SECURITIES AND EXCHANGE COMMISSION Washington

SECURITIES AND EXCHANGE COMMISSION
Washington, D. c.
20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1988
Commission File Number 0-493
CONSUMERS WATER COMPANY
(Exact name of registrant as specified in its charter)
MAINE
(State or other jurisdiction
of incorporation or organization)
01-0049450
(I.R.S. Employer
Identification No.)
THREE CANAL PLAZA, PORTLAND, MAINE
04112
(207-773-6438)
(Address and telephone number of principal executive offices)
NONE
(Securities registered pursuant to Section 12(b) of the Act)
COMMON SHARES, PAR VALUE $1.00 PER SHARE
(Title of class of Securities registered
pursuant to Section 12(g) of the Act)
Indicate by checkmark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) _of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes
XXX
No
The aggregate market value of all voting
affiliates as of March 17, 1989 was $100,563,435.
As of
outstanding.
March
17,
1989,
there
were
shares
5,950,615
held
Common
by
non-
Shares
Documents Incorporated bv Reference
(1)
Pages 16 through 18 and Pages 21 through 40, inclusive of the
registrant 1 s annual
report to security holders for the year ended
December 31, 1988 are incorporated in Parts I and II of the Form 10-K by
reference.
Pages one through 15 and Pages 19 and 20, all inclusive, are
not incorporated by reference and not deemed to be a part of the filing
of Form 10-K.
(2)
The "Nominees for Election as Directors",
"Other Executive
Officers", "Executive Compensation" and "Common Stock ownership of
Certain Beneficial owners and Management" sections of the registrant 1 s
proxy statement for its 1989 annual meeting filed pursuant to Regulation
14A are incorporated in Part III of this Form 10-K by reference.
PART I
Item 1.
(a)
Business.
General
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 11 water companies which
operate 26 separate systems providing water service to approximately
208,000 customers in seven states.
It also owns 100% of The Dartmouth
Company, a real estate investment and management company, which holds
properties primarily in the State . of Maine, Burlington Homes o.f New
England, Inc., ("Burlington"), a producer of manufactured homes, Arcadia
Company, a developer of manufactured housing sites, and C/P Utility
Services Company, Inc., a provider of technical services to utilities and
other enterprises. Burlington has a manufacturing facility in Maine, and
a dealer network throughout New England, eastern New York and northern
New Jersey.
Arcadia is currently developing a mobile home park in
Taunton,
Massachusetts.
Consumers generally furnishes executive,
engineering, accounting and other services to its utility subsidiaries at
cost on a contractual basis.
Consumers was incorporated under the laws of Maine in 1926.
The
address of its executive offices is Three Canal Plaza, Portland, Maine
04112, and the Company's telephone number is (207) 773-6438.
The Company had at December' 31, 1988, subsidiaries as noted on
Exhibit 22 attached hereto, the accounts of which are included in the
consolidated financial statements in this report.
On April 6, 1988, the Company, through its subsidiary Consumers
Illinois Water Company, acquired the assets of Candlewick Lake Utilities
Company in Illinois.
(b)
Industry Segments
Incorporated by reference is Note 9 on Pages · 35 and 36 of the
Company's annual report to shareholders for the year ended December 31,
1988.
l
PART I
(c)
Narrative Descriptions
Water Utility Subsidiaries
Consumers' water subsidiaries constitute 26 primary systems in seven
states for the collection, treatment and distribution of water for public
and private use to industrial, commercial and residential customers, to
other water utilities for resale and for private and municipal fire
protection purposes.
At December 31, 1988, the water subsidiaries owned
in the aggregate 2,855 miles of main line pipe, of which approximately
82% is six inches or larger in diameter.
In addition, Consumers Il!inois
Water Company operates four wastewater facilities.
Water utility
revenues for the three years ended December 31, 1988, 1987 and 1986 were
$64,4QO,OOO, $60,254,000 and $56,454,000, respec~ively.
Sixteen of the 26 primary systems have surface supplies (lakes,
ponds and streams) as their source of supply; nine obtain water
principally or entirely from wells; and one obtains its water supplies
through wells, surface supplies and purchases from an adjacent·utility.
All of the systems treat the water with chlorine and ten systems utilize
a full scale water treatment plant.
The water supplies and the treatment, pumping and distribution
capacities of the systems are generally considered by management to be
adequate to meet the present and foreseeable future requirements of their
residential, commercial, and industrial customers.
On a continuing
basis, Consumers' water subsidiaries are making system improvements in
response to both changing regulatory standards and changing patterns of
consumption.
In general, operating and capital costs associated with
these improvements are accepted by the various state regulatory
commissions in setting rates.
Consumers' water utility business is considered by management to be
somewhat seasonal because the demand for water during the warmer months
is generally greater than during the cooler months due to addi tiona!
requirements for industrial and residential cooling systems, private and
public swimming pools, and lawn sprinklers.
The properties of Consumers' water subsidiaries consist of land,
easements, rights (including water rights), buildings, reservoirs, tanks,
dams,
wells,
supply lines, purification plants, pumping plants,
transmission and distribution mains and conduits, meters 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.
