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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
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For the fiscal year ended September 30, 1994
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OR,
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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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 Blvd.
P.O. Box 1500
Hartford, Connecticut 06144-1500
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (203) 727-3459
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
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Common Stock - $3.125 Par Value New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of Class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
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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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State the aggregate market value of the voting stock held by nonaffiliates
of the registrant. (The aggregate market value shall be computed by
reference to the price at which the stock was sold, or the average bid and
asked prices of such stock, as of a specified date within 60 days prior to
the date of filing.)
The aggregate market value of the voting stock held by nonaffiliates
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of the Registrant on November 10, 1994 was $228,382,845.
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date (applicable only
to corporate registrants).
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Number of shares of Common Stock outstanding as of the close of business
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on December 9, 1994 was 9,931,279
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DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference and the
Part of the Form 10-K into which the document is incorporated: (1) Any
annual report to security holders; (2) Any proxy or information statement;
and (3) Any prospectus filed pursuant to rule 424(b) or (c) under the
Securities Act of 1933. The listed documents should be clearly described
for identification purposes.
Definitive Proxy Statement for the Company's January, 1995 Annual
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Meeting (Part III)
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PART I
ITEM 1. BUSINESS
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General
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Connecticut Natural Gas Corporation (the Company) is an energy provider
headquartered in Hartford, Connecticut. The Company is a Connecticut
corporation organized in 1848. At September 30, 1994, the Company
employed 642 people. The Company is engaged primarily in the distribution
and sale of natural gas at retail in Hartford and 20 other cities and
towns in central Connecticut and in Greenwich, Connecticut. The Company
also provides nonregulated energy-related products and services, primarily
district heating and cooling. The Company, therefore, considers itself to
be primarily in the energy business. The Company's common stock is traded
on the New York Stock Exchange. Previously issued preferred stock is
traded on the over-the-counter market.
Gas operating revenues were $267,752,000 for the fiscal year ended
September 30, 1994 and were derived approximately 54% from residential
customers, 22% from commercial firm customers, 2% from industrial firm
customers, 12% from interruptible customers, 7% from limited term sales
and 3% from the aggregate of transportation of customer-owned gas, sales
of gas to other utilities, sales to cogeneration facilities, and other
gas-related revenues. There were no sales to affiliated companies. The
gas distribution business contributed 91% of consolidated revenues over
the three fiscal years ending 1994. During the fiscal year ended
September 30, 1994, the peak-day sendout of gas was 275,394,000 cubic feet
which occurred on January 20, 1994.
Segment information for all relevant periods is included in the Notes to
the Financial Statements filed in Part II, Item 8 of this report.
Seasonality
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The Company's operations are seasonal. Most of the Company's gas revenues
and related operating expenses occur during the winter heating season,
October to April. Natural gas usage in the Company's service area is
greater for heating purposes in winter and less for cooling in summer.
Natural gas usage for nonheating purposes remains steady throughout the
year. Accordingly, earnings are highest during the first and second
quarters of the fiscal year, which begins October 1, and the third and
fourth quarters frequently show a net loss. The impact of seasonality on
cash flows is discussed in Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations.
The Company's nonregulated district heating and cooling businesses
experience peak loads during the winter heating and summer cooling
seasons.
Regulatory Jurisdiction
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The Company's gas distribution business is subject to regulation by the
Connecticut Department of Public Utility Control (DPUC) as to franchises,
rates, standards of service, issuance of securities, safety practices and
certain other matters. Retail sales of gas by the Company and
transportation of gas owned by others are made pursuant to rate schedules
and contracts filed with and subject to DPUC approval. In general, the
firm rate schedules provide for reductions in the unit price of gas as
greater quantities are used. The rate schedules contain purchased gas
adjustment provisions as described in Note 1 to the Financial Statements
(included in Part II, Item 8 herein).
Under Connecticut law, the Company's subsidiaries are not public service
companies, and hence they are not subject to regulation by the DPUC.
However, significant intercompany transactions between the Company and
subsidiaries are subject to review and/or approval by the DPUC.
The regulation of interstate sales of natural gas is under the
jurisdiction of the Federal Energy Regulatory Commission (FERC). The
Company is subject to the direct jurisdiction of the FERC for any sales
for resale the Company makes in interstate commerce. The FERC regulates
the Company's pipeline gas suppliers, and the Company closely follows and
participates in numerous proceedings before FERC. Through a nonregulated
subsidiary, ENI Transmission Company (ENIT), the Company is a 2.4% equity
partner in the Iroquois Gas Transmission System Limited Partnership
(Iroquois) which is subject to regulation by FERC.
Gas Supply
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The Company's current gas supply contract portfolio reflects the results
of a continuing supply diversification strategy. The purpose of such a
strategy is to hold a secure, best cost gas supply portfolio, thereby
maintaining a competitive advantage over the other energy providers.
This, in turn, will enhance growth while continuing to serve existing
customers at the lowest possible cost.
The Company purchases natural gas on a long-term basis from producers and,
when economics dictate, on a short-term basis in the spot market.
Pipeline services purchased include firm and interruptible transportation
service. Gas storage service in the northeast and in the southwest
production area is purchased from both pipelines and storage contractors.
The Company's principal and most economical source of gas is pipeline-
delivered natural gas. The Company also utilizes liquefied natural gas
(LNG) and, to a much lesser extent, propane mixed with air (LP-Air). LNG
is usually more expensive than natural gas, and LP-Air is virtually always
more expensive than natural gas. Therefore, they are used primarily
during the winter months for peak shaving when the demand for gas is
greatest and exceeds deliverable supplies of natural gas through the
pipelines.
The Company currently holds pipeline transportation contracts with
Algonquin Gas Transmission Company (Algonquin), CNG Transmission
Corporation (CNGT), Iroquois Gas Transmission System (Iroquois), National
Fuel Gas Supply Corporation (National), Tennessee Gas Pipeline Company
(Tennessee), Texas Eastern Gas Transmission Corporation (TETCO), and
Transcontinental Gas Pipeline Corporation (TRANSCO). Supply contracts
signed directly with upstream producers back these transportation
contracts.
Firm transportation on Algonquin is contracted for on an MMBtu (Million
British Thermal Units) basis under eight (8) contracts. They are all
under rate schedule AFT-1 and total 87,007 MMBtu's in Maximum Daily
Quantity (MDQ) and 26,925,332 MMBtu's in Annual Contract Quantities (ACQ).
The expiration dates for these contracts vary from 1995 to 2004.
The Company has also contracted for upstream firm transportation on CNGT
for an MDQ of 6,340 MMBtu's and an ACQ of 2,314,100 MMBtu's under rate
schedule FTNN, expiration date 2003; on National for an MDQ of 1,915
MMBtu's and an ACQ of 698,975 MMBtu's under rate schedule EFT; and on
TRANSCO for an MDQ of 1,814 MMBtu and an ACQ of 662,110 MMBtu's under rate
schedule FT, expiration date 2008.
The Company holds five (5) long-haul, firm transportation contracts with
Tennessee which total 41,055 MMBtu's daily and 14,985,075 MMBtu's
annually. These long-haul, firm transportation contracts expire in 2000.
In addition to these contracts, the Company also has several other firm
transportation contracts in place: 27,379 MMBtu's daily and 9,993,335
MMBtu's annually under rate schedule FT-A; 8,231 MMBtu's daily and
3,004,315 MMBtu's annually under rate schedule SST-NE; 5,653 MMBtu's daily
and 2,063,345 MMBtu's annually under rate schedule FSST-NE; and 1,283
MMBtu's daily and 468,295 MMBtu's annually under rate schedule CGT-NE.
