SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
| (Mark One) | ||
 |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED June 30, 2002 | |
| 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 (State or other jurisdiction of incorporation or organization) |
06-0739839 (I.R.S. Employer Identification No.) |
|
| 93 West Main Street, Clinton, CT (Address of principal executive offices) |
06413-1600 (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 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.
7,683,800
Number of shares of common stock outstanding, June 30, 2002
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
Financial Report
June 30, 2002 and 2001
TABLE OF CONTENTS
Part I, Item 1: Financial Statements |
|||||
Consolidated Balance Sheets at June 30, 2002
and December 31, 2001 |
Page 3 | ||||
Consolidated Statements of Capitalization at
June 30, 2002 and December 31, 2001 |
Page 4 | ||||
Consolidated Statements of Income for Three Months
Ended June 30, 2002 and 2001 |
Page 5 | ||||
Consolidated Statements of Income for Six Months
Ended June 30, 2002 and 2001 |
Page 6 | ||||
Consolidated Statements of Income for Twelve Months
Ended June 30, 2002 and 2001 |
Page 7 | ||||
Consolidated Statements of Retained Earnings for Three
Months Ended June 30, 2002 and 2001 |
Page 8 | ||||
Consolidated Statements of Retained Earnings for Six
Months Ended June 30, 2002 and 2001 |
Page 8 | ||||
Consolidated Statements of Retained Earnings for Twelve
Months Ended June 30, 2002 and 2001 |
Page 8 | ||||
Consolidated Statements of Cash Flows for Six Months
Ended June 30, 2002 and 2001 |
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 10-12 | ||||
Part II, Item 6: Exhibits and Reports on Form 8-K |
Page 13 | ||||
Signature Page |
Page 14 | ||||
Page 3
Connecticut Water Service, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
At June 30, 2002 and December 31, 2001
(In thousands)
| June 30, | |||||||||||
| 2002 | Dec. 31, | ||||||||||
| ASSETS | (Unaudited) | 2001 | |||||||||
Utility Plant |
|||||||||||
Utility Plant |
$ | 279,016 | $ | 267,575 | |||||||
Construction Work in Progress |
6,148 | 12,761 | |||||||||
Utility Plant Acquisition Adjustments |
(1,309 | ) | (1,309 | ) | |||||||
| 283,855 | 279,027 | ||||||||||
Accumulated Provision for Depreciation |
(79,286 | ) | (76,697 | ) | |||||||
Net Utility Plant |
204,569 | 202,330 | |||||||||
Other Property and Investments |
3,394 | 3,334 | |||||||||
Current Assets |
|||||||||||
Cash |
758 | 102 | |||||||||
Accounts Receivable (Less Allowance, 2002 - $213; 2001 - $234) |
5,173 | 4,811 | |||||||||
Accrued Unbilled Revenues |
3,267 | 3,402 | |||||||||
Materials and Supplies, at Average Cost |
955 | 869 | |||||||||
Prepayments and Other Current Assets |
315 | 239 | |||||||||
Total Current Assets |
10,468 | 9,423 | |||||||||
Deferred Charges and Regulatory Assets |
|||||||||||
Unamortized Debt Issuance Expense |
5,157 | 5,308 | |||||||||
Unrecovered Income Taxes |
9,090 | 8,963 | |||||||||
Postretirement Benefits Other Than Pension |
849 | 849 | |||||||||
Other Costs |
1,754 | 1,507 | |||||||||
Total Deferred Charges and Regulatory Assets |
16,850 | 16,627 | |||||||||
Total Assets |
$ | 235,281 | $ | 231,714 | |||||||
CAPITALIZATION AND LIABILITIES |
|||||||||||
Capitalization (See accompanying statements) |
|||||||||||
Common Stockholders’ Equity |
$ | 71,760 | $ | 70,783 | |||||||
Preferred Stock |
847 | 847 | |||||||||
Long-Term Debt |
