- Operating Revenues Increase 14 Percent
- Net Income Increased $2.9 million or $0.23 per
share
- PURA and MPUC Regulatory Applications Filed for the SJW
Group Transaction
Connecticut Water Service, Inc. (Nasdaq:CTWS) (“Connecticut
Water”) announced net income of $13.7 million or $1.15 earnings per
basic common share (“EPS”) for the third quarter of 2018 on total
revenues of $39.3 million. Total revenues include revenues
generated by Connecticut Water’s three business segments: Water
Operations, Service and Rentals, and Real Estate. In the third
quarter of 2017, Connecticut Water had net income of $10.7 million
or EPS of $0.92, on total revenues of $33.5 million.
Non-GAAP Adjusted Net Income*, which excludes merger and
acquisition costs, for the third quarter of 2018 increased from the
same period in the prior year by $5.1 million.
The improvements in Non-GAAP Adjusted Net Income in 2018 were
primarily driven by increases in revenues resulting from general
rate increases authorized in both Connecticut and Maine, as well as
increases in Water Infrastructure and Conservation Adjustment
(“WICA”) and Water Infrastructure Charge (“WISC”) surcharges. These
improved revenues were partially offset by increased operating
expenses, depreciation and interest expense.
David C. Benoit, president and CEO of Connecticut Water, stated
that, “Our strong third quarter results reflect our continued focus
on operational excellence as a pure-play water company, our
employees’ record of superior customer service, and our continued
investment in water infrastructure. During the quarter, we also
made progress toward the closing of our combination with SJW Group,
which is on track to be completed in the first quarter of 2019. The
combination with SJW Group will enable us to join another leading
water company that shares our commitment to a strong, local team of
employees and world-class service to customers and communities,
while also providing our shareholders with significant, certain,
premium value for their shares.”
Year-to-Date Results
Connecticut Water reported net income of $17.2 million, or EPS
of $1.44, on total revenues of $97.3 million in the first nine
months of 2018. In the same period of 2017, Connecticut Water
had net income of $23.2 million, or EPS of $2.03, on total revenues
of $87.2 million. Non-GAAP Adjusted Net Income*, which
excludes merger and acquisition costs, for the first nine months of
2018 increased from the same period in the prior year by $1.5
million.
The improvements in Non-GAAP Adjusted Net Income in 2018 were
primarily driven by increases in revenues resulting from general
rate increases authorized in Connecticut and Maine as well as
increases in WICA and WISC surcharges. These improved revenues were
partially offset by increased operating expenses, depreciation and
interest expense.
* A description of Non-GAAP Adjusted Net Income is provided
below under the heading “Use and Definition of Non-GAAP Financial
Measures” and a reconciliation to GAAP financial measures is
provided in the table at the end of this release.
Combination with SJW Group
On October 2, 2018, Connecticut Water announced that it had
filed its definitive proxy materials in connection with a Special
Meeting of Connecticut Water Shareholders (the “Special Meeting”)
scheduled for November 16, 2018 to vote on the SJW Group
transaction. In the proxy materials and related letters that have
been sent to Connecticut Water shareholders of record as of
September 24, 2018, the Connecticut Water Service Board of
Directors unanimously recommends that shareholders vote “FOR” the
proposal to approve the SJW Group merger agreement as well as all
other proposals related to the SJW Group transaction on the GREEN
proxy card or GREEN voting instruction form that was sent to
shareholders.
In order for the transaction to be approved, Connecticut Water
shareholders owning two-thirds (66 2/3%) of Connecticut Water’s
outstanding shares of common stock entitled to vote on the proposed
merger must vote “FOR” it. This is a high threshold, so every vote
matters. Shareholders are reminded that the meeting date is rapidly
approaching, and not voting is the same as voting against the SJW
Group transaction.
Additional highlights from the letters sent to Connecticut Water
shareholders include:
- By going GREEN and voting “FOR” the SJW Group transaction on
the GREEN proxy card, shareholders are voting to receive
significant, certain, premium value of $70 per share in cash.
- The $70-per-share cash consideration represents a 33 percent
premium to Connecticut Water’s unaffected closing share
price.1
- The value that Connecticut Water shareholders will receive
exceeds Connecticut Water’s all-time high closing share
price.2
- The combined company will operate under local leadership and
local operating teams, with no changes in customer rates and no
employee layoffs as a result of the transaction.
