þ | ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Page(s) | ||||
1-2 | ||||
Financial Statements |
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3 | ||||
4 | ||||
5-9 | ||||
Supplemental Schedule |
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10 | ||||
Other supplemental schedules required by Section 2520.103-10 of the Department of Labors
Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act (ERISA) of 1974 have been omitted because they are not applicable. |
1
2
2007 | 2006 | |||||||
Assets |
||||||||
Investments, at fair value |
||||||||
Mutual funds |
$ | 11,459,620 | $ | 10,379,678 | ||||
Connecticut Water Service, Inc. common stock |
877,872 | 834,888 | ||||||
Collective investment trust |
1,108,253 | 1,122,653 | ||||||
Participant loan accounts |
326,486 | 362,464 | ||||||
Cash management trust |
128,747 | 65,963 | ||||||
Total Investments |
13,900,978 | 12,765,646 | ||||||
Receivables |
||||||||
Employee contributions |
| 36,786 | ||||||
Employer contributions |
| 7,564 | ||||||
Due from brokers |
| 92,567 | ||||||
Total Assets |
13,900,978 | 12,902,563 | ||||||
Liabilities |
||||||||
Due to brokers |
128,747 | 99,095 | ||||||
Net assets available for benefits at value |
$ | 13,772,231 | $ | 12,803,468 | ||||
3
2007 | 2006 | |||||||
Additions to net assets attributable to: |
||||||||
Investment income: |
||||||||
Interest |
$ | 25,539 | $ | 19,094 | ||||
Dividends |
745,824 | 405,584 | ||||||
Net appreciation in value of investments (see Note 3) |
231,531 | 845,194 | ||||||
1,002,894 | 1,269,872 | |||||||
Contributions: |
||||||||
Employee contributions (including rollover contributions) |
974,201 | 939,766 | ||||||
Employer contributions |
212,460 | 188,800 | ||||||
1,186,661 | 1,128,566 | |||||||
Total additions |
2,189,555 | 2,398,438 | ||||||
Deductions from net assets attributable to: |
||||||||
Distributions to participants |
1,197,439 | 379,301 | ||||||
Administrative expenses (see Note 2) |
23,353 | 10,760 | ||||||
Total deductions |
1,220,792 | 390,061 | ||||||
Net increase |
968,763 | 2,008,377 | ||||||
Net assets available for benefits, beginning of year |
12,803,468 | 10,795,091 | ||||||
Net assets available for benefits, end of year |
$ | 13,772,231 | $ | 12,803,468 | ||||
4
1. | Description of the Plan | |
The following description of the Savings Plan (the Plan) of the Connecticut Water Company (the Company) provides only general information. Participants should refer to the plan document for a more complete description of the Plans provisions. The Company is a wholly-owned subsidiary of Connecticut Water Service, Inc. The Plan was established by the Board of Directors of the Company in 1985 and was amended and restated since that date. The Plan is a trusteed, defined contribution plan covering all eligible employees of the Company. | ||
Effective April 1, 2001, eligible employees of Crystal Water Company and Gallup Water Service, Inc., which are both wholly-owned subsidiaries of Connecticut Water Service, Inc., became eligible to participate in the Plan. Effective December 14, 2001, eligible employees of The Barnstable Water Company, a wholly-owned indirect subsidiary of Connecticut Water Service, Inc., became eligible to participate in the Plan. | ||
Wachovia Bank is the Plans Trustee. WYSTAR Global Retirement Solutions, a subsidiary of Wachovia Bank, is the Plans recordkeeper. Effective July 1, 2007, Wachovia Bank (as a result of a merger) became the recordkeeper. | ||
The Plan includes the following provisions, as described below: |
(a) | The Company match is 50% of each participants employee salary contribution not to exceed 4% of compensation. | ||
(b) | The Plan includes a profit-sharing contribution of up to 1% of compensation linked to successful completion of specific strategic initiatives. Profit-sharing contributions have additional requirements and restrictions. No profit-sharing contributions were made for the 2007 and 2006 Plan years. | ||
(c) | Participant salary deferral contributions are made on a pre-tax basis of between 1% and 15% maximum for all employees. Participants who have attained age 50 before the end of the Plan year are eligible to make catch-up contributions. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans. | ||
(d) | New employees are eligible to enroll in the Plan after six months and at least 1,000 hours worked. Enrollment will take place on the first day of the next plan year quarter following the date on which such eligibility requirements are satisfied. | ||
