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UNITED STATES
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 March 31, 2003 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
------- -------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes X 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.
7,947,093
Number of shares of common stock outstanding, March 31, 2003
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
Financial Report
March 31, 2003 and 2002
TABLE OF CONTENTS
PART I, ITEM 1: FINANCIAL STATEMENTS
Consolidated Balance Sheets at March 31, 2003
and December 31, 2002 Page 3
Consolidated Statements of Capitalization at
March 31, 2003 and December 31, 2002 Page 4
Consolidated Statements of Income for the Three Months
Ended March 31, 2003 and 2002 Page 5
Consolidated Statements of Retained Earnings for the
Three Months Ended March 31, 2003 and 2002 Page 6
Consolidated Statements of Cash Flows for Three Months
Ended March 31, 2003 and 2002 Page 7
Notes to Consolidated Financial Statements Page 8
PART I, ITEM 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations Page 9
PART I, ITEM 3: Quantitative and Qualitative Disclosures
About Market Risk Page 13
PART I, ITEM 4: Controls and Procedures Page 13
PART II, ITEM 1: Legal Proceedings Page 13
PART II, ITEM 4: Submission of Matters to a Vote
of Security Holders Page 13
PART II, ITEM 6: Exhibits and Reports on Form 8-K Page 14
Signatures Page Page 15
Page 3
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT MARCH 31, 2003 AND DECEMBER 31, 2002
(IN THOUSANDS)
MARCH 31,
2003 DEC. 31,
(UNAUDITED) 2002
----------- ---------
ASSETS
Utility Plant $ 310,039 $ 308,385
Construction Work in Progress 8,174 9,592
Utility Plant Acquisition Adjustments (1,275) (1,278)
--------- ---------
316,938 316,699
Accumulated Provision for Depreciation (88,708) (87,602)
--------- ---------
Net Utility Plant 228,230 229,097
--------- ---------
Other Property and Investments 3,592 3,557
--------- ---------
Cash 913 464
Accounts Receivable (Less Allowance, 2003 - $240; 2002 - $240) 5,035 5,157
Accrued Unbilled Revenues 3,519 3,619
Materials and Supplies, at Average Cost 993 960
Prepayments and Other Current Assets 1,413 173
--------- ---------
Total Current Assets 11,873 10,373
--------- ---------
Unamortized Debt Issuance Expense 5,023 5,080
Unrecovered Income Taxes 10,739 10,718
Postretirement Benefits Other Than Pension 845 846
Goodwill 3,608 3,608
Other Costs 1,402 1,520
--------- ---------
Total Regulatory and Other Long-Term Assets 21,617 21,772
--------- ---------
TOTAL ASSETS $ 265,312 $ 264,799
========= =========
CAPITALIZATION AND LIABILITIES
Common Stockholders' Equity $ 80,585 $ 79,975
Preferred Stock 847 847
Long-Term Debt 64,605 64,734
--------- ---------
Total Capitalization 146,037 145,556
--------- ---------
Current Portion of Long Term Debt 242 242
Interim Bank Loans Payable 10,700 6,950
Accounts Payable, Accrued Taxes and Accrued Interest 3,706 7,945
Other 217 341
--------- ---------
Total Current Liabilities 14,865 15,478
--------- ---------
Advances for Construction 22,382 22,069
Contributions in Aid of Construction 43,564 43,373
Deferred Federal Income Taxes 20,886 20,633
Unfunded Future Income Taxes 9,871 9,871
Long-term Compensation Arrangements 5,781 5,877
Unamortized Investment Tax Credits 1,926 1,942
Commitments and Contingencies
--------- ---------
Total Long-Term Liabilities 104,410 103,765
--------- ---------
TOTAL CAPITALIZATION AND LIABILITIES $ 265,312 $ 264,799
========= =========
The accompanying notes are an integral part of these financial statements.