- Both Connecticut Water and SJW Group are committed to
maintaining a New England headquarters in Clinton, Connecticut, and
the existing local offices and work centers across Connecticut and
Maine.
- The transaction creates a national pure-play water company with
a continued focus on operational excellence, superior customer
service, environmental stewardship as well as community investment,
involvement and support.
- Connecticut Water believes the meaningful benefits and
protections for its stakeholders in the SJW Group transaction would
not be available in other potential transactions.
On November 5, 2018 and November 7, 2018, leading independent
proxy advisory firms Institutional Shareholder Services Inc.
(“ISS”) and Glass, Lewis & Co. (“Glass Lewis”), respectively,
recommended that Connecticut Water shareholders vote “FOR” the SJW
Group transaction at the Special Meeting of Shareholders. Many
pension funds, mutual funds and other institutional shareholders
around the world consider the analysis and recommendations
conducted by ISS and Glass Lewis in their voting decision making
process.
ISS and Glass Lewis are joined by other stakeholders, including
local business leaders and Connecticut Water employees who also
support the SJW Group transaction. For example, as
highlighted in one mailing by Connecticut Water:
- “I’m a retired CEO, experienced in business and proud to be a
long term CTWS shareholder. CTWS has been well managed, focused on
customer service and its market area and an excellent investment. I
strongly support the combination of CTWS and SJW. Acquisitions are
a fact of business life today across many industries ... banking,
utilities, insurance, etc. … so having the right combination is
very important. By joining with San Jose Water, Connecticut Water
will boost its ability to continue its record of service and level
of investment in our communities under the leadership of the
respected Connecticut management team.” – William J. “Bill” McGurk,
Local Business Leader, Shareholder
- “It was about a week and a half ago that I mailed my proxy in,
voting yes on all the three things that the Board recommended ... I
knew that it was good to do the right thing and help the company in
its pursuit to be stronger, better.” – Adam S., CT Water Employee,
Shareholder
As previously announced, the combination of Connecticut Water
and SJW Group requires the approval of Connecticut Water’s
shareholders and regulatory approvals from the Connecticut Public
Utilities Regulatory Authority (“PURA”) and the Maine Public
Utilities Commission (“MPUC”). As noted above, shareholders will
vote on the proposal to approve the SJW Group merger agreement as
well as all other proposals related to the SJW Group transaction at
the Special Meeting scheduled for Friday, November 16, 2018.
Applications to obtain regulatory approvals of the merger were
filed with PURA and MPUC on July 18, 2018 and May 4, 2018,
respectively.
PURA Rate Settlement Agreement
On August 15, 2018, PURA issued a final decision that accepted
the terms of a revised rate settlement agreement that had been
filed by the Connecticut Water Company and the Connecticut Office
of Consumer Counsel.
Under the terms of the approved revised settlement
agreement.
- Connecticut Water Company is able to seek approval to adjust
WICA charges in the future through separate filings with PURA as
additional WICA work is completed and serving customers.
- Connecticut Water Company is recovering through increased
rates, retroactive to April 1, 2018, the $36.3 million of plant in
service with Connecticut Water Company’s generational investment in
clean drinking water at the newly upgraded Rockville Drinking Water
Treatment Facility.
- The WICA surcharge on customers’ bills has been rolled into
base rates and the surcharge has been reset to zero.
- Connecticut Water Company will not increase its base rates
until January 2020 at the earliest, with an exception for
extraordinary circumstances.
Maine Water Conservation Easement to Protect Source
Water and Open Space
On September 27, 2018, The Maine Water Company (“Maine Water”)
closed on the sale of a conservation easement with the Coastal
Mountain Land Trust (“CMLT”) to protect 786 acres of watershed land
in Rockport and Hope, Maine. This is first of two transactions
through an agreement with CMLT that, when fully executed, will
protect 1,300 acres of watershed land around Mirror Lake and Grassy
Pond, the primary sources of drinking water for the region. Much of
the land lies on and around “Ragged Mountain” in the towns of
Camden, Hope and Rockport and the conservation easement allows for
expanded recreational access to the property for activities such as
hiking, mountain biking, cross country, and skiing through the
construction of a defined public access trail. Maine Water also
contributed $250,000 to the construction of the trail.
