UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1993
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-7727
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CONNECTICUT NATURAL GAS CORPORATION
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(Exact name of registrant as specified in its charter)
Connecticut 06-0383860
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Columbus Boulevard, Hartford, Connecticut 06103
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(Address of principal executive offices) (Zip Code)
(203) 727-3000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report).
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X
No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (applicable only
to Corporate Issuers). Number of shares of common stock outstanding as of
the close of business on January 31, 1994: 9,539,078.
FINANCIAL STATEMENTS
CONNECTICUT NATURAL GAS CORPORATION
The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although the Company believes that
the disclosures are adequate to make the information presented not
misleading, it is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K. In the opinion
of the Company, all adjustments necessary to present fairly the consolidated
financial position of the Connecticut Natural Gas Corporation as of December
31, 1993 and 1992 and the results of its operations and its cash flows for
the three months and twelve months ended December 31, 1993 and 1992 have
been included. The results of operations for such interim periods are not
necessarily indicative of the results for the full year.
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
Dec. 31, Sept. 30, Dec. 31,
ASSETS 1993 1993 1992
------ --------- --------- ---------
Plant and Equipment:
Regulated energy $ 345,801 $ 340,728 $ 308,714
Nonregulated energy 61,459 61,447 58,560
Construction work in progress 1,046 1,355 1,592
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408,306 403,530 368,866
Less-Allowance for depreciation 109,633 106,919 98,782
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298,673 296,611 270,084
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Investments, at equity 4,749 4,874 5,253
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Current Assets:
Cash and cash equivalents 668 1,546 259
Accounts and notes receivable 43,502 29,979 42,207
Allowance for doubtful accounts (3,685) (3,068) (2,696)
Accrued utility revenue 16,828 4,632 14,877
Inventories 18,769 20,413 11,124
Prepaid expenses 1,895 3,379 616
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77,977 56,881 66,387
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Deferred Charges and Other Assets:
Unrecovered future taxes 53,181 51,023 50,798
Recoverable transition costs 15,000 15,000 -
Other assets 19,949 20,196 22,964
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88,130 86,219 73,762
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$ 469,529 $ 444,585 $ 415,486
========= ========= =========
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED BALANCE SHEETS (Concluded)
(Thousands of Dollars)
Dec. 31, Sept. 30, Dec. 31,
CAPITALIZATION AND LIABILITIES 1993 1993 1992
------------------------------ --------- --------- ---------
Capitalization:
Common Stock $ 29,820 $ 29,820 $ 29,819
Capital in excess of par value 66,948 66,915 66,907
Retained Earnings 42,878 39,744 39,582
--------- --------- ---------
139,646 136,479 136,308
Unearned compensation -
Restricted stock awards (803) (157) (392)
Treasury stock (103) - (2)
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Common stock equity 138,740 136,322 135,914
Preferred stock, not subject to
mandatory redemption 943 944 962
Long-term debt 137,088 137,984 120,543
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276,771 275,250 257,419
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Notes Payable Under Revolving Credit
Agreements 3,900 4,500 5,700
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Current Liabilities:
Current portion of long-term debt 4,437 4,653 4,499
Notes payable and commercial paper 37,991 10,000 14,000
Accounts payable and accrued expenses 41,018 42,084 35,623
Refundable purchased gas costs 1,403 3,758 2,967
Accrued liabilities 919 4,528 3,356
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85,768 65,023 60,445
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Deferred Credits:
Deferred income taxes 31,272 27,450 27,113
Unfunded deferred income taxes 53,181 51,023 50,798
Investment tax credits 3,850 3,864 4,030
Refundable taxes 3,984 4,024 4,308
Accrued transition costs 5,014 7,678 -
Other 5,789 5,773 5,673
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103,090 99,812 91,922
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$ 469,529 $ 444,585 $ 415,486
========= ========= =========
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars except for per share data)
Three Months Ended
December 31,
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1993 1992
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Operating Revenues $ 80,140 $ 76,551
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Operating Expenses:
Gas purchased and produced 42,128 39,603
Operations & maintenance expenses 15,199 13,679
Depreciation 3,363 3,164
Income taxes 4,709 5,808
Other taxes 4,821 5,181
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70,220 67,435
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Operating Income 9,920 9,116
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Other Income (Deductions):
Allowance for equity funds used
during construction 13 27
Equity in partnership earnings 226 165
Other deductions (387) (28)
Income Taxes 55 (41)
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(93) 123
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Interest and Debt Expense 3,147 3,093
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Net Income 6,680 6,146
Less-Dividends on Preferred Stock 17 17
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Net Income Applicable to Common Stock $ 6,663 $ 6,129
========== ==========
Income Per Average Share of
Common Stock $ 0.70 $ 0.65
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Dividends Per Share of Common Stock $ 0.37 $ 0.36
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Average Common Shares Outstanding
During the Period 9,541,526 9,484,990
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CONNECTICUT NATURAL GAS CORPORATION "UNAUDITED"
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars except for per share data)
Twelve Months Ended
December 31,
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1993 1992
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Operating Revenues $ 268,926 $ 249,239
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Operating Expenses:
Gas purchased and produced 139,062 121,313
Operations & maintenance expenses 58,065 56,718
Depreciation 12,848 11,754
Income taxes 12,339 13,493
