- Revenues Increase 10 Percent
- Regulatory Decisions on Tax Cuts and Jobs
Act
- Customer Satisfaction at 92 percent, 17 consecutive
years at 85 percent or above
Connecticut Water Service, Inc. (Nasdaq: CTWS) announced net
income of $16.7 million or $1.40 earnings per basic common share
(EPS) for 2018 on total revenues of $124.8 million. Total revenues
include revenues generated by the Company’s three business
segments: Water Operations, Service and Rentals, and Real
Estate.
Non-GAAP Adjusted Net Income*, which excludes merger and
acquisition costs, for 2018 increased from the prior year by $2.2
million. The improved results in 2018 were primarily driven
by increased revenues in base rates in Connecticut and Maine as
well as increases in Water Infrastructure and Conservation
Adjustment (WICA) and Water Infrastructure Charge (WISC)
surcharges. The increased base rate revenues are associated with a
settlement agreement between The Connecticut Water Company
(Connecticut Water Company) and the Office of Consumer Counsel that
was approved by the Connecticut Public Utilities Regulatory
Authority (PURA) and a rate increase in The Maine Water Company’s
(Maine Water) Biddeford and Saco division that became effective in
December 2017. These improved revenues were partially offset by
increased operating expenses and depreciation.
“We are pleased with our 2018 results, which reflect our
continued focus on operational excellence and providing world-class
service to the families and communities we are privileged to
serve,” stated David C. Benoit, president and CEO of CTWS. Mr.
Benoit added, “We are committed to continue our strong track-record
of infrastructure investment, exceeding customer expectations and
being a partner in the community. We believe those efforts will be
bolstered through our planned combination with SJW Group.”
* A description of Non-GAAP Adjusted Net Income is provided in
“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.
Tax Cuts and Jobs ActOn January 13, 2019, PURA
issued a decision that determined the appropriate accounting and
rate treatments related to reduction of the federal corporate
income tax rate from 35 to 21 percent. The decision requires the
Company’s Avon Water and Heritage Village Water subsidiaries to
account for reduced income tax expense, which would be returned to
customers through their next general rate case filings. Connecticut
Water Company customers are currently benefitting from the reduced
tax expense through the settlement agreement with the Office of
Consumer Counsel that is described under the heading “PURA Rate
Settlement Agreement” in this news release.
The Maine Public Utilities Commission (MPUC) and Maine Water are
expected to reach a settlement in the first quarter of 2019 on what
impact, if any, there will be on customer rates as a result of the
tax reduction.
Combination with SJW GroupAs previously
announced, on November 16, 2018, CTWS received shareholder approval
of the merger of CTWS and SJW Group. As further disclosed, after a
thorough review conducted by the management and boards of CTWS and
SJW Group, and with the support of their respective Connecticut
regulatory counsel, the companies decided to file new applications
with PURA and MPUC in connection with the proposed merger. The
companies expect that the new applications will be filed during the
second quarter of 2019.
Maine Water Conservation Easement to Protect Source
Water and Open SpaceOn September 27, 2018, Maine Water
closed on the sale of a conservation easement with the Coastal
Mountains 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.
The gain on the transaction will be shared equally between
customers and shareholders. As a result of the transaction, the
company realized an after-tax gain of $435,000 in Q3. In addition,
Maine Water’s customers in the Camden Rockland division benefit
from the transaction with credits totaling $435,000 to be applied
to customer bills over a one-year period that began in January
2019.
PURA Rate Settlement AgreementRevenues in 2018
reflected the benefits of the settlement agreement between
Connecticut Water Company and the Office of Consumer Counsel,
approved by PURA on August 15, 2018, that allowed for the recovery
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. In addition,
the settlement agreement allowed Connecticut Water Company to fold
the then current WICA surcharge of 9.81 percent into base rates and
reset the WICA surcharge to zero so Connecticut Water Company can
seek approval to adjust WICA charges as additional eligible work is
completed and serving customers. In December 2018, PURA authorized
a WICA surcharge of 2.15 percent effective with bills issued after
January 1, 2019. As noted above, the settlement agreement also
adjusted for impacts of the Tax Cuts and Jobs Act for Connecticut
Water Company customers.
Infrastructure ReplacementMaine Water files for
WISC increases with MPUC on a system-by-system basis. 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 is 2.15 percent for Connecticut Water
Company and is 9.31 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 semi-annual basis. Since the adoption of WICA in
2007, Connecticut Water Company has replaced more than 124 miles of
aging water main with an average age of 75 years. WISC became
available in Maine in 2013 and has been used by Maine
Water to replace 12 miles of aging water mains and pump stations,
construct storage tanks, and fund treatment improvements.
Customer SatisfactionCTWS’s 2018 Customer
Satisfaction Index, as measured by an independent research firm,
was measured at 92 percent. It was the 17th consecutive year that
customer satisfaction has exceeded world-class levels of 85 percent
or higher.
About CTWSCTWS 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 136,000
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 CTWS's Form
10-K that was filed with the U.S. Securities and Exchange
Commission (the SEC) earlier today. A link to the Form 10-K filing
can be found at http://ir.ctwater.com.
Use and Definition 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
include costs incurred in 2018 for the proposed merger with SJW
Group and the completed acquisitions of Heritage Village Water and
Avon Water during 2017.
