CONNECTICUT WATER SERVICE INC / CT, 10-Q filed on 8/9/2011
Quarterly Report
Document and Entity Information (USD $)
6 Months Ended
Jun. 30, 2011
Jun. 30, 2010
Entity Registrant Name
CONNECTICUT WATER SERVICE INC / CT 
 
Entity Central Index Key
0000276209 
 
Current Fiscal Year End Date
--12-31 
 
Entity Well-known Seasoned Issuer
No 
 
Entity Voluntary Filers
No 
 
Entity Current Reporting Status
Yes 
 
Entity Filer Category
Accelerated Filer 
 
Entity Public Float
 
$ 180,060,935 
Entity Common Stock, Shares Outstanding
 
8,722,456 
Document Fiscal Year Focus
2011 
 
Document Fiscal Period Focus
Q2 
 
Document Type
10-Q 
 
Amendment Flag
FALSE 
 
Document Period End Date
Jun. 30, 2011 
 
CONSOLIDATED BALANCE SHEETS (Unaudited) (USD $)
In Thousands
6 Months Ended
Jun. 30, 2011
12 Months Ended
Dec. 31, 2010
ASSETS
 
 
Utility Plant
$ 475,851 
$ 467,589 
Construction Work in Progress
3,562 
4,013 
Gross Utility Plant
479,413 
471,602 
Accumulated Provision for Depreciation
(130,052)
(127,383)
Net Utility Plant
349,361 
344,219 
Other Property and Investments
5,703 
5,568 
Cash and Cash Equivalents
824 
952 
Accounts Receivable (Less Allowance, 2011 - $1,414; 2010 - $1,061)
9,197 
10,135 
Accrued Unbilled Revenues
7,198 
6,344 
Materials and Supplies, at Average Cost
1,228 
1,248 
Prepayments and Other Current Assets
1,981 
1,749 
Total Current Assets
20,428 
20,428 
Restricted Cash
1,226 
1,226 
Unamortized Debt Issuance Expense
7,074 
7,334 
Unrecovered Income Taxes
25,769 
24,696 
Pension Benefits
5,917 
6,296 
Post-Retirement Benefits Other Than Pension
5,298 
5,451 
Goodwill
3,608 
3,608 
Deferred Charges and Other Costs
6,348 
6,385 
Total Regulatory and Other Long-Term Assets
55,240 
54,996 
Total Assets
430,732 
425,211 
CAPITALIZATION AND LIABILITIES
 
 
Common Stockholders' Equity
115,786 
113,191 
Preferred Stock
772 
772 
Long-Term Debt
111,385 
111,675 
Total Capitalization
227,943 
225,638 
Interim Bank Loans Payable
26,426 
26,342 
Accounts Payable and Accrued Expenses
6,799 
6,552 
Accrued Taxes
0 
598 
Accrued Interest
988 
993 
Other Current Liabilities
526 
617 
Total Current Liabilities
34,739 
35,102 
Advances for Construction
36,797 
36,719 
Contributions in Aid of Construction
55,965 
55,761 
Deferred Federal and State Income Taxes
35,198 
34,246 
Unfunded Future Income Taxes
20,714 
19,474 
Long-Term Compensation Arrangements
17,900 
16,747 
Unamortized Investment Tax Credits
1,345 
1,376 
Other Long-Term Liabilities
131 
148 
Total Long-Term Liabilities
168,050 
164,471 
Commitments and Contingencies
 
 
Total Capitalization and Liabilities
$ 430,732 
$ 425,211 
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) (USD $)
In Thousands
Jun. 30, 2011
Dec. 31, 2010
ASSETS
 
 
Allowance
$ 1,414 
$ 1,061 
CONSOLIDATED STATEMENTS OF CAPITALIZATION (Unaudited) (USD $)
In Thousands
Jun. 30, 2011
Dec. 31, 2010
Common Stockholders' Equity
 
 
Common Stock Without Par Value Authorized - 25,000,000 Shares; Shares Issued and Outstanding: 2011 - 8,722,456; 2010 - 8,676,849
$ 72,566 
$ 71,636 
Stock Issuance Expense
1,612 
1,612 
Retained Earnings
45,276 
43,603 
Accumulated Other Comprehensive Loss
(444)
(436)
Total Common Stockholders' Equity
115,786 
113,191 
Preferrred Stock
 
 
Total Preferred Stock of Connecticut Water Services, Inc.
772 
772 
Long-Term Debt
 
