Item 1. Business.
Consumers Water Company (Consumers or the Company) is a holding and management company whose principal business is the ownership and operation of water utility subsidiaries. Consumers owns directly or indirectly at least 90% of the voting stock of 9 water companies (the Consumers Water Subsidiaries) which operate 27 separate systems providing water service to approximately 221,000 customers in six states. As of July 1, 1994, Maine Water Company and Wanakah Water Company were merged into Camden & Rockland Water Company. The name of the surviving corporation was then changed to Consumers Maine Water Company. The Company also owns 100% of C/P Utility Services (C/P), a provider of technical services to utilities and other enterprises. C/P, headquartered in Hamden, Connecticut, provides services in the areas of meter services, contract operations, mechanical engineering services, corrosion engineering services, environmental engineering services and water conservation to the utility industry and certain industrial clients primarily in the northeastern United States and Florida.
Consumers was incorporated under the laws of Maine in 1926. The address of its executive offices is Three Canal Plaza, Portland, Maine 04101, and the Company's telephone number is (207) 773- 6438.
The Company had at December 31, 1994, subsidiaries as noted on Exhibit 21 attached hereto, the accounts of which are included in the consolidated financial statements in this report.
Consumers Water Subsidiaries
The Consumers water subsidiaries operate 27 primary systems in six states for the collection, treatment and distribution of water for public use to residential, commercial and industrial customers to other water utilities for resale and for private and municipal fire protection purposes. In 1994, 65% of the revenue of Consumers Water subsidiaries was generated from residential accounts while sales for commercial users, industrial users and fire protection and miscellaneous uses accounted for 13%, 9% and 13% of revenues respectively. Water utility revenues for the three years ended December 31, 1994, 1993 and 1992 were $80,376,000, $78,171,000 and $74,637,000, respectively. At December 31, 1994, the Consumers Water Subsidiaries owned in the aggregate 3,204 miles of mainline pipe of which approximately 84% was 6-inches or larger in diameter.
Of the 27 primary systems, 14 have surface supplies (lakes, ponds and streams) as their source of supply; 11 obtain water principally or entirely from wells; and 2 purchase their supplies from adjacent systems, one of which is an affiliated utility. Less than 5% of the Consumers Water Subsidiaries' water usage is purchased from other systems. In general, the Company considers the surface and well supplies at the Consumers Water Subsidiaries to be adequate for anticipated average daily demand and normal peak demand.
All of the systems (except one system serving solely industrial users in Ohio and a few small developer built systems in New Hampshire) provide customers with water which has been subjected to disinfection treatment and some of which has been subjected to additional treatment such as softening, sedimentation, filtration, chemical stabilization, iron and/or manganese removal and taste and odor control. Eight systems own and operate full scale water treatment plants. In addition, Consumers Illinois Water Company operates 4 wastewater treatment facilities.
The water treatment, pumping and distribution capacities of the systems are generally considered by management to be adequate to meet the present requirements of their residential, commercial and industrial customers. On a continuing basis, the Consumers Water Subsidiaries make system improvements and additions to capacity in response to changing regulatory standards, changing patterns of consumption and increases in the number of customers. See "Environmental Regulation." Operating and capital costs associated with these improvements are normally recognized by the various state regulatory commissions in setting rates. See "Rate Regulation."
Consumers' water utility business is seasonal because the demand for water during the warmer months is generally greater than during the cooler months due to additional requirements for industrial and residential cooling systems, private and public swimming pools and lawn sprinklers.
The following table indicates, for each of the Consumers Water Subsidiaries, the number of customers, revenues and net utility plant as of December 31, 1994:
Number Number of Utility Net Utility Subsidiary of Systems Customers Revenue Plant (1)
(Dollars in Thousands)
Ohio Water Service Company 5 71,385 $26,355 $103,676 Consumers Illinois Water Company 5 42,814 11,410 51,656 Inter-State Water Company 1 16,663 7,178 33,257 Shenango Valley Water Company(2) 2 17,135 6,665 24,321 Roaring Creek Water Company 1 17,664 5,584 31,026 Pennsylvania Water Company 1 4,477 1,406 4,303 Garden State Water Company(3) 4 29,076 10,207 44,729 Southern New Hampshire Water Company 1 7,741 5,306 31,301 Consumers Maine Water Company 7 14,211 6,265 27,873 Inter-Company Eliminations 0 0 0 (354) 27 221,166 $80,376 $351,788 _________________________________ (1) Includes construction work in progress. (2) Includes Masury Water Company, a wholly-owned subsidiary. (3) Includes Califon Water Company, a 93.2% owned subsidiary.
The properties of the Consumers Water Subsidiaries consist of transmission and distribution mains and conduits, purification plants, pumping facilities, wells, tanks, meters, supply lines, dams, reservoirs, buildings, land, easements, rights and other facilities and equipment used for the collection, purification, storage and distribution of water. Substantially all of the property and all rights and franchises of the Consumers Water Subsidiaries are owned by the subsidiaries and are subject to liens of mortgages or indentures. For the most part, such liens are imposed to secure bonds, notes and/or other evidences of long-term indebtedness of the respective companies. Management considers that its water collection, treatment and distribution systems, facilities and properties are well maintained and structurally sound. In addition, Consumers carries replacement cost insurance coverage on substantially all of its and its subsidiaries' above-ground properties, as well as liability coverages for risks incident to their ownership and use.
Rate Regulation
The Consumers Water Subsidiaries are subject to regulation by their respective state regulatory bodies. The state regulatory bodies have broad administrative power and authority to regulate water and other public utilities, including the power to regulate rates and charges, service and the issuance of securities. They also establish uniform systems of accounts, develop standards with respect to groundwater withdrawal rights, surface water supply, potability and adequacy of treatment, approve the terms of contracts and relations with affiliates and customers, and purchases and sales of property and loans. Maine and Illinois have laws regulating reorganizations of water and other utilities.
The profitability of the operations of the Consumers Water Subsidiaries is influenced to a great extent by the timeliness and magnitude of rate allowances by regulatory authorities in various states. Accordingly, Consumers maintains a rate case management capability to ensure that the tariffs of the Consumers Water Subsidiaries reflect, to the extent possible, current costs of operations, capital, taxes, energy, materials and compliance with environmental regulations. This process also addresses other factors bearing on rate determinations, such as the quantity of rainfall and temperature in a given period of time, system expansion and industrial demand.
The approximate amount of annual rate increases allowed for the last three years was $5,624,000 for 1994, $1,945,000 for 1993, and $4,698,000 for 1992, represented by ten, five, and eight rate decisions, respectively. Included in the 1992 total is a $2.2 million rate allowance for Inter-State Water Company, received on January 8, 1992. This increase was due primarily to recovery of, and an allowance of a return on, its new $14 million water treatment plant.
The Company currently has three rate filings pending totaling $7.3 million of requested annualized new revenue. Decisions on these cases are expected in 1995.
Rates for some divisions of Ohio Water are fixed by negotiated agreements with the political subdivisions that are served, instead of through a filing with the Public Utility Commission of Ohio. Currently, three of the four regulated divisions of Ohio Water are operating under rate ordinances.
Water Utility Competition
In general, the Company believes that the Consumers Water Subsidiaries have valid operating rights, free from unduly burdensome restrictions, sufficient to enable them to carry on their businesses as presently conducted. They derive their rights to install and maintain mains in streets, highways and other public places, from the acts under which they were incorporated, municipal consents and ordinances, permits granted for an indefinite period of time by states and permits from state highway departments and county and township authorities. In most instances, such operating rights are non- exclusive. In certain cases, permits from state highway departments and county and township authorities have not been received for service in unincorporated areas, but service is being rendered without assertion or lack of authority by the governmental body concerned.
Each of the Consumers Water Subsidiaries serves an area or areas in which it is sole operator of the public water supply system. In some instances another water utility provides service to a separate and sometimes contiguous area within the same township or other political subdivision served by one of the Consumers Water Subsidiaries.
In the states in which the operations of the Consumers Water Subsidiaries are carried on, there exists the right of municipal acquisition by one or more of the following methods: eminent domain, the right of purchase given or reserved by a municipality or other political subdivision in granting a franchise, and the right of purchase given or reserved under the law of the state in which the subsidiary was incorporated or from which it received its permit. The price to be paid upon acquisition is usually determined in accordance with both federal law and the laws of the state governing the taking of lands or other property under eminent domain statutes; in other instances, the price may be negotiated, fixed by appraisers selected by the parties or computed in accordance with a formula prescribed in the law of the state or in the particular franchise or special charter. The Company has sold four divisions with customers totaling approximately 15,000 under threat of eminent domain in the last four years. The gain on those sales totaled almost $7 million. The Company is working with the local communities in its service areas in an effort to prevent future eminent domain proceedings.
Environmental Regulation
The primary federal laws affecting the provision of water and wastewater treatment services by the Consumers Water Subsidiaries are the Clean Water Act (the CWA) and the Safe Drinking Water Act (the SDWA), and the regulations promulgated pursuant thereto by the United States Environmental Protection Agency (the EPA). These laws and regulations establish criteria and standards, including those for drinking water and for discharges into waters of the United States. States have the right to establish criteria and standards stricter than those established by the EPA, and some of the states in which the Consumers Water Subsidiaries operate have done so.
The CWA regulates the discharge of effluents from the drinking water and wastewater treatment processes into the lakes, rivers, streams, and ground water. Eight of the systems owned by the Consumers Water Subsidiaries generate water treatment precipitate from operating conventional filtration facilities used for producing drinking water. The water treatment precipitate is a combination of silt and chemicals used in the treatment process and chemicals removed from the raw water. For each of the eight facilities, the water treatment precipitate generated from the treatment facilities is disposed of either in a storage facility such as a lagoon owned by the subsidiary, an off-site facility not owned by the subsidiary, a State approved landfill, municipal sewer system or it is used for agricultural land application. Wastewater precipitate generated from small wastewater treatment facilities in Illinois is used as a solid additive. Additional capital expenditures and operating costs in connection with the management and ultimate disposal of effluent from water and wastewater facilities may be required in the future, particularly if changes are made in the requirements of the CWA or other applicable federal or state laws.