In connection with its water collection, treatment and distribution
I
(c)
Narrative Descriptions (Continued)
systems, management considers that its facilities and properties are well
maintained and structurally sound.
In addition, Consumers carries
replacement cost insurance coverage on substantially all of its aboveground properties, as well as liability coverages for risks incident to
their ownership and use, including consequential damage coverage.
Water Utility Regulation
Consumers' water subsidiaries are subject to regulation by
their respective state regulatory bodies.
The state regulatory bodies
have broad administrative power and authority to supervise and regulate
water and other public utilities, including the power to regulate rates
and charges, service, and issuance of securities.
They also establish
uniform systems of accounts, develop standards with respect to
groundwater well rights, development of surface water supply, potability
of supply, adequacy of treatment, contracts and relations with affiliates
and customers, purchases and sales of property, depreciation charges, and
loans.
The profitability of the operations of the Consumers' water utility
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
determine that its tariffs reflect, to the greatest 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 aggregate amount of annual rate
increases net of rate decreases allowed for the last three years was
$2,400,000 for 1986, $1,100,000 for 1987, and $840,000 for 1988.
Water Utility Competition
In general, Consumers believes that its 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, indeterminate
permits received from 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 question or assertion of lack of authority by the governmental
body concerned.
(c)
Narrative Descriptions (Continued)
Each of 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 a Consumers water subsidiary.
In the states in which the operations of Consumers' water
subsidiaries are carried on, there exists the right of municipal
acquisition by one or more of the following methods:
(1)
condemnation;
(2)
the right of purchase.given or reserved by a municipality or other
political subdivision in granting a franchise, and (3) the right given or
reserved under the law of the state in which the company was incorporated
or .from which it received its indeterminate permit. The price to be paid
upon condemnation or 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.
Environmental Matters
The two primary federal laws impacting Consumers Water Company's
utilities are the Safe Drinking Water Act and the Clean Water Act.
The
regulations, which are primarily established and enforced by the Federal
Environmental Protection Agency (EPA), establish the criteria for the
quality of drinking water and the quality of waste discharges from
treatment facilities used to process and purify the water.
In addition,
various State regulatory agencies have jurisdiction over the operations
of our utilities.
Consumers' subsidiaries responsible for providing potable water to
customers are currently in general compliance with Federal and state
drinking water regulations and discharge requirements.
Current
regulatory requirements for drinking water provide for a high quality
product being provided customers, but EPA is proposing water quality
criteria for certain chemical compounds not presently regulated and
reducing the allowable concentrations of certain chemical compounds now
being regulated.
More stringent water quality regulations may require
adding new water supply sources and treatment facilities.
Over the next
five years, Consumers anticipates having to add filtration facilities at
three of its subsidiaries at an estimated cost of $15.7 million, and the
covering or replacement of open reservoirs at five of its subsidiaries at
an estimated cost of $5.6 million.
In addition, Inter-state Water
Company is planning to replace its existing water treatment facility with
a new facility in 1990-1992, at an estimated cost of $12.0 million.
An environmental risk to Consumers' utilities operations is the
possibility of chemical contamination of water supplies (groundwater and
surface.)
The threat of groundwater contamination, especially in New
Jersey and New Hampshire, is a concern.
Consumers' utilities have
monitoring programs in place to provide an early warning of a possible
contamination threat to its water supplies.
In case of water supply
contamination, Consumers anticipates a portion of the costs associated
(c)
Narrative Descriptions
(Continued)
with cleaning or replacing a water supply would be paid for by others.
Another water quality issue the EPA is investigating is the
interaction of the finished water with various materials that make up a
water distribution system. Normally copper, and lead to a lesser extent,
are metals that would be found in the materials making up the water pipes
and service lines in the water distribution systems. Customers' plumbing
is where the leaching of metals is most likely to occur.
Other than the
meter, the customers' plumbing is not the responsibility of Consumers 1
subsidiaries.
Current treatment practices by Consumers' subsidiaries
mitigate the chances of metals being leached out in the water
distribution system. To meet the lead standard that has been proposed by
the EPA, certain of Consumers Water' utilities may· have to install
additional treatment.
Consumers ' utili ties own a number of dams in conjunction with its
water -supply facilities.
Roaring Creek Water Company has been subject
to a Consent Decree previously entered into with the Commonwealth of
Pennsylvania Department of Environmental Resources, requiring it to make
certain modifications and/or improvements on a specified schedule to
three of its dams.
The requirements, set forth in the Consent Decree,
have been fully complied with by Roaring Creek.
None of the environmental matters outlined above are expected to
have a material impact on Consumers Water Company.
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 ("InterState")
accounted for approximately 82% of consolidated operating
revenues of the water subsidiaries in 1988 and 76% of consolidated water
utility net property, plant and equipment at December 31, 1988.
(See system map of Consumers Water Company and its subsidiaries,
incorporated by reference, on Pages 16 through 18 of the Company's annual
report to security holders for the year ended December 31, 1988.)
Consumers' five largest water subsidiaries are discussed separately
below.
Ohio Water Service Company (Ohio Water)
Ohio Water is the largest of Consumers' water subsidiaries,
accounting for approximately 38% of the operating revenues of the water
subsidiaries in 1988. Ohio water operates seven separate systems, six 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 and central Ohio.