 
Total Long-Term Debt
111,385 
111,675 
Total Capitalization
227,943 
225,638 
Cumulative Preferred Stock Series A [Member]
 
 
Preferrred Stock
 
 
Total Preferred Stock of Connecticut Water Services, Inc.
300 
300 
Cumulative Preferred Stock Series $.90 [Member]
 
 
Preferrred Stock
 
 
Total Preferred Stock of Connecticut Water Services, Inc.
472 
472 
Unsecured Water Facilities Revenue Refinancing Bonds Series A Issued 1998, Due 2028 [Member]
 
 
Long-Term Debt
 
 
Total Long-Term Debt
9,560 
9,580 
Unsecured Water Facilities Revenue Refinancing Bonds Series B Issued 1998, Due 2028 [Member]
 
 
Long-Term Debt
 
 
Total Long-Term Debt
7,505 
7,530 
Unsecured Water Facilities Revenue Refinancing Bonds Series A Issued 2003, Due 2020 [Member]
 
 
Long-Term Debt
 
 
Total Long-Term Debt
8,000 
8,000 
Unsecured Water Facilities Revenue Refinancing Bonds Series C Issued 2003, Due 2022 [Member]
 
 
Long-Term Debt
 
 
Total Long-Term Debt
14,795 
14,795 
Unsecured Water Facilities Revenue Refinancing Bonds Series Issued 2004, Due 2029 [Member]
 
 
Long-Term Debt
 
 
Total Long-Term Debt
12,500 
12,500 
Unsecured Water Facilities Revenue Refinancing Bonds Series A Issued 2004, Due 2028 [Member]
 
 
Long-Term Debt
 
 
Total Long-Term Debt
5,000 
5,000 
Unsecured Water Facilities Revenue Refinancing Bonds Series B Issued 2004, Due 2028 [Member]
 
 
Long-Term Debt
 
 
Total Long-Term Debt
4,550 
4,550 
Unsecured Water Facilities Revenue Refinancing Bonds Series A 2005, Due 2040 [Member]
 
 
Long-Term Debt
 
 
Total Long-Term Debt
14,850 
14,885 
Unsecured Water Facilities Revenue Refinancing Bonds Series A Issued 2007, Due 2037 [Member]
 
 
Long-Term Debt
 
 
Total Long-Term Debt
14,625 
14,835 
Unsecured Water Facilities Revenue Refinancing Bonds Series A Issued 2009, Due 2039 [Member]
 
 
Long-Term Debt
 
 
Total Long-Term Debt
$ 20,000 
$ 20,000 
CONSOLIDATED STATEMENTS OF CAPITALIZATION (Unaudited) (Parenthetical) (USD $)
6 Months Ended
Jun. 30, 2011
12 Months Ended
Dec. 31, 2010
Common Stockholders' Equity
 
 
Common Stock, Par Value (in dollars per share)
$ 0 
$ 0 
Common Stock, Shares Authorized (in shares)
25,000,000 
25,000,000 
Common Stock, Shares Issued (in shares)
8,722,456 
8,676,849 
Common Stock, Shares Outstanding (in shares)
8,722,456 
8,676,849 
Cumulative Preferred Stock Series A [Member]
 
 
Preferrred Stock [Abstract]
 
 
Preferred stock, par value per share (in dollars per share)
$ 20 
$ 20 
Preferred stock, shares authorized (in shares)
15,000 
15,000 
Preferred stock, shares issued (in shares)
15,000 
15,000 
Preferred stock, shares outstanding (in shares)
15,000 
15,000 
Preferred stock, redemption price per share (in dollars per share)
$ 21 
$ 21 
Cumulative Preferred Stock Series $.90 [Member]
 
 
Preferrred Stock [Abstract]
 
 
Preferred stock, par value per share (in dollars per share)
$ 16 
$ 16 
Preferred stock, shares authorized (in shares)
50,000 
50,000 
Preferred stock, shares issued (in shares)
29,499 
29,499 
Preferred stock, shares outstanding (in shares)
29,499 
29,499 
Preferred stock, redemption price per share (in dollars per share)
$ 16 
$ 16 
Unsecured Water Facilities Revenue Refinancing Bonds Series A Issued 1998, Due 2028 [Member]
 
 
Long-Term Debt
 
 
Debt instrument, interest rate stated percentage (in hundredths)
5.05% 
5.05% 
Debt instrument, interest rate terms
30 years 
30 years 
Debt instrument, issuance date
1998 
1998 
Debt instrument, maturity date
Dec. 31, 2028 
Dec. 31, 2028 
Unsecured Water Facilities Revenue Refinancing Bonds Series B Issued 1998, Due 2028 [Member]
 