A small wastewater plant owned by Consumers Illinois serving the University Park area will require approximately $1.3 million of capital investment in 1995 to correct periodic excursions in discharge permit requirements. A consent decree addressing these excursions and the alleged resulting stream bed contamination is being negotiated with the Illinois Environmental Protection Agency (the IEPA).
At Consumers Illinois, a small wastewater plant serving the Candlewick area will require approximately $3.0 million of capital investment due to periodic excursions in discharge permit requirements. The IEPA has restricted Consumers Illinois from extending its sewer lines in the Candlewick service area until the plant improvements program is complete.
The Struthers Filtration Plant, which is operated by Ohio Water, has been disposing of treatment precipitate at an abandoned strip mine. The Ohio Environmental Protection Agency has informed Ohio Water that it must find an alternative method of disposal for the treatment precipitate. This issue is being studied and the cost for the alternative disposal method is estimated at $500,000 to $1.0 million.
The SDWA established uniform minimum national quality standards for drinking water. The EPA regulations, promulgated pursuant to the SDWA, set standards on the amount of certain inorganic and organic chemical contaminants, microbials and radionuclides in drinking water. The 1986 amendments to the SDWA require that the EPA promulgate new primary water standards for 83 contaminants. The EPA has not met the timetable established in the amendments but is developing new water quality standards and, to date, has issued regulations on volatile synthetic organic chemicals, inorganic chemicals, surface water treatment, microbials, lead and copper. Reauthorization of the SDWA is scheduled to be taken up by Congress in 1995. Stricter drinking water standards currently under consideration may result in additional capital expenditures being required of the Company.
The implications of the 1986 amendments to the SDWA and the EPA regulations for the Company can be analyzed by grouping contaminants into four categories: (i) microbials, (ii) radionuclides and (iii) volatile organics.
With respect to microbials, improved disinfection and/or filtration is required under the EPA Surface Water Treatment Rule adopted pursuant to the SDWA. Necessary improvements to comply with the Surface Water Treatment Rule have been completed or are under way at a number of the Consumers Water Subsidiaries. The estimated cost for 1995 and beyond for these improvements is $22 million. Other major improvements at two water treatment plants designed to increase capacity and upgrade facilities are estimated to cost $10 million. In addition, open water storage reservoirs will have to be covered or replaced at two subsidiaries at an approximate cost of $3.5 million.
The Disinfectants/Disinfection By-Products Rule (D/DBP) is expected to affect four Consumers Water Company operations. The cost to comply with Stage I is expected to be $5 to $7 million, and Stage II is expected to cost $2 to $6 million. The effective date for Stage I is estimated to be in early 1997.
Based on preliminary cost estimates the proposed Enhanced Surface Water Treatment Rule (ESWTR) may cost Consumers as much as $21 million. The interim ESWTR will be promulgated about the same time as Stage I of the D/DBP Rule becomes effective.
The EPA has not yet established the Maximum Contaminant Level (MCL) for radon in drinking water pursuant to the SDWA provisions applicable to radionuclides. The Company anticipates that the EPA will set those levels at not less than 300 pico curies/liter and has planned for capital expenditures of $5 million during the 1997 through 1999 period to treat groundwater supplies to comply with this anticipated radon standard. If the standard is set at 1,000 pico curies/liter, as proposed by an industry group, the necessary capital expenditures would be reduced to approximately $3 million.
The Consumers Water Subsidiaries have surveillance programs in place to provide early warning of a possible contamination threat to their water supplies from volatile organics and other potential contaminants. Each of the Consumers Water Subsidiaries has adopted contingency plans to respond to such contamination, should it occur.
In 1992, Inter-State executed a Consent Decree with the Illinois Environmental Protection Agency to comply with the MCL for nitrates by 1997 and to take additional interim steps to address the problem. Inter-State will be required to add treatment facilities and/or new sources of supply to reduce the level of nitrates in its finished water at certain times of the year for an estimated project cost of $5 million.
A contractor working at the Lake Erie West water treatment facility, which is operated by Ohio Water, caused the release of a relatively small amount of mercury within a building at the facility. Workers tracked the mercury to various areas of the building, necessitating the clean-up of a relatively large area in and around the building at a cost of approximately $900,000. Clean-up has been completed and Ohio Water is looking to the responsible parties for reimbursement of its costs. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Liquidity and Capital Resources."
The Consumers Water Subsidiaries own 12 major dams that are subject to the requirements of the Federal Dam Safety Act of 1986. The dams normally undergo a comprehensive engineering evaluation annually. The Company believes the dams are structurally sound and well maintained. One of the dams owned by Ohio Water will require structural improvements which are currently estimated to cost $2.7 million.
In addition to the SDWA, the CWA and Federal Dam Safety Act of 1986, numerous federal and state environmental laws affect the operations of the Consumers Water Subsidiaries.
In addition to the capital expenditures and costs currently anticipated, changes in environmental regulation, enforcement policies and practices or related matters may result in additional capital expenditures and costs. Capital expenditures and costs required as a result of water quality standards and environmental requirements are normally recognized by state public utility commissions as appropriate plant additions in establishing rates.
Water Subsidiary Information
Consumers' five largest water subsidiaries, Ohio Water Service Company (Ohio Water), Consumers Illinois Water Company (Consumers Illinois), Garden State Water Company (Garden State), Shenango Valley Water Company, (Shenango), and Inter-State Water Company (Inter-State) accounted for approximately 77% of consolidated operating revenues of the water subsidiaries in 1994 and 73% of consolidated water utility net property, plant and equipment at December 31, 1994.
Consumers' five largest water subsidiaries are discussed separately below.
Ohio Water Service Company Ohio Water is the largest of the Consumers Water Subsidiaries, accounting for approximately 33% of the operating revenues of the water subsidiaries in 1994. As of December 31, 1994, Ohio Water operates five separate systems, four of which deliver treated water and one of which delivers partially treated water primarily to industrial customers. Ohio Water serves a number of communities in northeastern Ohio.
The following indicates the distribution of 1994 year-end customers, revenues and net utility plant among the five districts of Ohio Water.
Number of Utility Utility Net Customers Revenue Plant
(Dollars in Thousands)
Lake Erie East District 7,644 $ 3,356 $ 9,997 Lake Erie West District 25,752 7,858 36,937 Massillon District 23,471 8,739 33,510 Struthers District 14,508 5,862 20,724 Mahoning Valley District 10 540 2,508 Totals 71,385 $ 26,355 $ 103,676
Consumers Illinois Water Company Consumers Illinois serves 32,707 water customers in the City of Kankakee, Village of Bourbonnais, and a portion of the Village of Bradley, as well as unincorporated areas of Kankakee, Bourbonnais, Aroma, Limestone, and Manteno Townships, all in Kankakee County; as well as the Village of University Park and unincorporated areas of Crete and Monee Townships in Will County, and portions of Lee, Boone and Knox Counties, all in the state of Illinois.
The Company also serves 10,107 sewer customers in the Village of University Park, portions of Crete and Monee Townships in Will County, and portions of Lee and Boone Counties, all in the state of Illinois.
Consumers Illinois obtains its water supply for its customers in Kankakee County from the Kankakee River and satellite wells. In Will, Lee, Boone and Knox counties, its customers are supplied from deep well systems. The economy of the Company's service areas is based on agriculture and diverse light industries. Consumers Illinois' net utility plant at December 31, 1994, and utility revenues for 1994 were $51,656,000 and $11,410,000, respectively.
Garden State Water Company Garden State (and its 93.2% owned subsidiary, Califon Water Company) operates three districts in New Jersey which serve 29,076 customers in territories which are not contiguous. Each district draws its water from deep high capacity wells. The Blackwood District serves a growing residential area, primarily in Camden County. The Hamilton District serves a growing residential area that also includes a small amount of light industry and agriculture, primarily in Mercer County. The Phillipsburg District serves an industrial and agricultural community and outlying municipalities, primarily in Warren County, that are experiencing modest growth. Garden State's net utility plant at December 31, 1994, and utility revenues for 1994 were $44,729,000 and $10,207,000 respectively.
Shenango Valley Water Company Shenango, (and its wholly-owned Ohio subsidiary, Masury Water Company) which draws its water from the Shenango River, serve 17,135 residential, commercial, industrial and wholesale customers in the cities of Sharon and Farrell, the boroughs of Wheatland, New Wilmington and West Middlesex, and portions of Hermitage, Mercer, Pulaski and Shenango Townships, all in Pennsylvania, and Trumbull County, Ohio. The economy of the area is largely based on heavy industrial manufacturing. Shenango's net utility plant at December 31, 1994, and utility revenue for 1994 were $24,321,000 and $6,665,000 respectively.
Inter-State Water Company Inter-State serves 16,663 residential, commercial, industrial and wholesale customers in the cities of Danville, Tilton, Westville and Catlin and the Lake Boulevard and Hooton areas in Illinois. Inter-State draws its water from Lake Vermilion. Inter-State's corporate offices are located in Danville, Illinois, a city of approximately 34,000 residents, with an economy based on agriculture and heavy industrial manufacturing. Inter-State's net utility plant at December 31, 1994 and utility revenue for 1994 were $33,257,000 and $7,178,000 respectively.
Utility Services
C/P Utility Services, Inc. (C/P) and its wholly owned subsidiary, EnviroAudit, provide services primarily in the area of meter services, contract operations, corrosion engineering services, environmental engineering services, and water conservation to the utility industry and certain industrial clients, primarily in the northeastern United States and Florida.
C/P's services in the areas of environmental engineering and contract operations subject it to possible liability in environmentally sensitive areas such as the removal of underground storage tanks, site remediation, and environmental assessments of sites and facilities. C/P maintains professional liability insurance, with respect to the services it provides, in amounts and subject to deductibles and exclusions believed by C/P's management to be appropriate.
