, September 30, 1999 2 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES Financial Report September 30, 1999 and 1998 TABLE OF CONTENTS PART I, ITEM 1: FINANCIAL STATEMENTS Consolidated Balance Sheets at September 30, 1999 and December 31, 1998 Page 3 Consolidated Statements of Capitalization at September 30, 1999 and December 31, 1998 Page 4 Consolidated Statements of Income for Three Months Ended September 30, 1999 and 1998 Page 5 Consolidated Statements of Income for Nine Months Ended September 30, 1999 and 1998 Page 6 Consolidated Statements of Income for Twelve Months Ended September 30, 1999 and 1998 Page 7 Consolidated Statements of Retained Earnings for Three Months Ended September 30, 1999 and 1998 Page 8 Consolidated Statements of Retained Earnings for Nine Months Ended September 30, 1999 and 1998 Page 8 Consolidated Statements of Retained Earnings for Twelve Months Ended September 30, 1999 and 1998 Page 8 Consolidated Statements of Cash Flows for Nine Months Ended September 30, 1999 and 1998 Page 9 Notes to Consolidated Financial Statements Page 10 PART I, ITEM 2: Management's Discussion and Analysis of Financial Condition and Results of Operations Page 13-16 PART II, ITEM 6: Report on Form 8-K Page 16 Signature Page Page 17
Note: The financial statements have been restated to reflect the acquisitions of Crystal Water Utilities, Inc., and Gallup Water Service, Inc., as explained in Footnote 2 of the Notes to Consolidated Financial Statements. 3 Page 3 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS At September 30, 1999 and December 31, 1998 (In thousands)
SEPTEMBER 30, 1999 DEC. 31, ASSETS (UNAUDITED) 1998 ------------- --------- Utility Plant Utility Plant $ 237,652 $ 232,715 Construction Work in Progress 5,645 4,459 Utility Plant Acquisition Adjustments (1,274) (1,274) --------- --------- 242,023 235,900 Accumulated Provision for Depreciation (63,261) (59,715) --------- --------- Net Utility Plant 178,762 176,185 --------- --------- Investments 2,171 2,166 --------- --------- Current Assets Cash 1,936 372 Accounts Receivable (Less Allowance, 1999- $315; 1998 - $295) 9,877 8,141 Prepayments and Other Current Assets 1,752 974 --------- --------- Total Current Assets 13,565 9,487 --------- --------- Deferred Charges and Regulatory Assets Unamortized Debt Issuance Expense 5,777 5,968 Income Taxes 9,937 9,859 Postretirement Benefits Other Than Pension 1,100 1,150 Other Costs 1,150 1,140 --------- --------- Total Deferred Charges 17,964 18,117 --------- --------- TOTAL ASSETS $ 212,462 $ 205,955 ========= ========= CAPITALIZATION AND LIABILITIES Capitalization (See accompanying statements) Common Stockholders' Equity $ 62,402 $ 60,326 Preferred Stock 772 772 Long-Term Debt 65,476 65,611 --------- --------- Total Capitalization 128,650 126,709 --------- --------- Current Liabilities Current Portion of Long Term Debt 170 419 Interim Bank Loans Payable 5,410 1,895 Accounts Payable and Accrued Taxes and Interest 7,222 8,045 Other 2,848 2,538 --------- --------- Total Current Liabilities 15,650 12,897 --------- --------- Long-Term Liabilities Advances for Construction 16,661 15,273 Contributions in Aid of Construction 22,977 22,944 Deferred Federal Income Taxes 16,088 15,601 Unfunded Future Income Taxes 9,310 9,309 Unfunded Postretirement Benefits Other Than Pension 1,100 1,150 Unamortized Investment Tax Credits 2,026 2,072 --------- --------- Total Long-Term Liabilities 68,162 66,349 --------- --------- TOTAL CAPITALIZATION AND LIABILITIES $ 212,462 $ 205,955 ========= =========
The accompanying notes are an integral part of these financial statements. 4 Page 4 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CAPITALIZATION At September 30, 1999 and December 31, 1998 (In thousands, except share data)