Other taxes 17,622 18,535
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239,936 221,813
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Operating Income 28,990 27,426
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Other Income (Deductions):
Allowance for equity funds used
during construction 593 38
Equity in partnership earnings 1,031 662
Other income (deductions) (972) 316
Income Taxes (457) (69)
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195 947
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Interest and Debt Expense 11,796 13,623
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Net Income 17,389 14,750
Less-Dividends on Preferred Stock 67 68
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Net Income Applicable to Common Stock $ 17,322 $ 14,682
========== ==========
Income Per Average Share of
Common Stock $ 1.82 $ 1.65
========== ==========
Dividends Per Share of Common Stock $ 1.47 $ 1.44
========== ==========
Average Common Shares Outstanding
During the Period 9,542,022 8,920,338
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"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Three Months Ended
December 31,
----------------------
1993 1992
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Cash Flows from Operations $(15,295) $ (6,031)
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Cash Flows from Investing Activities:
Capital expenditures (4,006) (5,220)
Other investing activities (3,593) (1,948)
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Net cash used in investing activities (7,599) (7,168)
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Cash Flows from Financing Activities:
Dividends paid (3,546) (3,452)
Issuance of common stock - 16,669
Other stock activity, net (717) -
Principal retired on long-term debt (1,112) (1,849)
Short-term debt 27,391 1,750
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Net cash provided by
financing activities 22,016 13,118
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Decrease in Cash and
Cash Equivalents (878) (81)
Cash and Cash Equivalents at
Beginning of Period 1,546 340
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Cash and Cash Equivalents at
End of Period $ 668 $ 259
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"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Thousands of Dollars)
Three Months Ended
December 31,
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1993 1992
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Schedule Reconciling Earnings to
Cash Flows from Operations:
Income $ 6,680 $ 6,146
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Adjustments to reconcile income
to net cash:
Depreciation and amortization 3,471 3,264
Deferred income taxes, net 3,768 4,111
Undistributed affiliate earnings (226) (165)
Change in assets and liabilities:
Accounts receivable (12,906) (13,471)
Accrued utility revenue (12,196) (10,584)
Inventories 1,644 2,216
Unrecovered/(refundable)
purchased gas costs (2,355) (4,646)
Prepaid expenses 1,484 1,742
Accounts payable and accrued expenses (4,675) 5,372
Other assets/liabilities 16 (16)
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Total adjustments (21,975) (12,177)
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Cash flows from operations $(15,295) $ (6,031)
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Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Year for:
Interest (net of amount capitalized) $ 3,673 $ 2,886
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Income taxes $ 5,202 $ 3,555
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"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Twelve Months Ended
December 31,
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1993 1992
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Cash Flows from Operations $ 19,731 $ 35,322
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Cash Flows from Investing Activities:
Capital expenditures (24,317) (25,700)
Other investing activities (19,097) (13,501)
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Net cash used in investing activities (43,414) (39,201)
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Cash Flows from Financing Activities:
Dividends paid (14,093) (12,937)
Issuance of common stock 239 19,582
Other stock activity, net (728) -
Issuance of long-term debt 35,100 45,000
Principal retired on long-term debt (18,617) (45,282)
Short-term debt 22,191 (2,650)
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Net cash provided by
financing activities 24,092 3,713
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Increase (decrease) in Cash and
Cash Equivalents 409 (166)
Cash and Cash Equivalents at
Beginning of Period 259 425
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Cash and Cash Equivalents at
End of Period $ 668 $ 259
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"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Thousands of Dollars)
Twelve Months Ended
December 31,
----------------------
1993 1992
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Schedule Reconciling Earnings to
Cash Flows from Operations:
Income $ 17,389 $ 14,750
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Adjustments to reconcile income
to net cash:
Depreciation and amortization 13,235 12,141
Deferred income taxes, net 3,655 5,063
Undistributed affiliate earnings (1,031) (662)
Cash distributions received from
investments 1,154 -
Other, net - (11)
Change in assets and liabilities:
Accounts receivable (306) (7,823)
Accrued utility revenue (1,951) (311)
Inventories (7,645) (583)
Unrecovered/(refundable)
purchased gas costs (1,564) 8,043
Prepaid expenses (1,279) 2,814
Accounts payable and accrued expenses (2,042) 3,359
Other assets/liabilities 116 (1,458)
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Total adjustments 2,342 20,572
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Cash flows from operations $ 19,731 $ 35,322
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Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Year for:
Interest (net of amount capitalized) $ 9,581 $ 9,812
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Income taxes $ 11,484 $ 11,392
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"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1993
(Thousands of Dollars)
(1) Regulatory Matters
In July, 1993 the Company filed an application with the Connecticut
Department of Public Utility Control (DPUC) to seek a potential rate
increase of 9.6%, or approximately $25,000. The DPUC issued a decision
on December 16, 1993 which allows an increase to the Company's rates of
$7,600 or 2.8%. This decision reduces the Company's allowed rate of
return on equity from 12.9% to 11.2% and provides for adequate recovery
of all significant deferred items which were pending recovery. New
rates are effective for service rendered on or after December 16, 1993.