Since September of 1987, C/P has managed the operation of the Merrill Creek Reservoir, a pumped storage facility owned by several power companies, for the purpose of augmenting flows in the Delaware River during periods of low flow or to replace water used by the owners for cooling purposes. C/P's contract for the operation of this facility was renewed for an additional five-year period at the end of 1992.
In June, 1993, C/P was awarded three contracts to install new water meters in New York City. The total award for these three contracts is $10.7 million. These projects will be completed in the first half of 1995. C/P expects the opportunity to bid on additional New York city meter projects in early 1995.
C/P's total revenues for the years ended December 31, 1994, 1993 and 1992 were approximately $13 million, $11 million, and $10 million, respectively. Approximately $86,000, or approximately 1%, of C/P's 1994 revenue was derived from services provided to the Consumers Water Subsidiaries.
Discontinued Operations
On October 6, 1993, the Company announced its intention to dispose of its manufactured housing business, Burlington Homes of New England. The business was offered for sale. The estimated loss on the disposal of $5.3 million, net of taxes, of approximately $600,000 was recorded. On July 8, 1994, Burlington was sold for $378,000. The reserve taken in 1993 was adequate to cover the loss on the sale. Please see Note 11 to the Consolidated Financial Statements.
Employees
Consumers Water Company and its subsidiaries employed 640 people as of December 31, 1994, of which 486 were employed by the Consumers Water Subsidiaries. Non-supervisory personnel at Ohio, Shenango Valley, Consumers Illinois, Roaring Creek, Inter-State and Pennsylvania Water Companies are covered by collective bargaining agreements. Employee relations are considered by management to be satisfactory throughout the Company.
Foreign Operations
The Company had no foreign operations or export sales in 1994.
Item 2.
Item 2. Properties.
(a) Description
See Item 1. "Consumers Water Subsidiaries" for description of Consumers' principal properties and encumbrances thereon.
Consumers' properties are located as follows:
Illinois
(1) Consumers Illinois Water Company with five divisions in Kankakee, University Park, Sublette, Oak Run and Candlewick, Illinois. (2) Inter-State Water Company located in Danville, Illinois.
Ohio
(3) Ohio Water Service Company with corporate offices in Poland and five operating districts located in Massillon, Struthers, Mahoning Valley, Geneva and Mentor, Ohio. (4) Masury Water Company located in Trumbull County, Ohio.
Pennsylvania
(5) Pennsylvania Water Company located in Sayre, Pennsylvania (6) Shenango Valley Water Company located in Sharon, Pennsylvania. (7) Roaring Creek Water Company located in Shamokin, Pennsylvania.
New Jersey
(8) Garden State Water Company with corporate offices in Hamilton and operating districts in Blackwood, Hamilton Square and Phillipsburg, New Jersey. (9) Califon Water Company located in Califon, New Jersey.
Connecticut
(10) C/P Utility Services Company headquartered in Hamden, Connecticut with regional offices in Massachusetts, New Jersey, and Florida. (11) EnviroAudit, Ltd. located in Centerbrook, Connecticut.
New Hampshire
(12) Southern New Hampshire Water Company located in Londonderry, New Hampshire.
Maine
(13) Consumers Maine Water Company with seven divisions located in Kezar Falls, Freeport, Oakland, Rockland, Skowhegan, Greenville, and Millinocket, Maine. (14) Consumers' corporate headquarters located in Portland, Maine.
Item 3.
Item 3. Legal Proceedings.
Various environmental orders and policies affecting the Consumers Water Subsidiaries are described above under the caption "Environmental Regulation."
In March, 1993, an outside contractor spilled a small amount of mercury while working at one of Ohio Water's water treatment plants. Several areas in and around the plant were contaminated by the spill. Although no mercury has contaminated Ohio Water's water supply, Ohio Water is continuously monitoring the situation to maintain water quality. Ohio Water contacted all appropriate regulatory agencies and the clean up has been completed. The total cost to clean up the spill was approximately $900,000. Ohio Water has received $100,000 from its insurer and is currently seeking recovery of all the clean up costs from the contractor. While there can be no assurance as to the ultimate outcome of Ohio Water's efforts to obtain such recovery, management believes it is probable that Ohio Water will recover clean up costs from the contractor and/or the contractor's insurers and, therefore, has deferred the cost incurred in connection with the spill. On December 20, 1993, A.P. O'Horo Company filed a complaint against Ohio Water in Lake County Court of Common Pleas seeking recovery of the retainage of $250,000 that Ohio is withholding on this project. On December 30, 1993, Ohio Water filed a counter claim against A.P. O'Horo Company seeking recovery of all past and future costs relating to the spill. Ohio Water is also asking the court to dismiss A.P. O'Horo's complaint.
On September 14, 1994, the Penobscot Indian Nation filed a Complaint in the United States District Court for the District of Maine naming Key Bank of Maine, Consumers Water Company, SHC Corporation, Burlington Homes of New England, Inc., Bernstein, Shur, Sawyer & Nelson, P.C., John H. Schiavi, John Palmer, Palmer Management Company and Palmer Development Company as defendants. The suit commenced by the Complaint arises out of the 1986 acquisition of the assets of SHC Corporation, then a subsidiary of Consumers Water Company, by Schiavi Homes, a Maine limited partnership in which the Penobscot Indian National held a 90% limited partnership interest. Burlington Homes of New England, Inc. is a current subsidiary of Consumers Water Company, and John H. Schiavi is a Director of Consumers Water Company.
The Complaint alleges, among other things, that one of or all of the defendants defrauded the Penobscot Indian Nation by breaching their duty of good faith and fair dealing and by making misrepresentations. The Complaint also alleges that the defendants violated the Racketeer Influenced and Corrupt Organizations Act ("RICO") in connection with the sale of Schiavi Homes. The Complaint seeks to nullify the acquisition, actual damages in the amount of approximately $5,200,000, punitive damages, and treble damages under RICO. Consumers has answered the Complaint denying any liability, and discovery in the case has commenced.
John Schiavi, as a Director of Consumers Water Company, is a party to an Indemnification Agreement with the Company providing him with indemnification to the fullest extent of Maine law in connection with any suit or proceeding brought against him by reason of the fact that he is or was a Director of Consumers Water Company. Under certain circumstances Mr. Schiavi is entitled to indemnification and, upon receipt by the Company of a written commitment to repay such amounts if it is later determined that he is not entitled thereto, may be entitled to receive an advance of expenses in connection with an indemnifiable claim.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5.
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters.
(a) Market Information
The common shares of Consumers are listed on the National Market System of the NASDAQ Stock Market under the symbol: CONW. The following table sets forth the high and low last sale prices for the common shares for the periods indicated, as reported by NASDAQ, together with cash dividends declared per common share.
DIVIDENDS Calendar Year HIGH LOW DECLARED
First Quarter 18 1/4 16 1/2 $0.29 Second Quarter 18 3/4 15 1/2 0.29 Third Quarter 18 15 1/2 0.295 Fourth Quarter 18 1/2 15 3/4 0.295 $1.17
First Quarter 19 17 $0.285 Second Quarter 19 3/4 17 1/4 0.285 Third Quarter 21 1/4 18 1/2 0.29 Fourth Quarter 21 1/4 17 1/4 0.29 $1.15
(b) Holders
As of March 22, 1995, there were approximately 6,000 shareholders of record of the Registrant's common stock.
Item 6.
Item 6. Selected Financial Data.
(Dollars in Thousands Except Per Share Amounts) 1994 1993 1992 1991 1990
Operating Revenue $93,337 $89,084 $84,245 $79,965 $75,296 Net Income from Continuing Operations $10,000 $12,003 $8,501 $9,791 $ 7,488 Earnings Per Common Share: Continuing Operations $ 1.22 $ 1.63 $ 1.21 $ 1.52 $ 1.23 Total $ 1.22 $ .80 $ 1.14 $ 1.74 $( 0.33) Dividends Declared Per Common Share $ 1.17 $ 1.15 $ 1.13 $ 1.11 $ 1.09 Total Assets $401,380 $371,657 $343,033 $315,124 $302,220 Long-Term Debt of Continuing Operations (including current maturities, sinking fund requirements and redeemable preferred stock) $132,648 $125,080 $131,667 $106,666 $113,875
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis sets forth certain factors relative to the Company's financial condition at December 31, 1994 and the results of its operations for the three years ended December 31, 1994, as compared to the same period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
CONSTRUCTION PROGRAM
Capital construction expenditures in 1994 totaled $35.2 million, net of contributions and advances, the majority of which relates to the Company's utility subsidiaries. Projects include $6.6 million spent on a new water treatment plant in Pennsylvania estimated to cost $16 million when completed in 1995, $1.2 million spent on a disinfection facility in Maine, which was completed in May of 1994 at a total cost of $3.7 million, $1.7 million in improvements to a wastewater treatment plant in Illinois and other smaller projects throughout the Company.
The Company expects capital expenditures for 1995 through 1997 to be approximately $103 million, net of contributions and advances. Almost 29% of these expenditures are required by the Safe Drinking Water Act (SDWA), the Clean Water Act (CWA) and other regulations. The new $16 million treatment plant and transmission main, which is under construction in Pennsylvania, is required by State regulations under the SDWA.
The Company's water utility subsidiaries plan to file cases in their respective jurisdictions for recovery of and return on capital used to fund their capital expenditure programs. Costs which have been prudently incurred in the judgement of the appropriate public utility commission have been, and are expected to continue to be, recognized in rate setting. To support these capital expenditures over the next three years, some subsidiaries will be required to file for large percentage rate increases principally due to the significant capital expenditures resulting from compliance with the SDWA and the CWA. Given these large rate increases, management expects that it will become increasingly difficult to get rates in place on a timely basis.
FINANCING AND CAPITALIZATION
The table below shows the cash generated and used by the Company during the twelve months of 1994.