PART I
(c)
Narrative Descriptions
(Continued)
The following indicates the distribution of 1988 revenues, year-end
customers, and net utility plant among the seven districts of Ohio water.
(Dollars in thousands)
Utility
Revenues
Number of
Customers
Lake Erie East Distric~
$ 3,010
Lake Erie West District
5,802
Marysville District
1,862
Massillon District
7,005
Struthers District
4,512
Washington Court House District 1,800
Mahoning Valley District
630
Total
$ 24,621
6,876
22,458
3,242
21,009
13,100
5,621
10
72,316
Net Utility
Plant
$
6,712
19,677
5,267
22,527
10,305
4,391
3,285
$ 72.164
Consumers Illinois Water CompanyCConsumers Illinois)
Consumers Illinois Water Company serves 26,868 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 and Boone Counties, all in
the State of Illinois.
The Company also serves 13,722 sewer customers in the Villages of
Bourbonnais and University Park, and portions of Crete and Monee
Townships in Will County, and portions of Lee and Boone Counties, all in
the state of Illinois.
Consumers Illinois Water Company obtains its water supply from the
Kankakee River and satellite wells for its customers in Lee and Boone
Counties.
The economy of the Company 1 s service areas is based on
agriculture and diversity of light industries.
Consumers Illinois' net
utility plant at December 31, 1988, and utility revenues for 1988 were
$39,474,000 and $9,586,000, respectively.
Garden State Water Company (Garden State)
Garden State operates
three
districts
in New Jersey which serve
Each district
25,399 customers in territories which are not contiguous.
draws its water from deep high capacity wells.
The Blackwood District serves a rapidly growing residential area,
primarily in Camden County.
The Hamil ton District serves a rapidly
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
PART I
(c)
Narrative Descriptions (Continued)
growth.
Garden State's net utility plant at December 31, 1988, and
utility revenues for 1988 were $25,116,000 and $7,555,000, respectively.
Shenango Valley Water Company CShenango)
Shenango, which draws its water from the Shenango River, and its
wholly-owned Ohio subsidiary, Masury Water Company,
serve 16,814
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, 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 ut~lity
plant at December 31, 1988, and utility revenue for 1988 were $18,131,000
and $51 952,000, respectively.
Inter-State Water Company (Inter-State)
Inter-State was acquired by Consumers using pooling-of-interests
accounting, in November 1986.
Inter-State serves 16,456 residential,
commercial, industrial and wholesale customers in the cities of Danville,
Westville and Catlin, and the Hooton Public Water District, in Illinois.
Inter-State draws its water from Lake Vermilion. The Company's corporate
offices are located in Danville, Illinois, a city of approximately 40,000
residents, with an economy based on agriculture and heavy industrial
manufacturing.
Inter-State's net utility plant at December 31, 1988 and
utility revenue for 1988 were $15,363,000 and $4,805,000, respectively.
Manufactured Housing
Burlington Homes of New England and Arcadia Company are Consumers'
wholly-owned subsidiaries doing business in manufactured housing.
Revenues from the manufactured housing subsidiaries for the year ended
December 31, 1988, 1987, and 1986 were $11,454,000, $10,481, ooo, and
$21,377,000, respectively. The decrease in revenue from 1986 to 1987 is
largely due to the sale of Schiavi Homes, Inc. on December 31, 1986.
Schiavi had $9.2 million of revenue in 1986.
A manufactured home. is a dwelling unit produced and assembled at a
factory and designed to be towed on its own chassis to an installation
site and connected to utilities as a permanent residence.
Manufactured
homes are produced in a variety of floor plans and decors and generally
contain a living room, dining area, one or two baths, kitchen with
appliances, and two or three bedrooms.
Burlington manufactures high-quality homes which are built to meet
applicable structural and design standards of the Department of Housing
and Urban Development ("HUD") for manufactured homes, or if more strict,
the individual state building standards for modular homes.
An
independent company certified by HUD inspects each home before it leaves
the plant to assure compliance.
All homes are sold under a one-year
PART I
(c)
Narrative Descriptions_(Continued)
limited warranty.
Most of the homes sold by Burlington are 14' wide,
range from 66' to 72' in length, and are built with materials available
from a number of suppliers.
In addition, multi-section units are
produced by joining two sections at the site.
In 1988, such units
accounted for approximately 25.1%, and 32.5% of Burlington's unit and
dollar volume, respectively. Substantially all units are built to order.
Burlington's homes, which are priced at the upper end of the scale for
manufactured housing, are distributed through developers and dealers in
New England, Eastern New York, and Northern New Jersey.
In 1988,
approximately 4. 4% of Burlington's sales were homes sold to Arcadia
Company.
Burlington's 48,000 sq. ft. manufacturing facility is located in
Oxford, Maine, and has been adequate to meet production demands on a oneshift ~basis.
This facility is leased under an agreement negotiated
coincident to the acquisition of the business between Consumers and the
previous owners of Burlington.
The lessor is a partnership which
includes as partners two individuals who are now shareholders and
directors of Consumers.