Page 4
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
AT MARCH 31, 2003 AND DECEMBER 31, 2002
(IN THOUSANDS, EXCEPT SHARE DATA)
MARCH 31,
2003 DEC. 31,
(UNAUDITED) 2002
--------------- ---------------
Common Stockholders' Equity
Common Stock Without Par Value Authorized - 15,000,000 Shares; $ 54,781 $ 54,661
Shares Issued and Outstanding: 2003 - 7,947,093 ; 2002 - 7,939,713
Stock Issuance Expense (1,592) (1,592)
Retained Earnings 27,396 26,906
--------------- ---------------
Total Common Stockholders' Equity 80,585 79,975
--------------- ---------------
Preferred 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 14,645
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 44,245
Unsecured Water Facilities Revenue Refinancing Bonds
5.05% 1998 Series A, due 2028 9,625 9,625
5.125% 1998 Series B, due 2028 7,720 7,720
--------------- ---------------
Total Connecticut Water Company 61,590 61,590
Crystal Water Utilities Corporation
8.0% New London Trust, Due 2017 121 122
--------------- ---------------
Crystal Water Company of Danielson
7.82% Connecticut Development Authority, Due 2021 480 483
--------------- ---------------
Chester Realty
6% Note Payable, Due 2006 78 78
--------------- ---------------
Barnstable Water Company
10.2% Indianapolis Life Insurance Co., Due 2011 1,425 1,525
--------------- ---------------
Unionville Water Company
8.125% Farmington Savings Bank, Due 2011 1,153 1,178
--------------- ---------------
Total Connecticut Water Service, Inc. 64,847 64,976
--------------- ---------------
Less Current Portion (242) (242)
--------------- ---------------
Total Long-Term Debt 64,605 64,734
--------------- ---------------
TOTAL CAPITALIZATION $ 146,037 $ 145,556
=============== ===============
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 MARCH 31, 2003 AND 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2003 2002
(UNAUDITED) (UNAUDITED)
--------------- ---------------
Operating Revenues $ 10,901 $ 10,284
--------------- ---------------
Operating Expenses
Operation and Maintenance 5,614 4,468
Depreciation 1,474 1,230
Income Taxes 481 883
Taxes Other Than Income Taxes 1,316 1,204
--------------- ---------------
Total Operating Expenses 8,885 7,785
--------------- ---------------
Utility Operating Income 2,016 2,499
--------------- ---------------
Other Income, Net of Taxes
Gain on Property Transactions 943 --
Non-Water Sales Earnings 124 80
Allowance for Funds Used During Construction 123 115
Other 40 34
--------------- ---------------
Total Other Income, Net of Taxes 1,230 229
--------------- ---------------
Interest and Debt Expense
Interest on Long-Term Debt 973 972
Other Interest Charges 97 107
Amortization of Debt Expense 57 96
--------------- ---------------
Total Interest and Debt Expense 1,127 1,175
--------------- ---------------
Net Income Before Preferred Dividends 2,119 1,553
Preferred Stock Dividend Requirement 9 9
--------------- ---------------
Net Income Applicable to Common Stock $ 2,110 $ 1,544
=============== ===============
Weighted Average Common Shares Outstanding:
Basic 7,943 7,656
Diluted 7,986 7,723
Earnings Per Common Share:
Basic $ 0.27 $ 0.20
Diluted $ 0.26 $ 0.20
Dividends Per Common Share $ 0.2050 $ 0.2022
The accompanying notes are an integral part of these financial statements.
Page 6
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
2003 2002
(UNAUDITED) (UNAUDITED)
--------------- ---------------
Balance at Beginning of Period $ 26,906 $ 24,441
Net Income Before Preferred Dividends of Parent 2,119 1,553
--------------- ---------------
29,025 25,994
--------------- ---------------
Dividends Declared:
Cumulative Preferred, Class A, $.20 per share 3 3
Cumulative Preferred, Series $.90, $.225 per share 6 6
Common Stock - 2003 $.2050 per share; 2002 $.2022 per share 1,620 1,541
--------------- ---------------
1,629 1,550
--------------- ---------------
Balance at End of Period $ 27,396 $ 24,444
=============== ===============
The accompanying notes are an integral part of these financial statements.