(2) Post-Retirement Benefits Other Than Pensions
Effective October 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post
Retirement Benefits Other Than Pensions" (SFAS No. 106). In its
December, 1993 Rate Decision (see Note 1.) the DPUC approved a five-
year phase-in of SFAS No. 106 expenses. The implementation of SFAS No.
106 did not have a material impact on the Company's financial condition
or results of operations.
(3) Income Taxes
Effective October 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109), which supersedes Statement of Financial Accounting Standards No.
96 (SFAS No. 96), adopted by the Company in 1988. Because the Company
has already adopted SFAS No. 96 the adoption of SFAS No. 109 did not
have a material impact on the Company's financial condition or results
of operations.
(4) Executive Restricted Stock Plan
On October 1, 1993 23,340 restricted shares of the Company's common
stock were granted to key employees under the executive restricted
stock plan. Restrictions lapse and the shares vest over a three to
five year period beginning October 1, 1993, as certain performance
goals are achieved.
(5) Short-term Debt
In December, 1993 the Company entered into an agreement for a $10,000
temporary unsecured line of credit with a bank, for use by the
regulated gas operations. This line of credit expires on April 30,
1994. The interest rate is based upon the prime or money market rate
and is determined at the time of each borrowing. There is a flat
facility fee equal to 1/8% of the commitment.
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS (concluded)
December 31, 1993
(Thousands of Dollars)
In November, 1993 the Company entered into an agreement for a $5,000
temporary unsecured line of credit with a bank, for use by the
nonregulated operations. This line of credit expires on September 30,
1994. The interest rate is based upon the money market rate and is
determined at the time of each borrowing. There is no commitment fee.
(6) Reclassifications
Certain prior year amounts have been reclassified to conform with
current year classifications.
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
DECEMBER 31, 1993
RESULTS OF OPERATIONS
Higher net income and earnings per share were recorded by the Company in
both the three months and twelve months ended December 31, 1993 when
compared to 1992.
Operating Revenues
The increase in revenues in the three and twelve months ended December,
1993, as compared to 1992, is primarily generated from an increase in on-
system sales as a result of colder weather during late December, and from
limited term sales (LTS), a program initiated in fiscal 1993 whereby the
Company sells gas supplies and transportation services by contract, off-
system, nationwide. Lower revenues from interruptible sales, due to both
lower prices and lower sales, partially offset these benefits in the three
months ended December, 1993. In the twelve months ended December, 1993
benefits from LTS and on-system sales were partially offset by a higher
level of deferral of profits by sharing mechanisms for possible future
return to firm customers.
Cost of Gas Purchased and Produced
The Company's higher cost of gas in both the three months and twelve months
ended December, 1993 as compared to 1992, is a result of higher volumes
purchased and sold to support all sales, mitigated somewhat by lower
commodity costs.
Lower first quarter, fiscal 1994 gas costs related to interruptible sales
produced higher interruptible profit margins and a benefit to earnings.
Variations in firm gas costs do not impact margin because they are passed on
to customers as adjustments to their bills.
Income Taxes
Additional flow-through depreciation deductions, associated with a major
capitalized system enhancement, produced a decrease in federal and state
income taxes in 1993, as compared to 1992, for both the three and twelve
months ended periods.
Operations and Maintenance Expenses
Operations and maintenance (O&M) expenses are higher in 1993 for both the
three and twelve months ended comparable periods as a result of higher
expenses recorded in the quarter ending December, 1993. Increases in labor,
uncollectibles, outside contracted services, computer costs, conservation
program expenses, environmental cleanup costs and regulatory commission
expenses more than offset decreases in employee benefits and insurance costs
and other administrative and general expenses and the benefits of higher net
service revenues.
