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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D. C. 20549
 Form 10-K
 þ
    
    Annual Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
 for the
fiscal year ended December 31, 2006
 or
 o
    
    Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
 for the transition period from to
 Commission File Number 0-8084
 Connecticut Water Service, Inc.
  Connecticut
    
    06-0739839(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)93 West Main Street, Clinton, CT
    
    06413(Address of principal executive office)
    
    (Zip Code)
 (860) 669-8636
  Title of each Class
    
    Name of each exchange on which registeredCommon Stock, without par value
    
    The Nasdaq Stock Market, LLC
 None
 o þ
 o þ
 þ o
 þ
  o þ o
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE
 Part of Form 10-K Into WhichDocument
    
    Document is IncorporatedDefinitive Proxy Statement, dated
March 26, 2007, for Annual Meeting
of Shareholders to be held on
May 8, 2007.
    
    Part III




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##### 



INDEX TO ANNUAL REPORT ON FORM 10-K
Year Ended December 31, 2006
 PageNumberPart IItem 1. Business
    
    
    3Item 1A. Risk Factors
    
    
    9Item 1B. Unresolved Staff Comments
    
    
    11Item 2. Properties
    
    
    12Item 3. Legal Proceedings
    
    
    13Item 4. Submission of Matters to a Vote of Security Holders
    
    
    13Part IIItem 5. Market for the Companys Common Stock, Related Stockholder
Matters, and Issuer Purchases of Equity Securities
    
    
    14Item 6. Selected Financial Data
    
    
    16Item 7. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    17Item 7A. Quantitative and Qualitative Disclosure About Market Risk
    
    
    31Item 8. Financial Statements and Supplementary Data
    
    
    32Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    32Item 9A. Controls and Procedures
    
    
    32Item 9B. Other Information
    
    
    33Part IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    34Item 11. Executive Compensation
    
    
    35Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    
    35Item 13. Certain Relationships and Related Transactions, and Director
Independence
    
    
    35Item 14. Principal Accounting Fees and Services
    
    
    35Part IVItem 15. Exhibits, Financial Statement Schedules
    
    
    36Signatures
    
    
    38EX-10.27: EMPLOYEE CODE OF CONDUCTEX-21: SUBSIDIARIESEX-23.1: CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMEX-31.1: CERTIFICATIONEX-31.2: CERTIFICATIONEX-32.1: CERTIFICATIONEX-32.2: CERTIFICATION




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3  
 PART I
 
 ITEM 1. BUSINESS
 The Company




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4  
    
    Code of Conduct  Board of Directors
    
    Code of Conduct  Employees
    
    Audit Committee Charter
    
    Compensation Committee Charter
    
    Corporate Governance Committee Charter
  Our Regulated Business




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5    Year of Prior
    
    Allowed
    
    AllowedRate
    
    Return on
    
    Return onDecision
    
    Equity
    
    Rate BaseConnecticut Water
    
    
    1991
    
    
    
    12.7
    %
    
    
    10.74
    %Crystal
    
    
    2005
    
    
    
    10.0
    %
    
    
    7.55
    %Unionville
    
    
    1999
    **
    
    
    12.35
    %
    
    
    N/A
    *
 
 *
    
    Unionvilles rates were based on a return on equity methodology, not a rate base
methodology.**
    
    Beginning mid-2003, Unionville began imposing a 30% surcharge on its customers water bills to
recover financing and operating costs related to the construction and use of a water
interconnection with a neighboring water supplier. Our Water Systems




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6   2006
    
    
    2005
    
    
    2004Customers:Residential
    
    
    74,253
    
    
    
    72,968
    
    
    
    71,877Commercial
    
    
    5,485
    
    
    
    5,333
    
    
    
    5,248Industrial
    
    
    429
    
    
    
    428
    
    
    
    430Public Authority
    
    
    587
    
    
    
    580
    
    
    
    586Fire Protection
    
    
    1,562
    
    
    
    1,526
    
    
    
    1,494Other (including non-
metered accounts)
    
    
    931
    
    
    
    928
    
    
    
    928Total
    
    
    83,247
    
    
    
    81,763
    
    
    
    80,563Water Revenues ($000s)Residential
    
    $
    29,067
    
    
    $
    29,980
    
    
    $
    28,974Commercial
    
    
    5,652
    
    
    
    5,619
    
    
    
    5,479Industrial
    
    
    1,589
    
    
    
    1,538
    
    
    
    1,635Public Authority
    
    
    1,507
    
    
    
    1,625
    
    
    
    1,430Fire Protection
    
    
    8,708
    
    
    
    8,267
    
    
    
    8,087Other (including non-
metered accounts)
    
    
    422
    
    
    
    424
    
    
    
    403Total
    
    $
    46,945
    
    
    $
    47,453
    
    
    $
    46,008Customer Water Consumption (millions of gallons)Residential
    
    
    4,933
    
    
    
    5,260
    
    
    
    5,008Commercial
    
    
    1,198
    
    
    
    1,188
    
    
    
    1,172Industrial
    
    
    424
    
    
    
    423
    
    
    
    453Public Authority
    
    
    363
    
    
    
    405
    
    
    
    348Fire Protection
    
    
    
    
    
    
    
    
    
    
    Other (including non-
metered accounts)
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    6,918
    
    
    
    7,276
    
    
    
    6,981
 Segments of Our Business .




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7 Competition
  Employees
  Segments of Our Business




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8     Income (Loss) from Real Estate Transactions fromContinuing OperationsRegulated
    
    Unregulated
    
    Total2004
    
    $
    1,206,000
    
    
    $
    
    
    
    $
    1,206,0002005
    
    $
    (69,000
    )
    
    $
    8,000
    
    
    $
    (61,000
    )2006
    
    $
    1,083,000
    
    
    $
    980,000
    
    
    $
    2,063,000
 Linebacker ®




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9 
 ITEM 1A. RISK FACTORS
  Because we incur significant capital expenditures annually, we depend on the rates we charge our
customers.
  Our operating costs could be significantly increased because of state and federal environmental and
health and safety laws and regulations.




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10  Our business is subject to seasonal fluctuations which could affect demand for our water services
and our revenues.
  Potential drought conditions may impact our ability to serve our current and future customers uses
of water and our financial results.
  Any future acquisitions we may undertake may involve risks and uncertainties.
  
    
    dilutive issuances of our equity securities;
    
    incurrence of debt and contingent liabilities;
    
    failure to have effective internal control over financial reporting;
    
    fluctuations in quarterly results; and
    
    other acquisition-related expenses.




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11  Water supply contamination may adversely affect our business.
  The need to increase security may continue to increase our operating costs.
  Key employee turnover may adversely affect our operating results.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS




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12 
 ITEM 2. PROPERTIES




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13 ESTIMATEDAVAILABLE SUPPLY(MILLION GALLONS PER DAY)Chester System
    
    
    1.69Collinsville System
    
    
    0.65Danielson System
    
    
    3.76Gallup System
    
    
    0.60Guilford System
    
    
    9.31Naugatuck System
    
    
    6.91Northern Western System
    
    
    16.16Plainfield System
    
    
    1.01Somers System
    
    
    0.28Stafford System
    
    
    1.00Terryville System
    
    
    0.94Thomaston System
    
    
    0.73Thompson System
    
    
    0.29Unionville System
    
    
    3.88Total
    
    
    47.21
   
 ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS




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14 
 PART II
 
 ITEM 5. MARKET FOR THE COMPANYS COMMON STOCK, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES
OF EQUITY SECURITIES
  Price
    
    DividendsPeriod
    
    High
    
    Low
    
    Paid2006First Quarter
    
    $
    26.43
    
    
    $
    23.81
    
    
    $
    .2125Second Quarter
    
    
    27.71
    
    
    
    20.29
    
    
    
    .2125Third Quarter
    
    
    24.39
    
    
    
    21.90
    
    
    
    .2150Fourth Quarter
    
    
    23.18
    
    
    
    21.35
    
    
    
    .21502005First Quarter
    
    $
    27.53
    
    
    $
    24.75
    
    
    
    .2100Second Quarter
    
    
    25.87
    
    
    
    21.91
    
    
    
    .2100Third Quarter
    
    
    28.17
    
    
    
    24.27
    
    
    
    .2125Fourth Quarter
    
    
    26.32
    
    
    
    22.69
    
    
    
    .2125
   Purchases of Equity Securities by the Company
 Performance Graph




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15 COMPARISON
OF CUMULATIVE FIVE YEAR TOTAL RETURN
 
 2001
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006Connecticut Water Service, Inc.
    
    
    100
    
    
    
    87.97
    
    
    
    99.35
    
    
    
    98.19
    
    
    
    93.92
    
    
    
    90.45Standard & Poors 500 Index
    
    
    100
    
    
    
    77.90
    
    
    
    100.25
    
    
    
    111.15
    
    
    
    116.61
    
    
    
    135.03Standard & Poors 500
Utilities Index
    
    
    100
    
    
    
    70.01
    
    
    
    88.39
    
    
    
    109.85
    
    
    
    128.35
    
    
    
    155.29




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16 
 ITEM 6. SELECTED FINANCIAL INFORMATION
 SUPPLEMENTAL INFORMATION (Unaudited)
 SELECTED FINANCIAL DATA
 Years Ended December 31,
(thousands of dollars except per shareamounts and where otherwise indicated)
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002CONSOLIDATED STATEMENTS OF INCOMEContinuing OperationsOperating Revenues
    
    $
    46,945
    
    
    $
    47,453
    
    
    $
    46,008
    
    
    $
    44,598
    
    
    $
    43,278Operating Expenses
    
    $
    39,962
    
    
    $
    37,486
    
    
    $
    35,487
    
    
    $
    33,380
    
    
    $
    31,917Other Utility Income, Net of Taxes
    
    $
    542
    
    
    $
    571
    
    
    $
    520
    
    
    $
    465
    
    
    $
    316Total Utility Operating Income
    
    $
    7,525
    
    
    $
    10,538
    
    
    $
    11,041
    
    
    $
    11,683
    
    
    $
    11,677Interest and Debt Expense
    
    $
    4,461
    
    
    $
    3,583
    
    
    $
    3,451
    
    
    $
    4,369
    
    
    $
    4,241Income from Continuing Operations
    
    $
    6,708
    
    
    $
    7,166
    
    
    $
    9,163
    
    
    $
    8,890
    
    
    $
    8,318Cash Common Stock Dividends Paid
    
    $
    7,014
    
    
    $
    6,773
    
    
    $
    6,641
    
    
    $
    6,529
    
    
    $
    6,277Dividend Payout Ratio from Continuing Operations
    
    
    105
    %
    
    
    95
    %
    
    
    72
    %
    
    
    73
    %
    
    
    75
    %Weighted Average Common Shares Outstanding
    
    
    8,227,953
    
    
    
    8,094,346
    
    
    
    7,999,318
    
    
    
    7,956,426
    
    
    
    7,717,608Basic Earnings Per Common Share from Continuing Operations
    
    $
    0.81
    
    
    $
    0.89
    
    
    $
    1.15
    
    
    $
    1.12
    
    
    $
    1.08Number of Shares Outstanding at Year End
    
    
    8,270,394
    
    
    
    8,169,627
    
    
    
    8,035,199
    
    
    
    7,967,379
    
    
    
    7,939,713ROE on Year End Common Equity
    
    
    7.0
    %
    
    
    7.6
    %
    
    
    10.4
    %
    
    
    10.7
    %
    
    
    10.4
    %Declared Common Dividends Per Share
    
    $
    0.855
    
    
    $
    0.845
    
    
    $
    0.835
    
    
    $
    0.825
    
    
    $
    0.814CONSOLIDATED BALANCE SHEETCommon Stockholders Equity
    
    $
    95,938
    
    
    $
    94,076
    
    
    $
    87,865
    
    
    $
    83,315
    
    
    $
    79,975Long-Term Debt
    
    
    77,347
    
    
    
    77,404
    
    
    
    66,399
    
    
    
    64,754
    
    
    
    64,734Preferred Stock (Consolidated, Excluding Current Maturities)
    
    
    772
    
    
    
    847
    
    
    
    847
    
    
    
    847
    
    
    
    847Total Capitalization
    
    $
    174,057
    
    
    $
    172,327
    
    
    $
    155,111
    
    
    $
    148,916
    
    
    $
    145,556Stockholders Equity (Includes Preferred Stock)
    
    
    56
    %
    
    
    55
    %
    
    
    57
    %
    
    
    57
    %
    
    
    56
    %Long-Term Debt
    
    
    44
    %
    
    
    45
    %
    
    
    43
    %
    
    
    43
    %
    
    
    44
    %Net Utility Plant
    
    $
    263,187
    
    
    $
    247,703
    
    
    $
    241,776
    
    
    $
    235,098
    
    
    $
    229,097Total Assets
    
    $
    315,193
    
    
    $
    306,035
    
    
    $
    290,940
    
    
    $
    281,345
    
    
    $
    264,799Book Value  Per Common Share
    
    $
    11.60
    
    
    $
    11.52
    
    
    $
    10.94
    
    
    $
    10.46
    
    
    $
    10.07OPERATING REVENUES BY
REVENUE CLASSResidential
    
    $
    29,067
    
    
    $
    29,980
    
    
    $
    28,974
    
    
    $
    27,831
    
    
    $
    27,310Commercial
    
    
    5,652
    
    
    
    5,619
    
    
    
    5,479
    
    
    
    5,327
    
    
    
    5,141Industrial
    
    
    1,589
    
    
    
    1,538
    
    
    
    1,635
    
    
    
    1,616
    
    
    
    1,709Public Authority
    
    
    1,507
    
    
    
    1,625
    
    
    
    1,430
    
    
    
    1,302
    
    
    
    1,245Fire Protection
    
    
    8,708
    
    
    
    8,267
    
    
    
    8,087
    
    
    
    8,026
    
    
    
    7,355Other (Including Non-Metered Accounts)
    
    
    422
    
    
    
    424
    
    
    
    403
    
    
    
    496
    
    
    
    518Total Operating Revenues
    
    $
    46,945
    
    
    $
    47,453
    
    
    $
    46,008
    
    
    $
    44,598
    
    
    $
    43,278Number of Customers (Average)
    
    
    82,552
    
    
    
    81,211
    
    
    
    87,259
    
    
    
    86,145
    
    
    
    82,119Billed Consumption (Millions of Gallons)
    
    
    6,918
    
    
    
    7,276
    
    
    
    7,801
    
    
    
    7,640
    
    
    
    7,418Number of Employees
    
    
    200
    
    
    
    191
    
    
    
    193
    
    
    
    195
    
    
    
    191




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17 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 FINANCIAL CONDITION
 Overview
       
    
    Investing in our water infrastructure and seeking timely recovery of that investment;
    
    Marketing our services to private well owners who live near Connecticut Waters water
mains;
    
    Working with local developers to encourage public water use for new construction in
Connecticut Waters service area;
    
    Securing and retaining profitable Operations & Maintenance contracts;
    
    Acquisition of water and wastewater utilities; and
    
    Expanding enrollments in Linebacker®,the Companys service line repair program.