SEPTEMBER 30, 1999 DEC. 31, (UNAUDITED) 1998 ------------- --------- Common Stockholders' Equity Common Stock Without Par Value; Authorized - 7,500,000 Shares; Shares Issued and Outstanding: 1999 - 4,838,688; 1998 - 4,828,147 $ 45,934 $ 45,788 Stock Issuance Expense (1,385) (1,385) Retained Earnings 17,853 15,923 --------- --------- Total Common Stockholders' Equity 62,402 60,326 --------- --------- Cumulative Preferred Stock of Connecticut Water Service, Inc. Series A Voting, $20 Par Value; Authorized, Issued and Outstanding 15,000 Shares, Redeemable at $21.00 Per Share 300 300 Series $.90 Non-Voting, $16 Par Value; Authorized 50,000 Shares Issued and Outstanding 29,499 Shares, Redeemable at $16.00 Per Share 472 472 --------- --------- Total Preferred Stock of Connecticut Water Service, Inc. 772 772 --------- --------- Long-Term Debt The Connecticut Water Company First Mortgage Bonds 5.875% Series R, due 2022 14,800 14,800 6.65% Series S, due 2020 8,000 8,000 5.75% Series T, due 2028 5,000 5,000 5.3% Series U, due 2028 4,550 4,550 6.94% Series V, due 2029 12,050 12,050 --------- --------- 44,400 44,400 --------- --------- Unsecured Water Facilities Revenue Refinancing Bonds 5.05% 1998 Series A, due 2028 10,000 10,000 5.125% 1998 Series B, due 2028 8,000 8,000 --------- --------- 18,000 18,000 --------- --------- Other 5.5% Unsecured Promissory Note 108 132 --------- --------- Crystal Water Utilities 8.0% Due 2017 135 137 6.25% Due 2015 0 18 7.82% Due 2020 523 528 8.0% Due 2011 2,339 2,416 --------- --------- 2,997 3,099 --------- --------- Gallup Water Service 9.58% Due 1999 0 255 --------- --------- Chester Realty 6% Due 2006 141 144 --------- --------- TOTAL 65,646 66,030 Less Current Portion of Long-Term Debt (170) (419) --------- --------- Total Long-Term Debt 65,476 65,611 --------- --------- TOTAL CAPITALIZATION $ 128,650 $ 126,709 ========= =========
The accompanying notes are an integral part of these financial statements. 5 Page 5 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1999 1998 (UNAUDITED) (UNAUDITED) ----------- ----------- Operating Revenues $ 12,892 $ 12,020 -------- -------- Operating Expenses Operation and Maintenance 4,681 4,450 Depreciation 1,133 1,004 Federal and State Income Taxes 2,222 1,919 Other Taxes 1,093 1,008 -------- -------- Total Operating Expenses 9,129 8,381 Utility Operating Income 3,763 3,639 -------- -------- Other Income (Deductions) Interest 15 37 Allowance for Funds Used During Construction 84 108 Gain on Sale of Property 53 46 Non-Water Sales Earnings 0 8 Miscellaneous Income (Deductions) (8) (15) Taxes on Other Income (14) (14) -------- -------- Total Other Income (Deductions) 130 170 -------- -------- Interest and Debt Expense Interest on Long-Term Debt 984 994 Other Interest Charges 128 92 Amortization of Debt Expense 55 55 -------- -------- Total Interest and Debt Expense 1,167 1,141 -------- -------- Net Income Before Preferred Dividends 2,726 2,668 Preferred Stock Dividend Requirement 10 10 -------- -------- Net Income Applicable to Common Stockholders $ 2,716 $ 2,658 ======== ======== Weighted Average Common Shares Outstanding 4,839 4,828 ======== ======== Basic and Fully Diluted Earnings Per Average Common Share $ 0.56 $ 0.55 ======== ======== Dividends Per Common Share $ 0.28 $ 0.28 ======== ========
The accompanying notes are an integral part of these financial statements. 6 Page 6 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Nine Months Ended September 30, 1999 and 1998 (In thousands, except per share data)
1999 1998 (UNAUDITED) (UNAUDITED) ----------- ----------- Operating Revenues $ 32,575 $ 30,643 -------- -------- Operating Expenses Operation and Maintenance 13,096 12,800 Depreciation 3,322 3,015 Federal and State Income Taxes 4,051 3,368 Other Taxes 3,164 3,054 -------- -------- Total Operating Expenses 23,633 22,237 -------- -------- Utility Operating Income 8,942 8,406 -------- -------- Other Income (Deductions) Interest 77 99 Allowance for Funds Used During Construction 316 357 Gain on Sale of Property 94 253 Non-Water Sales Earnings 132 127 Miscellaneous Income (Deductions) (13) (28) Taxes on Other Income (64) (150) -------- -------- Total Other Income (Deductions) 542 658 -------- -------- Interest and Debt Expense Interest on Long-Term Debt 2,962 2,927 Other Interest Charges 265 343 Amortization of Debt Expense 191 159 -------- -------- Total Interest and Debt Expense 3,418 3,429 -------- -------- Net Income Before Preferred Stock 6,066 5,635 Preferred Stock Dividend Requirement 29 29 -------- -------- Net Income Applicable to Common Stockholders $ 6,037 $ 5,606 ======== ======== Weighted Average Common Shares Outstanding 4,836 4,827 ======== ======== Basic and Fully Diluted Earnings Per Average Common Share $ 1.25 $ 1.16 ======== ======== Dividends Per Common Share $ 0.85 $ 0.83 ======== ========