Cash was generated from: Dollars in millions Operations $ 20.8 Net increase in short-term debt 7.6 Long-term debt issued 9.1 Common stock issued 3.6 Proceeds from sale of land .6 Decrease in funds restricted for construction 7.0 Other 0.2 Total Cash Generated $ 48.9
Cash was used:
Capital expenditures, net of CIAC (35.2) Repay long-term debt (1.5) Pay dividends (9.5) Cost of acquisition (1.4) Net change in working capital (3.4) Total Cash Used $ (51.0) Decrease in Cash $ (2.1)
Cash decreased $2.1 million from year end, 1993, as the Company used the proceeds from the sale of the Washington Court House District of Ohio Water Service in December, 1993.
Water utilities will require higher equity ratios to maintain current debt ratings due to the recognition by Standard & Poor's rating system of additional risk of the SDWA requirements and the uncertainty of future regulatory treatment of the cost of these requirements. This coupled with the size of the 1995 through 1997 capital expenditure program makes it likely that the Company will return to the equity market again in the next three years. Any cash flow not provided through a stock issuance will, as usual, be financed with short-term lines of credit until the subsidiaries' short-term debt level is high enough to warrant placement of long-term debt, generally, in the $4-$6 million range. The Company had unused lines of credit available at year-end of over $56 million. In addition to the short-term debt, the Company plans to continue to use tax-exempt, long-term debt financing in appropriate situations. The $16 million project in Pennsylvania mentioned above is being financed in large part with $14 million of 6.375% tax-exempt bonds issued on behalf of Roaring Creek Water Company in October of 1993.
ACQUISITIONS AND DISPOSITIONS
In September, 1994, the Company, through its subsidiary Roaring Creek Water Company, acquired the assets of the Ralpho Township Municipal Authority Water System for $1.4 million.
Over the past five years, the Company has acquired seven water systems. Although the Company currently has no material acquisitions pending, management anticipates continuing the acquisition policy of recent years.
In October, 1994, the Damariscotta Division of Consumers Maine Water Company was taken by the local communities by eminent domain for approximately $600,000 or 75% of rate base. Consumers Maine Water challenged the purchase price and in February, 1995, settled for a price of $1.5 million. The gain of approximately $400,000 net of taxes will be recorded in 1995. The Damariscotta Division had approximately 600 customers. The Company has sold four divisions with customers totaling approximately 15,000 under threat of eminent domain in the last four years. The gain on these sales totaled almost $7 million. The Company is working with the local communities in its service areas in an effort to prevent future eminent domain proceedings.
OTHER
In March, 1993, an outside contractor spilled a small amount of mercury while working at the Company's subsidiary, Ohio Water's water treatment plant. Several areas in and around the plant were contaminated by the spill, although no mercury contaminated OWS's water supply. The cleanup was completed at a total cost of approximately $900,000. Ohio Water has received $100,000 from its insurer and is currently seeking recovery of all the cleanup costs from the contractor. While there can be no assurances to the ultimate outcome of Ohio Water's efforts to obtain such recovery, Management believes that it is probable that Ohio Water will recover cleanup costs from the contractor and/or the contractor's insurer and, therefore, has deferred the costs incurred in connection with the spill.
RESULTS OF OPERATIONS
1994 Compared to 1993
UTILITY REVENUE
Utilities revenues increased $2,205,000 as compared to 1993 primarily due to $3,884,000 in rate increases, offset by the loss of $2,326,000 in revenue from the Washington Court House Division of Ohio Water Service Company, which was sold in December 1993. Revenue also increased $538,000 from increased consumption due to a dry spring in some of the Company's service areas, and $109,000 due to revenue from acquisitions. During 1994, the Company settled ten rate cases providing additional annual revenues of $5.6 million. Currently, there are three rate cases pending in which over $7.2 million in additional revenue is sought.
UTILITY OPERATING EXPENSES
Water utility operating expenses increased approximately $1,388,000, or 2.5%. Increased depreciation and property taxes due to increased plant balances and increased health insurance costs were partially offset by the reduction in expenses of $1,641,000 due to the sale of Washington Court House.
OTHER OPERATIONS - REVENUE AND EXPENSE
Other operating revenue increased by $2,048,000, or 18.8%, due to increased sales at C/P Utility Services. Other operating expenses were up $1,274,000, or 11.5%, compared to 1993. Increased expenses at C/P being somewhat offset by the reversal of the additional accrual of $500,000 taken on the Company's self-insured health plan in 1993. Health insurance claims have returned to normal levels in 1994, allowing this reversal. C/P Utilities was awarded contracts from the City of New York for $10.7 million in meter installation projects in June, 1993. These projects will be completed in early 1995. C/P expects to have additional opportunities to bid on New York City meter installation projects in the future. Future revenue levels will, in part, depend on C/P's success in this bidding process.
OTHER
Construction interest capitalized is up $643,000 due to the new water treatment plant being constructed in Pennsylvania and to an adjustment to the capitalized interest of a major plant expansion in Ohio, which was completed in 1993.
RESULTS OF OPERATIONS
1993 Compared to 1992
UTILITY REVENUE
Utility revenues increased $3.5 million or 4.7% in 1993 compared to 1992 due primarily to $2 million in rate increases, $2.1 million from the inclusion of revenues from the properties acquired in Maine and Pennsylvania in 1992, and increased consumption due to dry weather in some areas served by Consumers Water subsidiaries. These increases were partially offset by the revenue impact of the sale of the Bourbonnais wastewater system, which had revenue in 1992 of $1.1 million.
UTILITY OPERATING EXPENSES
Water utility operating expenses increased approximately $4.1 million in 1993 compared to 1992. Increased expenses associated with the new acquisitions, increased depreciation and property tax expense due to increased plant balances and normal increases in labor costs accounted for most of the increase.
OTHER OPERATIONS - REVENUE AND EXPENSE
Other operating revenue increased $1.3 million in 1993 or 13.6% over 1992, while other operating expenses increased by $1.7 million or 17.5%. The revenue increase is due primarily to revenue of C/P's New York City meter installation projects. Expenses were up more than revenue in 1993 due to a health insurance adjustment recorded at the Parent company and lower profit margins at C/P Utility Services. The Company's self insured health insurance plan incurred an unusual amount of claims and required an additional accrual of $500,000 in 1993 compared to $300,000 in 1992. At C/P, meter installation sales, traditionally a low margin field, increased in 1993 over 1992, while demand for underground storage tank testing, a high margin area, decreased. In June, 1993, C/P was awarded contracts for $10.7 million in additional meter installation projects in New York City. C/P began work on these projects in December 1993.
OTHER
Interest expense was up $435,000 in 1993 compared to 1992, due primarily to increased debt balances offset by lower interest rates in 1993. Income taxes were down $239,000 due to lower pretax income.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Page Reference
Report of Management
Report of Independent Public Accountants
Consolidated Statements of Income for Years Ended December 31, 1994, 1993 and 1992
Consolidated Balance Sheets at December 31, 1994 and 1993
Consolidated Statements of Capitalization and Interim Financing at December 31, 1994 and 1993
Consolidated Statements of Cash Flow for Years Ended December 31, 1994, 1993 and 1992
Consolidated Statements of Change in Common Shareholders' Investment for Years Ended December 31, 1994, 1993 and 1992
Notes to Consolidated Financial Statements
Quarterly Information Pertaining to the Results of Operations for the Years Ended December 31, 1994 and 1993
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure.
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
Incorporated by reference are the "Nominees for Election as Directors," "Other Executive Officers" and "Section 16(a) Ownership Reporting Delinquencies" sections of the Company's Definitive Proxy Statement filed pursuant to Regulation 14A.
Item 11.
Item 11. Executive Compensation.
Incorporated by reference is the "Executive Compensation" section of the Company's Definitive Proxy Statement filed pursuant to Regulation 14A.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference is the "Common Stock Ownership of Certain Beneficial Owners and Management" section of the Company's Definitive Proxy Statement filed pursuant to Regulation 14A.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference is the "Executive Compensation" section of the Company's Definitive Proxy Statement filed pursuant to Regulation 14A.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) List of financial statements, schedules and exhibits.
(1) Consolidated financial statements and notes thereto of Consumers Water Company and its subsidiaries together with the Report of Independent Public Accountants, are listed as part of Item 8 of this Form 10-K. (2) Schedules
VII Valuation and Qualifying Accounts for the Years Ended December 31, 1994, 1993 and 1992.
All other schedules have been omitted, since they are not required, not applicable or the information is included in the consolidated financial statements or notes thereto.
(3) Exhibits
Exhibit
2.1 Assets Purchase and Sale Agreement between Ohio Water Service and the City of Washington, Ohio dated October 28, 1993 is incorporated by reference to Exhibit 2.1 to Consumers Water Company's Annual report on Form 10-K for the year ended December 31, 1993.
3.1 Conformed Copy of Restated Articles of Incorporation of Consumers Water Company, as amended, incorporated by reference to Exhibit 4.1.6 to Consumers Water Company's Registration Statement on Form S-2 (No. 33-41113), filed with the Securities and Exchange Commission on June 11, 1991.
3.2 Bylaws of Consumers Water Company, as amended March 2, 1994, are incorporated by reference to Exhibit 3.2 to Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1993.
4.1 Instruments defining the rights of security holders, including Indentures. The registrant agrees to furnish copies of instruments with respect to long-term debt to the Commission upon request.
10.1 Noncompetition and Consulting Agreement between Consumers Water Company and John H. Schiavi incorporated by reference to Exhibit 10.2 of Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1992.
10.2* Consumers Water Company 1988 Incentive Stock Option Plan is submitted incorporated by reference to Exhibit 10.2 to Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1993.
10.3* Consumers Water Company 1993 Incentive Stock Option Plan is incorporated by reference to Appendix B to definitive proxy statement dated April 5, 1993.
10.4* Consumers Water Company 1992 Deferred Compensation Plan for Directors, Plan A, incorporated by reference to Exhibit 10.5.2 to Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1991.
10.5* Consumers Water Company 1992 Deferred Compensation Plan for Directors, Plan B, incorporated by reference to Exhibit 10.5.3 to Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1991.