 
Long-Term Debt
 
 
Debt instrument, interest rate stated percentage (in hundredths)
5.125% 
5.125% 
Debt instrument, interest rate terms
30 years 
30 years 
Debt instrument, issuance date
1998 
1998 
Debt instrument, maturity date
Dec. 31, 2028 
Dec. 31, 2028 
Unsecured Water Facilities Revenue Refinancing Bonds Series A Issued 2003, Due 2020 [Member]
 
 
Long-Term Debt
 
 
Debt instrument, interest rate stated percentage (in hundredths)
4.40% 
4.40% 
Debt instrument, interest rate terms
17 years 
17 years 
Debt instrument, issuance date
2003 
2003 
Debt instrument, maturity date
Dec. 31, 2020 
Dec. 31, 2020 
Unsecured Water Facilities Revenue Refinancing Bonds Series C Issued 2003, Due 2022 [Member]
 
 
Long-Term Debt
 
 
Debt instrument, interest rate stated percentage (in hundredths)
5.00% 
5.00% 
Debt instrument, interest rate terms
19 years 
19 years 
Debt instrument, issuance date
2003 
2003 
Debt instrument, maturity date
Dec. 31, 2022 
Dec. 31, 2022 
Unsecured Water Facilities Revenue Refinancing Bonds Series Issued 2004, Due 2029 [Member]
 
 
Long-Term Debt
 
 
Debt instrument, interest rate stated percentage (in hundredths)
 
 
Debt instrument, interest rate terms
25 years 
25 years 
Debt instrument, issuance date
2004 
2004 
Debt instrument, maturity date
Dec. 31, 2029 
Dec. 31, 2029 
Unsecured Water Facilities Revenue Refinancing Bonds Series A Issued 2004, Due 2028 [Member]
 
 
Long-Term Debt
 
 
Debt instrument, interest rate stated percentage (in hundredths)
 
 
Debt instrument, interest rate terms
24 years 
24 years 
Debt instrument, issuance date
2004 
2004 
Debt instrument, maturity date
Dec. 31, 2028 
Dec. 31, 2028 
Unsecured Water Facilities Revenue Refinancing Bonds Series B Issued 2004 Due 2028 [Member]
 
 
Long-Term Debt
 
 
Debt instrument, interest rate stated percentage (in hundredths)
 
 
Debt instrument, interest rate terms
24 years 
24 years 
Debt instrument, issuance date
2004 
2004 
Debt instrument, maturity date
Dec. 31, 2028 
Dec. 31, 2028 
Unsecured Water Facilities Revenue Refinancing Bonds Series A 2005, Due 2040 [Member]
 
 
Long-Term Debt
 
 
Debt instrument, interest rate stated percentage (in hundredths)
5.00% 
5.00% 
Debt instrument, interest rate terms
35 years 
35 years 
Debt instrument, issuance date
2005 
2005 
Debt instrument, maturity date
Dec. 31, 2040 
Dec. 31, 2040 
Unsecured Water Facilities Revenue Refinancing Bonds Series A Issued 2007, Due 2037 [Member]
 
 
Long-Term Debt
 
 
Debt instrument, interest rate stated percentage (in hundredths)
5.00% 
5.00% 
Debt instrument, interest rate terms
30 years 
30 years 
Debt instrument, issuance date
2007 
2007 
Debt instrument, maturity date
Dec. 31, 2037 
Dec. 31, 2037 
Unsecured Water Facilities Revenue Refinancing Bonds Series A Issued 2009, Due 2039 [Member]
 
 
Long-Term Debt
 
 
Debt instrument, interest rate stated percentage (in hundredths)
5.10% 
5.10% 
Debt instrument, interest rate terms
30 years 
30 years 
Debt instrument, issuance date
2009 
2009 
Debt instrument, maturity date
Dec. 31, 2039 
Dec. 31, 2039 
CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (USD $)
In Thousands, except Per Share data
3 Months Ended
Jun. 30,		 6 Months Ended
Jun. 30,
2011
2010
2011
2010
Income Statement [Abstract]
 
 
 
 
Operating Revenues
$ 17,359 
$ 15,901 
$ 33,348 
$ 29,702 
Operating Expenses
 
 
 