The accompanying notes are an integral part of these financial statements. 7 Page 7 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME For the Twelve Months Ended September 30, 1999 and 1998 (In thousands, except per share data)
1999 1998 (UNAUDITED) (UNAUDITED) ----------- ----------- Operating Revenues $ 42,235 $ 40,253 -------- -------- Operating Expenses Operation and Maintenance 17,537 16,911 Depreciation 4,440 3,983 Federal and State Income Taxes 4,772 4,289 Other Taxes 4,190 4,059 -------- -------- Total Operating Expenses 30,939 29,242 -------- -------- Utility Operating Income 11,296 11,011 -------- -------- Other Income (Deductions) Interest 129 153 Allowance for Funds Used During Construction 435 462 Gain on Sale of Property 316 267 Non-Water Sales Earnings 253 173 Miscellaneous Income (Deductions) (27) (75) Taxes on Other Income (202) (149) -------- -------- Total Other Income (Deductions) 904 831 -------- -------- Interest and Debt Expense Interest on Long-Term Debt 3,953 3,864 Other Interest Charges 394 569 Amortization of Debt Expense 247 224 -------- -------- Total Interest and Debt Expense 4,594 4,657 -------- -------- Net Income Before Preferred Dividend 7,606 7,185 Preferred Stock Dividend Requirement 38 38 -------- -------- Net Income Applicable to Common Stockholders $ 7,568 $ 7,147 ======== ======== Weighted Average Common Shares Outstanding 4,834 4,825 ======== ======== Basic and Fully Diluted Earnings Per Average Common Share $ 1.57 $ 1.48 ======== ======== Dividends Per Common Share $ 1.14 $ 1.12 ======== ========
The accompanying notes are an integral part of these financial statements. 8 Page 8 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (IN THOUSANDS, EXCEPT SHARE DATA)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 1999 1998 (UNAUDITED) (UNAUDITED) ----------- ----------- Balance at Beginning of Period $16,569 $14,451 Net Income 2,726 2,668 ------- ------- 19,295 17,119 ------- ------- Dividends Declared: Cumulative Preferred, Class A, $.20 per share 3 3 Cumulative Preferred, Series $.90, $.225 per share 7 7 Common Stock - 1999 $0.28 per share; 1998 $0.28 per share 1,432 1,328 ------- ------- 1,442 1,338 ------- ------- Balance at End of Period $17,853 $15,781 ======= ======= FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 Balance at Beginning of Period $15,923 $14,189 Net Income 6,066 5,635 ------- ------- 21,989 19,824 ------- ------- Dividends Declared: Cumulative Preferred, Class A, $.40 per share 9 9 Cumulative Preferred, Series $.90, $.45 per share 20 20 Common Stock - 1999 $0.85 per share; 1998 $0.83 per share 4,107 4,014 ------- ------- 4,136 4,043 ------- ------- Balance at End of Period $17,853 $15,781 ======= ======= FOR THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 Balance at Beginning of Period $15,781 $14,014 Net Income 7,606 7,185 ------- ------- 23,387 21,199 ------- ------- Dividends Declared: Cumulative Preferred, Class A, $.80 per share 12 12 Cumulative Preferred, Series $.90, $.90 per share 26 26 Common Stock - 1999 $1.14 per share; 1998 $1.12 per share 5,496 5,380 ------- ------- 5,534 5,418 ------- ------- Balance at End of Period $17,853 $15,781 ======= =======
The accompanying notes are an integral part of these financial statements. 9 Page 9 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Nine Months Ended September 30, 1999 and 1998 (In thousands)
1999 1998 (UNAUDITED) (UNAUDITED) Operating Activities: Net Income Before Preferred Dividends $ 6,066 $ 5,635 -------- -------- Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation (including $93 in 1999, $95 in 1998 charged to other accounts) 3,415 3,110 Change in Assets and Liabilities: (Increase) Decrease in Accounts Receivable and Accrued Unbilled Revenues (1,736) (1,679) (Increase) Decrease in Other Current Assets (778) (965) (Increase) Decrease in Other Non-Current Items 99 (104) Increase (Decrease) in Accounts Payable, Accrued Expenses and Other Current Liabilities (513) (775) Increase (Decrease) in Deferred Federal Income Taxes and Investment Tax Credits, Net 