10.6 Letter Agreement between Consumers Water Company and Anjou International Company dated February 7, 1986, incorporated by reference to Exhibit 10.6 to Consumers Water Company's Registration Statement on Form S-2 (No. 33- 41113), filed with the Securities and Exchange Commission on June 11, 1991.
10.7 Assignment of Rights under February 7, 1986 Agreement between Consumers Water Company and Anjou International Company to Compagnie Generale des Eaux, dated November 12, 1987, incorporated by reference to Exhibit 10.7 to Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1992.
10.8 Form of Indemnification Agreement entered into between Consumers Water Company and each of its current directors and executive officers, incorporated by reference to Exhibit 10.8 to Consumers Water Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
10.9* Employment Agreement between Peter L. Haynes and Consumers Water Company incorporated by reference to Exhibit 10.11 to Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1992.
11. Statement of Computation of Per Share Earnings is submitted herewith as Exhibit 11.
21. List of Subsidiaries of the Registrant is submitted herewith as Exhibit 21.
23. Consent of Arthur Andersen LLP is submitted herewith as Exhibit
(b) Reports on Form 8K
No reports have been filed on Form 8-K.
27. Financial Data Schedule is submitted herein as Exhibit 27.
------------------------------------------------- * Management contract or compensatory plan or arrangement required to be filed as an Exhibit pursuant to Item 14(c) on Form 10-K.
CONSUMERS WATER COMPANY
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Peter L. Haynes 3/24/95 Peter L. Haynes Date President and Director (Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ John F. Isacke 3/24/95 John F. Isacke Date Senior Vice President (Chief Financial Officer)
By: /s/ Gary E. Wardwell 3/24/95 Gary E. Wardwell Date Controller (Chief Accounting Officer)
By: /s/ David R. Hastings, II 3/24/95 David R. Hastings, II Date Chairman and Director
By: /s/ Jack S. Ketchum 3/24/95 Jack S. Ketchum Date Director
By: /s/ John E. Menario 3/24/95 John E. Menario Date Director
By: /s/ J. Bonnie Newman 3/24/95 J. Bonnie Newman Date Director
By: /s/ John E. Palmer, Jr. 3/24/95 John E. Palmer, Jr. Date Director
By: /s/ Elaine D. Rosen 3/24/95 Elaine D. Rosen Date Director
By: /s/ John W. L. White 3/24/95 John W. L. White Date Director
By: /s/ Claudio Elia 3/24/95 Claudio Elia Date Director
By: /s/ Peter L. Haynes 3/24/95 Peter L. Haynes Date President and Director (Chief Executive Officer)
EXHIBITS
Consumers Water Company and Subsidiaries REPORT OF MANAGEMENT
The accompanying consolidated financial statements of Consumers Water Company and its subsidiaries were prepared by management, which is responsible for the integrity and objectivity of the data presented, including amounts that must necessarily be based on judgements or estimates. The consolidated financial statements were prepared in conformity with generally accepted accounting principles and financial information appearing throughout this annual report is consistent with these statements.
In recognition of its responsibility, management maintains and relies upon systems of internal accounting controls, which are reviewed and evaluated on an ongoing basis. The systems are designed to provide reasonable assurance that transactions are executed in accordance with management's authorization and properly recorded to permit preparation of reliable financial statements, and that assets are safeguarded. Management must assess and balance the relative cost and expected benefits of these controls.
These financial statements have been audited by Arthur Andersen, LLP, the Company's independent public accountants. Their audit, in accordance with generally accepted auditing standards, resulted in the expression of their opinion. Arthur Andersen LLP's audit does not limit management's responsibility for the fair presentation of the financial statements and all other information in this annual report.
The Audit Committee of the Board of Directors, composed solely of outside directors, meets periodically with management, internal audit, and Arthur Andersen LLP to review the work of each and to discuss areas relating to internal accounting controls, audits, and financial reporting. Arthur Andersen LLP and the Company's internal auditor have free access to meet individually with the Committee, without management present, at any time, and they periodically do so.
\s\ John F. Isacke John F. Isacke Senior Vice President Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Consumers Water Company:
We have audited the accompanying consolidated balance sheets and the consolidated statements of capitalization and interim financing of CONSUMERS WATER COMPANY (a Maine corporation) and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of income, change in common shareholders' investment and cash flows for each of the three years in the period ended December 31, 1994. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Consumers Water Company and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to the financial statements is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a required part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in relation to the basic financial statements taken as a whole.
As discussed in Notes 2 and 9 to the Consolidated Financial Statements, effective January 1, 1993, the Company changed its method of accounting for income taxes and other postretirement benefits
\s\ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Boston, Massachusetts February 8, 1995
Consumers Water Company and Subsidiaries Consolidated Statements of Income
For the years ended December 31, (In Thousands Except Per Share Amounts) 1994 1993 1992 Revenue and Sales: Water utility operations $80,376 $78,171 $74,637 Other operations 12,961 10,913 9,608 ------- ------- ------- Operating revenue 93,337 89,084 84,245 Costs and Expenses: ------- ------- ------- Water utility operations 56,515 55,127 50,996 Other operations 12,386 11,112 9,454 ------- ------ ------ Operating expenses 68,901 66,239 60,450 ------- ------ ------ Operating Income 24,436 22,845 23,795 Other Income and (Expense): ------- ------ ------ Interest expense (12,497) (11,905) (11,470) Construction interest capitalized 1,421 778 367 Preferred dividends and minority interest of subsidiaries ( 139) (147) (143) Other, net (Note 3) 1,000 692 344 -------- -------- -------- (10,215) (10,582) (10,902) Income from Continuing Operations -------- -------- -------- Before Income Taxes and Gains (Losses) from Sales of Properties 14,221 12,263 12,893 Income Taxes (Note 2) 4,623 4,128 4,367 Income from Continuing Operations: ------- ------- -------- Before Gains (Losses) from Sales of Properties 9,598 8,135 8,526 Gains (Losses) from Sales of Properties, Net (Note 7) 402 3,868 (25) Income from Continuing ------- ------- -------- Operations 10,000 12,003 8,501 Income (Loss) from Discontinued ------- ------- -------- Operations: Before Discontinuance - (784) (479) Provision for Loss on Disposal of Discontinued Operations - (5,300) - Total from Discontinued Operations------- -------- -------- (Note 11) - (6,084) (479) ------- -------- -------- Net Income $10,000 $5,919 $8,022 ======= ======== ======== Weighted Average Shares Outstanding 8,161 7,320 7,007 Earning (Loss) per Common Share: Continuing Operations- Before Gains (Losses) from Sales$1.17 $1.10 $1.21 Total $1.22 $1.63 $1.21 Discontinued Operations- ======== ======== ======== Before Discontinuance - ($0.11) ($0.07) Earnings (Loss) on Disposal of Discontinued Operations - ($0.72) - -------- -------- -------- Total - ($0.83) ($0.07) -------- -------- -------- Total $1.22 $0.80 $1.14 -------- -------- -------- Dividend Declared per Common Share $1.17 $1.15 $1.13 -------- -------- -------- The accompanying notes are an integral part of these consolidated financial statements.
Consumers Water Company and Subsidiaries Consolidated Balance Sheets
December 31, (Dollars in Thousands) 1994 1993 Assets Property, Plant and Equipment, at cost: Water utility plant, in service $395,900 $360,115 Less - Accumulated depreciation 69,148 63,579 -------- -------- 326,752 296,536 -------- -------- Other subsidiaries 1,947 1,710 Less - Accumulated depreciation 1,119 881 -------- -------- 828 829 -------- -------- Construction work in progress 21,674 20,180 -------- -------- Net property, plant and equipment 349,254 317,545 Assets of Discontinued Operations, Net -------- -------- (Note 11) - 1,308 Investments, at cost 1,984 2,044 -------- -------- Current Assets: Cash and cash equivalents (Note 4) 2,906 4,993 Accounts receivable, net of reserves of $682 in 1994 and $798 in 1993 10,465 10,171 Unbilled revenue 8,966 6,649 Inventories (Note 1) 2,258 1,793 Prepayments and other 6,116 6,524 -------- -------- Total current assets 30,711 30,130 Other Assets: -------- -------- Funds restricted for construction activity (Note 3) 2,503 9,508 Deferred charges and other assets 16,928 11,122 -------- -------- 19,431 20,630 -------- -------- $401,380 $371,657 Shareholders' Investment and Liabilities: ========= ======== Capitalization (See Separate Statement) Common shareholders' investment $100,928 $96,938 Preferred shareholders' investment 1,069 1,069 Minority interest 2,218 2,240 Long-term debt 130,038 124,050 -------- ------- Total capitalization 234,253 224,297 -------- ------- Contributions in Aid of Construction 61,576 54,045 Current Liabilities: -------- ------- Interim Financing (See Separate Statement) 29,816 20,606 Accounts payable 5,916 6,052 Accrued taxes (Note 2) 6,496 6,662 Accrued interest 3,435 3,318 Accrued expenses 12,352 11,011 -------- -------- Total current liabilities 58,015 47,649 Commitments and Contingencies (Note 10) -------- -------- Deferred Credits: Customers' advances for construction 21,917 21,338 Deferred income taxes (Note 2) 20,613 19,183 Unamortized investment tax credits 5,006 5,145 -------- -------- 47,536 45,666 -------- -------- $401,380 $371,657 ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
Consumers Water Company and Subsidiaries Consolidated Statements of Capitalization and Interim Financing
December 31, 1994 1993 (Dollars in Thousands) Capitalization (Notes 3 and 5) Common shareholders' investment: Common stock, $1 par value Authorized: 15,000,000 shares Issued: 8,259,685 shares in 1994 and 8,041,369 shares in 1993 $8,260 $8,041 Amounts in excess of par value 68,084 64,662 Reinvested earnings 24,584 24,235 ------- ------- 100,928 96,938 ------- ------- Preferred shareholders' investment: Preferred stock, $100 par value 1,069 1,069 Minority interest: ------- ------- Common stock, at equity 540 562
Preferred stock 1,678 1,678 ------- ------- 2,218 2,240 ------- ------- Long-term debt: First mortgage bonds, debentures and promissory notes- Maturities Interest Rate Range 1994 69% of Prime to 10.50% - 14 1995 9.00% to 13.88% 1,608 1,624 1996 6.10% to 11.00% 145 228 1997 5.94% to 7.50% 1,437 1,452 1998 5.94% 10 573 1999 70% of Prime to 7.00% 1,447 1,460 2000-2004 8.00% to 8.75% 9,979 10,177 2005-2009 9.31% to 10.55% 13,266 13,646 2010-2014 1.00% to 9.50% 10,077 10,135 THEREAFTER 6.10% to 10.40% 94,579 85,671 ------- ------- Total first mortgage bonds, debentures and notes 132,548 124,980
Less - Sinking fund requirements and current maturities 2,510 930 ------- ------- 130,038 124,050 ------- ------- Total capitalization 234,253 224,297 ------- ------- Interim financing (Note 4): Notes payable 27,306 19,676
Sinking fund requirements and current maturities 2,510 930 ------- ------- Total interim financing 29,816 20,606 ------- ------- Total capitalization and interim financing $264,069 $244,903 ======== ========
The accompanying notes are an integral part of these consolidated financial statements.