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 Group) 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 annual report on Form 10-K for the year ended December 31, 2018
and also provided below. To properly and prudently evaluate our
business, we encourage you to review the Consolidated Financial
Statements and related notes included elsewhere in our Form 10-K
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 for the years ended December 31, 2018
and 2017:
|
2018 |
|
2017 |
Net Income |
$ 16,695 |
|
$ 25,054 |
Merger and Acquisition Costs |
10,819 |
|
392 |
Financing Costs |
177 |
|
- |
Adjusted Net Income |
$ 27,691 |
|
$ 25,446 |
Connecticut Water Service, Inc. &
Subsidiaries
Condensed Consolidated Selected Financial Data
(unaudited)
(In thousands except per
share amounts) |
December 31, 2018 |
|
December 31, 2017 |
|
|
|
|
Operating Revenues |
$ |
116,665 |
|
$ |
107,054 |
Other Water Activities Revenues |
|
1,639 |
|
|
1,471 |
Real Estate Revenues |
|
1,350 |
|
|
212 |
Service and Rentals Revenues |
|
5,182 |
|
|
5,112 |
Total Revenues |
$ |
124,836 |
|
$ |
113,849 |
Total Operating Expenses |
$ |
80,564 |
|
$ |
73,649 |
Other Utility Income, Net of Taxes |
$ |
1,078 |
|
$ |
824 |
Total Utility Operating Income |
$ |
37,179 |
|
$ |
34,229 |
Gain (Loss) on Property Transactions, Net of
Taxes |
$ |
629 |
|
$ |
33 |
Non-Water Sales Earnings (Services and Rentals),
Net of Taxes |
$ |
1,807 |
|
$ |
1,167 |
Net Income |
$ |
16,695 |
|
$ |
25,054 |
Net Income Applicable to Common Shareholders |
$ |
16,685 |
|
$ |
25,016 |
Basic Earnings Per Average Common Share |
$ |
1.40 |
|
$ |
2.17 |
Diluted Earnings Per Average Common Share |
$ |
1.38 |
|
$ |
2.13 |
Basic Weighted Average Common Shares
Outstanding |
|
11,914 |
|
|
11,540 |
Diluted Weighted Average Common Shares
Outstanding |
|
12,065 |
|
|
11,762 |
Book Value Per Share |
$ |
24.40 |
|
$ |
24.34 |
Condensed Consolidated Balance Sheets
(unaudited)
(In thousands) |
December 31, 2018 |
December 31, 2017 |
|
ASSETS |
|
|
Net Utility Plant |
$ |
739,793 |
$ |
697,723 |
Current Assets |
|
38,511 |
|
35,678 |
Other Assets |
|
173,565 |
|
165,382 |
|
Total Assets |
$ |
951,869 |
$ |
898,783 |
|
CAPITALIZATION AND LIABILITIES |
|
|
Shareholders’ Equity |
$ |
294,136 |
$ |
293,630 |
Preferred Stock |
|
-- |
|
772 |
Long-Term Debt |
|
257,511 |
|
253,367 |
Current Liabilities |
|
78,906 |
|
41,538 |
Other Liabilities and Deferred Credits |
|
186,235 |
|
177,947 |
Contributions in Aid of
Construction |
|
135,081 |
|
131,529 |
Total Capitalization and
Liabilities |
$ |
951,869 |
$ |
898,783 |
Forward-Looking Statements
This press release 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; (2) the risk that
the regulatory approvals required for the transaction are not
obtained at all, or if obtained, on the terms expected or on the
anticipated schedule; (3) the risk that the California Public
Utilities Commission’s (CPUC) investigation may cause delays in or
otherwise adversely affect the transaction and that SJW Group may
be required to consummate the transaction prior to the CPUC’s
issuance of an order with respect to its investigation; (4) the
effect of water, utility, environmental and other governmental
policies and regulations; (5) litigation relating to the
transaction; (6) the ability of each party to meet expectations
regarding timing, completion and accounting and tax treatments of
the transaction; (7) the occurrence of any event, change or other
circumstance that could give rise to the termination of the merger
agreement between the parties to the transaction; (8) changes in
demand for water and other products and services; (9) unanticipated
weather conditions; (10) 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 the facilities, operations, financial
condition, results of operations and reputation of CTWS; (11) risks
that the transaction disrupts the current plans and operations of
CTWS; (12) potential difficulties in employee retention as a result
of the transaction; (13) unexpected costs, charges or expenses
resulting from the transaction; (14) the effect of the announcement
or pendency of the transaction on business relationships, operating
results, and business generally, including, without limitation,
competitive responses to the transaction; (15) risks related to
diverting management’s attention from ongoing business operations
of CTWS; and (16) legislative and economic developments.
In addition, actual results are subject to other risks and
uncertainties that relate more broadly to CTWS’s overall business
and financial condition, including those more fully described in
its filings with the SEC , including, without limitation,
its Annual Report on Form 10-K for the fiscal year
ended December 31, 2018. Forward-looking statements are not
guarantees of performance, and speak only as of the date made, and
neither CTWS nor its management undertakes any obligation to update
or revise any forward-looking statements except as required by
law.
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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