441 855 -------- -------- Total Adjustments 928 442 -------- -------- Net Cash Provided by (Used for) Operating Activities 6,994 6,077 -------- -------- Investing Activities: Gross Additions to Utility Plant (including Allowance for Funds Used During Construction of $316 in 1999 and $357 in 1998) (6,156) (5,295) -------- -------- Financing Activities: Proceeds from Interim Bank Loans 5,410 5,018 Repayment of Interim Bank Loans (1,895) (8,811) Proceeds from Issuance of Common Stock 182 53 Net Proceeds from Issuance of Long-Term Debt 0 18,000 Repayment of Long-Term Debt (384) (10,186) Advances, Contributions and Funds From Others for Construction, Net 1,585 916 Costs Incurred to Issue Long-Term Debt, Preferred Stock, and Common Stock (36) (1,147) Cash Dividends Paid (4,136) (4,043) -------- -------- Net Cash Provided by (Used for) Financing Activities 726 (200) -------- -------- Net Increase (Decrease) in Cash 1,564 582 Cash at Beginning of Year 372 780 -------- -------- Cash at End of Period $ 1,936 $ 1,362 ======== ======== Supplemental Disclosures of Cash Flow Information: Cash Paid During the Year for: Interest (Net of Amounts Capitalized) $ 2,912 $ 3,417 Income Taxes $ 2,723 $ 2,460
The accompanying notes are an integral part of these financial statements. 10 Page 10 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The consolidated financial statements included herein have been prepared by CONNECTICUT WATER SERVICE, INC. (Connecticut Water or the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments which are, in the opinion of management, necessary to a fair statement of the results for interim periods. Certain information and footnote disclosures have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on 10-K. The results for interim periods are not necessarily indicative of results to be expected for the year since the consolidated earnings are subject to seasonal factors. 2. During 1999 Connecticut Water acquired two companies which have been accounted for as pooling-of-interests. Accordingly, Connecticut Water's financial statements have been restated to include the results of the acquired companies for all periods presented. On April 16, 1999 Gallup Water Service, Inc. ("Gallup") was merged with and into Connecticut Water through the issuance of 47,826 shares of Connecticut Water Service, Inc., which were exchanged for all of the outstanding common shares of Gallup. On September 29, 1999 Crystal Water Utilities Corporation ("Crystal") was merged with and into Connecticut Water through the issuance of 244,508 shares of Connecticut Water Service, Inc., which were exchanged for all of the outstanding common shares of Crystal. The combined and separate results of Connecticut Water, Gallup and Crystal during the periods preceding and after the merger were as follows: (In thousands of Dollars)
September 30 ------------------------------------------------ Three Months Nine Months Twelve Months Ended Ended Ended ----- ----- ----- Operating Revenues 1999 Connecticut Water $12,185 $30,664 $39,728 Gallup 185 473 623 Crystal 522 1,438 1,884 ------- ------- ------- Combined $12,892 $32,575 $42,235 ======= ======= ======= 1998 Connecticut Water $11,392 $28,860 $37,861 Gallup 151 433 586 Crystal 477 1,350 1,806 ------- ------- ------- Combined $12,020 $30,643 $40,253 ======= ======= =======
11 Page 11 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
September 30 ------------------------------------------------ Three Months Nine Months Twelve Months Ended Ended Ended ----- ----- ----- Net Income Applicable to Common Stockholders 1999 Connecticut Water $ 2,574 $ 5,818 $ 7,296 Gallup (21) (29) (9) Crystal 163 248 281 ------- ------- ------- Combined $ 2,716 $ 6,037 $ 7,568 ======= ======= ======= 1998 Connecticut Water $ 2,600 $ 5,450 $ 6,923 Gallup 21 49 58 Crystal 37 107 166 ------- ------- ------- Combined $ 2,658 $ 5,606 $ 7,147 ======= ======= =======
3. Earnings per average common share are calculated by dividing net income applicable to common stock by the average number of shares of common stock outstanding during the respective periods as detailed on the following page: 12 Page 12 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