These additional contracts expire between 2000 and 2008.
On TETCO the Company has contracted for an MDQ of 58,392 MMBtu's and an
ACQ of 21,313,080 MMBtu's annually of firm transportation under five (5)
contracts. Two contracts are under rate schedule CDS for 30,851 MMBtu's
daily with the remainder of the volume, 27,541 MMBtu's daily, under rate
schedule FT-1. Expiration dates for these contracts vary from 1995
through 2004.
The Company has a contract with Boundary Gas, Inc. for 735,110 MMBtu's per
year of gas supply which expires in 2003. This supply is imported from
Canada and is ultimately delivered to the Company by firm transportation
on Tennessee.
The Company also receives Canadian gas through the Iroquois pipeline. The
firm transportation contracts with Iroquois total 25,000 MCF daily and
9,125,000 MCF annually. The Iroquois firm transportation contract expires
in 2012. Iroquois is a pipeline system extending from the New
York/Canadian border through the states of New York and Connecticut. The
Canadian gas supply is produced in the Alberta Province of Canada and then
transported through Canada on the TransCanada pipeline system. The
Company's Canadian gas supply is purchased under long-term contracts
through Alberta Northeast Gas Limited which is a consortium of local gas
distribution companies. These supply contracts expire in 2007.
The Company has contracted for storage service under which gas available
during the warmer months of the year is stored underground, out of state
for use during the winter and balancing throughout the year. Certain
storage and firm transportation contracts with TETCO provide for 1,849,579
MMBtu's annually and expire between 2000 and 2004.
The Company has two agreements with CNGT which provide storage service
only. One provides for annual storage capacity of 66,775 MMBtu's,
expiration date 2000, and the other for 1,235,603 MMBtu's, expiration date
2006. A similar contract with Tennessee provides for 1,020,705 MMBtu's
annually and expires in 2000. The storage gas under these contracts is
delivered to the Company's city gate via one of the short-haul, firm
transportation contracts with Tennessee.
The Company's storage contract with Penn-York Energy Corporation (PYEC)
for 1,200,000 MCF expires in 1995. Transportation for the volumes
withdrawn from this storage is also provided by Tennessee through short-
haul, firm transportation contracts.
The Company has a production area storage service contract with First
Reserve Corporation. The storage is located in the State of Mississippi
and provides the Company with a deliverability of 10,000 MMBtu's per day
and a storage capacity of 100,000 MMBtu's with rapid turnover ability.
This storage service has access on a firm basis to Tennessee and TETCO.
It is used to back up supply-related force majeure events from the
Company's producer suppliers. This service also allows for supply
balancing and provides additional flexibility in the Company's gas
purchasing.
The gas supply which feeds into the Company's firm transportation rights
on the interstate pipelines has been contracted for directly with
producers of natural gas (Direct Producer Contracts). The Direct Producer
Contracts are diverse in terms of expiration date, supply location, price,
flexibility, etc. as part of the Company's gas supply diversification
strategy.
The Company continues to be very active in the area of purchasing gas
directly from producers both in the spot market and under long-term
arrangements. Currently the Company purchases all of its gas under such
arrangements. Spot market volumes are those purchased under short-term
arrangements from producers and gas withdrawn from storage which had been
purchased directly from producers for injection to that storage. Spot
market purchases are set by negotiation with the supplier. Previously,
much of the spot market gas was transported under interstate pipelines'
interruptible transportation service, and the long-term producer contracts
were transported under pipelines' firm transportation service. Under FERC
Order 636, the Company expects to much more extensively use firm
transportation service and greatly decrease its use of interruptible
transportation service.
Under FERC Order 636, a pipeline may not terminate service to a long-term
firm transportation shipper if that customer elects to exercise a "right
of first refusal" which requires the customer to match the price and
length terms of another offer to continue to purchase such service
following the initial contract term expiration. The price for such
continued firm transportation service would be capped at the maximum price
determined as a just and reasonable rate under FERC jurisdiction.
In addition to its pipeline gas supplies, the Company owns an LNG plant in
Rocky Hill, Connecticut. This plant has the design capacity to liquefy
approximately 6,000 MCF per day and store 1,206,000 MCF. The LNG plant is
not a source of additional gas, but it permits the Company to liquefy and
store gas during the summer and to deliver the stored gas during the
following winter. The plant has the design capacity to vaporize 60,000
MCF per day.
LP-Air is a source of peak shaving supply to the Company. The Company has
approximately 1,000,000 gallons of on-site propane storage which can
produce the equivalent of approximately 16,584 MCF of natural gas per day.
Regulatory Matters
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In December, 1993 the Connecticut Department of Public Utility Control
(DPUC) issued a final decision on the Company's July, 1993 rate request,
authorizing an increase to the Company's rates of $7,600 or 2.8% and
allowing a return on equity of 11.2%. The Company had requested an
increase of 9.6%, or approximately $25,000. New rates became effective
for service rendered on or after December 16, 1993. Although the rate
decision did not provide the full increase requested, the DPUC approved
recovery of all significant items deferred on the balance sheet, pending
recovery, at September 30, 1993. In addition, the Company has been
allowed to defer for consideration in future rate proceedings expenses
incurred above annual levels authorized in current rates for certain areas
including: conservation expenses, economic development expenses,
postretirement benefits, potential costs related to environmental
remediation and the shortfall on collection of accounts receivable from
hardship customers who are protected by statute from service termination
during the winter months. The overall effect of the treatment given these
items in the rate order is to reduce the impact of the shortfall between
the rate relief requested and the amount which was granted in the final
decision.
The recovery method and amount related to FERC Order 636 transition costs
was the subject of a special proceeding initiated by the DPUC in January,
1994. In July, 1994 the DPUC issued a decision allowing Connecticut's
natural gas distribution companies to recover these costs from amounts
which would otherwise have been refunded to customers and the opportunity,
if necessary, for surcharges added to customers' future bills. Additional
information regarding FERC Order 636 transition costs is included in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations, filed in Part II, Item 7 of this report, and the Notes to the
Financial Statements, filed in Part II, Item 8 of this report.
In May, 1994 the DPUC approved the Company's Series B Medium Term Note
(MTN) program which permits the issue of up to $75,000 of unsecured MTNs,
under varying terms, over a four-year period, at maturities not exceeding
thirty years.
In August, 1994 the DPUC approved the Company's request to issue up to
400,000 shares of common stock through a public offering which was
completed in October, 1994 for 392,200 shares.
Environmental Considerations
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The Company has not experienced and does not anticipate any significant
problem in complying with laws and regulations pertinent to its business
concerned with protecting the environment. Additional information
regarding environmental considerations is included in the Management's
Discussion and Analysis of Financial Condition and Results of Operations,
filed in Part II, Item 7 of this report, and the Notes to the Financial
Statements, filed in Part II, Item 8 of this report.
Subsidiary Operations (Consolidated)
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At September 30, 1994, consolidated subsidiaries of the Company included
CNG Realty Corp. (CNGR), ENI Transmission Company (ENIT) and Energy
Networks, Inc. (ENI).
CNGR, formed in 1977, is a single purpose corporation which owns the
Operating and Administrative Center located on a 7-acre site in downtown
Hartford, CT. This facility is leased to the Company. CNGR engages in no
other business activity. At September 30, 1994, CNGR had an investment in
plant of approximately $17,394,000 and no revenues from unaffiliated
businesses for the year then ended.