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18 
  Regulatory Matters and Inflation
    Critical Accounting Policies and Estimates
  Public Utility Regulation




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19 Revenue Recognition
 Benefit Plan Accounting
  Increase
    
    Increase(Decrease)
    
    (Decrease)in pension
    
    in postretirementexpense
    
    expenseA 1% increase in the discount rate
    
    $
    (332,000
    )
    
    $
    (168,000
    )A 1% decrease in the discount rate
    
    $
    387,000
    
    
    $
    204,000
 Outlook




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20   FINANCIAL CONDITION
 Liquidity and Capital Resources
   ConstructionGross
    
    Funded by
    
    ConstructionConstruction
    
    Developers &
    
    Funded byExpenditures
    
    Others
    
    Company2004
    
    $
    11,045,000
    
    
    $
    2,647,000
    
    
    $
    8,398,0002005
    
    $
    16,957,000
    
    
    $
    2,701,000
    
    
    $
    14,256,0002006
    
    $
    17,792,000
    
    
    $
    1,593,000
    
    
    $
    16,199,0002007 (Projected)
    
    $
    20,750,000
    
    
    $
    4,500,000
    
    
    $
    16,250,000




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21




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22 Off-Balance Sheet Arrangements and Contractual Obligations
   
 Less
    
    
    
    
    
    
    
    
    
    
    Morethan 1
    
    
    Years
    
    
    Years
    
    
    than 5Contractual Obligations
    
    Total
    
    
    year
    
    
    2 and 3
    
    
    4 and 5
    
    
    yearsLong-Term Debt (LTD)
    
    $
    77,354
    
    
    $
    7
    
    
    $
    15
    
    
    $
    16
    
    
    $
    77,316Interest on LTD
    
    
    77,700
    
    
    
    3,437
    
    
    
    6,872
    
    
    
    6,871
    
    
    
    60,520Operating Lease Obligations
    
    
    912
    
    
    
    306
    
    
    
    431
    
    
    
    175
    
    
    
    Purchase Obligations(1)(2)
    
    
    103,097
    
    
    
    2,202
    
    
    
    1,744
    
    
    
    1,786
    
    
    
    97,365Long-Term Compensation Agreement(3)
    
    
    43,663
    
    
    
    3,373
    
    
    
    6,079
    
    
    
    6,084
    
    
    
    28,127Total (4) (5) (6)
    
    $
    302,726
    
    
    $
    9,325
    
    
    $
    15,141
    
    
    $
    14,932
    
    
    $
    263,328
 
 (1)
    
    Connecticut Water has an agreement with the South Central Connecticut Regional Water
Authority (RWA) to purchase water from RWA. The agreement was signed on May 13, 2005 and will
remain in effect for a minimum of ten (10) years from that date. Connecticut Water has agreed to
purchase at least three million (3,000,000) gallons of water per calendar year from RWA. Water
sales to Connecticut Water are billed monthly at the most current RWA retail rate.(2)
    
    Connecticut Water has an agreement with The Metropolitan District (MDC) to purchase water from
MDC. The agreement became effective on October 6, 2000 for a term of fifty (50) years beginning
May 19, 2003, the date the water supply facilities related to the agreement were placed in service.(3)
    
    Pension and post retirement contributions cannot be reasonably estimated beyond 2006 and may be
impacted by such factors as return on pension assets, changes in the number of plan participants
and future salary increases.(4)
    
    Advances for Construction are non-interest bearing.(5)
    
    We pay refunds on Advances for Construction over a specific period of time based on operating
revenues related to developer-installed water mains or as new customers are connected to and take
service from such mains. After all refunds are paid, any remaining balance is transferred to
Contributions in Aid of Construction. The refund amounts are not included in the above table
because the refund amounts and timing are dependent upon several variables, including new customer
connections, customer consumption levels and future rate increases, which cannot be accurately
estimated. Portions of these refund amounts are payable annually through 2020 and amounts not paid
by the contract expiration dates become non-refundable.(6)
    
    We intend to fund these contractual obligations with cash flows from operations and liquidity
sources held by or available to us.




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23  RESULTS OF OPERATIONS
 Overview of 2006 Results from Continuing Operations
    2005Water Activities SegmentOperation and Maintenance Expense
    
    $
    654,000Income Taxes
    
    
    (179,000
    )Other Utility Income, Net of Taxes
    
    
    571,000Other Income (Deductions), Net of Taxes  Allowance for Funds
Used During Construction
    
    
    (117,000
    )Other Income (Deductions), Net of Taxes  Other
    
    
    (881,000
    )Interest on Long-Term Debt
    
    
    8,000Other Interest Charges
    
    
    426,000Total Water Activities Segment
    
    $
    482,000Services and Rental SegmentOther Income (Deductions), Net of Taxes  Non-Water Sales Earnings
    
    $
    (482,000
    )Total Services and Rental Segment
    
    $
    (482,000
    )Net Effect on Continuing Operations
    
    $
    0




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24 Increase (Decrease)Business Segment
    
    In Net IncomeWater Activities
    
    $
    (2,634,000
    )Real Estate
    
    
    2,124,000Services and Rentals
    
    
    52,000Net (Decrease)
    
    $
    (458,000
    )
 Water Activities
  Increase(Decrease)Operating Revenues
    
    $
    (508,000
    )Operation and Maintenance expense
    
    
    2,591,000Depreciation expense
    
    
    157,000Income Taxes
    
    
    (462,000
    )Taxes Other than Income Taxes
    
    
    190,000Other Utility Income
    
    
    (29,000
    )Other Income
    
    
    1,320,000Interest and Debt Expense (net of AFUDC)
    
    
    941,000Total (Decrease)
    
    $
    (2,634,000
    )
  -
    
    a $947,000, or 2.4%, decrease in revenues from metered customers in 2006 due to decreased
customer water consumption of approximately 4.9%, due to unfavorable weather conditions,
despite an increase in the number of customers served of 1.8%;-
    
    off-setting the decrease from metered revenues was a $439,000, or 5.1%, increase in
non-metered revenues which was primarily due to increased fire protection charges related to
the expansion of our water system which increased the number of fire hydrants and revenue
generating mains upon which these charges are based.




---



##### Table of Contents



25 Increase(Decrease)Labor
    
    $
    1,464,000Other employee benefit costs
    
    
    1,142,000Utility Costs
    
    
    412,000Pension expense
    
    
    254,000Other outside services
    
    
    (486,000
    )Legal services
    
    
    (185,000
    )Maintenance
    
    
    (112,000
    )Other
    
    
    102,000Total Increase
    
    $
    2,591,000
       -
    
    Higher interest expense on long-term debt primarily due to the issuance of $15.0
million in new bonds in November 2005, resulting in a full years worth of
expense in 2006 compared to a partial year in 2005;-
    
    Higher other interest charges on interim bank loans with higher interest rates; and-
    
    Amortization of the debt issuance costs of the bonds issued in 2005.




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##### Table of Contents



26 
 state
    Services and Rentals
  Overview of 2005 Results from Continuing Operations




---



##### Table of Contents



27  2005
    
    
    2004Water Activities SegmentOperation and Maintenance Expense
    
    $
    654,000
    
    
    $
    283,000Income Taxes
    
    
    (179,000
    )
    
    
    (91,000
    )Other Utility Income, Net of Taxes
    
    
    571,000
    
    
    
    520,000Other Income (Deductions), Net of Taxes  Allowance for Funds Used During Construction
    
    
    (117,000
    )
    
    
    (11,000
    )Other Income (Deductions), Net of Taxes  Other
    
    
    (881,000
    )
    
    
    (543,000
    )Interest on Long-Term Debt
    
    
    8,000
    
    
    
    9,000Other Interest Charges
    
    
    426,000
    
    
    
    282,000Total Water Activities Segment
    
    $
    482,000
    
    
    $
    449,000Services and Rental SegmentOther Income (Deductions), Net of Taxes  Non-Water Sales Earnings
    
    $
    (482,000
    )
    
    $
    (449,000
    )Total Services and Rental Segment
    
    $
    (482,000
    )
    
    $
    (449,000
    )Net Effect on Continuing Operations
    
    $
    0
    
    
    $
    0
   Increase(Decrease)Business Segment
    
    In Net IncomeWater Activities
    
    $
    (813,000
    )Real Estate
    
    
    (1,267,000
    )Services and Rentals
    
    
    83,000Net (Decrease)
    
    $
    (1,997,000
    )
 Water Activities




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##### Table of Contents



28 Increase(Decrease)Operating Revenues
    
    $
    1,445,000Operation and Maintenance expense
    
    
    1,807,000Depreciation expense
    
    
    154,000Income Taxes
    
    
    (168,000
    )Taxes Other than Income Taxes
    
    
    206,000Other Utility Income
    
    
    51,000Other Income
    
    
    (289,000
    )Interest and Debt Expense (net of AFUDC)
    
    
    21,000Total (Decrease)
    
    $
    (813,000
    )
  
    
    a $1,244,000, or 3.3%, increase in metered revenues in 2005 which was due to increased
customer water consumption attributable to a hotter summer and a 1.5% increase in the number
of customers served; and
    
    a $201,000, or 2.4%, increase in non-metered revenues which was primarily due to increased
fire protection charges related to the expansion of our water system which increased the
number of fire hydrants and revenue generating mains upon which these charges are based.
  IncreaseUtility Costs
    
    $
    491,000Pension expense
    
    
    335,000Other employee benefit costs
    
    
    80,000Legal services
    
    
    274,000Other outside services
    
    
    119,000Maintenance
    
    
    185,000Labor
    
    
    148,000Other
    
    
    175,000Total Increase
    
    $
    1,807,000




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##### Table of Contents



29   
    
    Higher interest expense on long-term debt primarily due to the issuance of $15.0
million in new bonds in 2005;
    
    Higher other interest charges due primarily to increased commitment fees on the letters of credit associated with bonds
issued in 2004 plus higher interest expense on interim bank loans with higher interest rates; and
    
    Amortization of the debt issuance costs of the bonds issued in 2004 and 2005.
 Real Estate
  Services and Rentals
 Linebacker ®
 COMMITMENTS AND CONTINGENCIES
 Security
  Reverse Privatization




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##### Table of Contents



30   Environmental and Water Quality Regulation
 Rate Relief
   Land Dispositions




---



##### Table of Contents



31  Taxes
 FORWARD LOOKING INFORMATION
   
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK




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##### Table of Contents



32   
 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
 Managements Report on Internal Control Over Financial Reporting
 Internal Control  Integrated
Framework




---



##### Table of Contents



33   Changes in Internal Control Over Financial Reporting
  
 ITEM 9B. OTHER INFORMATION




---



##### Table of Contents



34 
 PART III
  
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Period Held or
    
    Term of OfficeName
    
    Age in 2007
    Office
    Prior Position
    
    ExpiresM. T. Chiaraluce
    
    
    64
    
    
    Chairman of the
Board and Executive
Officer
    
    Held position of
President since
January 1992 and
position of Chief
Executive Officer
since July 1992
until his
retirement as of
March 1, 2006
    
    2007 Annual MeetingE. W. Thornburg
    
    
    47
    
    
    President, Chief
Executive Officer
    
    Held position since
March 1, 2006
    
    2007 Annual MeetingD. C. Benoit
    
    
    49
    
    
    Vice President 
Finance, Chief
Financial Officer
and Treasurer
    
    Held current
position or other
executive position
with the company
since April 1996
    
    2007 Annual MeetingT. P. ONeill
    
    
    53
    
    
    Vice President 
Operations &
Engineering
    
    Held current
position or other
engineering
position with the
Company since
February 1980
    
    2007 Annual MeetingM. P. Westbrook
    
    
    47
    
    
    Vice President 
Administration and
Government Affairs
    
    Held current
position or other
management position
with the Company
since September
1988
    
    2007 Annual Meeting




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##### Table of Contents



35 Period Held or
    
    Term of OfficeName
    
    Age in 2007
    Office
    Prior Position
    
    ExpiresT. R. Marston
    
    
    54
    
    
    Vice President 
Planning &
Treatment
    
    Held current
position or other
management position
with the Company
since June 1974.
    