12 Months Ended 3 Months Ended --------------------------------------- 9/30/99 9/30/98 9/30/99 9/30/98 12/31/98 ---------- ---------- ---------- ---------- ---------- Common Shares Outstanding: January 1, 1998 -- -- -- -- 4,819,970 October 1, 1998 & 1997 respectively -- 4,828,147 4,819,049 -- July 1, 1999 & 1998 respectively 4,838,563 4,828,124 -- -- -- Common Shares Issued: To CSE - December 15, 1997 -- -- -- 57 -- To 401-K - December 31, 1997 -- -- -- 864 -- To PSP - February 18, 1998 -- -- -- 6,921 6,921 To CSE - March 15, 1998 -- -- -- 102 102 To 401-K - March 30, 1998 -- -- -- 590 590 To CSE - June 15, 1998 -- -- -- 95 95 To 401-K - June 30, 1998 -- -- -- 446 446 Liquidation of Fractional Shares -- (587) -- (587) (587) To CSE - September 15, 1998 -- 82 -- 82 82 To 401-K - September 30, 1998 -- 528 -- 528 528 To CSE - December 15, 1998 -- -- 81 -- 81 To 401-K - December 31, 1998 -- -- 391 -- 391 To PSP - March 1, 1999 -- -- 9,658 -- -- To CSE - March 15, 1999 -- -- 147 -- -- To CSE - June 15, 1999 -- -- 139 -- -- To CSE - September 15, 1999 125 -- 125 -- -- ---------- ---------- ---------- ---------- ---------- Common Shares Outstanding: September 30, 1999 & 1998 respectively 4,838,688 4,828,147 4,838,688 4,828,147 ========== ========== ========== ========== December 31, 1998 4,828,619 ========== Weighted Average Common Shares Outstanding: Days outstanding basis* 4,838,585 4,828,061 4,834,294 4,825,191 4,827,484 ========== ========== ========== ========== ==========
* Basic and Fully diluted are the same. The share amounts above have been restated by 47,826 shares for the acquisition of The Gallup Water Service, Inc. and 244,508 shares for the acquisition of Crystal Water Utilities Corporation due to pooling of interests accounting. PSP = Performance Stock Program 401-K = Company contribution to employees' 401-K savings plan CSE = Common Stock Equivalents 13 Page 13 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES PART I, ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CORPORATE RESOURCES At September 30, 1999 the Company had $3,590,000 of unused lines of interim bank loan credit available. RESULT OF OPERATIONS THE FOLLOWING FACTORS HAD A SIGNIFICANT EFFECT UPON THE COMPANY'S NET INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED WITH THE NET INCOME FOR THE SAME PERIOD LAST YEAR. Net income applicable to common stock for the three months ended September 30, 1999 increased from that of September 30, 1998 by $58,000, or $.01, per average common share. The increase in net income resulted from a $124,000 increase in operating income, partially offset by a $40,000 decrease in other income and deductions and a $26,000 increase in interest and debt expense. The increase in operating income is due to $872,000 or a 7.3% increase in operating revenues, partially offset by a $748,000 or 8.9% increase in operating expenses. The increase in operating revenues is a result of higher than average customer water consumption brought on by the extremely dry, hot weather in July and August 1999. The increase in operating expenses is primarily due to increased income taxes as a result of the higher taxable income, higher operation costs related to the production and supply of the additional water consumed by customers, and higher depreciation and property tax expense resulting from the Company's increased investments in utility plant. The decrease in other income and deductions is partially due to the completion of a major capital project in late 1998, which generated an overall higher level of Allowance for Funds Used During Construction in 1998 as compared to 1999. THE FOLLOWING FACTORS HAD A SIGNIFICANT EFFECT UPON THE COMPANY'S NET INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AS COMPARED WITH THE NET INCOME FOR THE SAME PERIOD LAST YEAR. Net income applicable to common stock for the nine months ended September 30, 1999 increased from that of September 30, 1998 by $432,000 or $.09 a share. The higher net income resulted from a $536,000 increase in operating income and $12,000 decrease in interest and debt expense, partially offset by a $116,000 decrease in other income. The $1,932,000 or 6.3% increase in operating revenues is primarily due to higher than average water consumption resulting from the extremely hot and dry weather in June, July and August 1999. 