Consumers Water Company and Subsidiaries Consolidated Statements of Change in Common Shareholders' Investment
Number of Shares, $1 par value, (Dollars in Thousands) Issued and Excess of Reinvested For the years ended Outstanding Par Value Earnings December 31, 1994, 1993 and 1992
Balance, December 31, 1991 6,891,533 $46,235 $26,968 Net income 8,022 Cash dividends: Common shares (7,977) Preferred shares (57) Dividend Reinvestment Plan 170,823 2,823 Employee benefit plans 32,957 542 Other 34,326 557 -------------------------------------------------------------------- Balance, December 31, 1992 7,129,639 50,157 26,956 Net income 5,919 Cash dividends: Common shares (8,584) Preferred shares (56) Dividend Reinvestment Plan 187,679 3,280 Employee benefit plans 34,051 569 Stock Issue 690,000 10,652 Other - 4 -------------------------------------------------------------------- Balance, December 31, 1993 8,041,369 64,662 24,235 Net income 10,000 Cash dividends: Common shares (9,594) Preferred shares (56) Dividend Reinvestment Plan 193,908 3,049 Employee benefit plans 24,408 389 Other - (16) -------------------------------------------------------------------- Balance, December 31, 1994 8,259,685 $68,084 $24,585 ==================================================================== The accompanying notes are an integral part of these consolidated financial statements.
Consumers Water Company and Subsidiaries Consolidated Statements of Cash Flows
For the years ended December 31, 1994 1993 1992 (Dollars in Thousands) Operating activities: Net income $10,000 $5,919 $8,022 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 8,993 7,994 7,432 Deferred income taxes and investment tax credits 1,777 6,417 1,072 (Gains) losses on sales of properties ( 402) (3,869) 25
Changes in assets and liabilities: Increase in accounts receivable and unbilled revenue (2,471) (1,202) (1,695) (Increase) decrease in inventory ( 465) 70 63 (Increase) decrease in prepaid expenses 408 (1,203) 432 Increase (decrease) in accounts payable and accrued expenses 1,013 4,134 (236) Change in other assets, net of change in other liabilities of continuing operations (1,883) (4,847) (1,263) Change in assets, net of change in liabilities of discontinued operations 1,308 (1,428) 257 Loss on disposal of discontinued operations (Note 11) - 5,300 - ------- ------- ------- Total adjustments 8,278 11,366 6,087 ------- -------- ------- Net cash provided by operating activities 18,278 17,285 14,109 Investing activities: ------- -------- ------- Capital expenditures (39,345) (34,655) (21,877) Increase(decrease) in funds restricted for construction activity 7,005 (4,415) (5,093) Increase (decrease) in construction accounts payable 28 911 (1,092) Net cash cost of acquisitions (Note 6) ( 1,426) ( 260) (3,524) Net proceeds from sales of properties (Note 7) 659 10,239 8 -------- ------- ------- Net cash used in investing activities (33,079) (28,180) (31,578) -------- -------- -------- Financing activities: Net borrowing (repayment) of short-term debt 7,630 10,340 (7,673) Proceeds from issuance of long-term debt 9,053 19,429 39,902 Repayment of long-term debt ( 1,485) (25,989) (15,084) Proceeds from issuance of stock 3,640 15,408 3,570 Advances and contributions in aid of construction, net of repayments 4,147 3,879 3,070 Taxes paid by developers on advances and contributions in aid of construction ( 726) ( 583) (364) Cash dividends paid (9,545) (8,364) (7,932) Net cash provided by ------- ------- ------- financing activities 12,714 14,120 15,489 Net increase (decrease) in cash ------- ------- ------- and cash equivalents (2,087) 3,225 (1,980) Cash and cash equivalents at beginning of year 4,993 1,768 3,748 ------- ------- ------- Cash and cash equivalents at end of year $2,906 $4,993 $1,768 ======= ======= ======= Supplemental disclosures of cash flow information from continuing operations
Cash paid during the year for: Interest (net of amounts capitalized) $10,712 $10,540 $10,612 Income taxes $ 4,123 $ 3,570 $ 3,713
Noncash investing and financing activities for the year:
Assets acquired by stock issuance and/or assumption of debt of acquired company - - $ 998 Property advanced or contributed $2,713 $855 $3,910 Note receivable and water rights in exchange for utility assets - - $2,085
The accompanying notes are an integral part of these consolidated financial statements.
(1) Summary of Significant Accounting Policies
Principles of Consolidation The accompanying consolidated financial statements include the accounts of Consumers Water Company (the Company) and its water utility and utility services subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The consolidated financial statements and related footnote information have been restated to reflect the Company's manufactured housing subsidiary, Burlington Homes of New England, as discontinued operations. See Note 11.
Regulation The rates, operations, accounting and certain other practices of the Company's utility subsidiaries are subject to the regulatory authority of State Public Utility Commissions.
Property, Plant and Equipment The utility subsidiaries generally capitalize interest at current rates on short-term notes payable used to finance major construction projects. Utility plant construction costs also include payroll, related fringe benefits and other overhead costs associated with construction activity. Depreciation is provided principally at straight-line composite rates. The consolidated provision, based on average amounts of depreciable utility plant (which excludes contributions in aid of construction and customers' advances for construction for most subsidiaries), approximated 2.5% in 1994, 2.4% in 1993 and 2.3% in 1992. Under composite depreciation, when property is retired or sold in the normal course of business, the entire cost, cluding net cost of removal, is charged to accumulated depreciation and no gain or loss is recognized. The utility services subsidiary depreciates property and equipment using the straight-line method over the estimated useful lives of the assets, generally 5 to 10 years.
Revenue Recognition All of the utility subsidiaries accrue estimated revenue for water distributed but not yet billed as of the balance sheet date. Unbilled revenue also includes amounts for work performed but not yet billed for C/P Utility Services Company, Inc. C/P accounts for contracts using the percentage-of-completion method for long-term contracts and the completed contract method for short-term contracts.
Cash Flows For purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with an original maturity of three months or less, which are not restricted for construction activity to be cash equivalents.
Disclosures about Fair Value of Financial Instruments The carrying amount of cash, temporary investments, notes receivable, and preferred stock approximate their fair value. The fair value of long-term debt based on borrowing rates currently available for loans with similar terms and maturities is approximately $130 million.
Inventories Inventories generally consist of materials and supplies. They are stated at the lower of cost (average cost method) or market.
Other Assets Deferred charges consist primarily of financing charges, rate case, other expenses, and a note receivable of $1,330,000. Deferred rate case expenses are amortized over periods allowed by the governing regulatory authorities, generally one to three years. Other assets also include preliminary survey and investigation costs and certain items amortized, subject to regulatory approval, over their anticipated period of recovery. Deferred financing charges are amortized over the lives of the related debt issues.
Customers' Advances/Contributions in Aid of Construction The water subsidiaries receive contributions and advances for construction from or on behalf of customers. Advances received are refundable, under certain circumstances, either wholly or in part, over varying periods of time. Amounts no longer refundable are reclassified to contributions in aid of construction. Contributions and advances received after 1986 are treated as taxable income. Amounts that customers are required to contribute to offset the income taxes payable by the Company are normally included in contributions or advances.
Income Taxes The Company and its subsidiaries file a consolidated federal income tax return. The rate-making practices followed by most regulatory agencies allow the utility subsidiaries to recover, through customer rates, federal and state income taxes payable currently and deferred taxes related to certain timing differences between pretax accounting income and taxable income. The income tax effects of other timing differences are flowed through for rate-making and accounting purposes. The Company expects that deferred taxes not collected will be recovered through customer rates in the future when such taxes become payable.
Investment Tax Credits Investment tax credits of utility subsidiaries are deferred and amortized over the estimated useful lives of the related properties. Effective January 1, 1986, investment tax credits were eliminated by the Tax Reform Act of 1986 except for property meeting the transitional rules.
Earnings (Loss) Per Common Share Earnings (loss) per common share are based on the annual weighted average number of shares outstanding and common share equivalents. The effect of employee stock options, which are included as common share equivalents, is not significant.
(2) Income Tax Expense
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes, which requires the use of the liability method in accounting for income taxes. Under the liability method, deferred income taxes are recognized at currently enacted income tax rates to reflect the tax effect of temporary differences between the financial reporting and tax bases of assets and liabilities. Such temporary differences are the result of provisions in the income tax law that either require or permit certain items to be reported on the income tax return in a different period than they are reported in the financial statements. To the extent such income taxes are recoverable or payable through future rates, regulatory assets and liabilities have been recorded in the accompanying Consolidated Balance Sheets. Accumulated deferred taxes consisted of tax assets of $985,369 and $893,000 related to alternative minimum tax offset by liabilities of $21,053,895 and $19,665,000, which are predominanty related to accumulated depreciation and other plant related differences in 1994 and 1993, respectively. The Company believes that all deferred income tax assets will be realized in the future; therefore, a valuation allowance has not been recorded. The net regulatory asset was approximately $3.9 million and $3.1 million at December 31, 1994, and 1993, respectively.