The manufactured housing business in Northern
New England is seasonal because manufactured homes are not easily placed
on site during the winter months.
Arcadia Company is engaged in the business of developing sites for
placement of manufactured housing and in retail sales of homes on such
developed sites.
During 1987, Arcadia opened its first mobile/modular
home community in Taunton, Massachusetts, known as Arcadia Woods.
In
this community, which is designed for 221 housing units, Arcadia develops
and leases sites to individuals for placement of the manufactured housing
units which Arcadia will sell to them.
In 1987, and 1988, 21 and 28
units were sold and sited at Arcadia Woods.
In addition, Arcadia owns land and holds all but one of the
government approvals necessary for a 105 unit manufactured housing
development in Windham, Maine.
The one approval which Arcadia does not
have is a conditional use permit from the Town of Windham's Zoning Board
of Appeals.
That permit was granted to Arcadia in 1985 but various
residents of the community appealed the granting of the permit by the
Zoning Board of
As a result of one of those appeals, the granting of
the permit was vacated and the matter was remanded to the Zoning Board of
Appeals for reconsideration of Arcadia's conditional use application.
This reconsideration is now before the Board, where the outcome is
uncertain.
The manufactured housing industry is highly competitive at all price
levels.
The manufacturing operations do not require major capital
investment and the technology is not complex; thus, Burlington competes
against many large and small manufacturers on the basis of quality of
construction, price, service, warranty, and delivery capabilities. On a
national scale, market share of Burlington is not significant.
Changes
in factors which affect the national housing market, such as interest
rate levels and availability of financing, could affect Burlington's and
Arcadia's businesses. Likewise, the availability of and quality of sites
PART I
(c)
Narrative Descriptions
(Continued)
for new homes could affect the market of manufactured homes. Restrictive
zoning has been a factor in.retarding the growth of manufactured housing
sales.
Maine, New Hampshire and Vermont have adopted legislation which
is intended to curtain the ability of the cities and towns to adopt
zoning requirements that discriminate against manufactured housing
developments.
Real Estate
The Dartmouth Company is consumers' wholly-owned real estate
development and investment company.
Dartmouth owns a variety of
properties, including commercial buildings, garden apartment complexes,
· and tracts of undeveloped land in the Greater Portland, Maine, area.
Dartmouth has under construction three condominium projects:
one in
Portland and two at Sugarloaf Mountain, a ski resort in Carrabassett
Valley, Maine. Revenues, including rental income, condominium sales, and
fees for syndication and other services for the three years ended
December 31, 1988, 1987, and 1986, were $8,567,000, $9,131,000, and
$6,573,000, respectively.
During 1988, Dartmouth generated $693,000 in
after-tax earnings from the sale of two commercial buildings.
Utility Services
C/P Utility Services Company,
Inc.
("C/P") provides services
primarily to utilities in the area of corrosion control, meter services,
contract operations, and water conservation.
During 1988, C/P was
awarded new contracts to install almost 20,000 water meters for Stamford
(Conn.) Water Company and the city of Ilion, New York.
Contracts
renegotiated during the year included the underground tank management
program for Southern New England Telephone Company and leak detection
work on 800 miles of pipelines for Jamaica (N.Y.) Water Company.
C/P
continues to perform the management and 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, and
the installation of water meters for Hackensack Water Company.
C/P's total revenues for the year ended December 31, 1988, were
$3,567,000.
Approximately $71,000, or 2% of those revenues were derived
from the services provided to Consumers' utility subsidiaries.
Recent Developments
Incorporated by reference are Footnotes 6 and 7 on Page 34 of the
Company's annual report to security holders for the year ended December
31, 1988.
PART I
(c)
Narrat~ve
Descriptions (Continued)
Employees
Consumers Water Company and its subsidiaries employ 806 employees,
of which 534 are employed by the water subsidiaries.
Non-supervisory
personnel at Ohio Water, Shenango, Consumers Illinois, Roaring Creek,
Inter-State, Pennsylvania Water and Wanakah Water Company are covered by
collective bargaining agreements.
Substantially all of Consumers'
personnel are covered by pension and group insurance plans that are
consistent with similar plans typical of the water utility industry
involved.
Employee relations are considered to be satisfactory
throughout the Company.
(d)
Foreign Operations
The Company has no foreign operations.
PART I
Item 2.
Properties.
(a) Description
See Item 1.
properties.
"Business"
for
description of Consumers'
principal
A system map of Consumers Water Company and subsidiaries at December
31, 1988 is incorporated by reference to Pages 14 and 15 of the Company's
Annual Report to security holders for the year ended December 31, 1988.
The Parent Company offices were moved in March, 1988 to Three Canal
Plaza, Portland, Maine.
This larger facility was needed to accommodate
the shareholder relations function which was just taken "in-house", and
the establishment in Portland of an eastern data processing center.
The
Company has entered into a ten year lease on the new office facilities.
Item 3.
Legal Proceedings.
Various environmental orders and policies affecting the Consumers'
water subsidiaries are described in Item 1 (c) above.