ENIT was formed in 1986 to own the Company's 2.4% share of Iroquois.
Iroquois operates a natural gas pipeline which transports Canadian natural
gas into the states of New York, Massachusetts and Connecticut. At
September 30, 1994, ENIT's investment in Iroquois amounted to $4,353,000.
The Company, together with all other partners in Iroquois, has entered
into a Capital Contribution Support Agreement (agreement) to support a
one-year, renewable letter of credit which was issued to Iroquois. ENIT's
support obligation under this agreement amounts to 2.4% of the outstanding
principal on the letter of credit at any time and was approximately
$860,000 at September 30, 1994. ENIT recorded income of $422,000 related
to Iroquois during fiscal 1994.
ENI was incorporated in 1982 and is a nonregulated company engaged in the
operations described in the following paragraphs. ENI and its wholly
owned subsidiary, The Hartford Steam Company (HSC), provide district
heating and cooling (DHC) services to a number of large buildings in
Hartford, CT. ENI also provides DHC customers with energy system
operating and maintenance services. In 1994 these services were gathered
in to a separate operating group known as Energy Services. ENI's other
nonregulated operating divisions offer energy equipment rentals and
property rentals and own a 3,000 square foot building in Hartford, CT, and
a 42,000 square foot building in Greenwich, CT.
HSC, incorporated in Connecticut in 1961, owns and operates a central
production plant and distribution system for the processing and
distribution of steam for heating and chilled water for cooling to a
number of offices, stores and other large buildings in downtown Hartford,
CT. HSC's investment in its plant and distribution system was
approximately $40,411,000 as of September 30, 1994. Revenues were
$16,871,000 for the fiscal year then ended, including $382,000 from
affiliated companies.
HSC produces its own chilled water supply for district cooling. HSC
purchases its steam supply for district heating and for the production of
chilled water from two local cogeneration facilities. The primary steam
facility is located on the Company's premises in Hartford. This facility
is owned by an unrelated third party, the Hacogen Corporation (Hacogen).
The second facility is owned by the Downtown Cogeneration Associates
Limited Partnership (DCA) and sells steam to HSC under a twenty-year
contract. ENI is a 50% partner in the DCA with two unrelated third
parties. The DCA owns and operates a four(4)-megawatt cogeneration
facility on the roof of a downtown Hartford retail shopping and office
complex. Electricity generated from this unit is sold to The Connecticut
Light and Power Company under a twenty-year contract.
During fiscal, 1994 Hacogen indicated a desire to negotiate a termination
of its long-term steam supply contract with HSC. Accordingly, management
has entered into discussions with Hacogen. HSC has also developed a plan
for alternative steam supply sources. Management believes that adequate
alternate sources of steam are available and that any change in its source
of steam supply will not have a material impact on customers' supply or
service.
HSC owns boilers which are available to produce steam on a standby basis.
Historically, purchased steam benefited HSC customers through lowering
primary operating costs and reducing required future capital expenditures.
During fiscal 1994, ENI provided cogeneration management and consulting
services to DCA. Fees earned for these services for the fiscal year ended
September 30, 1994, were $147,000.
In 1994 Energy system operating and maintenance services offered by ENI to
DHC customers were gathered in to a separate operating group, Energy
Services, to provide opportunity for growth in both the customer base for
such services and for the scope of services offered to DHC customers, such
as energy conservation services.
The Capitol Area System (CAS) is a district heating and cooling system
serving a section of the City of Hartford, CT. ENI owns the distribution
system and purchases hot and chilled water from a third party. ENI also
provides marketing services to this third party. ENI's investment in the
CAS was approximately $16,887,000 as of September 30, 1994. Revenues were
$5,733,000 for the fiscal year then ended, including $5,048,000 from sales
of hot and chilled water, $69,000 from marketing services provided and
$616,000 from affiliated companies.
The energy equipment rentals division owns natural gas water heaters and
natural gas conversion burners which it leases to customers in the
residential market. ENI's investment in such rental equipment was
approximately $2,008,000 as of September 30, 1994, and revenues were
$863,000 for the fiscal year then ended. There were no revenues from
affiliated companies. This division is gradually being phased out through
attrition. No additional capital has been invested. The units are
retired either when an equipment failure occurs or when the opportunity
for the sale of a unit exists.
The property management operation owns and manages a 42,000 square foot
building in Greenwich, CT. Approximately 50% of the building is occupied
by the Company as an operating and administrative center servicing the
Greenwich area. The remaining 50% is either currently leased or in
negotiation for lease to unaffiliated businesses. Currently ENI is
negotiating with one major tenant for a long-term lease. ENI's gross
investment in this building and land was approximately $3,685,000 as of
September 30, 1994. Rental revenues were approximately $487,000 for the
fiscal year ended September 30, 1994, including $391,000 from affiliated
companies.
Competition
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The Company currently distributes and sells gas and district heating and
cooling services to its customers without substantial competition from
other gas utilities, cooperatives or other providers of natural gas.
Nonetheless, the advent of FERC Order 636 is expected to increase
competetive pressures as other providers of gas seek opportunities to
serve the Company's customers. The Company competes with suppliers of
oil, electricity, coal, propane and other fuels for cooking, heating, air
conditioning and other purposes. Competition is greatest among the
Company's large commercial and industrial customers who have the
capability to use alternative fuels. The Company has attempted to
minimize the volatile effect of this price-sensitive load through the use
of flexible rate schedules which allow gas pricing to meet alternative-
fuel competition; as oil prices fluctuate, so do the Company's revenues
from this class of customers.
The Company's customers may also contract for the purchase of their own
supply of gas directly from a pipeline supplier. Any such customer must
also arrange for transportation services from the Company to deliver this
gas to the customer's premises. Transportation of customer-owned gas
reduces the Company's operating revenues because the commodity value of
the gas is paid by the customers directly to other suppliers. Similarly,
the cost of such gas is not included in the Company's expenses since the
gas is not purchased by the Company for resale.
For sales of short-term gas supplies and transportation services by
contract the Company competes with other sellers and suppliers of natural
gas services, nationwide.
ENI and HSC own and operate district heating and cooling systems
(collectively referred to as DHC) which distribute and sell steam, hot and
chilled water to office complexes and other large buildings in the City of
Hartford. Prior to the potential customer's selection of the heating
and/or cooling technology to be used, DHC competes with suppliers of oil,
electricity, coal, propane and natural gas. Once DHC has been selected,
the competition from alternate fuels becomes greatly diminished because of
the cost of the equipment necessary to utilize an alternative fuel.
However, both new and existing DHC customers may elect to install their
own equipment rather than to be served by ENI or HSC. At such time, the
Company competes with providers of other fuels to supply the energy for
the customer's DHC operation.
Franchises
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The Company holds franchises, granted by the Legislature of the State of
Connecticut, and other consents which it considers to be valid and
adequate to enable it to carry on its operations, substantially as now
carried on, in each of the communities which it serves.
ITEM 2. PROPERTIES
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At September 30, 1994, the Company owned gas distribution mains, a natural
gas liquefaction plant, propane gas storage tanks, metering stations, gas
service connections, meters, regulators and other equipment necessary for
the operation of a gas distribution system. Substantially all of the
Company's properties are subject to the lien of the Indenture of Mortgage
and Deed of Trust securing its first mortgage bonds. The properties, in
management's opinion, are maintained in good operating condition. The gas
mains are located principally under public streets, roads and highways.
ENI owns a distribution system located in the Capitol area of Hartford, CT
for the distribution of hot water for heating and chilled water for
cooling. This property was financed with industrial revenue, variable
rate, tax exempt demand bonds secured by a letter of credit with a bank.