63,680 | 63,953 | |||||||||
Total Capitalization |
136,287 | 135,583 | |||||||||
Current Liabilities |
|||||||||||
Current Portion of Long Term Debt |
151 | 2,205 | |||||||||
Interim Bank Loans Payable |
6,813 | 1,825 | |||||||||
Accounts Payable, Accrued Taxes and Accrued Interest |
4,876 | 8,462 | |||||||||
Other |
308 | 164 | |||||||||
Total Current Liabilities |
12,148 | 12,656 | |||||||||
Long-Term Liabilities |
|||||||||||
Advances for Construction |
17,540 | 16,075 | |||||||||
Contributions in Aid of Construction |
33,568 | 32,277 | |||||||||
Deferred Federal Income Taxes |
19,402 | 18,902 | |||||||||
Unfunded Future Income Taxes |
8,223 | 8,223 | |||||||||
Long-term Compensation Arrangements |
6,173 | 6,028 | |||||||||
Unamortized Investment Tax Credits |
1,940 | 1,970 | |||||||||
Commitments and Contingencies |
|||||||||||
Total Long-Term Liabilities |
86,846 | 83,475 | |||||||||
Total Capitalization and Liabilities |
$ | 235,281 | $ | 231,714 | |||||||
The accompanying notes are an integral part of these financial statements.
Page 4
Connecticut Water Service, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CAPITALIZATION
At June 30, 2002 and December 31, 2001
(In thousands, except share amounts)
| June 30, | ||||||||||||
| 2002 | Dec. 31, | |||||||||||
| (Unaudited) | 2001 | |||||||||||
Common Stockholders’ Equity |
||||||||||||
Common Stock Without Par Value Authorized - 15,000,000 Shares; |
$ | 48,398 | $ | 47,742 | ||||||||
Shares Issued and Outstanding: 2002 - 7,661,974; 2001 - 7,609,506
|
||||||||||||
Stock Issuance Expense |
(1,402 | ) | (1,400 | ) | ||||||||
Retained Earnings |
24,764 | 24,441 | ||||||||||
Total Common Stockholders’ Equity |
71,760 | 70,783 | ||||||||||
Preferrred Stock |
||||||||||||
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 | ||||||||||
Cumulative Preferred Stock of Barnstable Water Company
Voting, $100 Par Value; Authorized, Issued and Outstanding
750 shares. Redeemable at $105 per share |
75 | 75 | ||||||||||
Total Preferred Stock |
847 | 847 | ||||||||||
Long-Term Debt |
||||||||||||
The Connecticut Water Company
First Mortgage Bonds |
||||||||||||
5.875% Series R, due 2022 |
14,645 | 14,670 | ||||||||||
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 | ||||||||||
| 44,245 | 44,270 | |||||||||||
Unsecured Water Facilities Revenue Refinancing Bonds |
||||||||||||
5.05% 1998 Series A, due 2028 |
9,625 | 9,705 | ||||||||||
5.125% 1998 Series B, due 2028 |
7,720 | 7,770 | ||||||||||
Other |
||||||||||||
5.5% Unsecured Promissory Note |
15 | 37 | ||||||||||
Total Connecticut Water Company |
61,605 | 61,782 | ||||||||||
Crystal Water Utilities Corporation |
||||||||||||
8.0% New London Trust, Due 2017 |
124 | 126 | ||||||||||
Crystal Water Company of Danielson |
||||||||||||
7.82% Connecticut Development Authority, Due 2020 |
489 | 495 | ||||||||||
8.0% New London Trust, Due 2011 |
— | 2,033 | ||||||||||
Total Crystal |
489 | 2,528 | ||||||||||
Chester Realty |
||||||||||||
6% Note Payable, Due 2006 |
88 | 97 | ||||||||||
Barnstable Water Company |
||||||||||||
10.2% Indianapolis Life Insurance Co., Due 2011 |
1,525 | 1,625 | ||||||||||
Total Connecticut Water Service, Inc. |
63,831 | 66,158 | ||||||||||
Less Current Portion |
(151 | ) | (2,205 | ) | ||||||||
Total Long-Term Debt |
63,680 | 63,953 | ||||||||||
Total Capitalization |
$ | 136,287 | $ | 135,583 | ||||||||
The accompanying notes are an integral part of these financial statements.