    2007 Annual MeetingD. J. Meaney
    
    
    47
    
    
    Corporate Secretary
    
    Held current
position or other
communications
position with the
Company since
August 1994
    
    2007 Annual Meeting
  
 ITEM 11. EXECUTIVE COMPENSATION
 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCHOLDER
MATTERS
 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES




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##### Table of Contents



36 
 PART IV
 
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
  The report of independent registered public accounting firm and the Companys
Consolidated Financial Statements listed in the Index to Consolidated Financial
Statements on page F-1 hereof are filed as part of this report, commencing on page
F-2.
 PageIndex to Consolidated Financial Statements and Schedule
    
    
    F-1Report of Independent Registered Public
Accounting Firm
    
    
    F-2Consolidated Statements of Income for the years
Ended December 31, 2006, 2005, and 2004
    
    
    F-4Consolidated Statements of Comprehensive Income
for the years ended December 31, 2006, 2005, and 2004
    
    
    F-4Consolidated Balance Sheets at December 31, 2006
and 2005
    
    
    F-5Consolidated Statements of Cash Flows for the
years ended December 31, 2006, 2005, and 2004
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
 2.
    
    Financial Statement Schedule:The following schedule of the Company is included on the
attached page as indicated:
 Schedule II Valuation and Qualifying Accounts
and Reserves for the years ended December 31,
2006, 2005, and 2004
    
    
    S-1
 All other schedules provided for in the applicable
regulations of the Securities and Exchange Commission have
been omitted because of the absence of conditions under
which they are required or because the required information
is set forth in the financial statements or notes thereto.




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##### Table of Contents



37  Exhibits for Connecticut Water Service, Inc. are in the
Index to Exhibits
    
    E-1Exhibits heretofore filed with the Securities and
Exchange Commission as indicated below are
incorporated herein by reference and made a part
hereof as if filed herewith. Exhibits marked by
asterisk (*) are being filed herewith.




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##### Table of Contents



F-1 
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
 PageIndex to Consolidated Financial Statements and Schedule
    
    
    F-1Reports of Independent Registered Public Accounting
Firm
    
    
    F-2Consolidated Statements of Income for the years ended
December 31, 2006, 2005, and 2004
    
    
    F-4Consolidated Statements of Comprehensive Income for the
years ended December 31, 2006, 2005, and 2004
    
    
    F-4Consolidated Balance Sheets at December 31, 2006 and 2005
    
    
    F-5Consolidated Statements of Cash Flows for the years ended
December 31, 2006, 2005, and 2004
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7Schedule II  Valuation and Qualifying Accounts
    
    
    S-1




---



##### Table of Contents



F-2 
 Report of Independent Registered Public Accounting Firm
   Consolidated financial statements
  Internal control over financial reporting
 Internal
Control Integrated Framework Internal
Control Integrated Framework




---



##### Table of Contents



F-3




---



##### Table of Contents



F-4  
 CONSOLIDATED STATEMENTS OF INCOME
 For the Years Ended December 31, (in thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2004Operating Revenues
    
    $
    46,945
    
    
    $
    47,453
    
    
    $
    46,008Operating ExpensesOperation and Maintenance
    
    
    26,451
    
    
    
    23,860
    
    
    
    22,053Depreciation
    
    
    5,881
    
    
    
    5,724
    
    
    
    5,570Income Taxes
    
    
    2,055
    
    
    
    2,517
    
    
    
    2,685Taxes Other Than Income Taxes
    
    
    5,575
    
    
    
    5,385
    
    
    
    5,179Total Operating Expenses
    
    
    39,962
    
    
    
    37,486
    
    
    
    35,487Net Operating Revenues
    
    
    6,983
    
    
    
    9,967
    
    
    
    10,521Other Utility Income, Net of Taxes
    
    
    542
    
    
    
    571
    
    
    
    520Total Utility Operating Income
    
    
    7,525
    
    
    
    10,538
    
    
    
    11,041Other Income (Deductions), Net of TaxesGain (Loss) on Property Transactions
    
    
    2,063
    
    
    
    (61
    )
    
    
    1,206Non-Water Sales Earnings
    
    
    515
    
    
    
    463
    
    
    
    380Allowance for Funds Used During Construction
    
    
    458
    
    
    
    521
    
    
    
    410Other
    
    
    608
    
    
    
    (712
    )
    
    
    (423
    )Total Other Income, Net of Taxes
    
    
    3,644
    
    
    
    211
    
    
    
    1,573Interest and Debt ExpensesInterest on Long-Term Debt
    
    
    3,526
    
    
    
    2,929
    
    
    
    2,909Other Interest Charges
    
    
    514
    
    
    
    294
    
    
    
    204Amortization of Debt Expense
    
    
    421
    
    
    
    360
    
    
    
    338Total Interest and Debt Expenses
    
    
    4,461
    
    
    
    3,583
    
    
    
    3,451Income from Continuing Operations
    
    
    6,708
    
    
    
    7,166
    
    
    
    9,163Discontinued Operations, Net of Tax of $(244), $1,720 and $238
in 2006, 2005 and 2004, respectively
    
    
    243
    
    
    
    3,158
    
    
    
    231Net Income
    
    
    6,951
    
    
    
    10,324
    
    
    
    9,394Preferred Stock Dividend Requirement
    
    
    38
    
    
    
    38
    
    
    
    38Total Net Income Applicable to Common Stock
    
    $
    6,913
    
    
    $
    10,286
    
    
    $
    9,356Weighted Average Common Shares Outstanding:Basic
    
    
    8,188
    
    
    
    8,094
    
    
    
    7,999Diluted
    
    
    8,237
    
    
    
    8,143
    
    
    
    8,039Earnings Per Common Share:Basic  Continuing Operations
    
    $
    0.81
    
    
    $
    0.89
    
    
    $
    1.15Basic  Discontinued Operations
    
    
    0.03
    
    
    
    0.38
    
    
    
    0.02Basic
    
    $
    0.84
    
    
    $
    1.27
    
    
    $
    1.17Diluted  Continuing Operations
    
    $
    0.81
    
    
    $
    0.88
    
    
    $
    1.14Diluted  Discontinued Operations
    
    
    0.03
    
    
    
    0.38
    
    
    
    0.02Diluted
    
    $
    0.84
    
    
    $
    1.26
    
    
    $
    1.16
 
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 For the Years Ended December 31, (in thousands)
    
    2006
    
    
    2005
    
    
    2004Net Income
    
    $
    6,913
    
    
    $
    10,286
    
    
    $
    9,356Other Comprehensive Income, net of taxQualified cash flow hedging instrument net of tax of $(22), $129, and $58
in 2006, 2005, and 2004, respectively
    
    
    (45
    )
    
    
    207
    
    
    
    87Adjustment to initially apply FASB 158, net of tax of $(103)
in 2006
    
    
    (152
    )
    
    
    
    
    
    
    Comprehensive Income
    
    $
    6,716
    
    
    $
    10,493
    
    
    $
    9,443
 The accompanying notes are an integral part of these consolidated financial statements.




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##### Table of Contents



F-5  
 CONSOLIDATED BALANCE SHEETS
 December 31, (in thousands, except share amounts)
    
    
    
    
    
    2006
    
    
    2005ASSETSUtility Plant
    
    
    
    
    
    $
    364,057
    
    
    $
    340,755Construction Work in Progress
    
    
    
    
    
    
    2,755
    
    
    
    5,505Utility Plant Acquisition Adjustments
    
    
    
    
    
    
    (1,220
    )
    
    
    (1,273
    )365,592
    
    
    
    344,987Accumulated Provision for Depreciation
    
    
    
    
    
    
    (102,405
    )
    
    
    (97,284
    )Net Utility Plant
    
    
    
    
    
    
    263,187
    
    
    
    247,703Other Property and Investments
    
    
    
    
    
    
    4,905
    
    
    
    4,542Cash and Cash Equivalents
    
    
    
    
    
    
    1,377
    
    
    
    4,439Restricted Cash
    
    
    
    
    
    
    
    
    
    
    2,628Accounts Receivable (Less Allowance, 2006 - $285; 2005 - $256)
    
    
    
    
    
    
    5,305
    
    
    
    5,888Accrued Unbilled Revenues
    
    
    
    
    
    
    4,233
    
    
    
    3,918Materials and Supplies, at Average Cost
    
    
    
    
    
    
    900
    
    
    
    860Prepayments and Other Current Assets
    
    
    
    
    
    
    2,335
    
    
    
    1,274Short-Term Investment
    
    
    
    
    
    
    
    
    
    
    6,815Barlaco Assets Held for Sale
    
    
    
    
    
    
    
    
    
    
    324Total Current Assets
    
    
    
    
    
    
    14,150
    
    
    
    26,146Unamortized Debt Issuance Expense
    
    
    
    
    
    
    7,398
    
    
    
    7,823Unrecovered Income Taxes
    
    
    
    
    
    
    11,425
    
    
    
    12,986Post-Retirement Benefits Other Than Pension
    
    
    
    
    
    
    6,023
    
    
    
    1,595Goodwill
    
    
    
    
    
    
    3,608
    
    
    
    3,608Deferred Charges and Other Costs
    
    
    
    
    
    
    4,497
    
    
    
    1,632Total Regulatory and Other Long-Term Assets
    
    
    
    
    
    
    32,951
    
    
    
    27,644Total Assets
    
    
    
    
    
    $
    315,193
    
    
    $
    306,035CAPITALIZATION AND LIABILITIESCommon Stockholders Equity:Common Stock Without Par Value:Authorized - 25,000,000 Shares  Issued and Outstanding:2006 - 8,270,394; 2005 - 8,169,627
    
    
    
    
    
    $
    60,165
    
    
    $
    58,005Retained Earnings
    
    
    
    
    
    
    35,676
    
    
    
    35,777Accumulated Other Comprehensive Income
    
    
    
    
    
    
    97
    
    
    
    294Common Stockholders Equity
    
    
    
    
    
    
    95,938
    
    
    
    94,076Preferred Stock
    
    
    
    
    
    
    772
    
    
    
    847Long-Term Debt
    
    
    
    
    
    
    77,347
    
    
    
    77,404Total Capitalization
    
    
    
    
    
    
    174,057
    
    
    
    172,327Interim Bank Loans Payable
    
    
    
    
    
    
    5,250
    
    
    
    4,750Current Portion of Long-Term Debt
    
    
    
    
    
    
    7
    
    
    
    2,331Accounts Payable and Accrued Expenses
    
    
    
    
    
    
    6,048
    
    
    
    4,776Accrued Taxes
    
    
    
    
    
    
    464
    
    
    
    154Accrued Interest
    
    
    
    
    
    
    887
    
    
    
    699Other Current Liabilities
    
    
    
    
    
    
    314
    
    
    
    519Total Current Liabilities
    
    
    
    
    
    
    12,970
    
    
    
    13,229Advances for Construction
    
    
    
    
    
    
    32,183
    
    
    
    29,355Contributions in Aid of Construction
    
    
    
    
    
    
    47,217
    
    
    
    45,709Deferred Federal and State Income Taxes
    
    
    
    
    
    
    26,002
    
    
    
    24,915Unfunded Future Income Taxes
    
    
    
    
    
    
    7,208
    
    
    
    11,273Long-Term Compensation Arrangements
    
    
    
    
    
    
    13,933
    
    
    
    7,541Unamortized Investment Tax Credits
    
    
    
    
    
    
    1,623
    
    
    
    1,686Commitments and ContingenciesTotal Capitalization and Liabilities
    
    
    
    
    
    $
    315,193
    
    
    $
    306,035
 The accompanying notes are an integral part of these consolidated financial statements.




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##### Table of Contents



F-6  
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31, (in thousands)
    
    2006
    
    
    2005
    
    
    2004Operating Activities:Net Income
    
    $
    6,951
    
    
    $
    10,324
    
    
    $
    9,394Discontinued Operations
    
    
    243
    
    
    
    3,158
    
    
    
    231Income from Continuing Operations
    
    
    6,708
    
    
    
    7,166
    
    
    
    9,163Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:Gain on Sale of BARLACO Assets Sold
    
    
    (980
    )
    
    
    
    
    
    
    Allowance for Funds Used During Construction
    
    
    (491
    )
    
    
    (575
    )
    
    
    (418
    )Depreciation (including $396 in 2006, $188 in 2005,
and $253 in 2004 charged to other accounts)
    
    
    6,277
    
    
    
    5,912
    
    
    
    5,763Change in Assets and Liabilities:(Increase) in Accounts Receivable and
Accrued Unbilled Revenues
    
    
    268
    
    
    
    (342
    )
    
    
    (769
    )(Increase) Decrease in Other Current Assets
    
    
    (805
    )
    
    
    2,600
    
    
    
    288(Increase) in Other Non-Current Items
    
    
    (549
    )
    
    
    (556
    )
    
    
    (469
    )Increase (Decrease) in Accounts Payable, Accrued
Expenses and Other Current Liabilities
    
    
    690
    
    
    
    (3,603
    )
    
    
    1,674(Decrease) Increase in Deferred Income Taxes and
Investment Tax Credits, Net
    
    
    (1,492
    )
    
    
    2,332
    
    
    
    996Total Adjustments
    
    
    2,918
    
    
    
    5,768
    
    
    
    7,065Net Cash and Cash Equivalents Provided by (Used In) Continuing Operations
    
    
    9,626
    
    
    
    12,934
    
    
    
    16,228Net Cash and Cash Equivalents Provided by (Used In) Discontinued Operations
    
    
    243
    
    
    
    (185
    )
    
    
    497Net Cash and Cash Equivalents Provided by (Used In) Operating Activities
    
    
    9,869
    
    
    
    12,749
    
    
    
    16,725Investing Activities:Company Financed Additions to Utility Plant
    
    
    (16,199
    )
    
    
    (14,256
    )
    
    
    (8,398
    )Advances from Others for Construction
    
    
    (1,102
    )
    
    
    (1,955
    )
    
    
    (2,057
    )Net Additions to Utility Plant Used in Continuing Operations
    
    
    (17,301
    )
    
    
    (16,211
    )
    
    
    (10,455
    )Proceeds
from Sale of BARLACO Assets Sold (Net of $35 in Transaction Costs)
    
    
    965
    
    
    
    
    
    
    
    Proceeds from Sale of Barnstable Water Company Assets (Net of $114 in Transaction
Costs)
    