ENI also owns and manages a 42,000 square foot building in Greenwich,
Connecticut which is occupied by the Company and other tenants. This
facility enables both the administrative and operating functions of the
Greenwich division of the Company to be consolidated at one site. This
subsidiary also owns a small building in Hartford, CT.
The energy equipment rentals division of ENI owns water heaters and
conversion burners which it leases to its customers in the residential
market.
HSC owns a central production plant and distribution system, which
includes a chilled water storage tank, in downtown Hartford, CT for the
processing and distribution of steam for heating and chilled water for
cooling. The property is subject to a mortgage and collateral security
agreement which secures debt under HSC's revolving loan agreement.
CNGR owns the Operating and Administrative Center in Hartford which is
leased by the Company. The center is subject to the lien of the Mortgage
Deed under which the CNGR's first mortgage notes are issued.
ITEM 3. LEGAL PROCEEDINGS
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Two civil and criminal investigations related to environmental issues,
brought against Iroquois in 1992, are still pending. Although the Company
cannot predict the outcome of these proceedings, the Company does not
believe the ultimate resolution of these matters will have a material
adverse effect on the Company's financial condition or results of
operations. Iroquois is a partnership of which the Company is a 2.4%
owner (See Item 1., Subsidiary Operations).
The Company is not a party to any other litigation other than ordinary
routine litigation incident to the operations of the Company or its
subsidiaries. In the opinion of management, the resolution of such
litigation will not have a material adverse effect on the Company's
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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There were no matters submitted to a vote of security holders during the
last quarter of the fiscal year ending September 30, 1994.
Executive Officers of the Registrant
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All executive officers' terms of office are one year.
Victor H. Frauenhofer Age - 61
Chairman, President, Chief Executive Officer and Director
Business experience:
1991 - Present Chairman, President and Chief Executive Officer
1987 - 1991 President and Chief Executive Officer
1983 - 1987 President and Chief Operating Officer
James P. Bolduc Age - 45
Senior Vice President - Financial Services and Chief Financial Officer
Business experience:
1993 - Present Senior Vice President - Financial Services
and Chief Financial Officer
1992 - 1993 Vice President, Consumer Services
1989 - 1991 Vice President, Distribution and Customer Service
1987 - 1989 Vice President Corporate, Regulatory
and Customer Services
1985 - 1987 Vice President Diversified Group
Harry Kraiza, Jr. Age - 45
Senior Vice President - Energy Services
Business experience:
1993 - Present Senior Vice President - Energy Services
1989 - 1993 Vice President, Energy Services
1988 - 1989 Director of Energy Services
1987 - 1988 Director of Customer Service
1984 - 1987 Manager of Customer Service
Reginald L. Babcock Age - 43
Vice President - Corporate Services and General Counsel and Secretary
Business experience:
1993 - Present Vice President - Corporate Services and General Counsel
and Secretary
1989 - 1993 Vice President, General Counsel and Secretary
1985 - 1989 Secretary and Counsel
1983 - 1985 Assistant Secretary and Counsel
Wayne T. Jones Age - 45
Vice President - Planning and Corporate Development
Business experience:
1993 - Present Vice President - Planning and Corporate Development
1992 - 1993 Assistant Vice President, Rates and Regulatory Affairs
1989 - 1992 Director, Rates, Regulatory Planning and Conservation
1988 - 1989 Director, Rates and Regulatory Planning
1987 - 1988 Director, Revenue Requirements and Economic Evaluations
1987 - 1987 Director of Administrative Services
Frank H. Livingston, Age - 58
Vice President - Office of the Chairman
Business experience:
1991 - Present Vice President - Office of the Chairman
1989 - 1991 Vice President, Chief Administrative Officer
1973 - 1989 Vice President Administration
Executive Officers of the Registrant, (continued)
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Donald H. Ludington Age - 58
Executive Vice President and General Manager, Energy Networks, Inc.
Business experience:
1993 - Present Executive Vice President and General Manager,
Energy Networks, Inc.
1992 - 1993 Vice President and Chief Administrative Officer,
Energy Networks, Inc.
1989 - 1992 Vice President, Energy Networks, Inc.
1986 - 1989 Assistant Vice President, General Manager -
Greenwich Division
1983 - 1986 Assistant Treasurer
Anthony C. Mirabella, Age - 54
Vice President - Operations and Chief Engineer
Business experience:
1993 - Present Vice President - Operations and Chief Engineer
1992 - 1993 Vice President, Distribution/Engineering Services
& Chief Engineer
1989 - 1991 Vice President & Chief Engineer
1988 - 1989 Vice President Nonregulated Operations
1987 - 1988 Vice President Affiliated Resources Corporation
1985 - 1987 Vice President Business Development Group
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
-------------------------------------------------------------
SECURITY HOLDER MATTERS
-----------------------
The Company's common stock is listed on the New York Stock Exchange. The
high and low sales prices for each quarterly period during the years ended
September 30, 1994 and 1993 were as presented in the table below. These
prices are based on the New York Stock Exchange Quarterly Market
Statistics report.
QUARTERLY COMMON STOCK PRICES
-----------------------------
1994 1993
-------------------- --------------------
Fiscal Year High Low High Low
--------------- ------ ------ ------ ------
First Quarter 32 1/4 28 28 3/8 23
Second Quarter 31 3/4 23 7/8 29 5/8 26 7/8
Third Quarter 28 5/8 24 30 1/2 26 1/4
Fourth Quarter 26 3/8 22 1/2 32 3/8 27 5/8
There were 9,548 record holders of the Company's common stock at November
10, 1994.
Under Connecticut law, dividends may be paid out of unreserved and
unrestricted retained earnings. Cash dividends are declared on the
Company's common stock on a quarterly basis, and the total amount of
dividends declared was $1.48 per share in 1994 and $1.46 per share in
1993. Under the most restrictive terms of the open-end indenture securing
the Company's first mortgage bonds, as amended, retained earnings of
$41,041,000 were available for dividends at September 30, 1994. Except
for certain restrictions relating to the Company's classes of preferred
stock as to which dividends and sinking fund obligations must be paid
prior to the payment of common stock dividends, there are no other
restrictions on the Company's present or future ability to pay such
dividends. The Company expects that cash dividends will continue to be
paid in the future.
ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
FIVE-YEAR SUMMARY OF CONSOLIDATED OPERATIONS
(Thousands of Dollars)
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
Operating revenues:
Continuing operations $290,662 $265,337 $236,189 $213,825 $232,317
Discontinued operations $ - $ - $ - $ - $ 1,591
Net income applicable
to common stock:
Continuing operations $ 17,637 $ 16,788 $ 15,197 $ 12,273 $ 13,497
Discontinued operations
and gain on disposal $ - $ - $ - $ 517 $ 118
Accounting change $ - $ - $ - $ 1,779 $ -
Earnings per share:
Continuing operations $ 1.85 $ 1.76 $ 1.75 $ 1.44 $ 1.61
Discontinued operations
and gain on disposal $ - $ - $ - $ .06 $ .02
Accounting change $ - $ - $ - $ .21 $ -
Total assets:
Continuing operations $458,554 $444,585 $397,570 $370,854 $351,476
Discontinued operations $ - $ - $ - $ - $ 14
Long-term obligations $154,193 $137,984 $121,621 $111,111 $113,706
Cash dividends declared
per common share $ 1.48 $ 1.46 $ 1.44 $ 1.40 $ 1.36
Dividend payout ratio 80.0% 83.0% 82.3% 81.9% 83.4%
P/E ratio 13 18 13 12 11
Market price as a %
of book value -
year-end 162.0% 225.6% 175.2% 156.4% 138.6%
(Certain amounts for 1993 and prior years have been reclassified to conform
with 1994 classifications.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1994
-----------------------------------------
(Thousands of Dollars Except for Per Share Data)
Connecticut Natural Gas Corporation (the Company) is an energy provider
engaged primarily in the regulated distribution and sale of natural gas.