On November 30, 1988 SHC Corporation, a wholly owned subsidiary of
the Company ("SHC"), brought suit against Schiavi Homes ("Schiavi") and
Palmer Management Corp. ("Palmer") in Cumberland County Superior Court in
the State of Maine for breach of an Asset Purchase Agreement, pursuant to
which Schiavi had agreed to purchase substantially all of the assets of
SHC.
As part of the purchase price, Schiavi was to make installment
payments totalling not less than $600,000 nor more than $900,000 over a
five year period.
When Schiavi, after demand, failed to make the third
installment payment, SHC accelerated the amount due, demanded payment of
$561,344.50 and filed suit to recover that sum and certain other amounts.
On December 23, 1988 Schiavi and Palmer brought counterclaims
against SHC, the Company and Burlington Homes of New England, Inc.,
another subsidiary of the Company, asserting breach of contract,
promissory estoppel, fraud and misrepresentation and seeking restitution
of $5,429,900 alleged to be the purchase price as well as consequential
damages and attorneys fees.
The Company, under threat of 'eminent domain proceedings, has
negotiated an agreement to sell its Wanakah system .to the Town of
Hamburg, N.Y., for approximately $3.5 million.
There are no other material pending or threatened eminent domain
proceedings affecting the properties of the Consumers'
water
subsidiaries.
Item 4.
Submission of Matters to a Vote of Security Holders.
None.
PART II
Item
5.
Market · for the Registrant's
Stockholder Matters.
Common
Stock and
Related
(a) Market Information
Incorporated by reference are Note 3 and the "Stock Price Range
and Dividends" section on Pages 32 and 40, respectively, of the Company's
annual report to security holders for the year ended December 31, 1988.
The common shares of Consumers are listed on the National Market
System of NASDAQ (symbol:
CONW) which provides high; low, and closing
transaction prices.
Prior to March 5, 1985, the Common Shares of
Consumers were traded in the over-the-counter market of NASDAQ.... The
prices in the annual report referenced above reflect interdealer prices
in the over-the-counter market and do not include retail markups,
markdowns or commissions and do not necessarily represent actual
transactions.
(b) Holders
As of March 17,
1989,
there were approximately
shareholders of record of the Registrant's common stock.
Item
6.
3,720
Selected Financial Data.
Incorporated by reference is the "Selected Financial Data" section
on Page 39 of the Company's annual report to security holders for the
year ended December 31, 1988.
Item
7.
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Incorporated by reference are Pages 21 through 23 of the Company's
annual report to security holders for the year ended December 31, 1988.
Item
8.
Financial Statements and Supplementary Data.
Incorporated by reference are Pages 24 through 37 inclusive, of the
Company's annual report to security holders for the year ended December
31, 1988, and is indexed herein under Item 14(a) (1).
Item
9.
None.
Disagreements on Accounting and Financial Disclosure.
PART III
Item 10.
Directors and Executive Officers of the Registrant.
Incorporated by reference are the "Nominees for Election as
Directors" and the "Other Executive Officers" sections of the Company's
Definitive Proxy Statement filed pursuant to Regulation 14A.
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.
Security Ownership
Management.
of
Certain
Beneficial
Owners
and
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.
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.
(a)
Exhibits, Financial Statement Schedules and Exhibits on Form
8-K.
List of financial statements, schedules and exhibits.
(1) Financial Statements
Annual
Report
Page
Consolidated Statements of Income for
the Years Ended December 31, 1988,
1987 and 1986
24
Consolidated Balance Sheets as of
December 31, 1988 and 1987
25
Consolidated Statements of Capitalization
and Interim Financing as of December 31,
1988 and 1987
26
Consolidated Statements of Cash Flows
for the Years Ended December 31, 1988,
1987, and 1986
27
Consolidated Statements of Changes in
Common Shareholders' Investment for
the Years Ended December 31, 1988,
1987 and 1986
28
Notes to Financial Statements
29-37
Report of Independent Public Accountants
38
Unaudited Quarterly Financial Information
39
Selected Financial Data
39
PART IV
(2)
Schedules
Report of Independent Public Accountants on Schedules
V
VI
X
Property, Plant and Equipment for the Years Ended
December 31, 1988, 1987 and 1986.
Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment for the Years Ended
December 31, 1988, 1987 and 1986.
Supplementary Income Statement Information for the
Years Ended December 31, 1988, 1987 and 1986.
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
Asset Purchase Agreement between Schiavi Homes and
Schiavi Homes Corp., dated as of December 30, 1986,
incorporated by reference to Exhibit 2.4 to Consumers
Water Company's Annual Report on Form 10-K for the
year ended December 31, 1986.
2.2
Purchase and Sale Agreement dated January 30, 1987
between Woodhaven Utilities Corp.
and Consumers
Illinois Water Company, incorporated by reference to
Exhibit 2.5 to Consumers Water Company's Annual
Report on Form 10-K for the year ended December 31,
1986.
2.3
Purchase and Sale Agreement dated April 1, 1988
between Candlewick Lake Utilities Company and
Consumers Illinois Water Company, incorporated by
reference to Exhibit 2.2 to Consumers Water Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1988.