    
    
    
    
    
    9,885
    
    
    
    Release of
Restricted Cash
    
    
    2,686
    
    




    
    Sale (Purchase) of Short Term Investments
    
    
    6,922
    
    
    
    (6,713
    )
    
    
    Net Cash and Cash Equivalents Used in
Investing Activities in Continuing Operations
    
    
    (6,728
    )
    
    
    (13,039
    )
    
    
    (10,455
    )Net Cash and Cash Equivalents Used in
Investing Activities in Discontinued Operations
    
    
    
    
    
    
    (171
    )
    
    
    (172
    )Net Cash Used in Investing Activities
    
    
    (6,728
    )
    
    
    (13,210
    )
    
    
    (10,627
    )Financing Activities:Net Proceeds from Interim Bank Loans
    
    
    5,250
    
    
    
    4,750
    
    
    
    5,650Net Repayment of Interim Bank Loans
    
    
    (4,750
    )
    
    
    (5,650
    )
    
    
    (9,700
    )Proceeds from Issuance of Common Stock
    
    
    1,401
    
    
    
    2,038
    
    
    
    1,751Proceeds from Issuance of Long-Term Debt
    
    
    
    
    
    
    12,282
    
    
    
    23,581Redemption of Preferred Stock
    
    
    (75
    )
    
    
    
    
    
    
    Repayment of Long-Term Debt Including Current Portion
    
    
    (2,381
    )
    
    
    (665
    )
    
    
    (21,764
    )Costs Incurred to Issue Long-Term Debt and Common Stock
    
    
    (4
    )
    
    
    (934
    )
    
    
    (1,309
    )Advances from Others for Construction
    
    
    1,102
    
    
    
    1,955
    
    
    
    2,057Proceeds from Exercise of Stock Options
    
    
    284
    
    
    
    455
    
    
    
    Cash Dividends Paid
    
    
    (7,030
    )
    
    
    (6,838
    )
    
    
    (6,525
    )Net Cash and Cash Equivalents Provided by (Used in)
Financing Activities in Continuing Operations
    
    
    (6,203
    )
    
    
    7,393
    
    
    
    (6,259
    )Net Cash and Cash Equivalents Provided by (Used in)
Financing Activities in Discontinued Operations
    
    
    
    
    
    
    (3,200
    )
    
    
    (254
    )Net Cash and Cash Equivalents Provided by (Used in) Financing Activities
    
    
    (6,203
    )
    
    
    4,193
    
    
    
    (6,513
    )Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (3,062
    )
    
    
    3,732
    
    
    
    (415
    )Cash and Cash Equivalents at Beginning of Year
    
    
    4,439
    
    
    
    707
    
    
    
    1,122Cash and Cash Equivalents at End of Year
    
    $
    1,377
    
    
    $
    4,439
    
    
    $
    707Non-Cash Investing and Financing Activities:Non-Cash Contributed Utility Plant (see Note 1 for details)
    
    $
    3,295
    
    
    $
    1,231
    
    
    $
    2,337Short-term Investment of Bond Proceeds Held in Trust
    
    $
    
    
    
    $
    2,628
    
    
    $
    Supplemental Disclosures of Cash Flow Information:Cash Paid for Continuing Operations During the Year for:Interest
    
    $
    4,159
    
    
    $
    3,511
    
    
    $
    3,440State and Federal Income Taxes
    
    $
    1,176
    
    
    $
    3,515
    
    
    $
    1,383Cash Paid for Discontinued Operations During the Year for:Interest
    
    $
    
    
    
    $
    106
    
    
    $
    141State and Federal Income Taxes
    
    $
    73
    
    
    $
    410
    
    
    $
    31
 The accompanying notes are an integral part of these consolidated financial statements.




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##### Table of Contents



F-7 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 BASIS OF PRESENTATION 
 The Connecticut Water Company (Connecticut Water)
Chester Realty, Inc. (Chester Realty)
New England Water Utility Services, Inc. (NEWUS)
The Barnstable Holding Company
The Barnstable Water Company (Barnstable Water)
BARLACO, Inc. (BARLACO)
   Linebacker â
   PUBLIC UTILITY REGULATION
 USE OF ESTIMATES
 REVENUES
 UTILITY PLANT




---



##### Table of Contents



F-8 Allowance For Funds Used During Construction 
   Customers Advances For Construction, Contributed Plant and Contributions In Aid Of Construction
   in thousands
 2006
    
    
    2005
    
    
    2004Additions to Utility Plant:Company Financed
    
    $
    16,199
    
    
    $
    14,256
    
    
    $
    8,398Allowance for Funds Used During Construction
    
    
    491
    
    
    
    575
    
    
    
    418Subtotal  Utility Plant Increase to Rate Base
    
    
    16,690
    
    
    
    14,831
    
    
    
    8,816Non-Cash Contributed Plant
    
    
    3,295
    
    
    
    1,231
    
    
    
    2,337Advances from Others for Construction
    
    
    1,102
    
    
    
    1,955
    
    
    
    2,057Subtotal  Gross Additions to Utility Plant
    
    
    21,087
    
    
    
    18,017
    
    
    
    13,210Less: Non-Cash Contributed Plant
    
    
    3,295
    
    
    
    1,231
    
    
    
    2,337Net Additions to Utility Plant  Continuing
Operations
    
    
    17,792
    
    
    
    16,786
    
    
    
    10,873Plus: Discontinued Operations
    
    
    
    
    
    
    171
    
    
    
    172Net Additions to Utility Plant
    
    $
    17,792
    
    
    $
    16,957
    
    
    $
    11,045
 Depreciation
 INCOME TAXES




---



##### Table of Contents



F-9   MUNICIPAL TAXES
 STOCK OPTIONS
 UNAMORTIZED DEBT ISSUANCE EXPENSE
 GOODWILL
 EARNINGS PER SHARE 
 Years ended December 31,
    
    2006
    
    
    2005
    
    
    2004Basic earnings per share from Continuing Operations
    
    $
    0.81
    
    
    $
    0.89
    
    
    $
    1.15Dilutive effect of unexercised stock options
    
    
    
    
    
    
    0.01
    
    
    
    0.01Diluted earnings per share
    
    $
    0.81
    
    
    $
    0.88
    
    
    $
    1.14Numerator (in thousands):Basic income from Continuing Operations
    
    $
    6,708
    
    
    $
    7,166
    
    
    $
    9,163Diluted income from Continuing Operations
    
    $
    6,708
    
    
    $
    7,166
    
    
    $
    9,163Denominator (in thousands):Basic weighted average shares outstanding
    
    
    8,188
    
    
    
    8,094
    
    
    
    7,999Dilutive effect of unexercised stock options
    
    
    49
    
    
    
    19
    
    
    
    40Diluted weighted average shares outstanding
    
    
    8,237
    
    
    
    8,113
    
    
    
    8,039
 RECLASSIFICATIONS AND REVISIONS 




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##### Table of Contents



F-10  2005
    
    
    2004Water Activities SegmentOperation and Maintenance Expense
    
    $
    654,000
    
    
    $
    283,000Income Taxes
    
    
    (179,000
    )
    
    
    (91,000
    )Other Utility Income, Net of Taxes
    
    
    571,000
    
    
    
    520,000Other Income (Deductions), Net of Taxes  Allowance for Funds
Used During Construction
    
    
    (117,000
    )
    
    
    (11,000
    )Other Income (Deductions), Net of Taxes  Other
    
    
    (881,000
    )
    
    
    (543,000
    )Interest on Long-Term Debt
    
    
    8,000
    
    
    
    9,000Other Interest Charges
    
    
    426,000
    
    
    
    282,000Total Water Activities Segment
    
    $
    482,000
    
    
    $
    449,000Services and Rental SegmentOther Income (Deductions), Net of Taxes  Non-Water Sales Earnings
    
    $
    (482,000
    )
    
    $
    (449,000
    )Total Services and Rental Segment
    
    $
    (482,000
    )
    
    $
    (449,000
    )Net Effect on Continuing Operations
    
    $
    0
    
    
    $
    0
  NEW ACCOUNTING PRONOUNCEMENTS
   NOTE 2: SALE OF BARNSTABLE WATER COMPANY ASSETS  DISCONTINUED OPERATIONS




---



##### Table of Contents



F-11   Year ended December 31,(in thousands)
    
    2006
    
    
    2005
    
    
    2004Water Activities:Operating Revenues
    
    $
    
    
    
    $
    802
    
    
    $
    2,485Income Taxes
    
    
    (244
    )
    
    
    (9
    )
    
    
    191Utility Operating Income
    
    $
    243
    
    
    $
    (11
    )
    
    $
    155Services and Rentals:Revenues
    
    $
    12
    
    
    $
    1,067
    
    
    $
    168Income Taxes
    
    
    12
    
    
    
    132
    
    
    
    47Income from Services and Rentals
    
    $
    
    
    
    $
    213
    
    
    $
    76Gain on Sale of Assets:Gross Proceeds
    
    $
    
    
    
    $
    10,000
    
    
    $
    Income Taxes
    
    
    
    
    
    
    1,597
    
    
    
    Gain on Sale of Assets
    
    $
    
    
    
    $
    2,956
    
    
    $
    Total Net Income from Discontinued Operations
    
    $
    243
    
    
    $
    3,158
    
    
    $
    231
 NOTE 3: SALE OF BARLACO ASSETS
  NOTE 4: INCOME TAX EXPENSE
  (in thousands)
    
    2006
    
    
    2005
    
    
    2004Federal Classified as Operating Expense from Continuing Operations
    
    $
    2,080
    
    
    $
    2,400
    
    
    $
    2,401Federal Classified as Other Utility Income from Continuing Operations
    
    
    232
    
    
    
    251
    
    
    
    221Federal Classified as Other Income from Continuing Operation:Land Sales
    
    
    287
    
    
    
    132
    
    
    
    Land Donation
    
    
    (892
    )
    
    
    87
    
    
    
    (280
    )Non-Water Sales
    
    
    264
    
    
    
    216
    
    
    
    190Other
    
    
    (981
    )
    
    
    179
    
    
    
    (74
    )Total Federal Income Tax Expense from Continuing Operations
    
    
    990
    
    
    
    3,265
    
    
    
    2,458State Classified as Operating Expense from Continuing Operations
    
    
    (26
    )
    
    
    (62
    )
    
    
    193State Classified as Other Utility Income from Continuing Operations
    
    
    68
    
    
    
    60
    
    
    
    67State Classified as Other Income from Continuing Operations:Land Sales
    
    
    89
    
    
    
    31
    
    
    
    Land Donation
    
    
    (902
    )
    
    
    225
    
    
    
    (965
    )Non-Water Sales
    
    
    79
    
    
    
    59
    
    
    
    51Other
    
    
    (191
    )
    
    
    34
    
    
    
    31Total State Income Tax Expense (Benefit) from Continuing Operations
    
    
    (883
    )
    
    
    347
    
    
    
    (623
    )Total Income Tax Expense from Continuing Operations
    
    $
    107
    
    
    $
    3,612
    
    
    $
    1,835




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##### Table of Contents



F-12  (in thousands)
    
    2006
    
    
    2005
    
    
    2004Current from Continuing Operations:Federal
    
    $
    1,165
    
    
    $
    1,758
    
    
    $
    1,817State
    
    
    221
    
    
    
    (377
    )
    
    
    240Total Current from Continuing Operations
    
    
    1,386
    
    
    
    1,381
    
    
    
    2,057Deferred Income Taxes from Continuing Operations, Net:FederalInvestment Tax Credit
    
    
    (63
    )
    
    
    (62
    )
    
    
    (64
    )Land Donations
    
    
    (501
    )
    
    
    388
    
    
    
    (94
    )Depreciation
    
    
    1,173
    
    
    
    721
    
    
    
    868Other
    
    
    (784
    )
    
    
    459
    
    
    
    (70
    )Total Federal from Continuing Operations
    
    
    (175
    )
    
    
    1,506
    
    
    
    640State from Continuing OperationsLand Donations
    
    
    (134
    )
    
    
    (25
    )
    
    
    (724
    )Other
    
    
    (970
    )
    
    
    750
    
    
    
    (138
    )Total State from Continuing Operations
    
    
    (1,104
    )
    
    
    725
    
    
    
    (862
    )Total Deferred Income Taxes from Continuing Operations, Net
    
    
    (1,279
    )
    
    
    2,231
    
    
    
    (222
    )Total from Continuing Operations
    
    $
    107
    
    
    $
    3,612
    
    
    $
    1,835




---



##### Table of Contents



F-13  (in thousands)
    
    2006
    
    
    2005Unrecovered Income Taxes
    
    $
    (11,425
    )
    
    $
    (12,986
    )Deferred Federal and State Income Taxes
    
    
    26,002
    
    
    
    24,915Unfunded Future Income Taxes
    
    
    7,208
    
    
    
    11,273Unamortized Investment Tax Credit
    
    
    1,623
    
    
    
    1,686Other
    
    
    (80
    )
    
    
    (68
    )Net Deferred Income Tax Liability
    
    $
    23,328
    
    
    $
    24,820
  (in thousands)
    
    2006
    
    
    2005Charitable Contribution Carryforward (1)
    
    $
    (1,326
    )
    
    $
    290Tax Credit Carryforward (2)
    
    
    (1,349
    )
    
    
    (1,335
    )Alternative Minimum Tax Carryforward
    
    
    (4
    )
    
    
    (225
    )Prepaid Income Taxes on CIAC
    
    
    (72
    )
    
    
    (128
    )Prepaid FIT on Services
    
    
    (171
    )
    
    
    (126
    )Other Comprehensive Income
    
    
    63
    
    
    
    188Accelerated Depreciation
    
    
    25,822
    
    
    
    24,628Net of AFUDC and Capitalized Interest
    
    
    186
    
    
    
    225Unamortized Investment Tax Credit
    
    
    1,623
    
    
    