Nonregulated energy-related products and services, primarily district
heating and cooling, are provided through wholly-owned subsidiaries.
Net income applicable to common stock and earnings per share for the
three fiscal years ended September 30, 1994, 1993 and 1992 were $17,637
($1.85), $16,788 ($1.76) and $15,197 ($1.75), respectively. The most
significant benefits to earnings in 1994 came from higher rates, colder
weather and a lower overall effective tax rate due to additional flow
through income tax deductions. Increased charges against earnings in
1994 included additional expenses for uncollectibles and employee
benefits. The variation in weather and the recording of capitalized
interest have made a significant impact on net income from 1992 to 1993.
Other important contributing factors to all years include changes in the
mix of sales, customer usage, the cost of natural gas and related profit
margins.
Rate Matters
In December, 1993 the Connecticut Department of Public Utility Control
(DPUC) issued a final decision on the Company's rate request,
authorizing an increase to the Company's rates of $7,600 or 2.8% and
allowing a return on equity of 11.2%. The Company had requested an
increase of 9.6%, or approximately $25,000. New rates became effective
for service rendered on or after December 16, 1993. Although the rate
decision did not provide the full increase requested, the DPUC approved
recovery of all significant items deferred on the balance sheet, pending
recovery, at September 30, 1993. In addition, the Company has been
allowed to defer for consideration in future rate proceedings expenses
incurred above annual levels authorized in current rates for certain
areas including: conservation expenses, economic development expenses,
expenditures related to postretirement benefits, potential costs related
to environmental remediation and the shortfall on collection of accounts
receivable from hardship customers who are protected by statute from
service termination during the winter months. The overall effect of the
treatment given these items in the rate order is to reduce the impact of
the shortfall between the rate relief requested and the amount which was
granted in the final decision.
RESULTS OF OPERATIONS
---------------------
Gas Operating Margin
Gas operating margin is equal to gas revenues less the cost of gas and
Connecticut gross revenues tax. The following table presents the
changes in revenues, gas operating margin and gas throughput for 1994,
1993 and 1992, respectively:
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1994 (continued)
----------------------------------------------------
1994 1993 1992
---- ---- ----
Gas Revenues $267,752 $242,922 $213,902
======== ======== ========
Gas Operating Margin $109,949 $ 96,129 $ 93,964
======== ======== ========
Gas Throughput (mmcf)
System Sales 32,723 32,918 31,052
Limited Term Sales 7,904 6,902 -
Off-System Sales 1,240 720 1,821
Transportation Services 7,325 7,912 7,470
------- ------- -------
Total System Throughput 49,192 48,452 40,343
======= ======= =======
Higher firm rates, effective December, 1993 (see Rate Matters),
amplified by the impact of higher volumes of firm sales, are the
principal reasons for the increase in gas operating margins in fiscal
1994. Over the three-year period ending September 30, 1994, the overall
increase in firm sales volumes is primarily a function of the weather
which has been continually colder from year to year.
Weather dramatically impacts contributed operating margin by class, due
to required shifts in overall throughput mix. System sales have the
greatest impact on operating margin between the reported periods due to
the weather's effect on winter heating requirements and an increase in
average new customers by class. The majority of these sales produce the
highest per unit operating margin of all customer classes because they
require firm delivery of natural gas to supply their needs.
A portion of system sales is interruptible, and related margin earned
above a prescribed target level is shared with firm ratepayers, as
directed by the DPUC. The December, 1993 rate decision allowed a higher
margin sharing target. As a result, no interruptible margin earned in
1994 qualified for such sharing. A higher level of margin sharing
occurred during 1993 as compared to 1992. Interruptible per unit
margins were higher in 1994 and lower in 1993 because of variations in
related gas costs.
Limited Term Sales (LTS) permit the Company to market short-term gas
supplies and transportation services by contract with customers
nationwide. LTS have increased significantly over the last three years.
However, LTS contribute the smallest per unit operating margin. The
significance of this sales program lies in the Company's ability to
generate additional operating margin from a source not restricted by the
capacity of the Company's own distribution system or curtailment
limitations driven by system demand.
Off-system sales are made to other utilities when supplies and capacity
are available. Operating results for off-system sales have not impacted
operating margin because their recognition in income has been deferred
pending a regulatory decision on their treatment. Transportation
services have produced steady contributions, the result of additional
customers to this class, with consistent per unit operating margins.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1994 (continued)
----------------------------------------------------
Federal Energy Regulatory Commission (FERC) Order No. 636 Transition
Costs
The Company began to incur FERC Order 636 transition costs from its
pipeline suppliers in June, 1993. These costs are expected to be billed
to the Company over three years.
In July, 1994 the DPUC issued a decision allowing Connecticut natural
gas distribution companies to recover these costs from amounts which
would otherwise have been refunded to customers and the opportunity, if
necessary, for surcharges added to customers' future bills. Through
September 30, 1994 the Company has paid and recovered $8,075 of an
estimated $15,000 of transition costs.
In the opinion of management, the Company has available a sufficient
number of recovery mechanisms to provide for the full recovery of its
estimated transition cost liability. For this reason it is the opinion
of management that FERC Order 636 transition costs will not have a
material impact on the Company's financial condition or results of
operations. The estimated unpaid liability of $6,925 at September 30,
1994 is included in Accounts Payable and Accrued Expenses and Accrued
Transition Costs.
The Company believes it was fully prepared and had appropriately
positioned itself for change within the FERC Order 636 environment
because the issuance of the Order had been anticipated for some time.
Take-or-Pay Charges
At September 30, 1994 the Company has recovered substantially all of its
take-or-pay liability.
Operating and Maintenance Expenses
Operations and Maintenance expenses are significantly higher in 1994,
reflecting the recognition of several significant items, including
higher uncollectibles, an early retirement program and pension and
benefit expenses. The Company also experienced higher costs for labor,
conservation programs, environmental monitoring services, regulatory
commission expenses and outside purchased services. Some of these
increases are the result of 1994 recognition of expense items which had
been deferred pending the DPUC approval of their recovery (see Rate
Matters and Note 2 to the financial statements).
Slow economic recovery in the region continues to challenge the Company
in the area of uncollectibles. This was recognized by the DPUC in its
December, 1993 decision which allowed the Company to record a higher
rate of uncollectibles expense and the recovery of amounts forgiven
under the Company's hardship arrearage forgiveness program (see Note 1
to the financial statements). Higher customer bills, reflecting both
new higher rates and higher usage during a colder winter, contributed to
the higher uncollectibles recorded in fiscal 1994.
The Company announced a voluntary early retirement opportunity (VERO) in
August, 1994 and twenty employees accepted retirement effective November
1, 1994. The $1,341 of expenses associated with this program were
recognized by the Company in the fourth quarter of fiscal 1994. The
VERO was one part of an overall ten percent reduction in the nonunion
workforce accomplished through the combination of the VERO and general
attrition. This reduction in staffing is expected to result in an
annual ongoing payroll and benefit cost reduction of approximately
$1,250.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1994 (continued)
----------------------------------------------------
Effective October 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS No. 106). In fiscal 1994 $1,946 was
charged to Operating and Maintenance Expenses for SFAS No. 106 costs.