Page 5
Connecticut Water Service, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended June 30, 2002 and 2001
(In thousands, except per share amounts)
| 2002 | 2001 | ||||||||||
| (Unaudited) | (Unaudited) | ||||||||||
Operating Revenues |
$ | 10,727 | $ | 10,974 | |||||||
Operating Expenses |
|||||||||||
Operation and Maintenance |
4,895 | 4,652 | |||||||||
Depreciation |
1,282 | 1,233 | |||||||||
Income Taxes |
826 | 1,351 | |||||||||
Taxes Other Than Income Taxes |
1,131 | 887 | |||||||||
Total Operating Expenses |
8,134 | 8,123 | |||||||||
Utility Operating Income |
2,593 | 2,851 | |||||||||
Other Income (Deductions), Net of Taxes |
|||||||||||
Gain (Loss) on Property Transactions |
142 | (7 | ) | ||||||||
Non-Water Sales Earnings |
121 | 106 | |||||||||
Allowance for Funds Used During Construction |
106 | 99 | |||||||||
Merger Costs |
— | (31 | ) | ||||||||
Other |
42 | 76 | |||||||||
Total Other Income (Deductions), Net of Taxes |
411 | 243 | |||||||||
Interest and Debt Expense |
|||||||||||
Interest on Long-Term Debt |
982 | 1,002 | |||||||||
Other Interest Charges |
92 | 112 | |||||||||
Amortization of Debt Expense |
54 | 56 | |||||||||
Total Interest and Debt Expense |
1,128 | 1,170 | |||||||||
Net Income Before Preferred Dividends |
1,876 | 1,924 | |||||||||
Preferred Stock Dividend Requirement |
10 | 10 | |||||||||
Net Income Applicable to Common Stock |
$ | 1,866 | $ | 1,914 | |||||||
Weighted Average Common Shares Outstanding: |
|||||||||||
Basic |
7,673 | 7,609 | |||||||||
Diluted |
7,740 | 7,659 | |||||||||
Earnings Per Common Share: |
|||||||||||
Basic |
$ | 0.24 | $ | 0.25 | |||||||
Diluted |
$ | 0.24 | $ | 0.25 | |||||||
Dividends Per Common Share |
$ | 0.20 | $ | 0.20 | |||||||
The accompanying notes are an integral part of these financial statements.
Page 6
Connecticut Water Service, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
For the Six Months Ended June 30, 2002 and 2001
(In thousands, except per share amounts)
| 2002 | 2001 | ||||||||||
| (Unaudited) | (Unaudited) | ||||||||||
Operating Revenues |
$ | 21,011 | $ | 21,202 | |||||||
Operating Expenses |
|||||||||||
Operation and Maintenance |
9,363 | 9,092 | |||||||||
Depreciation |
2,512 | 2,458 | |||||||||
Income Taxes |
1,709 | 2,212 | |||||||||
Taxes Other Than Income Taxes |
2,335 | 2,124 | |||||||||
Total Operating Expenses |
15,919 | 15,886 | |||||||||
Utility Operating Income |
5,092 | 5,316 | |||||||||
Other Income (Deductions), Net of Taxes |
|||||||||||
Gain (Loss) on Property Transactions |
142 | 1,110 | |||||||||
Non-Water Sales Earnings |
201 | 170 | |||||||||
Allowance for Funds Used During Construction |
221 | 198 | |||||||||
Merger Costs |
— | (351 | ) | ||||||||
Other |
76 | 99 | |||||||||
Total Other Income (Deductions), Net of Taxes |
640 | 1,226 | |||||||||
Interest and Debt Expense |
|||||||||||
Interest on Long-Term Debt |
1,954 | 2,030 | |||||||||
Other Interest Charges |
199 | 192 | |||||||||
Amortization of Debt Expense |
150 | 112 | |||||||||
Total Interest and Debt Expense |
2,303 | 2,334 | |||||||||
Net Income Before Preferred Dividends |
3,429 | 4,208 | |||||||||
Preferred Stock Dividend Requirement |
19 | 19 | |||||||||
Net Income Applicable to Common Stock |
$ | 3,410 | $ | 4,189 | |||||||
Weighted Average Common Shares Outstanding: |
|||||||||||
Basic |
7,664 | 7,610 | |||||||||
Diluted |
7,735 | 7,649 | |||||||||
Earnings Per Common Share: |
|||||||||||
Basic |
$ | 0.44 | $ | 0.55 | |||||||
Diluted |
$ | 0.44 | $ | 0.55 | |||||||
Dividends Per Common Share |
$ | 0.40 | $ | 0.39 | |||||||
The accompanying notes are an integral part of these financial statements.