(2) Income Tax Expense (continued..)
The components of income tax expense from continuing operations reflected in the Consolidated Statements of Income are as follows:
For the Years Ended December 31, (Dollars in Thousands) 1994 1993 1992 Federal: Currently payable $4,209 $3,077 $ 3,255 Deferred 561 2,827 668 Investment tax credit, net of amortization (139) ( 291) ( 183) $4,631 $5,613 3,740
State: Currently payable 506 134 589 Deferred ( 13) 195 ( 21) 493 329 568 Total provision $5,124 $5,942 4,308 The provision for income tax expense is reflected in: Income taxes $4,623 $4,128 $ 4,367 Gains (Losses) from sales of properties 242 1,735 ( 89) Other income 259 79 30 Total provision $5,124 $5,942 $ 4,308
The table below reconciles the federal statutory rate to a rate computed by dividing income tax expense, as shown in the previous table, by income from continuing operations before income tax expense.
1994 1993 1992
Statutory rate 34.0% 34.0% 34.0% State taxes, net of federal benefit 2.2 1.2 3.0 Effect of decrease in statutory rate on reversing timing items ( .2) ( .1) (0.2) Investment tax credit (1.0) ( .8) (1.6) Other (1.1) (1.2) (1.1) 33.9% 33.1% 34.1%
The table below was required prior to the adoption of SFAS 109, therefore, it is only presented for years prior to 1993. The major differences in the timing of recognition of income and expense for tax and accounting purposes, for which deferred income taxes are provided, are as follows:
(Dollars in Thousands) 1992
Accelerated depreciation $ 2,896 Contributions and advances ( 2,570) Alternative minimum tax 526 Other, net ( 205) $ 647
(3) Long-Term Debt
Maturities and sinking fund requirements of the first mortgage bonds, debentures and notes including capitalized leases are $2,510,000 in 1995, $878,000 in 1996, $2,215,000 in 1997, $808,000 in 1998, $4,891,000 in 1999, and $121,246,000 thereafter. Substantially all of the Company's water utility plant is pledged as security under various indentures or mortgages. The indentures restrict cash dividends and purchases of the companies' common stocks. The various water utility subsidiaries' indentures generally prohibit the payment of dividends on common shares in excess of retained earnings plus a stated dollar amount. Approximately $31.1 million of reinvested earnings were not so restricted at December 31, 1994. In 1993, funds restricted for construction activity of $9.5 million was obtained through the issuance of tax exempt bonds, the use of which is restricted for utility plant construction. At December 31, 1994, $2.5 million of these funds was still available. Interest income earned is included in Other, net in the accompanying Consolidated Statements of Income.
(4) Notes Payable
Notes payable are incurred primarily for temporary financing of plant expansion. It is the subsidiaries' intent to repay these borrowings with the proceeds from the issuance of long-term debt or equity securities. Certain information related to the borrowings of the continuing operations is as follows:
(Dollars in Thousands) 1994 1993 1992
Unused lines of bank credit $56,694 $ 82,574 $47,314 Borrowings outstanding at year-end 27,306 19,676 9,336
Total lines of bank credit $84,000 $102,250 $56,650
Monthly average borrowings during the year $27,679 $ 20,660 $17,310
Maximum borrowings at any month-end during the year $34,600 $ 34,619 $21,612
Weighted average annual interest rate during the year 6.6% 4.5% 6.0%
Weighted average interest rate on borrowings outstanding at year-end 7.0% 4.7% 5.1%
(5) Shareholders' Investment
As of December 31, 1994, the Company reserved issuable common shares for the following purposes:
Dividend Reinvestment Plan 123,820 401(k) Savings Plan 221,257 Stock Option Plans 241,564 Employee Stock Bonus Plan 64,019 650,660
The stock option plans approved by stockholders in 1988 and 1993 provide for the sale of shares to eligible key employees of the Company and its subsidiaries. The plans provide that option prices shall not be less than 100% of the fair market value on the date of the grant. The options expire after five years. During 1994, 29,000 options were granted, 1,980 options were excercised, and 34,833 options lapsed and were cancelled. During 1993, 34,500 options were granted, 13,091 options were exercised and 13,445 options lapsed and were cancelled. During 1992, 30,700 options were granted, 12,767 options were exercised, and 25,613 options lapsed and were cancelled. At December 31, 1994, options for 108,614 shares were exercisable at prices of $18.50, $18.25, $17.75, $17.25 and $16.50 per share. Stock options were exercised in 1994 at $18.25 and $16.50 per share. Stock options were exercised in 1993 at $19.25, $18.25, $17.75, $16.75 and $16.50. Stock options were excercised in 1992 at $16.75 and $16.50.
Information regarding outstanding preferred stock ($100 par value) of the Company and its subsidiaries is as follows:
Of the total 30,000 Consumers Water Company preferred shares authorized with voting rights, 15,925 shares have been designated 5-1/4% Cumulative Preferred Stock Series A. The remaining 14,075 shares are undesignated. The difference between par value and acquisition price was credited to amounts in excess of par value.
(6) Acquisitions
On September 2, 1994, the Company, through its subsidiary Roaring Creek Water Company, acquired the assets of Ralpho Township watersystem for $1,426,000. On December 7, 1993, the Company, through its subsidiary C/P Utilities acquired the assets of EnviroAudit Ltd., an environmental services company, for $260,000. On December 31, 1992, the Company, through its subsidiary, Roaring Creek Water Company, acquired the assets of Northumberland Utilities in exchange for $590,000 of the Company's common stock and the assumption of $408,000 in debt. On December 31, 1992, the Company, through its subsidiary Wanakah Water Company, acquired the assets of Greenville, Millinocket and Skowhegan Water Companies for $3.5 million. All of these acquisitions were accounted for using the purchase method of accounting, and the results of their operations have been included in the consolidated financial statements since the date of acquisition.
(7) Dispositions
On December 29, 1994, Consumers Illinois Water Company closed on the sale of 9 acres of land in Bradley, Illinois for $667,000. This sale generated a gain, net of taxes, of $394,000. On October 20, 1994, Shenango Valley Water Company sold its old office building for $54,000. This sale generated a gain of $7,000. On December 16, 1993, the Company sold the Washington Court House Division of Ohio Water Service Company to the City of Washington resulting in a gain, net of taxes, of $3.0 million. In 1993, Washington Court House Division generated $2.3 million in revenue and had 6,000 customers. On January 13, 1993, the Company sold the Bourbonnais wastewater collection system of Consumers Illinois Water Company to the Village of Bourbonnais for a gain, net of taxes, of approximately $847,000. The operation generated $1.1 million in revenues and had 5,007 customers in 1992. On December 31, 1992, Southern New Hampshire Water Company sold its Amherst Division for $2.1 million resulting in a loss, net of taxes, of $27,000.
(8) Retirement Plan
The Company has a defined benefit pension plan covering substantially all of its employees. Pension benefits are based on years of service and the employee's average salary during the last five years of employment. The Company's funding policy is to contribute an amount that will provide for benefits attributed to service to date and for those expected to be earned in the future by current participants, to the extent deductible for income tax purposes. Net pension cost for the years ended December 31, 1994, 1993, and 1992, was $663,000, $501,000, and $30,000, respectively.
The funded status of the Plan as of December 31 is as follows:
(Dollars in Thousands) 1994 1993
Actuarial present value of benefit obligations: Accumulated benefit obligations Vested $20,306 $20,448 Nonvested 654 2,132 Total 20,960 22,580 Effect of future salary increases 5,995 7,361 Projected benefit obligations for services provided to date 26,955 29,941 Market value of plan assets, primarily invested in stocks, bonds and short-term funds 27,668 30,067 Plan assets in excess of projected benefit obligations 713 126 Unrecognized net asset existing as of January 1, 1987, being amortized over 22 years (3,108) (3,317) Unrecognized prior service cost 2,383 2,601 Unrecognized net gain (1,866) ( 865) Accrued pension cost at year-end (1,878) $(1,455)
Net pension cost included the following items:
(Dollars in Thousands) 1994 1993 1992
Service cost-benefits earned during the year $1,151 $ 977 $934 Interest cost on projected benefit obligations 2,178 2,022 1,860 Actual loss (return) on plan assets 1,656 (2,502) (1,955) Net amortization and deferral (4,322) 4 ( 809) Net periodic pension cost $663 $501 $ 30
The expected long-term rate of return on plan assets was 9.0% in 1994 and in 1993 and 9.5% in 1992. The salary increase assumption was 5.0% in 1994 and in 1993 and 6% in 1992. The discount rate used to determine the actuarial present value of the projected benefit obligations was 8.5% in 1994, 7.5% in 1993, and 8.0% in 1992.
(9) Postretirement Benefits
Employees retiring from the Company in accordance with the retirement plan provisions are entitled to postretirement health care and life insurance coverage. These benefits are subject to deductibles, co-payment provisions and other limitations. The Company may amend or change the plan periodically.
The Company has adopted the delayed recognition method under which the unrecorded SFAS 106 liability as of January 1, 1993, will be amortized to expense on a straight-line basis over a 20-year period. Prior to the adoption of SFAS 106 on January 1, 1993, the Company was on the cash-basis method of accounting. The net cost of these benefits charged to income on a cash basis was $75,000 for 1992.
The following table sets forth the postretirement health and life insurance plans' combined funded status.
(Dollars in Thousands) 1994 1993 Accumulated postretirement benefit obligation ($3,066) ($3,873)
Plan assets at fair value - -
Accumulated postretirement benefit obligation in excess of plant assets ($3,066) ($3,873)
Unrecognized net gain from past experience different from that assumed and from changes in assumptions (862) 323
Unrecognized transition obligation 2,887 3,048
Accrued postretirement benefit cost ($1,041) ($502)
The Company's postretirement health and life insurance plans are unfunded; there are no assets for either plan and the accumulated postretirement benefit obligation for health insurance is $2,305,000 and for life insurance is $761,000.