In its December, 1993 rate decision the DPUC approved a five-year phase-
in of SFAS No. 106 expenses (see Notes 2 and 4 to the financial
statements).
Operations and maintenance expenses are relatively unchanged from 1992
to 1993. This change was well below the average change in the Consumer
Price Index (i.e., the rate of inflation) over the same period.
Expenses related to the regulated operations had generally declined
since 1991. Uncollectibles that may have otherwise been written off in
1992 were deferred pending recovery in rates (see Rate Matters and Note
2 to the financial statements). Fewer expenses were also recognized in
1993 because of the 1992 completion of several deferred expense
amortizations, increased revenue generated from charge service
activities and changes in the recognition of certain expenses due to
changes in accounting estimates. These benefits more than offset the
impact of annual increases in wages and benefits.
Income Taxes
In October, 1994 the Company received formal approval from the Internal
Revenue Service (IRS) to deduct for tax purposes current as well as
certain prior incurred cost of removal expenses associated with
retirements of plant and equipment. During fiscal 1994 the Company
recognized current period cost of removal expenses which benefited
earnings by $.09 per share. The Company anticipates recording the tax
benefit of additional cost of removal deductions related to the IRS
approval during fiscal 1995.
Additional flow-through amortization deductions associated with a major
capitalized information system have provided a benefit to fiscal 1994
earnings of $.11 per share from lower income taxes. However, higher
overall income taxes recognized as a result of higher earnings offset
some of these income tax benefits.
IRS audits of the Company's federal income tax returns for 1986, 1987
and 1988 were completed during fiscal 1994. The outcome did not have a
material impact on the Company's financial condition or results of
operations.
A State of Connecticut audit of the Company's 1989 through 1992 state
sales tax returns is in progress at this time. Management does not
believe that the outcome of the audit will be significant to future
results or operations.
Effective October 1, 1993 the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No.
109). Because the Company had already adopted Statement of Financial
Accounting Standards No. 96 during 1988, the adoption of SFAS No. 109
did not have a material impact on the Company's financial condition or
results of operations.
Depreciation
The increase in depreciation reflects the Company's continued investment
in depreciable plant and higher rates allowed for the regulated
operations in the December, 1993 rate decision (see Rate Matters and
Note 2 to the financial statements). Plant costs continue to increase
year to year because of price increases for goods and services and
higher per unit internal costs associated with the installation of new
and replacement of existing distribution system mains and services.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1994 (continued)
----------------------------------------------------
Other Income/(Deductions)
Other Income/(Deductions) has declined significantly from year to year
since 1992. Higher promotional advertising expenses and lower income
from merchandise sales were partially offset by lower insurance costs
and higher interest income in fiscal 1994. In 1993 the Company
recognized less income from merchandise sales and increased insurance
costs and donations. Partially offsetting these higher costs in 1993 is
the allowance for funds used during construction (AFUDC) related to the
development of a new customer information system (CIS/DCIS). There was
no similarly large project in 1994. All years reflect the income
contribution from the Company's 2.4% interest in the Iroquois Gas
Transmission System (Iroquois).
Interest and Debt Expense
Long-term debt interest is greater in 1994 because of additional issues
of debt for the funding of construction expenditures and gas supplies.
From 1991 to 1993 the Company restructured its long-term debt at
significantly lower rates. As a result of these activities, outstanding
long-term debt increased, but related interest expense declined
significantly from 1992 to 1993 (see Liquidity and Capital Resources).
Other Interest primarily relates to interest on short-term borrowings.
Short-term interest has fluctuated as a result of changes in interest
rates, short-term cash requirements and conversions to long-term debt.
Both average borrowings and interest rates have been higher in 1994.
Declining short-term interest rates from 1992 to 1993 resulted in lower
other interest expense.
Interest and debt expense for 1993 was also reduced by the benefit of a
higher AFUDC (debt component) related to the development of the new
CIS/DCIS system (see Other Income/(Deductions)) which was put into
service in fiscal 1993.
Nonregulated Operations
The contribution to net income from nonregulated operations is
predominantly generated from district heating and cooling operations
(DHC) and was greater in 1994 and 1992 and less in 1993. This reflects
the steadily increasing net benefit to income from higher DHC rates and
more steam and hot water sales during colder winters. The benefit of
higher rates is partially offset by lower chilled water sales because of
lower customer usage and the DHC's decision to defer the third year
phase-in of higher chilled water service rates which was scheduled for
January, 1994. DHC income earned from operations in 1993 was partially
offset by the absence of other income from its activities with its
primary steam supplier (see Steam Supply, herein, and Note 10 to the
financial statements). Nonregulated operations earnings have
continually benefited from reduced interest expense since 1992,
primarily because of lower variable interest rates on long-term debt.
Additional contribution to net income from nonregulated operations has
been realized each year from the Company's equity in the earnings of
Iroquois (see Other Income/(Deductions)). Equipment rentals contribute
less and less to results of operations each year, reflecting the phase-
out of this operation through attrition. The property management
contribution is also less, because of lower tenant occupancy levels.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1994 (continued)
----------------------------------------------------
Steam Supply
The nonregulated operations are party to three long-term contracts for
the purchase of steam.
The nonregulated operations' primary steam supplier has indicated a
desire to negotiate a termination of its long-term steam supply contract
with The Hartford Steam Company, a wholly-owned subsidiary of Energy
Networks, Inc., a wholly-owned nonregulated subsidiary of the Company.
Accordingly, management has entered into discussions with this supplier
and, at a minimum, will seek reimbursement of all amounts recorded from
the supplier and any additional amounts that may be owing as a result of
the termination of the steam supply contract and related agreements.
The nonregulated operations have also developed a plan for alternative
steam supply sources. Management believes that adequate alternate
sources of steam are available and that any change in its source of
steam supply will not have any material impact on customers' supply or
service. Furthermore, management does not believe that the resolution
of this matter will have any material adverse effect on the Company's
financial condition or results of operations. However, the ultimate
impact will depend upon a number of factors including the final terms of
any settlement agreed to with the supplier and the terms of any new
steam supply.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The regulated gas operations are the principal segment of the Company's
business, and a substantial portion of the Company's cash is obtained
during the winter heating season. The Company manages its seasonal cash
requirements, primarily to fund gas purchases and customer accounts
receivable, by using cash flows generated from operations and short-term
financing from lines of credit or issues of commercial paper.
Cash flows from operations are generally sufficient to satisfy the
nonregulated operations' cash requirements. Existing credit lines are
used to balance seasonal variations in available cash resources.
Cash Flows from Operating Activities
Cash flows from operations increased from 1993 to 1994, although less
than the decline experienced from 1992 to 1993. Higher firm natural gas
operating margins, because of higher rates, effective December, 1993,
and higher sales volumes because of colder weather are principally
responsible for greater cash flows from operations experienced in fiscal
1994. On an on-going basis the cost of gas and volumes of gas sold are
the principal factors which influence cash flows from operations from
year to year. The price of natural gas impacts the amount of purchased
gas costs subject to refund or recovery. The volumes of gas sold
magnify the impact of changing prices. The Company's average per unit
commodity cost of gas was highest in 1993 and lowest in 1992. Margins
earned from LTS, interruptible and transportation services, although
they are usually shared with firm customers, add some to the amount of
cash available to pay for the expenses of operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1994 (continued)
----------------------------------------------------
In 1993 the Company received its first cash distributions from it's 2.4%
partnership interest in Iroquois (see Note 1 to the financial
statements). Cash distributions will vary from year to year depending
on Iroquois' cash available for reserve requirements and their decision
to retain cash to support the cost of capital projects. Distributions
of $240 and $1,154 were received from Iroquois in 1994 and 1993,
respectively.