14 Page 14 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES The $1,396,000 or 6.3% increase in operating expenses is primarily due to higher income taxes as a result of the higher taxable income, higher depreciation and municipal property tax expense as a result of the Company's increasing investment in utility plant and higher operation costs related to the production and supply of the additional water consumed by customers. The decrease in other income is primarily due to a lower level of real estate sales in 1999 as compared to 1998. YEAR 2000 Like many organizations, the Company has evaluated and continues to respond to its exposure to the Year 2000 problem. In general terms, the problem arises from the fact that many existing computer systems and other equipment containing date-sensitive embedded technology (including non-information technology equipment and systems) use only two digits to identify a year in the date field, with the assumption that the first two digits of the year are always "19". As a result, such systems may misinterpret dates after December 31, 1999, which may result in miscalculations, other malfunctions or the total failure of such systems. Additional problems arise from the fact that the Year 2000 is a special case leap year. Because the Company is dependent upon the proper functioning of computer systems and other equipment containing date-sensitive embedded technology, a failure of such systems and equipment to be Year 2000 compliant could have a material adverse effect on the Company. If not remedied, potential risks include business interruption or shutdown, financial loss, regulatory actions and legal liability. Last year the Company established a team of senior managers to address the Year 2000 problem. This team has evaluated the Company's exposure to the Year 2000 problem and has prepared, and is executing a plan for managing the risks and costs associated therewith. The Connecticut Department of Public Utility Control (DPUC) has reviewed the readiness of nine Connecticut utilities, including the Company. The DPUC review found no significant deficiencies. The Company's general process of addressing the Year 2000 problem can be broken down into the following steps: (a) inventorying systems, equipment and other items (including those of third parties) that potentially present a Year 2000 problem, (b) assigning priorities to identified items, (c) assessing the Year 2000 compliance of the items determined to be material to the Company through internal testing and outside certification,(d) repairing or replacing items determined to be non-compliant, and (e) designing and implementing contingency plans around items that are identified to be subject to a Year 2000 problem but unable to be tested or otherwise determined to be compliant. Since 1996, the Company has been implementing a new Management Information System (MIS) encompassing operational and administrative applications. In addition to enhanced customer service technology and increased administrative and operational efficiencies, the new system is certified to be Year 2000 compliant. The integration of the new system is now complete. The costs of implementing the new system totaled approximately $2 million, which the Company has capitalized. The Company has done internal testing of the MIS and has completed its Year 2000 testing of MIS. The Company has found no indication that the MIS is not Year 2000 compliant as certified by its software or hardware vendors. 15 Page 15 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES The Company also has evaluated the Year 2000 compliance of systems and equipment which are not linked to the MIS and has identified the items that could be impacted by the Year 2000 problem. Once the Company determined that an item may present a Year 2000 problem, the Company contacted the supplier to obtain adequate assurance that it is Year 2000 compliant or determined and addressed any non-compliance. In addition, wherever practical, the Company independently tested the item for compliance. The Company has obtained supplier compliance certification for substantially all of