2. 4
. Purchase and Sale Agreement dated January 31, 1989
between the Town of Hamburg, N.Y. and Wanakah Water
Company is submitted herewith as Exhibit 2.4
3.1
Restated Articles of Incorporation of Consumers Water
Company dated April 7,
1972,
incorporated by
reference to Exhibit 3.1 to Consumers Water Company's
Annual Report on Form 10-K for the year ended
December 31, 1983.
(3)
Exhibits (Continued)
3.2
Articles of Amendment to Articles of Incorporation
filed with Maine Secretary of State, June 9, 1978,
incorporated by reference to Exhibit 3.2 to Consumers
Water Company's Annual Report on Form 10-K for the
year ended December 31, 1985.
3.3
Articles of Amendment to Articles of Incorporation
filed with Maine Secretary of State, April 29, 1982,
incorporated by reference to Exhibit 3.3 to Consumers
Water Company's Annual Report on Form 10-K for the
year ended December 31, 1987.
3.4
Articles of Amendment to Articles of Incorporation
filed with Maine Secretary of State, May 13, "•1983,
incorporated by reference to Exhibit 3.4 to Consumers
Water Company's Annual Report on Form 10-K for the
year ended December 31, 1985.
3.5
Articles of Amendment to Consumers Water Company's
Articles of Incorporation filed_ with the Maine
Secretary of State on June 4, 1986, incorporated by
reference to Exhibit 3.1 to Consumers Water Company's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1986.
3.6
Conformed Copy of Restated Articles of Incorporation
of Consumers Water Company as amended, incorporated
by reference to Exhibit 3.2 to Consumers Water
Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1986.
3.7
By-Laws of Consumers Water Company, as amended May 6,
1987, incorporated by reference to Exhibit 3. 7 to
Consumers Water Company's Annual· Report on Form 10-K
for the year ended December 31, 1987.
4.
Instruments defining the rights of security holders,
including Indentures.
The registrant agrees to
furnish copies of instruments with respect to longterm debt to the Commission upon request.
10.1
Agreement dated June 17, 1981 between John W. L.
White, Chairman of the Board and Chief Executive
Officer of Consumers Water Company, and Consumers
Water Company, incorporated by reference to Exhibit
10. 1 of Consumers Water Company's Annual Report on
Form 10-K for the year ended December 31, 1985.
10.2
Noncompetition and Consulting Agreement between
Consumers Water Company and John M. Schiavi dated
March 28, 1983, incorporated by reference to Exhibit
10. 2 to Consumers Water Company's Annual Report on
Form 10-K for the year ended December 31, 1987.
(3)
(b)
Exhibits (Continued)
10.3
Consumers Water Company 1983 Incentive Stock Option
Plan is submitted herewith as Exhibit 10.3.
10.4
Consumers Water Company 1988 Incentive Stock Option
Plan, incorporated by reference to Appendix A to
Definitive Proxy Statement dated April 1, 1988.
10.5
Consumers Water Company Deferred Compensation Plan
for Directors,
as amended February 3,
1988,
incorporated by reference to Exhibit 10.5 to
Consumers Water Company's Annual Report on Form 10-K
for the year ended December 31, 1987.
10.6
Letter Agreement between Consumers Water Company and
Anjou International Company dated February· 7, 1986,
incorporated by reference to Exhibit 10.7 to
Consumers Water Company's Annual Report on Form 10-K
for the year ended December 31, 1985.
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,
1987.
11.
Statement re Computation of Per Share Earnings.
13.
Consumers Water Company 1 s Annual Report to Security
Holders for the year ended December 31, 1988.
Furnished for the information of the Commission
except for those portions which are expressly
incorporated by reference.
22.
Subsidiaries of the Registrant.
24.
Consent of Experts.
Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
the period covered by this report.
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.
CONSUMERS WATER COMPANY
By:
/s/ John van c. Parker
John van c. Parker
President and Director
(Chief Executive Officer)
March 29, 1989
Date
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/ Robert w. Phelps
Robert w. Phelps
Vice President and Treasurer
(Chief Financial Officer)
March 29, 1989
Date
By:
/s/ Judith w. Hayes
Judith w. Hayes
Controller
(Chief Accounting Officer)
March 29, 1989
Date
By:
/s/ David R. Hastings, II
David R. Hastings, II
Chairman and Director
March 29, 1989
Date
By:
/s/ William D. Holmes
William D. Holmes
Executive Vice President
and Director
March 29, 1989
Date
By:
/s/ Jack s. Ketchum
Jack s. Ketchum
Director
March 29, 1989
Date
By:
/s/ John E. Menario
John E. Menario
Director
March 29, 1989
Date
By:
/s/ John E. Palmer, Jr.
John E. Palmer, Jr.
Director
March 29, 1989
Date
By:
/s/ John J. Russell
John J. Russell
Director
March 29, 1989
Date
ARTHUR ANDERSEN
& Co.
BosTON, MASSACHUSETTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULES
To Consumers Water Company:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements included in Consumers Water
Company's annual report to shareholders incorporated by reference in this Form
10-K, and have issued our report thereon dated February 10, 1989.
Our audits
were made for the purpose of forming an opinion on those statements taken as a
whole.
The supplemental schedules listed in the accompanying index are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements.