Page 7
Connecticut Water Service, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
For the Twelve Months Ended June 30, 2002 and 2001
(In thousands, except per share amounts)
| 2002 | 2001 | ||||||||||
| (Unaudited) | (Unaudited) | ||||||||||
Operating Revenues |
$ | 45,201 | $ | 44,140 | |||||||
Operating Expenses |
|||||||||||
Operation and Maintenance |
20,347 | 18,483 | |||||||||
Depreciation |
4,891 | 4,809 | |||||||||
Income Taxes |
4,274 | 4,719 | |||||||||
Taxes Other Than Income Taxes |
4,599 | 4,567 | |||||||||
Total Operating Expenses |
34,111 | 32,578 | |||||||||
Utility Operating Income |
11,090 | 11,562 | |||||||||
Other Income (Deductions), Net of Taxes |
|||||||||||
Gain (Loss) on Property Transactions |
153 | 1,583 | |||||||||
Non-Water Sales Earnings |
403 | 277 | |||||||||
Allowance for Funds Used During Construction |
462 | 411 | |||||||||
Merger Costs |
(1 | ) | (640 | ) | |||||||
Other |
154 | 257 | |||||||||
Total Other Income (Deductions), Net of Taxes |
1,171 | 1,888 | |||||||||
Interest and Debt Expense |
|||||||||||
Interest on Long-Term Debt |
3,981 | 4,083 | |||||||||
Other Interest Charges |
360 | 478 | |||||||||
Amortization of Debt Expense |
260 | 222 | |||||||||
Total Interest and Debt Expense |
4,601 | 4,783 | |||||||||
Net Income Before Preferred Dividends |
7,660 | 8,667 | |||||||||
Preferred Stock Dividend Requirement |
38 | 38 | |||||||||
Net Income Applicable to Common Stock |
$ | 7,622 | $ | 8,629 | |||||||
Weighted Average Common Shares Outstanding: |
|||||||||||
Basic |
7,646 | 7,607 | |||||||||
Diluted |
7,743 | 7,641 | |||||||||
Earnings Per Common Share: |
|||||||||||
Basic |
$ | 1.00 | $ | 1.13 | |||||||
Diluted |
$ | 0.98 | $ | 1.13 | |||||||
Dividends Per Common Share |
$ | 0.81 | $ | 0.78 | |||||||
The accompanying notes are an integral part of these financial statements.