 
Operation and Maintenance
7,827 
8,001 
15,837 
16,091 
Depreciation
1,912 
1,734 
3,784 
3,415 
Income Taxes
1,783 
1,120 
2,885 
1,529 
Taxes Other Than Income Taxes
1,467 
1,505 
3,112 
3,023 
Total Operating Expenses
12,989 
12,360 
25,618 
24,058 
Net Operating Revenues
4,370 
3,541 
7,730 
5,644 
Other Utility Income, Net of Taxes
210 
173 
388 
353 
Total Utility Operating Income
4,580 
3,714 
8,118 
5,997 
Other Income (Deductions), Net of Taxes
 
 
 
 
Non-Water Sales Earnings
219 
200 
412 
436 
Allowance for Funds Used During Construction
39 
20 
70 
51 
Other
43 
(152)
(91)
(265)
Total Other Income, Net of Taxes
301 
68 
391 
222 
Interest and Debt Expense
 
 
 
 
Interest on Long-Term Debt
1,141 
1,162 
2,290 
2,329 
Other Interest Charges
164 
193 
269 
279 
Amortization of Debt Expense
106 
115 
212 
229 
Total Interest and Debt Expense
1,411 
1,470 
2,771 
2,837 
Net Income
3,470 
2,312 
5,738 
3,382 
Preferred Stock Dividend Requirement
10 
10 
19 
19 
Net Income Applicable to Common Stock
$ 3,460 
$ 2,302 
$ 5,719 
$ 3,363 
Weighted Average Common Shares Outstanding:
 
 
 
 
Basic (in shares)
8,601 
8,522 
8,590 
8,512 
Diluted (in shares)
8,710 
8,624 
8,702 
8,612 
Earnings Per Common Share:
 
 
 
 
Basic (in dollars per share)
$ 0.41 
$ 0.28 
$ 0.67 
$ 0.40 
Diluted (in dollars per share)
$ 0.40 
$ 0.27 
$ 0.66 
$ 0.39 
Dividends Per Common Share (in dollars per share)
$ 0.2325 
$ 0.2275 
$ 0.465 
$ 0.455 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (USD $)
In Thousands
3 Months Ended
Jun. 30,		 6 Months Ended
Jun. 30,
2011
2010
2011
2010
Other Comprehensive Income [Abstract]
 
 
 
 
Net Income Applicable to Common Stock
$ 3,460 
$ 2,302 
$ 5,719 
$ 3,363 
Other Comprehensive Income, net of tax
 
 
 
 
Qualified Cash Flow Hedging Instrument Expense, net of tax benefit of $0 in 2011 and 2010
0 
0 
1 
1 
Adjustment to Pension and Post-Retirement Benefits Other Than Pension, net of tax expense of $1 in 2011 and 2010
(2)
0 
(8)
(1)
Unrealized loss on investments, net of tax benefit of $2 in 2011 and $35 in 2010
(3)
(55)
(1)
(33)
Comprehensive Income
$ 3,455 
$ 2,247 
$ 5,711 
$ 3,330 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) (Parenthetical) (USD $)
In Thousands
3 Months Ended
Jun. 30,		 6 Months Ended
Jun. 30,
2011
2010
2011
2010
Other Comprehensive Income, net of tax
 
 
 
 
Qualified Cash Flow Hedging Instrument Expense, Tax
$ 0 
$ 0 
$ 0 
$ 0 
Adjustment to Pension and Post-Retirement Benefits Other Than Pension, Tax
1 
1 
5 
1 
Unrealized (loss)/gain on investments, Tax
$ 2 
$ 35 
$ 1 
$ 21 
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Unaudited) (USD $)
In Thousands
3 Months Ended
Jun. 30,		 6 Months Ended
Jun. 30,
2011
2010
2011
2010
Balance at Beginning of Period
$ 43,841 
$ 40,890 
$ 43,603 
$ 41,785 
Net Income
3,470 
2,312 
5,738 
3,382 
[RetainedEarningsBeforeDividends]
47,311 
43,202 
49,341 
45,167 
Dividends Declared:
 
 
 
 
Common Stock - 2011 $0.2325 per share; 2010 $0.2275 per share
2,025 
1,961 
4,046 
3,917 
[Dividends]
2,035 
1,971 
4,065 
3,936 
Balance at End of Period
45,276 
41,231 
45,276 
41,231 
Cumulative Preferred Stock
 
 
 
 
Dividends Declared:
 
 
 
 
Cumulative Preferred
7 
7 
13 
13 
Series A Voting
 
 
 
 
Dividends Declared:
 