Page 7
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2003 AND 2002
(IN THOUSANDS)
2003 2002
(UNAUDITED) (UNAUDITED)
--------------- ---------------
Operating Activities:
Net Income Before Preferred Dividends of Parent $ 2,119 $ 1,553
--------------- ---------------
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation (including $41 in 2003, $43 in 2002 charged to other accounts) 1,515 1,273
Change in Assets and Liabilities:
Decrease in Accounts Receivable and Accrued Unbilled Revenues 222 18
(Increase) in Other Current Assets (1,273) (955)
Decrease in Other Non-Current Items 24 115
(Decrease) in Accounts Payable, Accrued Expenses and Other
Current Liabilities (4,363) (2,902)
Increase in Deferred Federal Income Taxes and Investment Tax
Credits, Net 237 235
--------------- ---------------
Total Adjustments (3,638) (2,216)
--------------- ---------------
Net Cash (Used for) Operating Activities (1,519) (663)
--------------- ---------------
Investing Activities:
Gross Additions to Utility Plant (including Allowance for Funds
Used During Construction of $123 in 2003 and $115 in 2002) (658) (1,747)
--------------- ---------------
Financing Activities:
Proceeds from Interim Bank Loans 10,700 6,613
Repayment of Interim Bank Loans (6,950) (1,825)
Proceeds from Issuance of Common Stock 120 96
Reduction of Long-Term Debt including Current Portion (129) (2,180)
Advances, Contributions and Funds From Others for Construction, Net 514 1,654
Cash Dividends Paid (1,629) (1,550)
--------------- ---------------
Net Cash Provided by Financing Activities 2,626 2,808
--------------- ---------------
Net Increase in Cash 449 398
Cash at Beginning of Year 464 102
--------------- ---------------
Cash at End of Period $ 913 $ 500
=============== ===============
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest (Net of Amounts Capitalized) $ 1,193 $ 1,759
State and Federal Income Taxes $ 130 $ 17
The accompanying notes are an integral part of these financial statements.
Page 8
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. AND SUBSIDIARIES (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 or Form 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. The Company has a Stock Option Program. Statement of Financial Accounting
Standard (SFAS) No. 123 "Accounting for Stock-Based Compensation," encourages
entities to recognize as expense over the vesting period the fair value of all
stock-based awards on the date of grant. Alternatively, SFAS No. 123 also allows
entities to continue to apply the provisions of APB opinion No. 25 "Accounting
for Stock Issued to Employees" and provide pro forma net income and pro forma
earnings per share disclosures for employee stock grants as if the
fair-value-based method defined in SFAS No. 123 had been applied.
The Company accounts for its Stock Option Program under the recognition and
measurement principles of APB No. 25. As such, no compensation cost related to
the Stock Option Program is reflected in Net Income, as all options under this
program had an exercise price equal to market value of the underlying common
stock on the date of grant. The following table illustrates the effect on Net
Income and Earnings Per Share if the Company had applied the fair value
recognition provisions of SFAS No. 123 to the Stock Option Program.
THREE MONTHS ENDED MARCH 31
-----------------------------------------
2003 2002
---------------- ----------------
(in thousands, except for per share data)
Net income, as reported $ 2,110 $ 1,544
Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of related tax effects (74) (55)
--------------- ---------------
Pro forma net income $ 2,036 $ 1,489
=============== ===============
Earnings per share:
Basic - as reported $ 0.27 $ 0.20
=============== ===============
Basic - pro forma $ 0.26 $ 0.19
=============== ===============
Diluted - as reported $ 0.26 $ 0.20
=============== ===============
Diluted - pro forma $ 0.25 $ 0.19
=============== ===============
Page 9
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
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 below:
3 MONTHS ENDED
------------------------------------
03/31/03 03/31/02
--------------- ---------------
Common Shares Outstanding:
End of period: 7,947,093 7,661,728
=============== ===============
Weighted Average Shares Outstanding:
Days outstanding basis
Basic 7,943,453 7,655,643
=============== ===============
Fully Diluted 7,986,016 7,722,886
=============== ===============
4. In June 2001, the Financial Accounting Standard Board (FASB) issued SFAS No.
143, "Accounting for Asset Retirement Obligations" (FAS 143). FAS 143 provides
the accounting requirements for retirement obligations associated with tangible
long-lived assets. The Company adopted FAS 143 January 1, 2003. There is no
significant impact to the Company's financial position or results of operations
due to the adoption of FAS 143.
PART I, ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
REGULATORY MATTERS AND INFLATION
During the quarter ended March 31, 2003, there were no changes to any
items previously disclosed by the Company in its Annual Report on Form 10-K for
the period ended December 31, 2002.
CRITICAL ACCOUNTING POLICIES
The Company maintains its accounting records in accordance with
accounting principles generally accepted in the United States of America and as
directed by the regulatory commissions to which the Company's subsidiaries are
subject. Management believes that the following accounting policies may involve
a higher degree of complexity and judgement.
Revenue Recognition - Revenue from metered customers includes billings to
customers based on quarterly meter readings plus an estimate of water used
between the customer's last meter reading and the end of the accounting period.
The unbilled revenue amount is listed as a current asset on the balance sheet.
The amount recorded as unbilled revenue is generally higher during the summer
months when water sales are higher. Based upon historical experience, management
believes the Company's estimate of unbilled revenues is reasonable.
Page 10
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
Statement of Financial Accounting Standards - Financial Accounting
Standards No. 71, "Accounting for the Effects of Certain Types of Regulation,"
(FAS 71) requires cost-based, rate-regulated enterprises such as the Company's
water companies to reflect the impact of regulatory decisions in their financial
statements. The state regulators, through the rate regulation process, can
create regulatory assets that result when costs are allowed for ratemaking
purposes in a period after the period in which the costs would be charged to
expense by an unregulated enterprise. The balance sheet includes regulatory
assets and liabilities as appropriate, primarily related to income taxes and
post-retirement benefits costs. The Company believes, based on current
regulatory circumstances, that the regulatory assets recorded are likely to be
recovered and that its use of regulatory accounting is appropriate and in
accordance with the provisions of FAS 71. Material regulatory assets are earning
a return.
LIQUIDITY AND CAPITAL RESOURCES
The Company is not aware of demands, events or uncertainties that will
result in a decrease of liquidity or a material change in the mix or relative
cost of capital resources.
The Company does not use off-balance sheet arrangements such as
securitization of receivables or unconsolidated entities. The Company has no
material lease obligations, does not engage in trading or risk management
activities and does not have material transactions involving related parties.
Interim Bank Loans Payable at March 31, 2003 was $10,700,000.
We consider the current $12,500,000 lines of credit with three banks
adequate to finance any expected short-term borrowing requirements that may
arise from operations during 2003. In May 2003, $6,500,000 of the lines of
credit expire and the remaining $6,000,000 expires in May 2004. We expect the
lines of credit to be renewed. Interest expense charged on interim bank loans
will fluctuate based on financial market conditions.
RESULTS OF OPERATIONS
On October 31, 2002, the Company issued 249,715 shares of its common
stock in exchange for all the outstanding common stock of The Unionville Water
Company (Unionville). This acquisition was accounted for under the purchase
method of accounting; as such only the Balance Sheet and Income Statement
activity from the acquisition date forward are included in the financial
statements.
Page 11
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
The table below presents the Income Statement detailing the balances with
and without Unionville. The narrative following the table includes explanations
of the Income Statement variances excluding the amounts associated with
Unionville.