These
supplemental schedules have been subjected to the auditing procedures applied
in the audit of the basic financial statements and, in our opinion, fairly
state in all material respects the financial data required to be set forth
therein in relation to the basic financial statements taken as a whole.
February 10, 1989
/
SCHEDULE V
PAGE 1 OF 3
CONSUMERS WATER COMPANY AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31. 1988, 1987 AND 1986
(Dollars in Thousands)
Column A
Column B
Balance at
Beginning
Classification of Period
Column C
Additions
Column D
Column E
Column F
Retirements
Other
Changes
Add
(Deduct)
Balance
at end
of
Period~
1988
UTILITY PLANT:
Land
and rights
$
$
8,920
37(A)
542
$
(40)
$
(10) (B) $
9,449
Water collection,
storage and
treatment
50,742
299(A)
4,419
(346)
442 (B)
55,556
Transmission and
distribution 169,017
2,086(A)
18,712
(747)
(510) (B)
188,558
30,120
258,799
42(A)
4,059
30,196
(1,837)
(2,970)
(16) (B)
(5,476) (C)
(5,570)
26,892
280,455
912
3 (A)
464
(1)
0
1,378
0
0
340
0
0
6,275
GENERAL
PLANT
ORGANIZATION AND
FRANCHISE EXP.
UTILITY PLANT ADJ.
BEING AMORTIZED
CONSTRUCTION WORK
IN PROGRESS
(A)
(B)
(C)
465
(125)
3,999
2.276
$264.175
$ 32.814
$ (2.971)
$ (5.570)
$288.448
Acquisition of Candlewick Utilities Company.
Reclassifications and other miscellaneous adjustments.
Reclassification of land and land improvements of the real estate
subsidiary to inventory.
SCHEDULE V
PAGE 2 OF 3
CONSUMERS WATER COMPANY AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31. 1988, 1987 AND 1986
(Dollars in Thousands)
Column A
Column B
Balance-at
Beginning
Classification of Period
Column c
Additions
Column D
Column E
Column F
Retirements
Other
Change·s
Add
(Deduct>
Balance
at end
of
Period<.
1987
UTILITY PLANT:
Land
and rights
$
7,333
$ 14 (A)
1,740
$
(4)
$
(163) (B) $
8,920
Water collection,
storage and
treatment
47,125
852 (A)
2,886
(439)
318 (B)
50,742
Transmission and
distribution 151,252
5,168 (A)
13,415
(730)
(88) (B)
169,017
23,603
229,313
39 (A)
8,195
32,309
(530)
(1,703)
( 1 1 187) (B)
(1,120)
30,120
258,799
ORGANIZATION AND
FRANCHISE EXP.
823
5 (A)
79
0
5 (B)
912
UTILITY PLANT ADJ.
BEING AMORTIZED
721
(308) (A)
16
0
36 (B)
465
2,288
9 (A)
1,702
0
GENERAL
PLANT
CONSTRUCTION WORK
IN PROGRESS
$233,145
(A)
(B)
$33,812
$ (1,703)
0
$(1,079)
Acquisition of Woodhaven Utilities Company.
Reclassification and other miscellaneous adjustments.
3,999
$ 264,175
SCHEDULE V
PAGE 3 OF 3
CONSUMERS WATER COMPANY AND SUBSIDIARIES
PROPERTY. PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31. 1988, 1987 AND 1986
(Dollars in Thousands)
Column A
Column B
Column D
Column E
Column F
Additions
Retirements
Other
Changes
Add
CDeductl
Balance
at end
of
Period
4,406
$ 2,972
$
$
$
Water-collection,
storage and
treatment
43,621
3,702
Balance at
Beginning
Classification of Period
Column C
1986
UTILITY PLANT:
Land
and rights
$
Transmission and
distribution 138,714
GENERAL
PLANT
1,057 (A)
11,883
22,352
209,093
3,783
23,397
ORGANIZATION AND
FRANCHISE EXP.
658
167
UTILITY PLANT ADJ.
BEING AMORTIZED
282
453
1,398
890
$211,431
$24,907
CONSTRUCTION WORK
IN PROGRESS
( 45)
7,333
(185)
(13) (C)
47,125
(405)
3 (C)
151,252
11 (C)
1
23,603
229,313
( 2) (C)
823
(12) (C)
721
(539)
(525)
(1,479)
(3,178)
(B)
(B)
(2)
2,288
$ (3,180)
$
(13)
$233,145
(A)
Acquisition of Policy Water Company.
(B)
Sale of assets of Schiavi Homes and of two commercial buildings of
The Dartmouth Company.
(C)
Reclassification and other miscellaneous adjustments.·
SCHEDULE VI
CONSUMERS WATER COMPANY AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY. PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31. 1988, 1987 AND 1986
(Dollars in Thousands)
Column A
Column B
Balance at
Beginning
DescriptionCEl of Period
1988 ,.