As a result of the first transaction, an after-tax gain of
$435,000 was realized in Q3. Maine Water’s Camden Rockland
customers will share in the net benefit of the transaction, with
$435,000 of credits on customer bills applied over a one-year
period beginning in January, 2019. The second, and final,
transaction related to the conservation easement sale is expected
to occur in 2020.
Infrastructure Replacement
Maine Water files for WISC increases with the MPUC on a
system-by-system basis. Six WISC applications filed since the
fourth quarter of 2017 have been approved to date in 2018, and the
WISC surcharge in the Biddeford Saco division was reset to zero
with the approval of the general rate case in December 2017. The
current average of approved WISC surcharges of all divisions of
Maine Water is 6.8 percent. The maximum WISC surcharge allowed in
Maine ranges from 10 to 20 percent, depending on the size of the
water system.
The current WICA charge was reset to zero for Connecticut Water
Company as a result of the rate settlement agreement approved by
PURA and is 7.51 percent for Avon Water. Heritage Village Water has
not filed for a WICA surcharge.
WICA and WISC allow for recovery of eligible infrastructure
replacements on a semiannual basis.
About CTWS
CTWS is one of the 10 largest U.S.-based publicly traded water
utilities, and is listed on the Nasdaq Global Select Market under
the ticker symbol CTWS. Through its regulated utility subsidiaries,
CTWS serves more than 135,000 water customers, or more than 425,000
people in 80 communities across Connecticut and Maine, and more
than 3,000 wastewater customers in Southbury, Connecticut.
Additional information regarding results, performance or
achievements noted in this news release is available in the CTWS
Form 10-Q that was filed with the U.S. Securities and Exchange
Commission earlier today. A link to the Form 10-Q filing can be
found at http://ir.ctwater.com.
Use and Definitions of Non-GAAP Financial
Measures
We consider Adjusted Net Income as a key business metric, which
is a Non-GAAP financial measure.
We define Adjusted Net Income as Net Income excluding certain
material items outside of normal business operations. For this
Non-GAAP financial measure, we consider these items to be income or
expenses that have not been recorded within the prior two years and
are not expected to recur within the next two years. Such items may
include certain costs incurred for merger and acquisition
activities such as the proposed merger with SJW Group.
Adjusted Net Income is a supplemental financial measure used by
us and by external users of our financial statements and is
considered to be an indicator of the operational strength and
performance of our business. Adjusted Net Income allows us to
assess our performance without regard to the impact of matters that
we do not consider indicative of the operating performance of our
business.
We use Adjusted Net Income to facilitate a comparison of our
operating performance on a consistent basis from period to period
that, when viewed in combination with our results prepared in
accordance with GAAP, provides a more complete understanding of
factors and trends affecting our business. We believe Adjusted Net
Income assists our Board of Directors, management and investors in
comparing our operating performance on a consistent basis from
period to period because they remove the impact of certain material
items outside of normal business operations (such as the costs
incurred for the proposed merger with SJW) from our operating
results.
Despite the importance of this Non-GAAP financial measure in
analyzing our business, measuring and determining incentive
compensation and otherwise evaluating our operating performance,
Adjusted Net Income is not a measurement of financial performance
under GAAP, may have limitations as an analytical tool and should
not be considered in isolation from, or as an alternative to, Net
Income or any other measure of our performance derived in
accordance with GAAP. Adjusted Net Income is not a measure of
profitability under GAAP.
We also urge you to review the reconciliation of this Non-GAAP
financial measure included in the Results of Operations section of
our quarterly report on From 10-Q that was filed earlier today. To
properly and prudently evaluate our business, we encourage you to
review the Condensed Consolidated Financial Statements and related
notes included elsewhere in our Quarterly Report and to not rely on
any single financial measure to evaluate our business. In addition,
because the Adjusted Net Income measure is susceptible to varying
calculations, such Non-GAAP financial measures may differ from, and
may therefore not be comparable to, similarly titled measures used
by other companies.