    1,686Other
    
    
    (1,444
    )
    
    
    (383
    )Net Deferred Income Tax Liability
    
    $
    23,328
    
    
    $
    24,820
 (1)
    
    2006 charitable contribution carryover expires beginning in 2007 and ending in 2011.(2)
    
    State tax credit carry-forwards expire beginning 2016 and ending in 2019.  (in thousands)
    
    2006
    
    
    2005
    
    
    2004Pre-Tax IncomeIncome from Continuing Operations
    
    $
    6,708
    
    
    $
    7,166
    
    
    $
    9,163Income Taxes
    
    
    107
    
    
    
    3,612
    
    
    
    1,835Total Pre-Tax Income from Continuing Operations
    
    $
    6,815
    
    
    $
    10,778
    
    
    $
    10,998
  2006
    
    
    2005
    
    
    2004Federal Statutory Income Tax Rate
    
    
    34.0
    %
    
    
    34.0
    %
    
    
    34.0
    %Tax Effect of Differences:State Income Taxes Net of Federal Benefit:State Income
Tax Excluding Land Donation Benefit
    
    
    0.6
    %
    
    
    0.7
    %
    
    
    2.1
    %Land
Donation Benefit
    
    
    (0.7
    %)
    
    
    1.4
    %
    
    
    (5.8
    %)Reversal of
Regulatory Liability
    
    
    (14.4
    %)
    
    
    
    
    
    
    Adjustment
to Taxes Due to Closed IRS Examination
    
    
    (14.3
    %)
    
    
    
    
    
    
    Depreciation
    
    
    2.6
    %
    
    
    1.6
    %
    
    
    1.7
    %Charitable Contribution  Land Donation
    
    
    (7.7
    %)
    
    
    0.8
    %
    
    
    (5.5
    %)Pension Costs
    
    
    7.7
    %
    
    
    (3.3
    %)
    
    
    (2.7
    %)Allowance for Funds Used During Construction
    
    
    (2.9
    %)
    
    
    (1.4
    %)
    
    
    (1.2
    %)Change in Estimate of Prior Year Income Tax Expense
    
    
    0.6
    %
    
    
    (2.5
    %)
    
    
    (1.4
    %)Rate Case Expense
    
    
    (3.6
    %)
    
    
    
    
    
    
    Other
    
    
    (0.3
    %)
    
    
    2.2
    %
    
    
    (4.5
    %)Effective Income Tax Rate for Continuing Operations
    
    
    1.6
    %
    
    
    33.5
    %
    
    
    16.7
    %




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##### Table of Contents



F-14 NOTE 5: COMMON STOCK
  Issuance(in thousands, except share data)
    
    Shares
    
    
    Amount
    
    
    Expense
    
    
    TotalBalance, January 1, 2004
    
    
    7,967,379
    
    
    $
    55,360
    
    
    $
    (1,594
    )
    
    $
    53,766Stock and equivalents issued through
Performance Stock Program
    
    
    6,893
    
    
    
    138
    
    
    
    
    
    
    
    138Dividend Reinvestment Plan
    
    
    60,927
    
    
    
    1,622
    
    
    
    (3
    )
    
    
    1,619Tax adjustment on prior year stock
options exercised
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Balance, December 31, 2004
    
    
    8,035,199
    
    
    $
    57,111
    
    
    $
    (1,597
    )
    
    $
    55,514Stock and equivalents issued through
Performance Stock Program
    
    
    29,379
    
    
    
    99
    
    
    
    
    
    
    
    99Dividend Reinvestment Plan
    
    
    60,486
    
    
    
    1,529
    
    
    
    
    
    
    
    1,529Stock Options Exercised
    
    
    44,563
    
    
    
    865
    
    
    
    (2
    )
    
    
    863Balance, December 31, 2005
    
    
    8,169,627
    
    
    $
    59,604
    
    
    $
    (1,599
    )
    
    $
    58,005Stock and equivalents issued through
Performance Stock Program
    
    
    23,058
    
    
    
    323
    
    
    
    
    
    
    
    323Dividend Reinvestment Plan
    
    
    60,747
    
    
    
    1,401
    
    
    
    
    
    
    
    1,401Stock Options Exercised
    
    
    16,962
    
    
    
    441
    
    
    
    (2
    )
    
    
    439Other Paid in Capital
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (3
    )Balance, December 31, 2006(1)
    
    
    8,270,394
    
    
    $
    61,766
    
    
    $
    (1,601
    )
    
    $
    60,165
 
 (1)
    
    Includes 37,370 restricted shares and 57,607 common stock equivalent shares issued through
the Performance Stock Programs through December 31, 2006.




---



##### Table of Contents



F-15 NOTE 6: ANALYSIS OF RETAINED EARNINGS
  (in thousands, except per share data)
    
    2006
    
    
    2005
    
    
    2004Balance, Beginning of Year
    
    $
    35,777
    
    
    $
    32,264
    
    
    $
    29,549Net Income
    
    
    6,951
    
    
    
    10,324
    
    
    
    9,39442,728
    
    
    
    42,588
    
    
    
    38,943Dividends Declared:Cumulative Preferred Stock, Series A, $.80 Per Share
    
    
    12
    
    
    
    12
    
    
    
    12Cumulative Preferred Stock, Series $.90, $.90 Per Share
    
    
    26
    
    
    
    26
    
    
    
    26Common Stock:2006 $0.855 Per Share
    
    
    7,014
    
    
    
    
    
    
    
    2005 $0.845 Per Share
    
    
    
    
    
    
    6,773
    
    
    
    2004 $0.835 Per Share
    
    
    
    
    
    
    
    
    
    
    6,6417,052
    
    
    
    6,811
    
    
    
    6,679Balance, End of Year
    
    $
    35,676
    
    
    $
    35,777
    
    
    $
    32,264
 NOTE 7: FAIR VALUE OF FINANCIAL INSTRUMENTS
  CASH AND CASH EQUIVALENTS
 LONG-TERM DEBT
  INTEREST RATE SWAP




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##### Table of Contents



F-16 NOTE 8: LONG-TERM DEBT
  (in thousands)
    
    2006
    
    
    2005Connecticut Water CompanyUnsecured Water Facilities Revenue Bonds5.05%   1998 Series A, Due 2028
    
    $
    9,640
    
    
    $
    9,6405.125% 1998 Series B, Due 2028
    
    
    7,635
    
    
    
    7,6854.40%   2003A Series, Due 2020
    
    
    8,000
    
    
    
    8,0005.00%   2003C Series, Due 2022
    
    
    14,930
    
    
    
    14,930Var.      2004 Series Variable Rate, Due 2029
    
    
    12,500
    
    
    
    12,500Var.      2004 Series A, Due 2028
    
    
    5,000
    
    
    
    5,000Var.      2004 Series B. Due 2028
    
    
    4,550
    
    
    
    4,5505.00%   2005 A Series, Due 2040
    
    
    15,000
    
    
    
    15,000Secured Bonds8.125% Farmington Savings Bank, Due 2011
    
    
    
    
    
    
    8423.56%   State of Connecticut, Due 2023
    
    
    
    
    
    
    1,471Total Connecticut Water Company
    
    
    77,255
    
    
    
    79,618Chester RealtyRegulated Secured5.45% Westbank, Due 2017
    
    
    99
    
    
    
    105Unregulated Notes Payable6% Note Payable, Due 2006
    
    
    
    
    
    
    12Total Chester Realty
    
    
    99
    
    
    
    117Total Connecticut Water Service, Inc.
    
    
    77,354
    
    
    
    79,735Less Current Portion
    
    
    (7
    )
    
    
    (2,331
    )Total Long-Term Debt
    
    $
    77,347
    
    
    $
    77,404
  (in thousands)2007 -
    
    $
    72008 -
    
    $
    72009 -
    
    $
    82010 -
    
    $
    82011 -
    
    $
    8




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##### Table of Contents



F-17   
    NOTE 9: PREFERRED STOCK
  (in thousands, except share data)
    
    2006
    
    
    2005Connecticut Water Service, Inc.Cumulative Series A Voting, $20 Par Value; Authorized, Issued and
Outstanding 15,000 Shares
    
    $
    300
    
    
    $
    300Cumulative Series $.90 Non-Voting, $16 Par Value; Authorized 50,000
Shares, Issued and Outstanding 29,499 Shares
    
    
    472
    
    
    
    472772
    
    
    
    772Barnstable Water Company6% Cumulative, $100 Par Value; Authorized, Issued and
Outstanding 750 Shares
    
    
    
    
    
    
    75Total Preferred Stock
    
    $
    772
    
    
    $
    847




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##### Table of Contents



F-18  NOTE 10: BANK LINES OF CREDIT
   NOTE 11: UTILITY PLANT AND CONSTRUCTION PROGRAM
  (in thousands)
    
    2006
    
    
    2005Land
    
    $
    9,443
    
    
    $
    9,139Source of Supply
    
    
    25,132
    
    
    
    24,423Pumping
    
    
    24,531
    
    
    
    23,650Water Treatment
    
    
    52,785
    
    
    
    46,812Transmission and Distribution
    
    
    230,252
    
    
    
    216,513General
    
    
    21,486
    
    
    
    19,800Held for Future Use
    
    
    428
    
    
    
    418Total
    
    $
    364,057
    
    
    $
    340,755
  NOTE 12: TAXES OTHER THAN INCOME TAXES
  (in thousands)
    
    2006
    
    
    2005
    
    
    2004Municipal Property Taxes
    
    $
    4,743
    
    
    $
    4,708
    
    
    $
    4,527Payroll Taxes
    
    
    832
    
    
    
    677
    
    
    
    652Total
    
    $
    5,575
    
    
    $
    5,385
    
    
    $
    5,179




---



##### Table of Contents



F-19 NOTE 13: PENSION AND OTHER POST-RETIREMENT EMPLOYEE BENEFITS (PBOP)
 GENERAL
 Line Item(in thousands)
    
    Balance Before
    
    
    SFAS 158 Pension
    
    
    SFAS 158 PBOP
    
    
    Balance AfterApplication
    
    
    Adjustments
    
    
    Adjustments
    
    
    ApplicationAssetsUnrecovered Income Taxes
    
    $
    11,323
    
    
    $
    117
    
    
    $
    (15
    )
    
    $
    11,425Post-Retirement Benefits Other Than
Pension
    
    
    2,422
    
    
    
    0
    
    
    
    3,601
    
    
    
    6,023Deferred Charges and Other Costs
    
    
    2,803
    
    
    
    2,294
    
    
    
    0
    
    
    
    4,497Total Assets
    
    $
    309,196
    
    
    $
    2,411
    
    
    $
    3,586
    
    
    $
    315,193Capitalization and LiabilitiesCommon Stockholders Equity
    
    $
    (96,091
    )
    
    $
    174
    
    
    $
    (21
    )
    
    $
    (95,938
    )Long-Term Compensation Arrangements
    
    
    (7,783
    )
    
    
    (2,585
    )
    
    
    (3,565
    )
    
    
    (13,933
    )Total Capitalization and Liabilities
    
    $
    (309,196
    )
    
    $
    (2,411
    )
    
    $
    (3,586
    )
    
    $
    (315,193
    )
  Investment Strategy
  2006
    
    2005Equity
    
    
    65
    %
    
    
    65
    %Fixed Income
    
    
    35
    %
    
    
    35
    %Total
    
    
    100
    %
    
    
    100
    %
   PENSION
 Defined Benefit Plans




---



##### Table of Contents



F-20  Pension Benefits(in thousands)
    
    2006
    
    
    2005Change in Benefit Obligation:Benefit obligation, beginning of year
    
    $
    30,509
    
    
    $
    27,049Service Cost
    
    
    1,228
    
    
    
    1,050Interest Cost
    
    
    1,681
    
    
    
    1,552Actuarial loss/(gain)
    
    
    (208
    )
    
    
    2,008Benefits paid
    
    
    (1,671
    )
    
    
    (1,150
    )Benefit obligation, end of year
    
    $
    31,539
    
    
    $
    30,509Change in Plan Assets:Fair Value, beginning of year
    
    $
    24,846
    
    
    $
    22,250Actual return on plan assets
    
    
    2,390
    
    
    
    1,737Employer contribution
    
    
    2,450
    
    
    
    2,009Benefits paid
    
    
    (1,671
    )
    
    
    (1,150
    )Fair Value, end of year
    
    $
    28,015
    
    
    $
    24,846
  2006
    
    
    2005Weighted-average assumptions used to determine benefit
obligations at December 31:Discount rate
    
    
    5.75
    %
    
    
    5.50
    %Rate of compensation increase
    
    
    4.50
    %
    
    
    4.50
    %
 2006
    
    
    2005Weighted-average assumptions used to determine net periodic
cost for years ended December 31:Discount rate
    
    
    5.50
    %
    
    
    5.75
    %Expected long-term return on plan assets
    
    
    8.00
    %
    
    
    8.00
    %Rate of compensation increase
    
    
    4.50
    %
    
    
    4.50
    %
  Pension Benefits(in thousands)
    
    2006
    
    
    2005
    
    
    2004Components of net periodic benefit costsService cost
    
    $
    1,228
    
    
    $
    1,050
    
    
    $
    951Interest cost
    
    
    1,681
    
    
    
    1,552
    
    
    
    1,458Expected return on plan assets
    
    
    (1,836
    )
    
    
    (1,645
    )
    
    
    (1,572
    )Amortization of:Net transition asset
    
    
    2
    
    
    
    10
    
    
    
    12Net (gain)/loss
    
    
    75
    
    
    
    322
    
    
    
    95Prior service cost
    
    
    491
    
    
    
    98
    
    
    
    108Net Periodic Pension Benefit Costs
    
    $
    1,641
    
    
    $
    1,387
    
    
    $
    1,052
 Plan Assets
  2006
    
    
    2005Equity Securities
    
    
    66
    %
    
    
    65
    %Fixed Income
    
    
    34
    
    
    