 
 
 
Cumulative Preferred
$ 3 
$ 3 
$ 6 
$ 6 
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Unaudited) (Parenthetical)
3 Months Ended
Jun. 30,		 6 Months Ended
Jun. 30,
2011
2010
2011
2010
Dividends Declared:
 
 
 
 
Common Stock (in dollars per share)
$ 0.2325 
$ 0.2275 
$ 0.465 
$ 0.455 
Cumulative Preferred Stock
 
 
 
 
Dividends Declared:
 
 
 
 
Preferred Stock (in dollars per share)
$ 0.225 
$ 0.225 
$ 0.45 
$ 0.45 
Series A Voting
 
 
 
 
Dividends Declared:
 
 
 
 
Preferred Stock (in dollars per share)
$ 0.20 
$ 0.20 
$ 0.40 
$ 0.40 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)
In Thousands
6 Months Ended
Jun. 30,
2011
2010
Operating Activities:
 
 
Net Income
$ 5,738 
$ 3,382 
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
 
 
Deferred Revenues
119 
119 
Allowance for Funds Used During Construction
(70)
(85)
Depreciation (including $403 in 2011, $401 in 2010 charged to other accounts)
4,187 
3,816 
Change in Assets and Liabilities:
 
 
Decrease (Increase) in Accounts Receivable and Accrued Unbilled Revenues
83 
(3,710)
Increase in Prepayments and Other Current Assets
(212)
(1,060)
Decrease in Other Non-Current Items
1,929 
1,916 
(Decrease) Increase in Accounts Payable, Accrued Expenses and Other Current Liabilities
(1,204)
14 
Increase in Deferred Income Taxes and Investment Tax Credits, Net
1,088 
837 
Total Adjustments
5,920 
1,847 
Net Cash and Cash Equivalents Provided by Operating Activities
11,658 
5,229 
Investing Activities:
 
 
Company Financed Additions to Utility Plant
(8,185)
(11,693)
Advances from Others for Construction
(269)
(118)
Net Additions to Utility Plant Used in Continuing Operations
(8,454)
(11,811)
Purchase of Customer Contracts
0 
(900)
Purchase of water systems, net of cash acquired of $0 in 2010
0 
(297)
Release of restricted cash
0 
3,300 
Net Cash and Cash Equivalents Used in Investing Activities
(8,454)
(9,708)
Financing Activities:
 
 
Proceeds from Interim Bank Loans
26,426 
27,942 
Repayment of Interim Bank Loans
(26,342)
(25,000)
Proceeds from Issuance of Common Stock
670 
486 
Proceeds from the Exercise of Stock Options
0 
102 
Costs Incurred to Issue Long-Term Debt and Common Stock
0 
(1)
Repayment of Long-Term Debt Including Current Portion
(290)
(215)
Advances from Others for Construction
269 
118 
Cash Dividends Paid
(4,065)
(3,936)
Net Cash and Cash Equivalents Used in Financing Activities
(3,332)
(504)
Net Decrease in Cash and Cash Equivalents
(128)
(4,983)
Cash and Cash Equivalents at Beginning of Period
952 
5,437 
Cash and Cash Equivalents at End of Period
824 
454 
Non-Cash Investing and Financing Activities:
 
 
Non-Cash Contributed Utility Plant
135 
129 
Short-term Investment of Bond Proceeds Held in Restricted Cash
1,226 
9,391 
Cash Paid for:
 
 
Interest
2,719 
2,629 
State and Federal Income Taxes
$ 2,425 
$ 1,376 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Parenthetical) (USD $)
In Thousands
6 Months Ended
Jun. 30,
2011
2010
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
 
 
Depreciation charged to other accounts
$ 403 
$ 401 
Investing Activities:
 
 
Purchase of water systems, net of cash acquired
$ 0 
$ 0 
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies

The consolidated financial statements included herein have been prepared by CONNECTICUT WATER SERVICE, INC. AND SUBSIDIARIES (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission and reflect all adjustments that are of a normal recurring nature which are, in the opinion of management, necessary to a fair statement of the results for interim periods.  Certain information and footnote disclosures have been omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.  The Balance Sheet at December 31, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements.  It is suggested that these consolidated financial statements be read in conjunction with the financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2010 and as updated in the Company’s Quarterly Report on Form 10-Q for the period ended March 31, 2011.