Reserve for $
Depreciation
47,204
Column
c
Additions
Charged to
Costs and
Expenses
$
4,829
Column D
Column E
Column F
Retirements
Other·
Changes
Add
(Deduct)
Balance at
End ,~
of Period
$
$
1,808
(10)
(3)
(A)
$
50,969
(B)
566 (C)
191 (D)
1987
Reserve for
Depreciation
43,156
4,107
1,641
1986
Reserve for
De:preciation
40,535
3,607
1,378
(A)
(B)
(C)
(D)
47,204
3 (A)
6 (B)
383 (C)
43,156
19
(82)
603
1,042
(A)
Depreciation on transportation equipment either capitalized or
charged to clearing account.
(B)
Cost of removing property retired or sold, net of salvage.
(C)
Changes due to original cost adjustments, addition of assets, and other
miscellaneous adjustments.
(D)
Acquisition of assets of Candlewick in 1988, and Woodhaven in 1987.
(E)
The reserve for depreciation is not segregated on the books to
correspond with the classifications of property as set forth in
Schedule v.
1
I
i
SCHEDULE X
CONSUMERS WATER COMPANY AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1988, 1987 AND 1986
(Dollars in Thousands)
Column A
Item
Column B
Charged to Costs and Expenses
1988
1987
1986
Maintenance and repairs
$ 5,236
$ 4,924
$ 4.811
Depreciation and amortization
$ 5.763
$ 4,883
$ 4.306
Taxes other than payroll
and income taxes:
Municipal property
state, franchise and
excise
Other
$ 3,818
$ 3,514
$ 3,120
2,542
415
2,321
405
2,115
316
$ 6,775
$ 6,240
$ 5,551
Total taxes other than payroll
and income taxes
The amounts of royalties and advertising expenses are not presented
as such amounts are less than one percent of total revenues and sales.
EXHIBITS
EXHIBIT 11
Statement re Computation of Per Share Earnings
Years Ended December 31,
1988
PRIMARY
Weighted average
number of shares
outstanding
Net effect of
dilutive common
stock equivalents
Weighted average
primary shares
Net income
Preferred dividends
Earnings applicable
to common shares
Primary earnings per
common share
FULLY DILUTED
Weighted average
number of shares
outstanding
Net effect of dilutive
common stock
equivalents
Assumed conversion of
6% convertible
debentures
Weighted average fully
diluted shares
Earnings applicable to
common shares
Add: Interest on
convertible
debentures of
subsidiary, net of
federal tax effect
Fully diluted earnings
per common share
1987
1986
5,889,959
5,822,751
5,706,328
8,059
14,878
65,643
5,898,018
5,837,629
5,771,971
$9,420,781
(60,048)
$8,869,521
(64,879)
$9,016,600
(70,115)
$9,360,733
$8,804,642
$8,946,485
$1.59
$1.51
$1.55
5,889,959
5,822,751
5,706,328
10,092
15,481
64,887
17, 153
5,900,051
5,838,232
5,788,368
$9,360,733
$8,804,642
$8,946,485
$9,360,733
600
$8,805,242
1,620
$8,948.105
$1.59
$1.51
$~
EXHIBIT 22
Subsidiaries of Registrant
December 31, 1988
Name of Subsidiary
State
In Which
Incorporated
Year
Acquired
or
Formed
Percentage
Voting
Securities
owned
Arcadia Company
Maine
1983
100.0%
Burlington Homes of New England, Inc.
Maine
1983
100.0%
Camden and Rockland Water Company
Maine
1959
92.1%
Consumers Illinois Water Company
(formerly Kankakee Water Company and
merged with Consumers Illinois Water
Company in 1988)
Illinois
1926
100.0%
C/P Utility Services Company, Inc.
Maine
1984
100.0%
Consumers Utility Land Management, Inc.
(formerly Consumers Utility Services)
Maine
1984
100.0%
The Dartmouth Company
(and its wholly-owned subsidiaries,
Sugarloaf Homes, Inc. and Dartmouth
Management Company)
Maine
1940
100.0%
Garden State Water Company
(and its 92.5% owned subsidiary,
Califon Water Company)
New Jersey
1969
97.1%
Inter-State Water Company
Illinois
1986
100.0%
Maine Water Company
Maine
1973
99.2%
Ohio Water Service Company
Ohio
1973
100.0%
Pennsylvania
1971
94.6%
Roaring Creek Water Company
Pennsylvania
1985
100.0%
SHC Corp.
Maine
1983
100.0%
Shenango Valley Water
Company (and its whollyowned subsidiary, Masury
Water Company)
Pennsylvania
1926
100.0%
Ohio
1926
100.0%
.Pennsylvania Water Company
EXHIBIT 22
(Continued)
Subsidiaries of Registrant
(Continued)
Southern New Hampshire
Water Company, Inc.
New Hampshire 1930
100.0%
Wanakah Water Company
New York
100.0%
1965
ARTHUR ANDERSEN
& Co.
BosTON, MAssACHUSETTs
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our reports dated February 10, 1989, with
respect to the consolidated financial statements and schedules of CONSUMERS
WATER COMPANY and subsidiaries, included in this Form 10-K, into the Company's
previously filed Registration Statements (Form S-3 No. 33-17893, Forms S-8
Nos. 2-80837, 2-62818, 2-56503, 33-3772, 33-20994, and 33-22032).
March 29, 1989