    35Total
    
    
    100
    %
    
    
    100
    %




---



##### Table of Contents



(in thousands)2007
    
    $
    1,3292008
    
        $
    1,7862009
    
        $
    1,6402010
    
        $
    1,8982011
    
        $
    1,693Years 2012  2016
    
        $
    13,388
 POST-RETIREMENT BENEFITS OTHER THAN PENSION (PBOP)
    
 Connecticut Water
    
    Barnstable Water(in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Change in Benefit Obligation:Benefit obligation, beginning of year
    
    $
    8,253
    
    
    $
    6,605
    
    
    $
    99
    
    
    $
    100Service Cost
    
    
    599
    
    
    
    460
    
    
    
    
    
    
    
    2Interest Cost
    
    
    485
    
    
    
    405
    
    
    
    4
    
    
    
    5Plan Participant Contributions
    
    
    99
    
    
    
    83
    
    
    
    
    
    
    
    Actuarial loss/(gain)
    
    
    1,343
    
    
    
    1,186
    
    
    
    (3
    )
    
    
    (3
    )Benefits paid
    
    
    (496
    )
    
    
    (486
    )
    
    
    (4
    )
    
    
    (5
    )Curtailments, settlements, special termination benefits
    
    
    
    
    
    
    
    
    
    
    (16
    )
    
    
    Benefit obligation, end of year
    
    $
    10,283
    
    
    $
    8,253
    
    
    $
    80
    
    
    $
    99Change in Plan Assets:Fair Value, beginning of year
    
    $
    3,845
    
    
    $
    3,566
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    339
    
    
    
    209
    
    
    
    
    
    
    
    Employer contribution
    
    
    473
    
    
    
    473
    
    
    
    4
    
    
    
    5Participants contributions
    
    
    99
    
    
    
    83
    
    
    
    
    
    
    
    Benefits paid
    
    
    (496
    )
    
    
    (486
    )
    
    
    (4
    )
    
    
    (5
    )Fair Value, end of year
    
    $
    4,260
    
    
    $
    3,845
    
    
    $
    0
    
    
    $
    0Weighted-average assumptions used to determine
benefit obligations at December 31:Discount rate
    
    
    5.75
    %
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.50
    %






---



##### Table of Contents



F-22 Connecticut Water
    
    Barnstable Water(in thousands)
    
    2006
    
    2005
    
    2006
    
    2005Weighted-average assumptions used to determine net
periodic benefit cost for years ended December 31:Discount rate
    
    
    5.50
    %
    
    
    5.75
    %
    
    
    5.50
    %
    
    
    5.75
    %Expected long-term return on plan assets
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    
    
    
    
    Rate of compensation increase
    
    
    4.50
    %
    
    
    4.50
    %
    
    
    
    
    
    
    
  Connecticut Water
    
    Barnstable Water(in thousands)
    
    2006
    
    2005
    
    2004
    
    2006
    
    2005
    
    2004Components of net periodic benefit costsService cost
    
    $
    599
    
    
    $
    460
    
    
    $
    311
    
    
    $
    
    
    
    $
    2
    
    
    $
    2Interest cost
    
    
    485
    
    
    
    405
    
    
    
    323
    
    
    
    4
    
    
    
    5
    
    
    
    6Expected return on plan assets
    
    
    (178
    )
    
    
    (168
    )
    
    
    (158
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of:Net transition asset
    
    
    120
    
    
    
    120
    
    
    
    121
    
    
    
    1
    
    
    
    6
    
    
    
    6Recognized net (gain)/loss
    
    
    273
    
    
    
    164
    
    
    
    18
    
    
    
    (3
    )
    
    
    (2
    )
    
    
    (3
    )Net Periodic Pension and Post Retirement
Benefit Costs, prior to settlement or
curtailment
    
    $
    1,299
    
    
    $
    981
    
    
    $
    615
    
    
    $
    2
    
    
    $
    11
    
    
    $
    11Additional amount recognized due to
settlement or curtailment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30
    
    
    
    
    
    
    
    Net Periodic Pension and Post Retirement
Benefit Costs
    
    $
    1,299
    
    
    $
    981
    
    
    $
    615
    
    
    $
    32
    
    
    $
    11
    
    
    $
    11
  2006
    
    2005Medical
    
    Dental
    
    Medical
    
    DentalHealth care cost trend rate
assumed for next year
    
    
    9.0
    %
    
    
    9.0
    %
    
    
    8.5
    %
    
    
    8.5
    %Rate to which the cost trend
rate is assumed to decline
    
    
    4.5
    %
    
    
    4.5
    %
    
    
    4.0
    %
    
    
    4.0
    %Year that the rate reaches
the ultimate trend rate
    
    
    2016
    
    
    
    2016
    
    
    
    2015
    
    
    
    2015
   1-Percentage-Point
    
    1-Percentage-Point(in thousands)
    
    Increase
    
    DecreaseEffect on total of service and interest cost components
    
    $
    177
    
    
    $
    (144
    )Effect on post-retirement benefit obligation
    
    $
    1,333
    
    
    $
    (1,116
    )
 Plan Assets
  2006
    
    2005Equity Securities
    
    
    63
    %
    
    
    63
    %Fixed Income
    
    
    37
    
    
    
    37Total
    
    
    100
    %
    
    
    100
    %






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##### Table of Contents



F-23 Cash Flows
   (in
thousands)
    
    Connecticut Water
    
    Barnstable2007
    
    $
    416
    
    
    $
    82008
    
    $
    441
    
    
    $
    82009
    
    $
    487
    
    
    $
    72010
    
    $
    516
    
    
    $
    72011
    
    $
    559
    
    
    $
    7Years 2012  2016
    
    $
    3,581
    
    
    $
    30
 SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN (SERP)
 SAVINGS PLAN
  NOTE 14: STOCK BASED COMPENSATION PLANS






---



##### Table of Contents



F-24 Year Ended December 312005
    
    
    2004(in thousands, except for per share data)Net income, applicable to common stockholders
as reported
    
    $
    10,286
    
    
    $
    9,356Add: Total stock-based employee
compensation expense determined under
intrinsic value based method for all awards,
net of related tax effects
    
    
    233
    
    
    
    137Deduct: Total stock-based employee
compensation expense determined under
fair value based method for all awards, net
of related tax effects
    
    
    (232
    )
    
    
    (408
    )Pro forma net income, applicable to common
stockholders
    
    $
    10,287
    
    
    $
    9,085Earnings per share:Basic  as reported
    
    $
    1.27
    
    
    $
    1.17Basic  pro forma
    
    $
    1.27
    
    
    $
    1.14Diluted  as reported
    
    $
    1.26
    
    
    $
    1.16Diluted  pro forma
    
    $
    1.26
    
    
    $
    1.13
   STOCK OPTIONS






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##### Table of Contents



F-25 For the Years Ended December 31,2006
    
    2005
    
    2004Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    Price
    
    Shares
    
    Price
    
    Shares
    
    PriceOptions:Outstanding, beginning of year
    
    
    202,271
    
    
    $
    24.04
    
    
    
    251,835
    
    
    $
    22.85
    
    
    
    251,835
    
    
    $
    22.85Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Terminated
    
    
    (4,456
    )
    
    
    27.95
    
    
    
    (5,001
    )
    
    
    25.78
    
    
    
    
    
    
    
    Exercised
    
    
    (16,962
    )
    
    
    16.76
    
    
    
    (44,563
    )
    
    
    17.11
    
    
    
    
    
    
    
    Outstanding, end of year
    
    
    180,853
    
    
    
    24.62
    
    
    
    202,271
    
    
    
    24.04
    
    
    
    251,835
    
    
    
    22.85Exercisable, end of year
    
    
    171,840
    
    
    $
    24.39
    
    
    
    175,685
    
    
    $
    23.44
    
    
    
    196,731
    
    
    $
    21.48
  Options Outstanding
    
    Options ExercisableWeightedAverage
    
    Weighted
    
    
    
    
    
    WeightedRemaining
    
    Average
    
    
    
    
    
    AverageContractual Life
    
    Exercise
    
    
    
    
    
    ExerciseShares
    
    (years)
    
    Price
    
    Shares
    
    PriceRange of prices:$12.00 - $14.99
    
    
    7,223
    
    
    
    2.3
    
    
    $
    14.83
    
    
    
    7,223
    
    
    $
    14.83$15.00 - $17.99
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $18.00 - $20.99
    
    
    29,292
    
    
    
    3.9
    
    
    
    20.42
    
    
    
    29,292
    
    
    
    20.42$21.00 - $23.99
    
    
    44,738
    
    
    
    2.9
    
    
    
    22.33
    
    
    
    44,738
    
    
    
    22.33$24.00 - $26.99
    
    
    34,253
    
    
    
    5.9
    
    
    
    25.78
    
    
    
    34,253
    
    
    
    25.78$27.00 - $29.99
    
    
    65,347
    
    
    
    5.7
    
    
    
    28.55
    
    
    
    56,334
    
    
    
    28.48180,583
    
    
    
    4.6
    
    
    $
    24.62
    
    
    
    171,840
    
    
    $
    24.39
  RESTRICTED
STOCK AND COMMON STOCK EQUIVALENTS






---



##### Table of Contents



F-26 RESTRICTED STOCK (Non-Performance-Based Awards)
 Grant DateWeighted AverageNon-vested Shares
    
    Number of Shares
    
    
    Fair ValueNon-vested at January 1, 2006
    
    
    21,988
    
    
    $
    25.24Granted
    
    
    4,507
    
    
    $
    25.00Vested
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Non-vested at December 31, 2006
    
    
    26,495
    
    
    $
    25.20
    RESTRICTED
STOCK AND COMMON STOCK EQUIVALENTS (Performance-Based)
 Grant DateWeighted AverageNon-vested Shares
    
    Number of Shares
    
    
    Fair ValueNon-vested at January 1, 2006
    
    
    7,667
    
    
    $
    26.73Granted
    
    
    18,059
    
    
    $
    24.93Vested
    
    
    (6,087
    )
    
    $
    24.51Forfeited
    
    
    (1,580
    )
    
    $
    24.51Non-vested at December 31, 2006
    
    
    18,059
    
    
    $
    25.90
    NOTE 15: SEGMENT REPORTING






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##### Table of Contents



F-27  Interest
    
    
    
    
    
    IncomeOther
    
    
    
    
    
    Expense
    
    
    
    
    
    (Loss) fromOperating
    
    Other Income
    
    (net of
    
    Income
    
    Continuing(in thousands)
    
    Revenues
    
    Depreciation
    
    Expenses
    
    (Deductions)
    
    AFUDC)
    
    Taxes
    
    OperationsFor the year ended
December 31, 2006Water Activities
    
    $
    47,927
    
    
    $
    5,881
    
    
    $
    32,166
    
    
    $
    (598
    )
    
    $
    3,969
    
    
    $
    1,183
    
    
    $
    4,130Real Estate Transactions
    
    
    1,002
    
    
    
    
    
    
    
    359
    
    
    
    
    
    
    
    
    
    
    
    (1,420
    )
    
    
    2,063Services and Rentals
    
    
    4,092
    
    
    
    36
    
    
    
    3,189
    
    
    
    
    
    
    
    8
    
    
    
    344
    
    
    
    515Total
    
    $
    53,021
    
    
    $
    5,917
    
    
    $
    35,714
    
    
    $
    (598
    )
    
    $
    3,977
    
    
    $
    107
    
    
    $
    6,708For the year ended
December 31, 2005Water Activities
    
    $
    48,441
    
    
    $
    5,724
    
    
    $
    29,351
    
    
    $
    (481
    )
    
    $
    3,266
    
    
    $
    2,855
    
    
    $
    6,764Real Estate Transactions
    
    
    495
    
    
    
    
    
    
    
    81
    
    
    
    
    
    
    
    
    
    
    
    475
    
    
    
    (61
    )Services and Rentals
    
    
    3,244
    
    
    
    36
    
    
    
    2,463
    
    
    
    
    
    
    
    
    
    
    
    282
    
    
    
    463Total
    
    $
    52,180
    
    
    $
    5,760
    
    
    $
    31,895
    
    
    $
    (481
    )
    
    $
    3,266
    
    
    $
    3,612
    
    
    $
    7,166For the year ended
December 31, 2004Water Activities
    
    $
    46,921
    
    
    $
    5,570
    
    
    $
    27,331
    
    
    $
    (309
    )
    
    $
    3,297
    
    
    $
    2,837
    
    
    $
    7,577Real Estate Transactions
    
    
    (12
    )
    
    
    
    
    
    
    27
    
    
    
    
    
    
    
    
    
    
    
    (1,245
    )
    
    
    1,206Services and Rentals
    
    
    3,838
    
    
    
    33
    
    
    
    3,173
    
    
    
    
    
    
    
    9
    
    
    
    243
    
    
    
    380Total
    
    $
    50,747
    
    
    $
    5,603
    
    
    $
    30,531
    
    
    $
    (309
    )
    
    $
    3,306
    
    
    $
    1,835
    
    
    $
    9,163
  At December 31 (in thousands)
    
    2006
    
    2005Total Plant and Other Investments:Water
    
    $
    267,395
    
    
    $
    251,511Non-Water
    
    
    697
    
    
    
    733268,092
    
    
    
    252,244Other Assets:Water
    
    
    43,716
    
    
    
    46,746Non-Water
    
    
    3,385
    
    
    
    7,04547,101
    
    
    
    53,791Total Assets
    
    $
    315,193
    
    
    $
    306,035






---



##### Table of Contents



F-28 NOTE 16: COMMITMENTS AND CONTINGENCIES
 Security
  Reverse Privatization
   Environmental and Water Quality Regulation
 Rate Relief
   Land Dispositions