The results for interim periods are not necessarily indicative of results to be expected for the year since the consolidated earnings are subject to seasonal factors.
Pension and Other Post-Retirement Benefits
Pension and Other Post-Retirement Benefits
2.  Pension and Other Post-Retirement Benefits

The following tables set forth the components of pension and other post-retirement benefit costs for the three and six months ended June 30, 2011 and 2010.

Pension Benefits
Components of Net Periodic Cost (in thousands):

   
Three Months
  
Six Months
 
Period ended June 30
 
2011
  
2010
  
2011
  
2010
 
Service Cost
 $318  $425  $761  $834 
Interest Cost
  522   545   1,067   1,087 
Expected Return on Plan Assets
  (553)  (615)  (1,228)  (1,254)
Amortization of:
                
Transition Obligation
  1   --   1   1 
Prior Service Cost
  17   18   34   35 
Net Loss
  156   163   344   301 
Net Periodic Benefit Cost
 $461  $536  $979  $1,004 

The Company expects to make contributions totaling $1.2 million throughout 2011 for the 2010 plan year.

Post-Retirement Benefits Other Than Pension (PBOP)
Components of Net Periodic Cost (in thousands):

   
Three Months
  
Six Months
 
Period ended June 30
 
2011
  
2010
  
2011
  
2010
 
Service Cost
 $159  $142  $346  $283 
Interest Cost
  154   152   333   287 
Expected Return on Plan Assets
  (59)  (76)  (134)  (153)
Other
  56   56   112   112 
Amortization of:
                
Prior Service Cost
  (163)  (102)  (264)  (203)
Recognized Net Loss
  144   99   304   165 
Net Periodic Benefit Cost
 $291  $271  $697  $491 

On May 16, 2011, the Company notified participants in the PBOP plan of an amendment that would limit the life-time benefits of participants to $100,000, effective July 1, 2011.  As of the date of the notice, May 16, 2011, the Company and its actuary began to account for the change in life-time benefits.  The change in benefits resulted in a decrease in expense of $113,000 in the second quarter of 2011.
Earnings per Share
Earnings per Share
3.  Earnings per Share

Earnings per weighted average common share are calculated by dividing net income applicable to common stock by the weighted average number of shares of common stock outstanding during the respective periods as detailed below (diluted shares include the effect of unexercised stock options):

Three months ended June 30,
 
2011
  
2010
 
        
Common Shares Outstanding End of Period:
  8,722,456   8,639,859 
Weighted Average Shares Outstanding (Days Outstanding Basis):
        
Basic
  8,600,905   8,521,840 
Diluted
  8,710,043   8,624,319 
          
Basic Earnings per Share
 $0.41  $0.28 
Dilutive Effect of Unexercised Stock Options
  (0.01)  (0.01)
Diluted Earnings per Share
 $0.40  $0.27 
          
Six Months ended June 30,
        
Weighted Average Shares Outstanding (Days Outstanding Basis):
        
Basic
  8,589,949   8,512,120 
Diluted
  8,702,083   8,611,917 
          
Basic Earnings per Share
 $0.67  $0.40 
Dilutive Effect of Unexercised Stock Options
  (0.01)  (0.01)
Diluted Earnings per Share
 $0.66  $0.39 
          
 
Total unrecognized compensation expense for all stock awards was approximately $0.8 million as of June 30, 2011 and will be recognized over the next three years.
New Accounting Pronouncements
New Accounting Pronouncements
4.  New Accounting Pronouncements

There were no recently issued accounting standards that could potentially have a significant impact on our financial statement or the notes thereto.
Fair Value Disclosures
Fair Value Disclosures
5.  Fair Value Disclosures

FASB Accounting Standards Codifications (“ASC”) 820, “Fair Value Measurements and Disclosures” (“FASB ASC 820”) provides enhanced guidance for using fair value to measure assets and liabilities and expands disclosure with respect to fair value measurements.

FASB ASC 820 establishes a fair value hierarchy that distinguishes between assumptions based on market data (observable inputs) and the Company’s assumptions (unobservable inputs).  The hierarchy consists of three broad levels, as follows:

Level 1 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 – Inputs other than Level 1 that are either directly or indirectly observable.
Level 3 – Unobservable inputs developed using the Company’s estimates and assumptions, which reflect those that the Company believes market participants would use.