(e) | Participants are eligible to receive Company matching contributions upon plan enrollment. |
Once eligible, employees can elect to enter into a written salary deferral agreement. Participant loans and hardship withdrawals are permitted. Changes in contributions are allowed quarterly. | ||
Participants may borrow at least $1,000 and the lesser of $50,000 or 50% of the vested amount of their accounts, excluding their interest in Connecticut Water Service, Inc. common stock, at the rate of interest of prime rate plus 1%. Loans must be repaid within five years, or before attaining age 65, whichever is shorter. Loans to purchase a principal residence may be repaid within fifteen years. |
5
1. | Description of the Plan (continued) | |
A participant is fully vested at all times in the accrued balance of his or her entire account. | ||
On a daily basis, the Trustee determines the total net earnings of each investment option and allocates this amount to the accounts of the participants on the basis of the percentage each participant has invested in each investment option. | ||
Employer match contributions are deposited into participants accounts based on the participant elected allocations. | ||
Payments of benefits upon retirement at age 55 or later, or death, are, at the election of
the participant, either made in a lump-sum payment, paid over a period of time not to exceed
participants life expectancy, or paid out commencing at age 70-1/2. Payment of benefits in the event of death are made to the beneficiaries designated by the participant and initiated by the beneficiary. A retired participant who elects distributions commencing at age 70-1/2 may elect to receive periodic distributions at any time prior to taking a lump-sum payout. Subject to certain restrictions, distributions to participants under other circumstances are made in the form of lump-sum payments. Benefits are recorded when paid. |
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Each participants account is credited with the participants contributions, the Companys profit-sharing and matching contributions and account earnings. Participants accounts are charged with an allocation of certain administrative expenses to the extent those expenses are not paid by the Company. Participants are permitted to invest in one or more of the investment options offered pursuant to the provisions of the Plan. | ||
The Due to brokers and Due from brokers line items on the Statements of Net Assets Available for Benefits represent pending trades where settlement has not yet occurred. | ||
2. | Summary of Significant Accounting Policies | |
Basis of Accounting | ||
The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. | ||
Use of Estimates in the Preparation of Financial Statements | ||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management of the Plan to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of additions and deductions during the reporting period. Actual results could differ from those estimates. | ||
Administrative Expenses | ||
Administrative expenses and fees of the Plan are ordinarily paid by the Company unless the plan administrator directs the Trustee to pay these expenses utilizing plan assets. During 2007 and 2006, administrative expenses of $23,353 and $10,760, respectively, were paid to the Trustee out of plan assets. |
6
2. | Summary of Significant Accounting Policies (continued) | |
Valuation of Investments | ||
As of December 31, 2006, the Plan adopted Financial Accounting Standards Board (FASB) Staff Position FSP AAG INV-1 and Statement of Position No. 94-4-1, Reporting of Fully Benefit-Responsive Investment Contracts Held by Certain Investment Companies Subject to the AICPA Investment Company Guide and Defined-Contribution Health and Welfare and Pension Plans (the FSP). The FSP requires the Statement of Net Assets Available for Benefits to present the fair value of the Plans investments as well as the adjustment from fair value to contract value for the fully benefit-responsive investment contracts. The Plan had adopted the FSP as of and for the year ended December 31, 2006 because of its investment in UBS Stable Value Fund, a collective investment trust that invests in fully benefit-responsive investment contracts managed by UBS Fiduciary Trust Company. The UBS Stable Value Fund was replaced during 2007 with the Wachovia Diversified Stable Value Fund. Although it is considered a fully benefit-responsive investment contract, the Wachovia Diversified Stable Value Fund also contains investments in corporate bonds and short-term investments. | ||