Investing Activities
Actual construction expenditures in 1992, 1993 and 1994 were $26,145,
$25,531 and $27,859, respectively. The Company estimates its
consolidated construction expenditures for the fiscal years 1995, 1996,
1997, 1998 and 1999 to be approximately $30,300, $30,000, $31,000,
$31,000 and $33,000, respectively. The increases in anticipated
construction programs over historical actual levels is due to an
accelerated replacement program for cast iron and bare steel pipe in the
natural gas distribution system. Other construction expenditures from
1995 to 1998 for the nonregulated operations include $1,900 for
compliance with Clean Air Act requirements. The Company plans to fund
capital expenditures and other commitments through a combination of
sources.
Financing Activities
The Company uses short-term debt to finance the seasonal build-up of gas
inventories and other working capital requirements. Capital
expenditures are also temporarily funded with short-term debt. The
Company raises short-term funds through the sale of commercial paper and
the use of available bank lines of credit and a revolving credit
agreement (see Note 8 to the financial statements). Long-term debt and
equity issues are used in a balanced fashion to reduce outstanding
short-term debt and to permanently finance completed construction. In
fiscal 1993, the Company completed a two-year effort focused on
restructuring its debt portfolio to lower its overall cost of capital.
In October, 1994 and 1992 the Company sold 392,200 and 750,000 shares of
its $3.125 par Common Stock at $22.75 and $23.125 per share,
respectively. The Company received net proceeds of approximately $8,500
in 1994 and $16,600 in 1992 which were used by the regulated operations
to retire existing short-term borrowings and for working capital
purposes. The October, 1994 transaction closed subsequent to year-end
and will be recorded for financial statement purposes in fiscal 1995.
In June, 1994, with the approval of the DPUC, the Company established
its Series B Medium Term Note (MTN) program which permits the issue of
up to $75,000 of unsecured MTNs over a four-year period at maturities
not exceeding thirty years, under varying terms. In July, 1994 the
Company issued $10,000 of MTNs at 7.82%, due 2004, with no call
provisions or sinking fund requirements. In August, 1994 the Company
issued $5,000 of MTNs at 8.12%, due 2014, with no call provisions or
sinking fund requirements and $5,000 of MTNs at 8.49%, due 2024,
callable after 2004, with no sinking fund requirements. The proceeds
were used by the regulated operations to refinance $15,000 of existing
short-term debt, and the remaining $5,000 was used for working capital.
The average interest rate of the retired short-term debt was 4.85%.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1994 (continued)
----------------------------------------------------
The Company's Series A MTN program for $75,000 was completed in
September, 1993 with the issue of $20,000 of MTNs at 6.85%, due 2013.
The MTNs are unsecured and have no call provisions or sinking fund
requirements. The proceeds were used by the regulated operations to
refinance $20,000 of existing short-term debt. The average interest
rate of the retired short-term debt was 3.49%.
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 expired on April 30, 1994. The
interest rate was based upon the prime or money market rate and was
determined at the time of each borrowing. There was a flat facility fee
equal to 1/8% of the commitment.
In July, 1993 the Company issued a secured note for $15,100, at 6.89%,
due 2010. The principal is payable in seventeen (17) consecutive annual
installments, beginning in July, 1994. The proceeds were used to
repurchase $13,900 of 9.25% and $226 of 14.5% existing first mortgage
debt at an aggregate premium of $723, and for working capital purposes
related to this refinancing. The premium was capitalized and will be
amortized over the life of the note, as authorized by the DPUC. The
associated income tax benefits were accounted for using the flow-through
method of accounting.
In March, 1993 the Company entered into a revolving credit agreement
with a large regional bank. The Company can borrow up to $20,000, less
any commercial paper outstanding, at a Eurodollar, Certificate of
Deposit or Base Rate of Interest plus a variable margin.
In November, 1993 the nonregulated operations entered into an agreement
for a $5,000 temporary unsecured line of credit with a bank. This
agreement is in the process of being converted to an unsecured line of
credit expiring in 1997. There is a 1/5 of 1% commitment fee on the
unused line of credit.
The nonregulated operations have maintained a $9,000 line of credit
under a revolving credit agreement with a bank. This agreement expired
on September 29, 1994, and was renegotiated as a secured line of credit
for $5,000, through October, 1997. There is a 1/5 of 1% commitment fee
on the unused line of credit.
Environmental Matters
There are three sites on which are located the Company's former gas
manufacturing facilities. The Company has not been required to
undertake any remedial activities on these sites by any state or federal
agency since 1989. The Company will continue to review the condition of
these sites. No determination has been made as to whether any
remediation will be required. In the December, 1993 rate decision the
DPUC allowed the deferral of any environmental remediation costs that
may be incurred related to manufactured gas sites for consideration for
recovery in future rate proceedings.
In 1990 the owner of property adjacent to one of these sites claimed
that contaminants similar to residues from gas manufacturing activities
were present on its property. The Company is unable to predict the
outcome of this matter.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1994 (concluded)
----------------------------------------------------
In May, 1994 the Company paid an immaterial amount to fulfill its
obligation as a potentially responsible party (PRP) in connection with
the Yellow River Road Superfund site in Florida. The Company is also a
PRP in connection with the Ellis Road Superfund site. Outside counsel
has advised the Company that it does not expect the Company's maximum
liability with respect to this site to exceed $10. The Ellis Road site
is somewhat related to the Yellow River Road site and involves
approximately 200 PRPs. Progress in settling this site was expected to
follow the settlement of the Yellow River Road site.
NEW ACCOUNTING STANDARDS
In November, 1992 the FASB issued Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits"
(SFAS No. 112). This statement requires employers to recognize any
obligation which exists to provide certain benefits to former or
inactive employees after employment but before retirement. The Company
is required to adopt this new standard during fiscal 1995. In the
opinion of management the impact of this new standard will not be
material.
INFLATION AND CHANGING PRICES
Inflation impacts the prices the Company must pay for operating and
maintenance expenses and construction costs. The Company's rate
schedules for natural gas and DHC sales include provisions that permit
changes in gas costs and service costs, respectively, to be passed on to
customers. The Company attempts to minimize the effects of inflation on
other costs through cost control, productivity improvements and
regulatory actions where appropriate.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders and The Board of Directors
of Connecticut Natural Gas Corporation:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of Connecticut Natural Gas
Corporation (a Connecticut Corporation) and subsidiaries as of September
30, 1994 and 1993, and the related consolidated statements of income,
common stock equity and cash flows for each of the three years in the
period ended September 30, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Connecticut Natural Gas Corporation and subsidiaries as of September 30,
1994 and 1993, and the results of their operations and their cash flows
for each of the three years in the period ended September 30, 1994, in
conformity with generally accepted accounting principles.