The following table summarizes our financial instruments measured at fair value on a recurring basis within the fair value hierarchy as of June 30, 2011:

(in thousands)
 
Level 1
  
Level 2
  
Level 3
 
Asset Type:
         
Money Market Fund
 $130  $--  $-- 
Mutual Funds:
            
Equity Funds (1)
  736   --   -- 
Total
 $866  $--  $-- 

The following table summarizes our financial instruments measured at fair value on a recurring basis within the fair value hierarchy as of December 31, 2010:

(in thousands)
 
Level 1
  
Level 2
  
Level 3
 
Asset Type:
         
Money Market Fund
 $107  $--  $-- 
Mutual Funds:
            
Equity Funds (1)
  494   --   -- 
Index Funds (2)
  160   --   -- 
Total
 $761  $--  $-- 

(1)  
Mutual funds consisting primarily of equity securities.
(2)  
Mutual funds consisting primarily of funds linked to indices.

The following methods and assumptions were used to estimate the fair value of each of the following financial instruments, which are not reported at market value on the financial statements.
 
 
- 11 -
 
Connecticut Water Service, Inc. and Subsidiaries
 
Cash and cash equivalents – Cash equivalents consist of highly liquid instruments with original maturities at the time of purchase of three months or less.  The carrying amount approximates fair value.
 
Restricted Cash – As part of the Company’s December 2009 bond offering, the Company recorded unused proceeds from this bond issuance as restricted cash as the funds can only be used for certain capital expenditures.  The Company expects to use the remainder of the proceeds during the remainder of 2011, as the approved capital expenditures are completed.  The carrying amount approximates fair value.

Long-Term Debt – The fair value of the Company's fixed rate long-term debt is based upon borrowing rates currently available to the Company.  As of June 30, 2011 and December 31, 2010, the estimated fair value of the Company's long-term debt was $107,380,000 and $105,713,000, respectively, as compared to the carrying amounts of $111,385,000 and $111,675,000, respectively.

The fair values shown above have been reported to meet the disclosure requirements of accounting principles generally accepted in the United States and do not purport to represent the amounts at which those obligations would be settled.
Segment Reporting
Segment Reporting
6.  Segment Reporting

The Company operates principally in three business segments: Water Activities, Real Estate Transactions, and Services and Rentals.  Financial data for the segments is as follows (in thousands):

Three Months Ended June 30, 2011
 
Segment
 
Revenues
  
Pre-Tax Income
  
Income Tax Expense
  
Net Income
 
Water Activities
 $17,725  $5,072  $1,821  $3,251 
Real Estate Transactions
  --   --   --   -- 
Services and Rentals
  1,096   369   150   219 
Total
 $18,821  $5,441  $1,971  $3,470 

Three Months Ended June 30, 2010
 
Segment
 
Revenues
  
Pre-Tax Income
  
Income Tax Expense
  
Net Income
 
Water Activities
 $16,205  $3,261  $1,149  $2,112 
Real Estate Transactions
  --   --   --   -- 
Services and Rentals
  1,267   340   140   200 
Total
 $17,472  $3,601  $1,289  $2,312 

Six Months Ended June 30, 2011
 
Segment
 
Revenues
  
Pre-Tax Income
  
Income Tax Expense
  
Net Income
 
Water Activities
 $34,048  $8,329  $3,003  $5,326 
Real Estate Transactions
  --   --   --   -- 
Services and Rentals
  2,263   698   286   412 
Total
 $36,311  $9,027  $3,289  $5,738 

Six Months Ended June 30, 2010
 
Segment
 
Revenues
  
Pre-Tax Income
  
Income Tax Expense
  
Net Income
 
Water Activities
 $30,337  $4,550  $1,604  $2,946 
Real Estate Transactions
  --   --   --   -- 
Services and Rentals
  2,347   734   298   436 
Total
 $32,684  $5,284  $1,902  $3,382 

The revenues shown in Water Activities above consist of revenues from water customers of $17,359,000 and $15,901,000 for the three months ended June 30, 2011 and 2010, respectively.  Additionally, there were revenues associated with utility plant leased to others of $366,000 and $304,000 for the three months ended June 30, 2011 and 2010, respectively.  The revenues shown in Water Activities above consist of revenues from water customers of $33,348,000 and $29,702,000 for the six months ended June 30, 2011 and 2010, respectively.  Additionally, there were revenues associated with utility plant leased to others of $700,000 and $635,000 for the six months ended June 30, 2011 and 2010, respectively.

The Company owns various small, discrete parcels of land that are no longer required for water supply purposes.  From time to time, the Company may sell or donate these parcels, depending on various factors, including the current market for land, the amount of tax benefits received for donations and the Company’s ability to use any benefits received from donations.  During the six months ended June 30, 2011 and 2010, the Company did not engage in any such transactions.
 