As described by the FSP, investments held by a collective investment trust are required to be reported at fair value. However, contract value is the relevant measurement attribute for that portion of the net assets of a collective investment trust attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate permitted transactions under the terms of the underlying defined-contribution plans. Since there is not a material difference between fair value and contract value for the UBS Stable Value Fund or the Wachovia Diversified Stable Value Fund, the Plans investment in these collective investment trusts are presented at contract value, which approximates fair value on the Statements of Net Assets Available for Benefits as of December 31, 2007 and 2006. | ||
The investments in the accompanying statements of net assets available for benefits are stated at fair value. Securities traded on a national securities exchange are reported at fair value, at the last reported sales price on the last business day of the plan year. Investments traded in the over-the-counter market and listed securities for which no sales were reported on that date are valued at the average of the last reported bid and asked prices. Mutual funds are reported at net asset value. | ||
Participant loans are valued at amortized cost, which represents fair value. | ||
Risks and Uncertainties | ||
The Plan provides for various investment options in mutual funds, collective investment trusts, and common stock. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants account balances and the amounts reported in the accompanying financial statements and supplemental schedule. | ||
New Accounting Pronouncement | ||
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS 157 defines fair value and establishes a framework for measuring fair value. It also expands the disclosures about the use of fair value to measure assets and liabilities. SFAS 157 is effective for plan years beginning after November 15, 2007 and interim periods within those plan years. As of December 31, 2007, management is evaluating the impact of the adoption of SFAS 157 on the Plans financial statements. |
7
3. | Investments | |
Participants direct the Trustee regarding the investment of amounts held in their accounts. The fair market value of investments that represent 5% or more of the Plans total net assets as of December 31, 2007 and 2006 are as follows: |
2007 |
||||
American EuroPacific Growth Fund |
$ | 1,897,307 | ||
MFS Value Fund |
1,856,150 | |||
The Growth Fund of America |
1,284,814 | |||
Wachovia Diversified Stable Value |
1,108,253 | |||
PIMCO Total Return Fund |
1,090,435 | |||
Barclays Global Investors Lifepath 2020 |
1,088,993 | |||
Artisan Small Cap Fund |
883,603 | |||
Connecticut Water Services, Inc. common stock |
877,872 | |||
Franklin Balance Sheet Investment Fund |
699,799 | |||
2006 |
||||
MFS Value Fund |
$ | 2,087,450 | ||
American Euro Pacific Growth Fund |
1,736,908 | |||
PIMCO Total Return Fund |
1,366,529 | |||
The Growth Fund of America |
1,295,517 | |||
UBS Stable Value Fund |
1,122,653 | |||
Artisan Small Cap Fund |
968,097 | |||
Vanguard 500 Index |
921,302 | |||
Franklin Balance Sheet Investment Fund |
858,075 | |||
Connecticut Water Service, Inc. common stock |
834,888 | |||
American Balanced Fund |
701,362 |
During 2007 and 2006, the Plans investments (including gains and losses on investments bought and sold as well as held during the year) appreciated in value, net of depreciation, by $231,531 and $845,194, respectively, as follows: |
2007 | 2006 | |||||||
Mutual funds |
$ | 117,550 | $ | 832,837 | ||||
Common stock |
50,272 | (24,047 | ) | |||||
Collective investment trust |
63,709 | 36,404 | ||||||
$ | 231,531 | $ | 845,194 | |||||
4. | Tax Status | |
The Plan obtained its latest determination letter on March 22, 2005, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code (the IRC). The Plan has been amended since receiving the determination letter. However, the Plan administrator believes that the Plan is currently designed and being operated in compliance with the applicable requirements of the IRC and that, therefore, the Plan qualifies under Section 401(a) and the related trust is tax exempt as of December 31, 2007. Therefore, no provision for income taxes has been included in the Plans financial statements. |
8
5. | Related-Party Transactions | |