---



##### Table of Contents



F-29  Taxes
 NOTE 17: QUARTERLY FINANCIAL DATA (Unaudited)
  in thousands, except for per share data
 First Quarter
    
    Second Quarter
    
    Third Quarter
    
    Fourth Quarter2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005Operating Revenues
    
    $
    10,458
    
    
    $
    10,924
    
    
    $
    11,428
    
    
    $
    10,986
    
    
    $
    13,346
    
    
    $
    14,088
    
    
    $
    11,713
    
    
    $
    11,455Total Utility
Operating Income
    
    
    1,581
    
    
    
    2,387
    
    
    
    2,092
    
    
    
    1,911
    
    
    
    3,513
    
    
    
    3,951
    
    
    
    339
    
    
    
    2,289Income from
Continuing
Operations
    
    
    1,697
    
    
    
    1,997
    
    
    
    977
    
    
    
    1,183
    
    
    
    3,503
    
    
    
    3,282
    
    
    
    531
    
    
    
    704Discontinued
Operations
    
    
    19
    
    
    
    (12
    )
    
    
    6
    
    
    
    2,905
    
    
    
    215
    
    
    
    46
    
    
    
    3
    
    
    
    219Net Income
    
    
    1,716
    
    
    
    1,985
    
    
    
    983
    
    
    
    4,088
    
    
    
    3,718
    
    
    
    3,328
    
    
    
    534
    
    
    
    923Basic Earnings per
Common Share 
Continuing
Operations
    
    
    0.21
    
    
    
    0.25
    
    
    
    0.12
    
    
    
    0.15
    
    
    
    0.42
    
    
    
    0.40
    
    
    
    0.06
    
    
    
    0.09Basic Earnings per
Common Share 
Discontinued
Operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.35
    
    
    
    0.03
    
    
    
    0.01
    
    
    
    
    
    
    
    0.02Basic Earnings per
Common Share
    
    
    0.21
    
    
    
    0.25
    
    
    
    0.12
    
    
    
    0.50
    
    
    
    0.45
    
    
    
    0.41
    
    
    
    0.06
    
    
    
    0.11






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##### Table of Contents



E-1 ExhibitNumber
    
    Description3.1
    
    Certificate of Incorporation of Connecticut Water Service, Inc. amended and
restated as of April, 1998. (Exhibit 3.1 to Form 10-K for the year ended 12/31/98).3.2
    
    By-Laws, as amended, of Connecticut Water Service, Inc. as amended and restated
as of August 12, 1999. (Exhibit 3.2 to Form 10-K for the year ended 12/31/99).3.3
    
    Certification of Incorporation of The Connecticut Water Company effective April,
1998. (Exhibit 3.3 to Form 10-K for the year ended 12/31/98).3.4
    
    Certificate of Amendment to the Certificate of Incorporation of Connecticut Water Service,
Inc. dated August 6, 2001. (Exhibit 3.4 to Form 10-K for the year ended 12/31/01).3.5
    
    Certificate of Amendment to the Amended and Restated Certificate of Incorporation of
Connecticut Water Service, Inc. dated April 23, 2004. (Exhibit 3.5 to Form 10-Q for the
quarter ended 3/31/04).4.1
    
    Loan Agreement dated as of October 1, 2003 between the Connecticut Development Authority and
The Connecticut Water Company. (Exhibit 4.12 to Form 10-K for the year ended 12/31/03).4.2
    
    Indenture of Trust dated as of October 1, 2003 between the Connecticut Development Authority
and The Connecticut Water Company. (Exhibit 4.13 to Form 10-K for the year ended 12/31/03).4.3
    
    Loan Agreement dated as of October 1, 2003 between the Connecticut Development Authority and
The Connecticut Water Company. (Exhibit 4.14 to Form 10-K for the year ended 12/31/03).4.4
    
    Indenture of Trust dated as of October 1, 2003 between the Connecticut Development Authority
and The Connecticut Water Company. (Exhibit 4.15 to Form 10-K for the year ended 12/31/03).4.5
    
    Bond Purchase Agreement dated as of October 10, 2003 among Connecticut Development Authority,
The Connecticut Water Company and A.G. Edwards and Sons, Inc. (Exhibit 4.16 to Form 10-K for
the year ended 12/31/03).4.6
    
    Line of Credit Agreement dated as of March 12, 2004 between Webster Bank and Connecticut
Water Service, Inc. (Exhibit 4.17 to Form 10-Q for the quarter ended 3/31/04).4.7
    
    Bond Purchase Agreement dated as of March 12, 2004, among The Connecticut
Water Company and A.G. Edwards & Sons, Inc. (Exhibit 4.18 to Form 10-Q for the
quarter ended 3/31/04).




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##### Table of Contents



E-2 ExhibitNumber
    
    Description4.8
    
    Indenture of Trust, dated as of March 1, 2004, between The Connecticut Water Company and U.S.
Bank National Association, as Trustee. (Exhibit 4.19 to Form 10-Q for the quarter ended
3/31/04).4.9
    
    Reimbursement and Credit Agreement, dated as of March 1, 2004, between The Connecticut Water
Company and Citizens Bank of Rhode Island. (Exhibit 4.20 to Form 10-Q for the quarter ended
3/31/04).4.10
    
    Letter of Credit issued by Citizens Bank of Rhode Island, dated as of March 4, 2004.
(Exhibit 4.21 to Form 10-Q for the quarter ended 3/31/04).4.11
    
    Agreement No. DWSRF 200103-C Project Loan Agreement between the State of Connecticut and
Unionville Water Company under the Drinking Water State Revolving Fund (DWSRF) Program, dated
as of April 19, 2004. (Exhibit 4.22 to Form 10-Q for the quarter ended 6/30/04).4.12
    
    Collateral Assignment of Water Service Charges and Right to Receive Water Service Expense
Assessments and Security Agreement between Unionville Water Company and the State of
Connecticut, dated as of June 3, 2004. (Exhibit 4.23 to Form 10-Q for the quarter ended
6/30/04).4.13
    
    Bond Purchase Agreement, dated September 1, 2004, among The Connecticut Water
Company, Connecticut Development Authority, and A.G. Edwards & Sons, Inc. (Exhibit
4.24 to Form 10-Q for the quarter ended 9/30/04).4.14
    
    Indenture of Trust, dated August 1, 2004, between The Connecticut Water Company and U.S. Bank
National Association, as Trustee, 2004A Series. (Exhibit 4.25 to Form 10-Q for the quarter
ended 9/30/04).4.15
    
    Indenture of Trust, dated August 1, 2004, between The Connecticut Water Company and U.S. Bank
National Association, as Trustee, 2004B Series. (Exhibit 4.26 to Form 10-Q for the quarter
ended 9/30/04).4.16
    
    Loan Agreement, dated August 1, 2004, between The Connecticut Water Company and Connecticut
Development Authority for 2004 Series. (Exhibit 4.27 to Form 10-Q for the quarter ended
9/30/04).4.17
    
    Loan Agreement, dated August 1, 2004, between The Connecticut Water Company and Connecticut
Development Authority for 2004B Series. (Exhibit 4.28 to Form 10-Q for the quarter ended
9/30/04).4.18
    
    Reimbursement and Credit Agreement, dated as of August 1, 2004, between The Connecticut Water
Company and Citizens Bank of Rhode Island, 2004A Series. (Exhibit 4.29 to Form 10-Q for the
quarter ended 9/30/04).4.19
    
    Reimbursement and Credit Agreement, dated as of August 1, 2004, between The Connecticut Water
Company and Citizens Bank of Rhode Island, 2004B Series. (Exhibit 4.30 to Form 10-Q for the
quarter ended 9/30/04).




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##### Table of Contents



E-3 ExhibitNumber
    
    Description4.20
    
    Letters of Credit, each dated September 2, 2004, between The Connecticut Water Company and
Citizens Bank of Rhode Island, with respect to each of the 2004A and 2004B Series Bonds.
(Exhibit 4.31 to Form 10-Q for the quarter ended 9/30/04).4.21
    
    Bond Purchase Agreement, dated October 28, 2005, among The Connecticut Water Company,
Connecticut Development Authority and A.G. Edwards & Sons, Inc., Connecticut Water 2005A
Series. (Exhibit 4.24 to Form 10-K for the year ended 12/31/05).4.22
    
    Loan Agreement, dated October 1, 2005, between The Connecticut Water Company and Connecticut
Development Authority, Connecticut Water 2005A Series. (Exhibit 4.25 to Form 10-K for the year
ended 12/31/05).4.23
    
    Indenture of Trust, dated October 1, 2005, between Connecticut Development Authority and U.S.
Bank National Association, as Trustee, Connecticut Water 2005A Series. (Exhibit 4.26 to Form
10-K for the year ended 12/31/05).4.24
    
    Insurance Agreement, dated November 30, 2005, between The Connecticut Water Company and
Financial Guaranty Insurance Company, as Insurer for The Connecticut Water 2005A Series.
(Exhibit 4.27 to Form 10-K for the year ended 12/31/05).4.25
    
    Bond Purchase Agreement, dated November 16, 2005, among The Crystal Water Company of
Danielson, Connecticut Water Service, Inc., Connecticut Development Authority and A.G. Edwards
& Sons, Inc., Crystal Water 2005A Series. (Exhibit 4.28 to Form 10-K for the year ended
12/31/05).4.26
    
    Guaranty dated as of October 1, 2005 from Connecticut Water Service, Inc. to U.S. Bank
National Association, as Trustee, Crystal Water 2005A Series. (Exhibit 4.29 to Form 10-K for
the year ended 12/31/05).4.27
    
    Loan Agreement, dated October 1, 2005, between The Crystal Water Company of
Danielson and Connecticut Development Authority, Crystal Water 2005A Series.
(Exhibit 4.30 to Form 10-K for the year ended 12/31/05).4.28
    
    Indenture of Trust, dated October 1, 2005, between Connecticut Development Authority and U.S.
Bank National Association, as Trustee, Crystal Water 2005A Series. (Exhibit 4.31 to Form 10-K
for the year ended 12/31/05).4.29
    
    Insurance Agreement, dated November 30, 2005, between The Crystal Water Company of Danielson
and Financial Guaranty Insurance Company, as Insurer for the Crystal Water 2005A Series.
(Exhibit 4.32 to Form 10-K for the year ended 12/31/05).4.30
    
    First Amendment to Reimbursement and Credit Agreement, dated as of April 28, 2006, between
The Connecticut Water Company and Citizens Bank of Rhode Island, 2004A Series. (Exhibit 10.1
to Form 10-Q for the period ending 3/31/06).




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##### Table of Contents



E-4 ExhibitNumber
    
    Description4.31
    
    First Amendment to Reimbursement and Credit Agreement, dated as of April 28, 2006, between
The Connecticut Water Company and Citizens Bank of Rhode Island, 2004B Series. (Exhibit 10.2
to Form 10-Q for the period ending 3/31/06).4.32
    
    First Amendment to Reimbursement and Credit Agreement, dated as of April 28, 2006, between
The Connecticut Water Company and Citizens Bank of Rhode Island, 2004 Series Variable Rate,
due 2029. (Exhibit 10.3 to Form 10-Q for the period ending 3/31/06).10.1
    
    Pension Plan Fiduciary Liability Insurance for The Connecticut Water Company Employees
Retirement Plan and Trust, The Connecticut Water Company Tax Credit Employee Stock Ownership
Plan, as Amended and Restated, Savings Plan of The Connecticut Water Company and The
Connecticut Water Company VEBA Trust Fund. (Exhibit 10.1 to Registration Statement No.
2-74938).10.2
    
    Directors and Officers Liability and Corporation Reimbursement Insurance. (Exhibit 10.2 to
Registration Statement No. 2-74938).10.3
    
    Directors Deferred Compensation Plan, effective as of January 1, 1980, as amended as of April
22, 1994. (Exhibit 10.3 to Form 10-K for the year ended
12/31/02).10.4
    
    The Connecticut Water Company Amended and Restated Deferred Compensation Agreement dated May
14, 1999. (Exhibit 10.5 to Form 10-K for the year ended 12/31/99).a.           Marshall T. Chiaraluceb.           David C. Benoitc.           James R. McQueend.           Kenneth W. Kells10.4a
    
    Amended and Restated Deferred Compensation Agreement between The Connecticut Water
Company and Marshall T. Chiaraluce, dated January 2, 2007. (Exhibit 10.3 to Form 8-K dated
1/5/07).10.5
    
    The Connecticut Water Company Amended and Restated Deferred Compensation Agreement with
Thomas R. Marston, dated December 2, 2004. (Exhibit 10.5.a to Form 10-K for the year ended
12/31/04).10.6
    
    Deferred Compensation Agreement between Connecticut Water Service, Inc., The Connecticut
Water Company and Eric W. Thornburg dated March 20, 2006. (Exhibit 10.2 to Form 8-K dated
3/24/06).10.6a
    
    Amended and Restated Supplemental Executive Retirement Agreement between The Connecticut
Water Company and Marshall T. Chiaraluce dated January 2, 2007. (Exhibit
10.2 to Form 8-K dated 1/5/07).10.6b
    
    The Connecticut Water Company Second Amended Supplemental Executive
Retirement Agreement with Marshall T. Chiaraluce dated December 17, 2003.
(Exhibit 10.7.1a to Form 10-K for the year ended 12/31/03).