Net periodic postretirement benefit cost included the following components;
(Dollars in Thousands) 1994 1993 Service cost-benefits attributed to service during the period $182 $155 Interest cost on accumulated postretirement benefit obligation 286 269 Amortization of transition obligation over 20 years 160 160 Net periodic postretirement benefit cost $628 $584
The weighted average discount rate used in determining the accumulated postretirement benefit obligation is 8.5% in 1994 and 7.5% in 1993. A 10% and 15% annual rate of increase in the per capita cost of covered health care benefits is assumed for 1994 and 1993, respectively. The health care cost trend rate is assumed to decrease annually through the year 2002 to an ultimate rate of 6%. Increasing the assumed health care cost trend rates by 1% would increase the accumulated postretirement benefit obligation by $112,000 as of September 30, 1994, and $300,000 as of December 31, 1993. The effect of this increase in trend rate assumptions on the sum of the service cost and interest cost components of the net periodic postretirement benefit cost for the year ended December 31, 1994, would be an increase of $20,000.
(10) Commitments and Contingencies
The Company is a party in or may be affected by various matters under litigation. The Company expects that some of its operating subsidiaries, in order to comply with the requirements of the Safe Drinking Water Act, may have to invest in significant improvements or additions including, but not limited to, the construction of treatment plants and the modification or replacement of open reservoirs. Management believes that the ultimate treatment of these expenditures and the various matters under litigation will not have a significant adverse effect on either the Company's future results of operations or financial position. The Company has operating leases for buildings, vehicles, water meters and office equipment. Rental expenses relating to these leases for the years ended December 31, 1994, 1993 and 1992 were approximately $1,321,000, $1,612,000, and $1,684,000, respectively. At December 31, 1994, minimum future lease payments under noncancelable operating leases are $1,290,000 in 1995, $869,000 in 1996, $552,000 in 1997, $433,000 in 1998, $339,000 in 1999 and $573,000 thereafter.
In March, 1993, an outside contractor spilled a small amount of mercury while working at the Company's subsidiary, Ohio Water's water treatment plant. Several areas in and around the plant were contaminated by the spill, although no mercury contaminated OWS's water supply. The cleanup was completed at a total cost of approximately $900,000. Ohio Water has received $100,000 from its insurer and is currently seeking recovery of all the cleanup costs from the contractor. While there can be no assurances to the ultimate outcome of Ohio Water's efforts to obtain such recovery, Management believes that it is probable that Ohio Water will recover cleanup costs from the contractor and/or the contractor's insurer and, therefore, has deferred the costs incurred in connection with the spill.
(11) Discontinuance of Manufactured Housing Operations
On October 6, 1993, the Company announced its intention to dispose of its manufactured housing business, Burlington Homes of New England. The business was offered for sale. A reserve for the estimated loss on the disposal for $5.3 million, net of taxes of approximately $600,000 was recorded in 1994. On July 8, 1994, Burlington was sold for $378,000. The reserve taken in 1993 was adequate to cover the loss on the sale. The operating results of Burlington Homes prior to the date of discontinuance are shown separately on the accompanying consolidated statements of income, and all financial statements for prior periods have been restated. Total sales for Burlington Homes were $5,486,000 and $5,370,000 in 1993 and 1992 respectively.
(12) Subsequent Event
On October 20, 1994, the Damariscotta division of Consumers Maine Water Company was taken by the local communities by eminent domain for $600,000 or approximately 75% of rate base. Consumers Maine prepared to challenge the purchase price in court, but, instead, on February 21, 1995, they reached an out of court settlement for $1,552,000. This sale will generate a gain which will be recorded in 1995 of approximately $400,000, net of taxes.
Schedule II CONSUMERS WATER COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 (Dollars in Thousands)
Additions Deductions Balance at Provision Balance at Beginning of Charged to Accounts End of Description Year Operations Recoveries Written Off Year
Allowance for Doubtful Year Ended December 31, 1994 Accounts -------------------------------------------------------------- $798 $706 $55 $877 $682
Year Ended December 31, 1993 -------------------------------------------------------------- $702 $599 $60 $563 $798
Year Ended December 31, 1992 -------------------------------------------------------------- $1,121 $645 $57 $1,121 $702
EXHIBIT INDEX
Sequentially Numbered Exhibit Page
2.1 Assets Purchase and Sale Agreement between Ohio Water Service and the City of Washington, Ohio dated October 28, 1993 is incorporated by reference to Exhibit 2.1 to Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1993.
3.1 Conformed Copy of Restated Articles of Incorporation of Consumers Water Company, as amended, incorporated by reference to Exhibit 4.1.6 to Consumers Water Company's Registration Statement on Form S-2 (No. 33-41113), filed with the Securities and Exchange Commission on June 11, 1991.
3.2 Bylaws of Consumers Water Company, as amended March 2, 1994, are incorporated by reference to Exhibit 3.2 to Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1993.
4.1 Instruments defining the rights of security holders, including Indentures. The registrant agrees to furnish copies of instruments with respect to long-term debt to the Commission upon request.
10.1 Noncompetition and Consulting Agreement between Consumers Water Company and John H. Schiavi incorporated by reference to Exhibit 10.2 of Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1992.
10.2* Consumers Water Company 1988 Incentive Stock Option Plan is incorporated by reference to Exhibit 10.2 to Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1993.
10.3* Consumers Water Company 1993 Incentive Stock Option Plan is incorporated by reference to Appendix B to definitive proxy statement dated April 5, 1993.
10.4* Consumers Water Company 1992 Deferred Compensation Plan for Directors, Plan A, incorporated by reference to Exhibit 10.5.2 to Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1991.
10.5* Consumers Water Company 1992 Deferred Compensation Plan for Directors, Plan B, incorporated by reference to Exhibit 10.5.3 to Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1991.
10.6 Letter Agreement between Consumers Water Company and Anjou International Company dated February 7, 1986, incorporated by reference to Exhibit 10.6 to Consumers Water Company's Registration Statement on Form S-2 (No. 33-41113), filed with the Securities and Exchange Commission on June 11, 1991.
10.7 Assignment of Rights under February 7, 1986 Agreement between Consumers Water Company and Anjou International Company to Compagnie Generale des Eaux, dated November 12, 1987, incorporated by reference to Exhibit 10.7 to Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1992.
10.8 Form of Indemnification Agreement entered into between Consumers Water Company and each of its current directors and executive officers, incorporated by reference to Exhibit 10.8 to Consumers Water Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1994.
10.9* Employment Agreement between Peter L. Haynes and Consumers Water Company incorporated by reference to Exhibit 10.11 to Consumers Water Company's Annual Report on Form 10-K for the year ended December 31, 1992.
11. Statement of Computation of Per Share Earnings is submitted herewith as Exhibit 11.
21. List of Subsidiaries of the Registrant is submitted herewith as Exhibit 21.
23. Consent of Arthur Andersen LLP is submitted herewith as Exhibit 23.
27. Financial Data Schedule is submitted herewith as Exhibit 27. ------------------------------------------
* Management contract or compensatory plan or arrangement required to be filed as an Exhibit pursuant to Item 14(c) of Form 10-K.
EXHIBIT 11 Statement of Computation of Per Share Earnings
Years Ended December 31, 1994 1993 1992 (Amounts in Thousands except per share data)
PRIMARY
Weighted average number of shares outstanding 8,160 7,314 7,003 Net effect of dilutive common stock equivalents 2 6 4 Weighted average ------- ------ ------ primary shares 8,162 7,320 7,007 ========= ========== ========= Net income (loss) $ 10,000 $ 5,919 $ 8,022 Preferred dividends ( 56) ( 56) ( 57) Earnings applicable --------- ---------- --------- to common shares $ 9,944 $ 5,863 $ 7,965 Primary earnings (loss) per ========= ========== ========= common share $ 1.22 $ 0.80 $ 1.14 ========= ========== ========= FULLY DILUTED
Weighted average number of shares outstanding 8,160 7,321 7,003 Net effect of dilutive common stock equivalents 2 6 5 Weighted average fully --------- --------- ------- diluted shares 8,162 7,327 7,008 Earnings (loss) applicable to ======== ========= ======= common shares $ 9,944 $ 5,863 $ 7,965 ========= ========= ======== Fully diluted earnings (loss) per common share $ 1.22 $ 0.80 $ 1.14 ========= ========= ======== EXHIBIT 21 Subsidiaries of Registrant December 31, 1994 Percentage Voting State in Which Year Acquired Securities Name of Subsidiary Incorporated or Formed Owned
BHNE Liquidating Corp., Inc. Maine 1983 100.0%
Consumers Maine Water Company Maine 1959 98.7%
Consumers Illinois Water Company Illinois 1926 100.0%
C/P Utility Services Company, Inc. Maine 1984 100.0% (and its wholly owned subsidiary EnviroAudit)
Consumers Land Management Co. Maine 1984 100.0%
Garden State Water Company New Jersey 1969 97.5% (and its 93.2% owned subsidiary, Califon Water Company)
Inter-State Water Company Illinois 1986 100.0%
Ohio Water Service Company Ohio 1973 100.0%
Pennsylvania Water Company Pennsylvania 1971 94.9%
Roaring Creek Water Company Pennsylvania 1985 100.0%
Shenango Valley Water Company (and its wholly- Pennsylvania 1926 100.0% owned subsidiary, Masury Water Company) Ohio 1926 100.0%
Southern New Hampshire Water Company, Inc. New Hampshire 1930 100.0%
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our report dated February 8, 1995, included in this Form 10-K, into the Company's previously filed Registration Statement (Form S-3 No. 33-55584 and Forms S-8 Nos. 33-68858, 33-20994, 33-22032 and 33-57618).
/s/ Arthur Andersen LLP
Boston Massachusetts March 24, 1995