Page 8
Connecticut Water Service, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
For the Three Months Ended June 30, 2002 and 2001
(In thousands, except per share amounts)
| 2002 | 2001 | ||||||||
| (Unaudited) | (Unaudited) | ||||||||
Balance at Beginning of Period |
$ | 24,444 | $ | 22,969 | |||||
Net Income Before Preferred Dividends of Parent |
1,876 | 1,924 | |||||||
| 26,320 | 24,893 | ||||||||
Dividends Declared: |
|||||||||
Cumulative Preferred, Class A, $.20 per share |
3 | 3 | |||||||
Cumulative Preferred, Series $.90, $.225 per share |
7 | 7 | |||||||
Common Stock - 2002 $.20 per share; 2001 $.20 per share |
1,546 | 1,516 | |||||||
| 1,556 | 1,526 | ||||||||
Balance at End of Period |
$ | 24,764 | $ | 23,367 | |||||
For the Six Months Ended June 30, 2002 and 2001
(In thousands, except per share amounts)
| 2002 | 2001 | ||||||||
| (Unaudited) | (Unaudited) | ||||||||
Balance at Beginning of Period |
$ | 24,441 | $ | 22,145 | |||||
Net Income Before Preferred Dividends of Parent |
3,429 | 4,208 | |||||||
| 27,870 | 26,353 | ||||||||
Dividends Declared: |
|||||||||
Cumulative Preferred, Class A, $.40 per share |
6 | 6 | |||||||
Cumulative Preferred, Series $.90, $.45 per share |
13 | 13 | |||||||
Common Stock - 2002 $.40 per share; 2001 $.39 per share |
3,087 | 2,967 | |||||||
| 3,106 | 2,986 | ||||||||
Balance at End of Period |
$ | 24,764 | $ | 23,367 | |||||
For the Twelve Months Ended June 30, 2002 and 2001
(In thousands, except per share amounts)
| 2002 | 2001 | ||||||||
| (Unaudited) | (Unaudited) | ||||||||
Balance at Beginning of Period |
$ | 23,367 | $ | 20,677 | |||||
Net Income Before Preferred Dividends of Parent |
7,660 | 8,667 | |||||||
| 31,027 | 29,344 | ||||||||
Dividends Declared: |
|||||||||
Cumulative Preferred, Class A, $.80 per share |
12 | 12 | |||||||
Cumulative Preferred, Series $.90, $.90 per share |
26 | 26 | |||||||
Common Stock - 2002 $0.81 per share; 2001 $0.78 per share |
6,225 | 5,939 | |||||||
| 6,263 | 5,977 | ||||||||
Balance at End of Period |
$ | 24,764 | $ | 23,367 | |||||
The accompanying notes are an integral part of these financial statements.
Page 9
Connecticut Water Service, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 2002 and 2001
(In thousands)
| 2002 | 2001 | |||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
Operating Activities: |
||||||||||||
Net Income Before Preferred Dividends of Parent |
$ | 3,429 | $ | 4,208 | ||||||||
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities: |
||||||||||||
Depreciation (including $83 in 2002, $117 in 2001 charged to other accounts) |
2,595 | 2,575 | ||||||||||
Change in Assets and Liabilities: |
||||||||||||
(Increase) Decrease in Accounts Receivable and Accrued Unbilled Revenues |
(227 | ) | (346 | ) | ||||||||
(Increase) Decrease in Other Current Assets |
(162 | ) | (158 | ) | ||||||||
(Increase) Decrease in Other Non-Current Items |
(139 | ) | — | |||||||||
Increase (Decrease) in Accounts Payable, Accrued Expenses and
Other Current Liabilities |
(3,442 | ) | (3,327 | ) | ||||||||
Increase (Decrease) in Deferred Federal Income Taxes and
Investment Tax Credits, Net |
470 | 470 | ||||||||||
Total Adjustments |
(905 | ) | (786 | ) | ||||||||
Net Cash Provided by (Used for) Operating Activities |
2,524 | 3,422 | ||||||||||
Investing Activities: |
||||||||||||
Gross Additions to Utility Plant (including Allowance for Funds
Used During Construction of $221 in 2002 and $198 in 2001) |
(4,838 | ) | (2,766 | ) | ||||||||
Financing Activities: |
||||||||||||
Proceeds from Interim Bank Loans |
6,813 | 2,798 | ||||||||||
Repayment of Interim Bank Loans |
(1,825 | ) | (1,800 | ) | ||||||||
Proceeds from Issuance of Common Stock |
655 | 292 | ||||||||||
Minority Interest |
— | (117 | ) | |||||||||
Repayment of Long-Term Debt |
(2,327 | ) | (265 | ) | ||||||||