 
- 12 -
 
Connecticut Water Service, Inc. and Subsidiaries
 
Assets by segment (in thousands):

   
June 30, 2011
  
December 31, 2010
 
Total Plant and Other Investments:
      
Water Activities
 $354,449  $349,221 
Non-Water
  615   566 
    355,064   349,787 
Other Assets:
        
Water Activities
  73,789   72,600 
Non-Water
  1,879   2,824 
    75,668   75,424 
Total Assets
 $430,732  $425,211 

Income Taxes
Income Taxes
7.  Income Taxes

FASB ASC 740 “Income Taxes” (“FASB ASC 740”) addresses the determination of how tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FASB ASC 740, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The reassessment of the Company’s tax positions in accordance with FASB ASC 740 did not have an impact on the Company’s results of operations, financial condition or liquidity.

From time to time, the Company may be assessed interest and penalties by taxing authorities.  In those cases, the charges would appear on the Other line item on the Income Statement.  There were no such charges for the six month periods ended June 30, 2011 and 2010.  Additionally, there were no accruals relating to interest or penalties as of June 30, 2011 and December 31, 2010.  The Company remains subject to examination by state and federal authorities for the 2007 through 2009 tax years.  The Internal Revenue Service commenced an examination of the Company’s federal income tax return for the 2009 tax year during the second quarter of 2011.  The Company believes that the final outcome of this examination will not have a material effect on the Company’s results of operations.

The Company’s estimated annual effective income tax rate for the first six months of 2011 and 2010, exclusive of discrete items, was 36.4% and 36.0%, respectively.  The statutory income tax rates during the same periods were 39%.  In determining its annual estimated effective tax rate for interim periods, the Company reflects its estimated permanent and flow-through tax differences for the taxable year.  The primary flow-through difference causing the effective rate to be less than the statutory rate in 2011 and 2010 is the difference between book and tax depreciation.
Lines of Credit
Lines of Credit
8.  Lines of Credit

In November 2008, the Company was authorized by its Board of Directors to increase the available lines of credit from $21 million to $40 million.  On June 30, 2009, the Company let expire one line of credit totaling $6 million and entered into a new $15 million line of credit agreement, which was to expire on June 25, 2011 but was extended in late June 2011 until August 25, 2011.  On July 26, 2011, the Company extended the maturity date of this line to June 25, 2013.  On August 12, 2009, the Company replaced an existing $3 million line of credit with a $10 million line of credit, which expires on August 10, 2013.  Finally, on September 15, 2009, the Company increased a third line of credit from $12 million to $15 million, with an expiration date of June 1, 2013.  The Company expects to renew the lines of credit annually, with a rolling two year expiration date.  The outstanding aggregate balance on these lines of credit was $26.4 million and $26.3 million as of June 30, 2011 and December 31, 2010, respectively, and are included in the Interim Bank Loans Payable line of the Balance Sheet.  Interest expense charged on interim bank loans will fluctuate based on market interest rates.
Subsequent Event
Schedule Of Subsequent Events
9.  Subsequent Event

On July 27, 2011, the Company announced that it had entered into an agreement on July 26th with Aqua America, Inc. ("AA") to purchase all of the outstanding shares of Aqua Maine, Inc. ("AM"), a wholly-owned subsidiary of AA, for approximately $35.8 million, subject to certain adjustments at closing, including approximately $17.7 million of long-term debt as of December 31, 2010, reflecting a total enterprise value of approximately $53.5 million.  AM is a public water utility regulated by the Maine Public Utilities Commission ("MPUC") that serves approximately 16,000 customers in 11 water systems in the State of Maine.  The acquisition is consistent with our growth strategy and will make Connecticut Water the largest U.S. based publicly-traded water utility company in New England.  The acquisition expands our footprint into another New England state, providing some diversity with respect to weather and regulatory climate and ratemaking.  Furthermore, by expanding out of Connecticut, the Company can stagger the timing and location of its rate increase requests and provide shareholders with timely rate recovery and revenue growth.  Upon closing, the Company will account for the acquisition in accordance with FASB ASC 805 “Business Combinations”, which requires that all acquired assets and liabilities be adjusted to fair value as of the date of the closing.  The acquisition is subject to approval by the MPUC and the receipt of necessary financing.  The Company expects that the permanent financing for the transaction will be a combination of long and short-term debt and equity.  The Company expects that the acquisition will close in the first quarter of 2012.