Section 3(14) of the Employee Retirement Income Security Act of 1974, as amended, defines a party-in-interest to include among others, fiduciaries or employees of the Plan, any person who provides services to the Plan or an employer whose employees are covered by the Plan. Accordingly, loans to participants and investments in Connecticut Water Service, Inc. common stock are considered party-in-interest transactions. The Plan held 51,011 and 56,642 units of the Companys common stock as of December 31, 2007 and 2006, respectively. The fair value of the investment in the Companys common stock was $877,872 and $834,888 as of December 31, 2007 and 2006, respectively. Net appreciation (depreciation) in the Plans investment in Connecticut Water Service, Inc. common stock was $50,272 and $(24,047) for the years ended December 31, 2007 and 2006, respectively. Dividends are reinvested in the Plan when paid. Total dividends paid during the year ended December 31, 2007 and 2006 were $29,832 and $30,180, respectively. | ||
The Plans investment in the Wachovia Bank Diversified Stable Value Fund managed by the Trustee is considered an exempt party-in-interest transaction. | ||
6. | Plan Termination | |
Although it has not expressed any intent to do so, the Company has the right under the Plan document to discontinue its contributions at any time and to terminate the Plan, subject to the provisions of ERISA. | ||
7. | Reconciliation of Financial Statements to Form 5500 | |
The following reconciliations are required as the Plans Form 5500 is prepared using the cash basis of accounting, while the accompanying financial statements are prepared using the accrual basis of accounting. The following is a reconciliation of net assets available for benefits per the financial statements to the Form 5500 at December 31, 2007 and 2006: |
2007 | 2006 | |||||||
Net assets available for benefits per the financial statements |
$ | 13,772,231 | $ | 12,803,468 | ||||
Participant contributions receivable |
| (36,786 | ) | |||||
Employer contributions receivable |
| (7,564 | ) | |||||
Net assets available for benefits per the Form 5500 |
$ | 13,772,231 | $ | 12,759,118 | ||||
The following is a reconciliation of contributions made per the financial statements to the Form 5500 for the year ended December 31, 2007: |
Total contributions per the financial statements |
$ | 1,186,661 | ||
Contributions receivable, current year |
| |||
Contributions receivable, prior year |
44,350 | |||
Total contributions per the Form 5500 |
$ | 1,231,011 | ||
9
Description of Investment | ||||||||||
Including Maturity Date, | ||||||||||
Identity of Issuer, Borrower, | Rate of Interest, Collateral, | Current | ||||||||
Lessor, or Similar Party | Par, or Maturity Value | Cost | Value | |||||||
American EuroPacifc Growth Fund | Mutual Fund | ** | $ | 1,897,307 | ||||||
American Balanced Fund | Mutual Fund | ** | 587,287 | |||||||
Artisan Small Cap Fund | Mutual Fund | ** | 883,603 | |||||||
Barclays Global Investors Lifepath 2010 | Mutual Fund | ** | 422,140 | |||||||
Barclays Global Investors Lifepath 2020 | Mutual Fund | ** | 1,088,993 | |||||||
Barclays Global Investors Lifepath 2030 | Mutual Fund | ** | 502,240 | |||||||
Barclays Global Investors Lifepath 2040 | Mutual Fund | ** | 126,320 | |||||||
Franklin Balance Sheet Investment Fund | Mutual Fund | ** | 699,799 | |||||||
The Growth Fund of America | Mutual Fund | ** | 1,284,814 | |||||||
Vanguard 500 Index Fund | Mutual Fund | ** | 666,768 | |||||||
Vanguard Small Cap Index Fund | Mutual Fund | ** | 142,132 | |||||||
Vanguard Value Index Fund | Mutual Fund | ** | 211,632 | |||||||
MFS Value Fund | Mutual Fund | ** | 1,856,150 | |||||||
PIMCO Total Return Fund | Mutual Fund | ** | 1,090,435 | |||||||
Total
mutual funds
|
11,459,620 | |||||||||
*
|
Connecticut Water Service, Inc. | Common Stock | ** | 877,872 | ||||||
*
|
Wachovia Diversified Stable Value | Common Trust Fund | ** | 1,108,253 | ||||||
Federated Auto Cash Management Trust | Cash Management Asset | ** | 128,747 | |||||||
*
|
Participant Loans | Interest rates ranging from 5.00% to 9.25%, maturing between 2008 and 2012 | ** | 326,486 | ||||||
Total
investments
|
$ | 13,900,978 | ||||||||
* | Indicates a party-in-interest | |
** | Cost information was omitted since all investments are participant directed. |
10
SAVINGS PLAN OF THE CONNECTICUT WATER COMPANY | ||||
Date: July 14, 2008 | By: | /s/ David C. Benoit | ||
Name: | David C. Benoit | |||
Title: | Vice President and Chief Financial Officer, Connecticut Water Company, the Plan Administrator |