Advances, Contributions and Funds From Others for Construction, Net |
2,760 | 1,899 | ||||||||||
Cash Dividends Paid |
(3,106 | ) | (2,985 | ) | ||||||||
Net Cash Provided by (Used in) Financing Activities |
2,970 | (178 | ) | |||||||||
Net Increase (Decrease) in Cash |
656 | 478 | ||||||||||
Cash at Beginning of Year |
102 | 314 | ||||||||||
Cash at End of Period |
$ | 758 | $ | 792 | ||||||||
Supplemental Disclosures of Cash Flow Information: |
||||||||||||
Cash Paid During the Year for: |
||||||||||||
Interest (Net of Amounts Capitalized) |
$ | 2,141 | $ | 2,206 | ||||||||
State and Federal Income Taxes |
$ | 2,170 | $ | 1,760 | ||||||||
The accompanying notes are an integral part of these financial statements.
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. (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 Form 10-K.
The results for interim periods are not necessarily indicative of results to be expected for the year since consolidated earnings are subject to seasonal factors.
2. Earnings per average common share are calculated by dividing net income applicable to common stock by the average number of shares of common stock outstanding during the respective periods as detailed below:
| 3 Months Ended | 12 Months Ended | |||||||||||||||||||||||
| 6/30/02 | 6/30/01 | 6/30/02 | 6/30/01 | 12/31/01 | ||||||||||||||||||||
Common Shares Outstanding,
end of period: |
7,683,800 | 7,609,506 | 7,683,800 | 7,609,506 | 7,649,362 | |||||||||||||||||||
Weighted Average Shares Outstanding: |
||||||||||||||||||||||||
Days outstanding basis |
||||||||||||||||||||||||
Basic |
7,672,598 | 7,609,699 | 7,646,042 | 7,606,975 | 7,619,031 | |||||||||||||||||||
Fully Diluted |
7,716,562 | 7,648,707 | 7,743,247 | 7,641,184 | 7,680,915 | |||||||||||||||||||
Part I, Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
The Company has a total of $12,000,000 in lines of credit provided by two banks. As of June 30, 2002 approximately $5,187,000 of these lines were unused and available to the Company.
Results of Operations
The following factors had a significant effect upon the Company’s net income for the three months ended June 30, 2002 as compared to the net income for the same period last year.
Net income applicable to common stock for the three months ended June 30, 2002 decreased from that of June 30, 2001 by $48,000, or $.01 per basic average common share. The decrease in net income resulted from a $258,000 decrease in utility operating income partially offset by a $168,000 increase in net other income (deductions) and a $42,000 decrease in interest and debt expense.
The decrease in utility operating income was primarily due to the following:
Page 11
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
| • | a $247,000 decrease in operating revenue due to reduced water consumption because of voluntary water use restriction followed by a cool, rainy June; | ||
| • | a $244,000 increase in taxes other than income taxes primarily due to property tax rebates received last year which caused the amount of taxes for 2001 to be considerably lower; | ||
| • | a $243,000 increase in operation and maintenance expense primarily due to increased insurance and pension expense; |
| partially offset by |
| • | a $525,000 decrease in income tax expense, partially due to lower taxable income plus favorable book/tax timing adjustments. |
The major reason for the higher net other income (deductions) was a $149,000 increase in net gains on property transactions resulting primarily from tax benefits the Company received for its May 2002 donation of 10 acres of land to the Town of Avon, Connecticut.
The following factors had a significant effect upon the Company’s net income for the six months ended June 30, 2002 as compared to the net income for the same period last year.