Other Income (Deductions)
Net other income (deductions) is lower in 1993 as compared to 1992,
primarily because of higher promotional advertising expenses and insurance
costs and lower income from merchandising and jobbing activities. The
Company's equity in the earnings of the Iroquois Gas Transmission System
Limited Partnership and the equity component of an allowance for funds used
during construction (AFUDC) partially offset some of these reductions to
other income.
Interest and Debt Expense
The reduction in interest and debt expense in the twelve months ended
December, 1993 as compared to 1992 reflects lower long-term interest rates,
as a result of debt restructuring during the prior fiscal year, the debt
component of AFUDC and lower short-term interest rates. These benefits are
partially offset by higher levels of short-term borrowings.
Nonregulated Operations
The contribution to net income from the nonregulated operations was $.01 per
share greater in the first quarter of 1993 as compared to 1992. Although
there were lower sales in the quarter ending December, 1993, the
nonregulated operations were still more profitable than in the first quarter
of fiscal 1992 because of lower fuel costs and lower interest costs due to
lower rates.
There was no change in the nonregulated operations contribution to net
income between years for the twelve months ended periods. In the twelve
months ended December, 1993, benefits from higher sales, in response to
weather variations, and higher rates, phased in during January, 1993, were
offset by higher fuel costs, and the absence in 1993 of other income that
was included in 1992 results.
MATERIAL CHANGES IN FINANCIAL CONDITION
Net cash provided by financing activities satisfied the Company's needs for
working capital and construction funds during the first quarter of fiscal
1993 and 1992. The Company relies on its short-term lines of credit during
this quarter to bridge the gap between when customers are billed, when their
payments are received, and when the Company's payments are made for volumes
of gas purchased which are high at the end of this quarter to satisfy
customers needs in the winter heating season.
Cash flows from operations and financing activities together provided
working capital and funding for investing activities during the twelve
months ended December, 1993 and 1992.
Although the Company recorded both higher revenues and net income in 1993,
cash flows from operations are lower for both the quarter and twelve months
ended December, 1993 as compared to 1992 because of the overall timing of
the receipt of the cash represented by revenues.
In December, 1993 the Company entered into an agreement for a $10,000
temporary unsecured line of credit with a bank, for use by the regulated gas
operations. This line of credit expires on April 30, 1994. The interest
rate is based upon the prime or money market rate and is determined at the
time of each borrowing. There is a flat facility fee equal to 1/8% of the
commitment. This additional line of credit satisfies the regulated gas
operations' short-term working capital needs.
In November, 1993 the Company entered into an agreement for a $5,000
temporary unsecured line of credit with a bank, for use by the nonregulated
operations. This line of credit expires on September 30, 1994. The
interest rate is based upon the money market rate and is determined at the
time of each borrowing. There is no commitment fee. This additional line
of credit satisfies the nonregulated operations' short-term working capital
needs.
Regulatory Matters
In July, 1993 the Company filed an application with the Connecticut
Department of Public Utility Control (DPUC) to seek a potential rate
increase of 9.6%, or approximately $25,000. The DPUC issued a decision on
December 16, 1993 which allows an increase to the Company's rates of $7,600
or 2.8%. This decision reduces the Company's allowed rate of return from
12.9% to 11.2% and provides for adequate recovery of all significant
deferred items. New rates are effective for service rendered on or after
December 16, 1993.
Adoption of New Accounting Standards
Effective October 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Post Retirement
Benefits Other Than Pensions" (SFAS No. 106). In its December, 1993 Rate
Decision (see Note 1.) the DPUC approved a five-year phase-in of SFAS No.
106 expenses. The adoption of SFAS No. 106 has not had a material impact on
the Company's financial condition or results of operations.
Effective October 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109),
which supersedes Statement of Financial Accounting Standards No. 96 (SFAS
No. 96), adopted by the Company in 1988. Because the Company has already
adopted SFAS No. 96 the adoption of SFAS No. 109 has not had a material
impact on the Company's financial condition or results of operations.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
None
(b) A report on Form 8-K was filed on December 1, 1993 to file with the
Commission, under Item 5. Other Information, the contents of a press
release issued by the Company on November 23, 1993 to announce earnings
data for the fiscal year ended September 30, 1993, and to file
unaudited financial statements for the fiscal year ended September 30,
1993.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONNECTICUT NATURAL GAS CORPORATION
Date 02/11/94 By: S/ Andrew H. Johnson
-------------------- -----------------------------------
(Andrew H. Johnson)
Treasurer and Chief Accounting Officer
(On behalf of the registrant and as
Chief Accounting Officer)