The following table provides a reconciliation of Net Income to
Non-GAAP Adjusted Net Income:
|
Three Months Ended |
Nine Months Ended |
|
September 30, |
September 30, |
(In thousands except per share amounts) |
2018 |
2017 |
2018 |
2017 |
|
|
|
|
|
Net Income |
$13,663 |
$10,716 |
$17,165 |
$23,202 |
Merger and Acquisition Costs |
2,114 |
11 |
7,766 |
266 |
Adjusted Net Income |
$15,777 |
$10,727 |
$24,934 |
$23,468 |
Connecticut Water Service, Inc. &
Subsidiaries
Selected Income Statement Information
(unaudited)
|
Three Months Ended |
Nine Months Ended |
|
September 30, |
September 30, |
(In
thousands except per share amounts) |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
Operating Revenues |
$ |
36,269 |
$ |
31,797 |
$ |
91,026 |
$ |
82,162 |
Other Water Activities
Revenues |
|
348 |
|
455 |
|
1,084 |
|
1,096 |
Real Estate
Revenues |
|
1,350 |
|
-- |
|
1,350 |
|
212 |
Service and Rentals
Revenues |
|
1,333 |
|
1,256 |
|
3,815 |
|
3,745 |
Total Revenues |
$ |
39,300 |
$ |
33,508 |
$ |
97,275 |
$ |
87,215 |
|
|
|
|
|
Operating Expenses |
$ |
18,905 |
$ |
19,252 |
$ |
59,805 |
$ |
53,615 |
Other Utility Income,
Net of Taxes |
$ |
200 |
$ |
264 |
$ |
715 |
$ |
619 |
Total Utility Operating
Income |
$ |
17,564 |
$ |
12,809 |
$ |
31,936 |
$ |
29,166 |
Gain on Property
Transactions, Net of Taxes |
$ |
626 |
$ |
-- |
$ |
626 |
$ |
33 |
Non-Water Sales
Earnings (Services and Rentals), Net of Taxes |
$ |
469 |
$ |
252 |
$ |
1,297 |
$ |
842 |
Net Income |
$ |
13,663 |
$ |
10,716 |
$ |
17,165 |
$ |
23,202 |
Net Income Applicable
to Common Shareholders |
$ |
13,663 |
$ |
10,706 |
$ |
17,155 |
$ |
23,173 |
Basic Earnings Per
Average Common Share |
$ |
1.15 |
$ |
0.92 |
$ |
1.44 |
$ |
2.03 |
Diluted Earnings Per
Average Common Share |
$ |
1.13 |
$ |
0.90 |
$ |
1.42 |
$ |
1.99 |
Basic Weighted Average
Common Shares Outstanding |
|
11,951 |
|
11,817 |
|
11,899 |
|
11,436 |
Diluted Weighted
Average Common Shares Outstanding |
|
12,045 |
|
12,041 |
|
12,069 |
|
11,661 |
Book Value Per
Share |
$ |
24.75 |
$ |
24.39 |
$ |
24.75 |
$ |
24.39 |
Condensed Consolidated Balance Sheets
(unaudited)
(In
thousands) |
September 30, 2018 |
September 30, 2017 |
|
ASSETS |
|
|
Net Utility Plant |
$ |
721,488 |
$ |
683,738 |
Current Assets |
|
46,966 |
|
47,149 |
Other Assets |
|
175,587 |
|
208,489 |
|
Total
Assets |
$ |
944,041 |
$ |
939,376 |
|
CAPITALIZATION AND
LIABILITIES |
|
|
Shareholders’
Equity |
$ |
298,200 |
$ |
294,405 |
Preferred Stock |
|
-- |
|
772 |
Long-Term Debt |
|
250,877 |
|
255,193 |
Current
Liabilities |
|
76,645 |
|
39,835 |
Other
Liabilities and Deferred Credits |
|
318,319 |
|
349,171 |
Total
Capitalization and Liabilities |
$ |
944,041 |
$ |
939,376 |
Cautionary Statement Regarding
Forward-Looking Statements
This document contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, as
amended. Some of these forward-looking statements can be
identified by the use of forward-looking words such as “believes,”
“expects,” “may,” “will,” “should,” “seeks,” “approximately,”
“intends,” “plans,” “estimates,” “projects,” “strategy,” or
“anticipates,” or the negative of those words or other comparable
terminology.