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##### Table of Contents



E-5 ExhibitNumber
    
    Description10.7
    
    The Connecticut Water Company Supplemental Executive Retirement Agreement
with Michele G. DiAcri dated February 28, 2000. (Exhibit 10.7.2 to Form 10-K for the
year ended 12/31/01).10.7a
    
    The Connecticut Water Company Second Amended Supplemental Executive
Retirement Agreement with Michele G. DiAcri dated December 17, 2003.
(Exhibit 10.7.2a to Form 10-K for the year ended 12/31/03).10.8
    
    The Connecticut Water Company Supplemental Executive Retirement Agreement  standard form for
other officers, dated December 4, 1991. (Exhibit 10.6b to Form 10-K for the year ended
12/31/91).10.8a
    
    The Connecticut Water Company Supplemental Executive Retirement Agreement with Thomas R.
Marston dated December 2, 2004. (Exhibit 10.8.a to Form 10-K for the year ended 12/31/04).10.8b
    
    The Connecticut Water Company First Amended Supplemental Executive Retirement Agreement -
standard form for other officers, dated August 1, 1999. (Exhibit 10.8.2 to Form 10-K for the
year ended 12/31/99).10.8c
    
    The Connecticut Water Company Second Amended Supplemental Executive Retirement Agreement 
standard form for other officers, dated December 17, 2003. (Exhibit 10.8.2 to Form 10-K for
the year ended 12/31/03).a)            David C. Benoitb)            Peter J. Bancroftc)            Terrance P. ONeilld)            Maureen P. Westbrook10.8d
    
    The Connecticut Water Company Standard Form of Third Amended Supplemental Executive
Retirement Agreement  standard form for specified officers. (Exhibit 10.4 to Form 8-K dated
1/5/07).10.8e
    
    Supplemental Executive Retirement Agreement between Connecticut Water Service, Inc., The
Connecticut Water Company and Eric W. Thornburg dated March 20, 2006. (Exhibit 10.3 to Form
8-K dated 3/24/06).10.9
    
    Amended and restated employment agreement between The Connecticut Water Company and
Connecticut Water Service, Inc. with officers, amended and restated as of May 9, 2001.
(Exhibit 10.9 to Form 10-K for the year ended 12/31/01).a)           Michele G. DiAcrib)           David C. Benoitc)           Peter J. Bancroftd)           Maureen P. Westbrooke)           Terrance P. ONeill




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##### Table of Contents



E-6 ExhibitNumber
    
    Description10.9a
    
    Amended and restated employment agreement between The Connecticut Water Company and Marshall
T. Chiaraluce, dated January 2, 2007. (Exhibit 10.1 to Form 8-K dated 1/5/07).10.9b
    
    Employment agreement between The Connecticut Water Company and Connecticut Water Service,
Inc. with Thomas R. Marston, amended and restated as of December 2, 2004. (Exhibit 10.9.2 to
Form 10-K for the year ended 12/31/04).10.10
    
    Savings Plan of The Connecticut Water Company, amended and restated effective
as of October 1, 2000. (Exhibit 10.12 to Form 10-K for the year ended 12/31/01).10.10a
    
    Trust Agreement between Connecticut Water Company and Riggs Bank N.A.,
Trustee, dated as of June 1, 2002. (Exhibit 10.12.1 to Form 10-K for the year ended
12/31/03).10.10b
    
    Post-EGTRRA Amendment to the Savings Plan of The Connecticut Water Company, effective
January 1, 2002. (Exhibit 10.12.2 to Form 10-K for the year
ended 12/31/03).10.10c
    
    Supplemental Participation Agreement to the Savings Plan of The Connecticut Water Company
between The Unionville Water Company and Connecticut Water Company, dated December 30, 2003.
(Exhibit 10.12.3 to Form 10-K for the
year ended 12/31/03).10.10d
    
    Supplemental Participation Agreement to the Savings Plan of The Connecticut Water Company
between The Crystal Water Company of Danielson and Connecticut Water Company, dated December
30, 2003. (Exhibit 10.12.4 to
Form 10-K for the year ended 12/31/03).10.10e
    
    Supplemental Participation Agreement to the Savings Plan of The Connecticut Water Company
between Unionville Water Company and Connecticut Water Company, dated February 23, 2004.
(Exhibit 10.12.5 to Form 10-K for the year ended 12/31/04).10.11
    
    The Connecticut Water Company Employees Retirement Plan as amended and restated as of
January 1, 1997. (Exhibit 10.11 to Form 10-K for the year ended 12/31/98).10.11a
    
    First Amendment, dated August 16, 2000 to the amended and restated Connecticut Water Company
Employees Retirement Plan effective January 1, 1997. (Exhibit 10.13.1 to Form 10-K for the
year ended 12/31/02).10.11b
    
    Second Amendment, dated November 14, 2000 to the amended and restated Connecticut Water
Company Employees Retirement Plan effective January 1, 1997. (Exhibit 10.13.2 to Form 10-K
for the year ended 12/31/02).




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##### Table of Contents



E-7 ExhibitNumber
    
    Description10.11c
    
    Third Amendment, dated November 14, 2001 to the amended and restated Connecticut Water
Company Employees Retirement Plan effective January 1, 1997. (Exhibit 10.13.3 to Form 10-K
for the year ended 12/31/02).10.11d
    
    Fourth Amendment, dated August 14, 2002 to the amended and restated Connecticut Water
Company Employees Retirement Plan effective January 1, 1997. (Exhibit 10.13.4 to Form 10-K
for the year ended 12/31/02).10.11e
    
    Fifth Amendment, dated August 14, 2002 to the amended and restated Connecticut Water Company
Employees Retirement Plan effective January 1, 1997. (Exhibit 10.13.5 to Form 10-K for the
year ended 12/31/02).10.11f
    
    Sixth Amendment, dated November 10, 2003 to the amended and restated Connecticut Water
Company Employees Retirement Plan effective November 12, 2003. (Exhibit 10.13.6 to Form 10-K
for the year ended 12/31/03).10.11g
    
    Seventh Amendment, dated May 12, 2004 to the amended and restated Connecticut Water
Employees Retirement Plan effective January 1, 1997. (Exhibit 10.13.7 to Form 10-K for the
year ended 12/31/04).10.12
    
    November 4, 1994 Amendment to Agreement dated December 11, 1957 between The
Connecticut Water Company (successor to the Thomaston Water Company) and the City of
Waterbury. (Exhibit 10.16 to Form 10-K for year ended 12/31/94).10.13
    
    Agreement dated August 13, 1986 between The Connecticut Water Company and the Metropolitan
District. (Exhibit 10.14 to Form 10-K for the year ended 12/31/86).10.14
    
    Report of the Commission to Study the Feasibility of Expanding the Water Supply Services of
the Metropolitan District. (Exhibit 14 to Registration Statement No. 2-61843).10.15
    
    Bond Exchange Agreements between Connecticut Water Service, Inc., The Connecticut Water
Company Bankers Life Company and Connecticut Mutual Life Insurance Company dated October 23,
1978. (Exhibit 14 to Form 10-K for the year ended 12/31/78).10.16
    
    Dividend Reinvestment and Common Stock Purchase Plan, amended and restated as of November
15, 2001. (Exhibit 99.1 to post-effective amendment filed on December 5, 2001 to Form S-3,
Registration Statement No. 33-53211).10.17
    
    Contract for Supplying Bradley International Airport. (Exhibit 10.21 to Form 10-K for the
year ended 12/31/84).10.18
    
    Report of South Windsor Task Force. (Exhibit 10.23 to Form 10-K for the year ended
12/31/87).




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##### Table of Contents



E-8 ExhibitNumber
    
    Description10.19
    
    Trust Agreement for The Connecticut Water Company Welfare Benefits Plan (VEBA) dated January
1, 1989. (Exhibit 10.21 to Form 10-K for year ended 12/31/89).10.20
    
    1994 Performance Stock Program, as amended and restated as of April 26, 2002.
(Exhibit A to Proxy Statement dated 3/19/02).10.20a
    
    First Amendment to The Connecticut Water Service, Inc. Performance Stock Program Amended and
Restated as of April 26, 2002 (the Plan) dated December 1, 2005. (Exhibit 10.22a to Form
10-K for the year ended 12/31/05).10.21
    
    2004 Performance Stock Program, as of April 23, 2004. (Appendix A to Proxy Statement dated
3/12/04).10.21a
    
    Connecticut Water Service, Inc. Performance Stock Program Incentive Stock Option Grant Form.
(Exhibit 10.1 to Form 10-Q for the quarter ended 9/30/04).10.21b
    
    Connecticut Water Service, Inc. Performance Stock Program Non-Qualified Stock Option Grant
Form. (Exhibit 10.2 to Form 10-Q for the quarter ended 9/30/04).10.21c
    
    Restricted Stock Agreement, standard form for officers, dated December 1, 2005
(Exhibit 10.1 to Form 8-K dated 1/13/06).10.21d
    
    Long-Term Performance Award Agreement, standard form for officers, dated January 11, 2006
(Exhibit 10.2 to Form 8-K dated 1/13/06).10.21e
    
    Performance Award Agreement, standard form for officers, dated January 11, 2006 (Exhibit
10.3 to Form 8-K dated 1/13/06).10.21f
    
    First Amendment to The Connecticut Water Service, Inc. 2004 Performance Stock Program, dated
January 7, 2004. (Exhibit 10.23f to Form 10-K for the year ended 12/31/05).10.23
    
    Letter Agreement and Terms between Eric Thornburg and The Connecticut Water Company dated
January 6, 2006. (Exhibit 10.26 to Form 10-K for the year ended 12/31/05).10.24
    
    Employment agreement between Eric Thornburg and The Connecticut Water Company dated March
20, 2006. (Exhibit 10.1 to Form 8-K dated 3/24/06).10.25
    
    Employment agreement between The Connecticut Water Company and Connecticut Water Service,
Inc. with Daniel J. Meaney, amended and restated as of January 12, 2006. (Exhibit 10.28 to
Form 10-K for the year ended 12/31/05).10.26
    
    Settlement Agreement between Connecticut Water Company, Mary J. Healey, Office of Consumer
Counsel of the State of Connecticut, and the Prosecutorial Staff of the DPUC, dated December
4, 2006. (Exhibit 10.1 to Form 8-K dated 12/6/06).




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##### Table of Contents



E-9 ExhibitNumber
    
    Description10.26a
    
    Revised Settlement Agreement between Connecticut Water Company, Mary J. Healey, Office of
Consumer Counsel of the State of Connecticut, and the Prosecutorial Staff of the DPUC, dated
December 20, 2006. (Exhibit 99.1 to Form 8-K dated 1/18/07).10.26b
    
    Final Decision of the Connecticut DPUC, Docket No. 06-07-08, dated January 16, 2007.
(Exhibit 99.2 to Form 8-K dated 1/18/07).10.27*
    
    Connecticut Water Service, Inc. and Subsidiaries Employee Code of Conduct, January 1, 2007.21*
    
    Connecticut Water Service, Inc.
Subsidiary Listing23.1*
    
    Consent of Independent Registered Public Accounting Firm31.1*
    
    Rule 13a-14 Certification of Eric W. Thornburg, Chief Executive Officer.31.2*
    
    Rule 13a-14 Certification of David C. Benoit, Chief Financial Officer.32.1*
    
    Certification of Eric W. Thornburg, Chief Executive Officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2*
    
    Certification of David C. Benoit, Chief Financial Officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    = filed herewith Note:
    
    Exhibits 10.1 through 10.11g, 10.19 through 10.21f, and 10.23 through 10.25 set forth each
management contract or compensatory plan or arrangement required to be filed as an exhibit to
this Form 10-K.




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##### Table of Contents



38 
   CONNECTICUT WATER SERVICE, INC.RegistrantBy
    
    /s/ Eric W. ThornburgMarch
15, 2007
    
    
    
    Eric W. ThornburgPresident and Chief Executive Officer
  Signature
    
    Title
    
    Date/s/ Eric W. ThornburgEric W. Thornburg
    
    President, Director,
    
    March 15, 2007(Principal Executive Officer)
    
    and Chief Executive
Officer/s/ David C. BenoitDavid C. Benoit
    
    Vice President  Finance,
    
    March 15, 2007(Principal Financial and
Accounting Officer)
    
    Chief Financial Officer and Treasurer




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##### Table of Contents



39 Signature
    
    Title
    
    Date/s/ Marshall T. Chiaraluce
    
    Director and Chairman
    
    March 13, 2007Marshall T. Chiaraluce
    
    of the Board/s/ Mary Ann Hanley
    
    Director
    
    March 14, 2007Mary Ann Hanley/s/ Marcia L. Hincks
    
    Director
    
    March 13, 2007Marcia Hincks/s/ Heather Hunt
    
    Director
    
    March 14, 2007Heather Hunt/s/ Mark G. Kachur
    
    Director
    
    March 13, 2007Mark G. Kachur/s/ Ronald D. Lengyel
    
    Director
    
    March 13, 2007Ronald D. Lengyel/s/ Robert F. Neal
    
    Director
    
    March 13, 2007Robert F. Neal/s/ Arthur C. Reeds
    
    Director
    
    March 13, 2007Arthur C. Reeds/s/ Lisa J. Thibdaue
    
    Director
    
    March 13, 2007Lisa J. Thibdaue/s/ Carol P. Wallace
    
    Director
    
    March 13, 2007Carol P. Wallace/s/ Donald B. Wilbur
    
    Director
    
    March 13, 2007Donald B. Wilbur




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##### Table of Contents



S-1 CONNECTICUT WATER SERVICE, INC. and SUBSIDIARIES
 
 SCHEDULE II  VALUATION AND QUALIFYING ACCOUNTS
 Balance
    
    
    Additions
    
    
    Deductions
    
    
    Balancein thousands)
    
    Beginning
    
    
    Charged to
    
    
    From
    
    
    End ofDescription
    
    of Year
    
    
    Income
    
    
    Reserves(1)
    
    
    YearAllowance for Uncollectible
AccountsYear Ended December 31, 2006
    
    $
    256
    
    
    $
    225
    
    
    $
    196
    
    
    $
    285Year Ended December 31, 2005
    
    $
    212
    
    
    $
    156
    
    
    $
    112
    
    
    $
    256Year Ended December 31, 2004
    
    $
    271
    
    
    $
    61
    
    
    $
    120
    
    
    $
    212
 
 (1)
    
    Amounts charged off as uncollectible after deducting recoveries.