INCOME STATEMENTS
For the 3 Months ended, March 31, (in thousands)
2003 2002
-------------------------------------------- ----------
WITHOUT WITHOUT
CONSOLIDATED UNIONVILLE UNIONVILLE UNIONVILLE VARIANCE
------------ ---------- ---------- ---------- --------
Operating Revenues $ 10,901 $ 521 $ 10,380 $ 10,284 $ 96
--------- ---------- ---------- ---------- ----------
Operating Expenses
Operation and Maintenance 5,614 329 5,285 4,468 817
Depreciation 1,474 118 1,356 1,230 126
Income Taxes 481 (1) 482 883 (401)
Taxes Other Than Income Taxes 1,316 52 1,264 1,204 60
--------- ---------- ---------- ---------- ----------
Total Operating Expenses 8,885 498 8,387 7,785 602
--------- ---------- ---------- ---------- ----------
Utility Operating Income 2,016 23 1,993 2,499 (506)
--------- ---------- ---------- ---------- ----------
Other Income (Deductions), Net of
Taxes
Gain on Property Transactions 943 -- 943 -- 943
Non-Water Sales Earnings 124 3 121 80 41
Allowance for Funds Used During
Construction 123 23 100 115 (15)
Other 40 -- 40 34 6
--------- ---------- ---------- ---------- ----------
Total Other Income (Deductions),
Net of Taxes 1,230 26 1,204 229 975
--------- ---------- ---------- ---------- ----------
Interest and Debt Expenses
Interest on Long-Term Debt 973 24 949 972 (23)
Other Interest Charges 97 -- 97 107 (10)
Amortization of Debt Expense 57 -- 57 96 (39)
--------- ---------- ---------- ---------- ----------
Total Interest and Debt
Expenses 1,127 24 1,103 1,175 (72)
--------- ---------- ---------- ---------- ----------
Net Income Before Preferred
Dividends 2,119 25 2,094 1,553 541
Preferred Stock Dividend
Requirement 9 -- 9 9 --
--------- ---------- ---------- ---------- ----------
Net Income Applicable to Common
Stock $ 2,110 $ 25 $ 2,085 $ 1,544 $ 541
========= ========== ========== ========== ==========
Page 12
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
THE FOLLOWING FACTORS HAD A SIGNIFICANT EFFECT UPON THE COMPANY'S NET
INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2003 AS COMPARED WITH THE NET INCOME
FOR THE SAME PERIOD LAST YEAR.
Net income applicable to common stock for the three months ended March
31, 2003 increased from that of March 31, 2002 by $566,000, or $.07 per average
common share. The increase in net income resulted from a $975,000 increase in
Net Other Income (Deductions) and a $72,000 decrease in Interest and Debt
Expense, partially offset by a $506,000 decrease in Utility Operating Income.
The major reason for the $975,000 higher Net Other Income (Deductions)
was a January 2003 donation of approximately 178 acres of land to the Town of
Killingly, Connecticut which resulted in a net after tax gain of approximately
$943,000. Additionally, non-water sales earnings increased 55% due to increased
profits from the Company's Linebacker(TM) service line maintenance program and
antenna leases.
The decrease in Utility Operating Income was primarily due to the following:
- - a $817,000 increase in Operation and Maintenance Expense due to increased
wages, increases in pension and insurance expense, and an increase in
maintenance expense due to numerous main breaks in the first quarter of
2003.
- - a $126,000 increase in Depreciation Expense.
- - a $ 60,000 increase in Taxes Other Than Income Taxes.
Partially offset by
- - a $ 96,000 increase in Operating Revenue due to customer growth.
- - a $401,000 decrease in Income Taxes primarily due to the increase in
expenses detailed above.
COMMITMENTS AND CONTINGENCIES
During the quarter ended March 31, 2003, there were no changes to any
items previously disclosed by the Company in its Annual Report on Form 10-K for
the period ended December 31, 2002.