Net income applicable to common stock for the six months ended June 30, 2002 decreased from that of June 30, 2001 by $779,000 or $.11 per basic average common share. The decrease in net income resulted from a $586,000 decrease in net other income (deductions), a $224,000 decrease in utility operating income partially offset by a $31,000 decrease in interest and debt expense.
The largest contributing factor to the Company’s decrease in other income (deductions)was the reduction in gain on property transactions. Land donations were made during the first six months of 2002 and 2001. However, the 2001 donation was significantly greater than the 2002 donation. This $968,000 reduction in Gain on Property Transactions is partially offset by the $351,000 decrease in merger costs.
The major causes of the lower utility operating income were:
| • | a $271,000 increase in operation and maintenance expense primarily due to increased insurance and pension expense; | ||
| • | a $54,000 increase in depreciation expense due to the Company’s increased investment in utility plant; | ||
| • | a $211,000 increase in taxes other than income taxes resulting from property tax rebates received last year ; | ||
| • | a $191,000 decrease in operating revenues due to reduced water consumption because of voluntary water use restrictions followed by a cool, rainy June; |
| partially offset by |
| • | a $503,000 decrease in income tax expense partially due to lower taxable income plus favorable book/tax timing adjustments. |
Page 12
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
COMMITMENTS AND CONTINGENCIES
Federal Tax Audit — The Company is under audit by the Internal Revenue Service (IRS) for the Company’s federal income tax return for the calendar year 2000. The Company is fully cooperating and responding to all information document requests made by the IRS. At this time, the Company does not have sufficient information to determine the amount, if any, of additional tax liability that may result from this proceeding. The Company does not anticipate, however, that this audit will have a material effect on its consolidated results of operations or financial position.
Hungerfords, Inc. (Hungerfords) — In July 2002, the Company decided not to purchase Hungerfords as provided for in the Joint Venture Agreement entered into by both companies in July, 1999. Certain financial targets to be achieved by Hungerfords which would have provided the basis to complete the purchase were not achieved.
Land Donation — In July 2002, the Company completed the donation of 54.2 acres of unimproved land to the Town of Killingly, CT for protected open space purposes. This is the first of three planned donations to the Town of Killingly. The 2002 donation will result in reduced federal and state income taxes of approximately $293,000. The second and third land donations are expected to be made during calendar years 2003 and 2004, respectively.
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.
Page 13
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
Part II, Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits Required by Item 601 of Regulation S-K.
| 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, 1999. (Exhibit 3.3 to Form 10-K for the year ended 12/31/98). | |
| 3.4 | Certificate of Amendment to the Certificate of Incorporation of Connecticut Water Service, Inc. dated August 6, 2001 (Exhibit 3.4 to Form 10-K for the year ended 12/31/01). | |
| 10.1* | Revolving Credit Facility and Demand Promissory Note of Connecticut Water Service, Inc. with Citizens Bank amended and restated as of May, 2002. | |
| 99.1* | Certification of Marshall T. Chiaraluce, Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 99.2* | Certification of David C. Benoit, Chief Financial Officer and Vice President — Finance pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| (b) | Reports on Form 8-K | |
| On May 8, 2002, the Company filed a current report on Form 8-K to announce the Company=s earnings for the first quarter 2002 and the declaration of dividends. | ||
| On June 20, 2002, the Company filed a current report on Form 8-K to report that (1) On June 18, 2002, the Company dismissed Arthur Andersen LLP as the Company’s independent public accountants; and (2) effective June 18, 2002, the Company had retained PricewaterhouseCoopers LLP as the Company’s independent public accountants for the fiscal year ended December 31, 2002. |
Page 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Connecticut Water Service, Inc. (Registrant) | |||||
| Date: August 14, 2002 | By | /s/ David C. Benoit | |||
| David C. Benoit | |||||
| Vice President — Finance | |||||
| Date: August 14, 2002 | By: | /s/ Peter J. Bancroft | |||
| Peter J. Bancroft | |||||
| Assistant Treasurer |