The accuracy of such statements is subject to a number of risks,
uncertainties and assumptions including, but not limited to, the
following factors: (1) the risk that the conditions to the
closing of the SJW Group transaction are not satisfied, including
the risk that required approval from the shareholders of
Connecticut Water for the transaction is not obtained; (2) the
risk that the regulatory approvals required for the transaction are
not obtained, on the terms expected or on the anticipated schedule;
(3) the effect of water, utility, environmental and other
governmental policies and regulations; (4) litigation relating
to the transaction; (5) the ability of the parties to the
transaction to meet expectations regarding the timing, completion
and accounting and tax treatments of the proposed transaction;
(6) the occurrence of any event, change or other circumstance
that could give rise to the termination of the transaction
agreement between the parties to the proposed transaction;
(7) changes in demand for water and other products and
services of Connecticut Water; (8) unanticipated weather
conditions; (9) catastrophic events such as fires,
earthquakes, explosions, floods, ice storms, tornadoes, terrorist
acts, physical attacks, cyber-attacks, or other similar occurrences
that could adversely affect Connecticut Water’s facilities,
operations, financial condition, results of operations, and
reputation; (10) risks that the proposed transaction disrupts
the current plans and operations of Connecticut Water;
(11) potential difficulties in employee retention as a result
of the proposed transaction; (12) unexpected costs, charges or
expenses resulting from the transaction; (13) the effect of
the announcement or pendency of the proposed transaction on
Connecticut Water’s business relationships, operating results, and
business generally, including, without limitation, competitive
responses to the proposed transaction; (14) risks related to
diverting management’s attention from ongoing business operations
of Connecticut Water; (15) the trading price of Connecticut
Water’s common stock; and (16) legislative and economic
developments.
In addition, actual results are subject to other risks and
uncertainties that relate more broadly to Connecticut Water’s
overall business and financial condition, including those more
fully described in Connecticut Water’s filings with the U.S.
Securities and Exchange Commission (the “SEC”), including, without
limitation, its annual report on Form 10-K for the fiscal year
ended December 31, 2017 and its quarterly report on Form 10-Q for
the period ended September 30, 2018. Forward-looking
statements are not guarantees of performance, and speak only as of
the date made, and neither Connecticut Water nor its management
undertakes any obligation to update or revise any forward-looking
statements except as required by law.
Additional Information and Where to Find It
This communication relates to the proposed acquisition of
Connecticut Water by SJW Group. In connection with the
proposed transaction, on October 2, 2018, Connecticut Water filed a
definitive proxy statement on Schedule 14A and the accompanying
GREEN proxy card with the SEC. SHAREHOLDERS OF
CONNECTICUT WATER ARE URGED TO READ THE DEFINITIVE PROXY STATEMENT
AND ALL OTHER RELEVANT DOCUMENTS FILED OR TO BE FILED WITH THE SEC
BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED
TRANSACTION. Investors and security holders may
obtain a copy of the definitive proxy statement and the other
documents filed by Connecticut Water with the SEC free of charge at
the SEC’s web site, http://www.sec.gov, and shareholders of
Connecticut Water may also obtain transaction-related documents
free of charge by directing a request to Connecticut Water’s
Corporate Secretary, Kristen A. Johnson, at Connecticut Water
Service, Inc., 93 West Main Street, Clinton, Connecticut 06413, or
by telephone at 1-800-428-3985.
Participants in Solicitation
SJW Group and its directors and executive officers, and
Connecticut Water and its directors and executive officers, may be
deemed to be participants in the solicitation of proxies from the
holders of Connecticut Water’s common stock in respect of the
proposed transaction. Information about the directors and
executive officers of SJW Group is set forth in the proxy statement
for SJW Group’s 2018 Annual Meeting of Stockholders, which was
filed with the SEC on March 6, 2018. Information about the
directors and executive officers of Connecticut Water is set forth
in the proxy statement for Connecticut Water’s 2018 Annual Meeting
of Shareholders, which was filed with the SEC on April 6,
2018. Investors may obtain additional information regarding
the interest of such participants by reading the definitive proxy
statement regarding the proposed transaction, which was filed on
October 2, 2018, and other relevant materials filed with the SEC
regarding the proposed transaction.
1 As of March 14, 2018, the last trading day before the original
agreement with SJW Group was announced.
2 Prior to the announcement of the revised agreement with SJW
Group on August 6, 2018.
News media contact:
Daniel J. Meaney, APR
Director of Corporate Communications
Connecticut Water Service, Inc.
93 West Main Street, Clinton, CT 06413-1600
(860) 664-6016
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