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, tax rates, and stock market trends which may affect the return
earned on pension assets, and compliance with environmental and water quality
regulations. We undertake no obligation to update or revise forward looking
statements, whether as a result of new information, future events, or otherwise.
Page 13
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
PART I, ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The primary market risk faced by the Company is interest rate risk. The
Company has no exposure to derivative financial instruments or financial
instruments with significant credit risk or off-balance sheet risks and is not
subject in any material respect to any currency or other commodity risk.
The Company is subject to the risk of fluctuating interest rates in the
normal course of business. The Company's exposure to interest fluctuations is
managed at the Company and subsidiary operations levels through the use of a
combination of fixed rate long-term debt (and variable rate borrowings) under
financing arrangements entered into by the Company and its subsidiaries. The
Company has $12,500,000 current lines of credit with three banks, under which
interim bank loans payable at March 31, 2003 were $10,700,000. Management
believes that any near-term change in interest rates should not materially
affect the consolidated financial position, results of operations or cash flows
of the Company.
PART I, ITEM 4: CONTROLS AND PROCEDURES
Based on their evaluation of the Company's internal controls, disclosure
controls and procedures within 90 days of the filing date of this report, the
Chief Executive Officer and the Chief Financial Officer have concluded that the
effectiveness of such controls and procedures is satisfactory. Further, there
were not any significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
PART II, ITEM 1: 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.
PART II, ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 25, 2003, at its annual meeting, the stockholders of Connecticut
Water Service, Inc. elected the following directors to serve three-year terms
expiring at the annual meeting to be held in 2006:
AFFIRMATIVE WITHHELD
----------- --------
Roger Engle 6,521,591 134,980
Lisa Thibdaue 6,529,794 126,777
Carol P. Wallace 6,575,004 81,567
Donald B. Wilbur 6,579,351 77,220
Page 14
CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES
Directors whose term of office continues until 2004 are Marshall T.
Chiaraluce, Marcia L. Hincks, Robert F. Neal, and Arthur C. Reeds.
Directors whose term of office continues until 2005 are Mary Ann Hanley,
Mark G. Kachur, Ronald D Lengyel and David A. Lentini.
The appointment of PricewaterhouseCoopers, LLP, independent public
accountants, as independent auditors for the Company for the calendar year
ending December 31, 2003 was ratified by the stockholders.
Number of Common and Preferred
Series A Shares Cast
ABSTENTIONS
PRICEWATERHOUSECOOPERS LLP AFFIRMATIVE NEGATIVE AND NON-VOTES
- -------------------------- ----------- -------- -------------
6,562,749 46,660 47,162
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, 1998. (Exhibit 3.3 to Form 10-K for the year ended
12/31/98).
3.4 Certificate of Amendment to the Certificate of Incorporation of
Connecticut Water Service, Inc. dated August 6, 2001 (Exhibit 3.4 to
Form 10-K for the year ended 12/31/01).
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 February 13, 2003, the Company filed a Form 8-K to report its
earnings for the fourth quarter of 2002 and for the full fiscal year
ended December 31, 2002.
Page 15
SIGNATURES PAGE
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: May 14, 2003 By /s/ David C. Benoit
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David C. Benoit
Vice President - Finance
Date: May 14, 2003 By: /s/ Peter J. Bancroft
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Peter J. Bancroft
Assistant Treasurer
FORM 10-Q
CONNECTICUT WATER SERVICE, INC.
RULE 13a-14 CERTIFICATION
I, Marshall T. Chiaraluce, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Connecticut
Water Service, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Marshall T. Chiaraluce
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Marshall T. Chiaraluce
Chief Executive Officer
May 14, 2003
FORM 10-Q
CONNECTICUT WATER SERVICE, INC.
RULE 13a-14 CERTIFICATION
I, David C. Benoit, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Connecticut
Water Service, Inc.
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this quarterly
report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data and
have identified for the registrant's auditors any material weaknesses
in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ David C. Benoit
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David C. Benoit
Chief Financial Officer
May 14, 2003