our items that it has inventoried as potentially non-compliant. The Company has substantially completed all repairs and replaced non-compliant systems and equipment. In addition to its own systems and equipment, the Company depends upon the proper function of computer systems and other date-sensitive equipment of outside parties. These parties include other water companies, banks, telecommunications service providers and electric and other utilities. The Company has initiated communications with such parties to determine the extent to which they are vulnerable to the Year 2000 issue and, in certain circumstances, to coordinate joint testing. If the third parties with which the Company interacts have Year 2000 problems that are not remedied, resulting problems could include the loss of telecommunications and electrical service, the receipt of inaccurate financial and billing-related information, and the disruption of capital flows potentially resulting in liquidity stress. Due to the uncertainties presented by such third party Year 2000 problems, and the possibility that, despite its efforts, the Company is unsuccessful in preparing its internal systems and equipment for the Year 2000,the Company has prepared contingency plans for addressing the most reasonably likely worst case scenario. Such plans include manual back-ups for crucial automated systems, the use of electrical generators capable of sustaining operations through a power failure, and enhanced transition-period staffing to compensate for automation and communication failures. The Company has virtually all contingency systems in place and fully tested. As the Company already has extensive disaster-contingency plans in place, it does not believe that the cost of preparing or effecting Year 2000 contingency plans will be material. The Company does not believe that the costs of addressing the Year 2000 problem, excluding the costs of the MIS, will be material to the Company's financial condition. The Company anticipates spending approximately $300,000 for affecting its Year 2000 program in 1999. The Company has funded, and expects to continue to fund, the costs of its Year 2000 efforts through its operating cash flow. The costs of the Company's Year 2000 program and the timetable for completing its Year 2000 preparations are based on current estimates, which reflect numerous assumptions about future events, including the continued availability of certain resources, the timing and effectiveness of third-party remediation plans and other factors. The Company can give no assurance that these estimates will be achieved, and actual results could differ materially from those currently anticipated. In addition, there can be no assurance that the Company's Year 2000 program will be effective or that its contingency plans will be sufficient. Specific factors that might cause such material 16 Page 16 CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct relevant computer software codes and embedded technology, the results of internal and external testing and the timeliness and effectiveness of remediation efforts of third parties. 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. PART II, ITEM 6: REPORT ON FORM 8-K (1) Report on Form 8-K The Company filed the following report on Form 8-K during the quarter ended September 30, 1999; which related to the Company's new acquisition of Crystal Water Utilities Corporation. Current report on Form 8-K dated September 29, 1999, filed on October 5, 1999, reporting item 5 (Other Information). 17 Page 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Connecticut Water Service, Inc. (Registrant) Date: November 5, 1999 By /s/ David C. Benoit -------------------------------- David C. Benoit Vice President - Finance Date: November 5, 1999 By: /s/ Peter J. Bancroft -------------------------------- Peter J. Bancroft Assistant Treasurer EX-27 2 EX-27
OPUR1 1,000 U.S. DOLLARS 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1 PER-BOOK 178,762 2,171 13,565 17,964 0 212,462 44,549 0 17,853 62,402 0 772 65,476 5,410 0 0 170 0 0 0 78,232 212,462 32,575 4,051 19,582 23,633 8,942 542 9,484 3,418 6,066 29 6,037 4,107 0 6,994 1.25 1.25
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