As explained in the notes to the financial statements, effective October
1, 1993, the Company changed its method of accounting for income taxes
and postretirement benefits other than pensions.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the
schedule index are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the
auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
S/ Arthur Andersen LLP
-------------------------------
(ARTHUR ANDERSEN LLP)
Hartford, Connecticut
November 21, 1994
Consolidated Balance Sheets
September 30, 1994 and 1993
(Thousands of Dollars)
Assets
1994 1993
---- ----
Plant and Equipment:
Plant in service $ 428,366 $ 402,175
Construction work in progress 2,762 1,355
--------- ---------
431,128 403,530
Less-Allowance for depreciation 119,392 106,919
--------- ---------
311,736 296,611
--------- ---------
Investments, at equity 5,147 4,874
--------- ---------
Current Assets:
Cash and cash equivalents 1,126 1,546
Accounts receivable (less allowance for
doubtful accounts of $4,017 in 1994
and $3,068 in 1993) 24,376 22,911
Accrued utility revenue 3,714 4,632
Inventories 18,326 20,413
Prepaid expenses 10,107 3,379
Recoverable purchased gas costs 3,769 -
--------- ---------
Total Current Assets 61,418 52,881
--------- ---------
Other Assets:
Unrecovered future taxes 46,759 51,023
Recoverable transition costs 6,925 15,000
Other assets 26,569 24,196
--------- ---------
Total Other Assets 80,253 90,219
--------- ---------
$ 458,554 $ 444,585
========= =========
The accompanying notes are an integral part of these financial statements.
Consolidated Balance Sheets (Concluded)
September 30, 1994 and 1993
(Thousands of Dollars)
Capitalization and Liabilities
1994 1993
---- ----
Capitalization (see accompanying statements):
Common stock equity $ 139,481 $ 136,322
Preferred stock, not subject to
mandatory redemption 909 944
Long-term debt 154,193 137,984
--------- ---------
294,583 275,250
--------- ---------
Notes Payable Under Revolving Credit Agreements - 4,500
--------- ---------
Current Liabilities:
Current portion of long-term debt 3,791 4,653
Notes payable and commercial paper 18,500 10,000
Accounts payable and accrued expenses 37,906 42,084
Refundable purchased gas costs - 3,758
Accrued taxes 3,543 1,105
Accrued interest 4,236 3,423
--------- ---------
Total Current Liabilities 67,976 65,023
--------- ---------
Deferred Credits:
Deferred income taxes 36,916 27,450
Unfunded deferred income taxes 46,759 51,023
Investment tax credits 3,644 3,864
Refundable taxes 3,275 4,024
Accrued transition costs 1,925 7,678
Other 3,476 5,773
--------- ---------
Total Deferred Credits 95,995 99,812
--------- ---------
Commitments and Contingencies
--------- ---------
$ 458,554 $ 444,585
========= =========
The accompanying notes are an integral part of these financial statements.
Consolidated Statements of Income
For the Years Ended September 30, 1994, 1993 and 1992
(Thousands of Dollars Except for Per Share Data)
1994 1993 1992
---- ---- ----
Operating Revenues $ 290,662 $ 265,337 $ 236,189
Less: Cost of Energy 155,547 145,904 118,822
State Gross Revenues Tax 11,863 11,095 10,421
--------- --------- ---------
Operating Margin 123,252 108,338 106,946
--------- --------- ---------
Operating Expenses:
Operations 48,361 39,709 39,947
Maintenance 7,683 7,469 7,864
Depreciation and amortization 15,507 12,649 11,333
Income taxes 13,353 13,438 12,334
Local property taxes 5,259 5,090 5,585
Other taxes 2,177 1,797 1,984
--------- --------- ---------
92,340 80,152 79,047
--------- --------- ---------
Operating Income 30,912 28,186 27,899
--------- --------- ---------
Other Income/(Deductions),
net of income taxes:
Allowance for equity funds used
during construction 21 607 19
Equity in partnership earnings 868 970 936
Other income/(deductions) (1,007) (614) 524
Income taxes (113) (552) (374)
--------- --------- ---------
(231) 411 1,105
--------- --------- ---------
Interest and Debt Expense, net:
Interest on long-term debt 10,997 9,985 11,485
Other interest 1,573 1,782 1,908
Allowance for borrowed funds used
during construction (14) (404) (12)
Amortization of debt expense 422 379 358
--------- --------- ---------
12,978 11,742 13,739
--------- --------- ---------
Net Income 17,703 16,855 15,265
Less-Dividends on Preferred Stock 66 67 68
--------- --------- ---------
Net Income Applicable to Common Stock $ 17,637 $ 16,788 $ 15,197
========= ========= =========
The accompanying notes are an integral part of these financial statements.
Consolidated Statements of Income (Concluded)
For the Years Ended September 30, 1994, 1993 and 1992
(Thousands of Dollars Except for Per Share Data)
1994 1993 1992
---- ---- ----
Net Income Applicable to Common Stock $ 17,637 $ 16,788 $ 15,197
========= ========= =========
Average Common Shares Outstanding
During the Period 9,539,695 9,527,772 8,704,897
========= ========= =========
Income Per Average Share of
Common Stock $ 1.85 $ 1.76 $ 1.75
========= ========= =========
Dividend Per Share of Common Stock $ 1.48 $ 1.46 $ 1.44
========= ========= =========
The accompanying notes are an integral part of these financial statements.
Consolidated Statements of Cash Flows
For the Years Ended September 30, 1994, 1993 and 1992
(Thousands of Dollars)
1994 1993 1992
---- ---- ----
Cash Flows from Operations: $ 24,929 $ 20,729 $ 42,235
-------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures (27,859) (25,531) (26,145)
Other investing activities (1,890) (9,186) (11,444)
-------- -------- --------
Net cash used in investing activities (29,749) (34,717) (37,589)
-------- -------- --------
Cash Flows from Financing Activities:
Dividends paid (14,184) (13,999) (12,609)
Issuance of common stock - 16,913 3,953
Other stock activity, net (763) (16) (12)
Issuance of long-term debt 20,000 35,100 55,000
Principal retired on long-term debt (4,653) (19,354) (44,515)
Short-term debt 4,000 (3,450) (7,350)
-------- -------- --------
Net cash provided (used) by
financing activities 4,400 15,194 (5,533)
-------- -------- --------
Increase (Decrease) in Cash and
Cash Equivalents (420) 1,206 (887)
Cash and Cash Equivalents at
Beginning of Year 1,546 340 1,227
-------- -------- --------
Cash and Cash Equivalents at
End of Year $ 1,126 $ 1,546 $ 340
======== ======== ========
The accompanying notes are an integral part of these financial statements.
Consolidated Statements of Cash Flows (Concluded)
For the Years Ended September 30, 1994, 1993 and 1992
(Thousands of Dollars)
1994 1993 1992
---- ---- ----
Schedule Reconciling Earnings to
Cash Flows from Continuing Operations:
Income $ 17,703 $ 16,855 $ 15,265
-------- -------- --------
Adjustments to reconcile income
to net cash:
Depreciation and amortization 16,296 13,028 11,691
Provision for uncollectible
accounts 6,582 3,469 3,247
Deferred income taxes, net 8,538 915 5,169
Undistributed affiliate earnings (868) (970) (936)
Cash distributions received from
investments 240 1,154 -
Change in assets and liabilities:
Accounts receivable (9,047) (4,340) (8,190)
Accrued utility revenue 918 (339) 72
Inventories 2,087 (7,073) (1,489)
Unrecovered/(refundable)
purchased gas costs (7,527) (8,564) 11,524
Prepaid expenses (6,728) (1,021) 1,122
Accounts payable and accrued expenses (927) 10,011 4,334
Other assets/liabilities (2,338) (2,396) 426
-------- -------- --------
Total adjustments 7,226 3,874 26,970
-------- -------- --------
Cash flows from
operations $ 24,929 $ 20,729 $ 42,235
======== ======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Year for:
Interest $ 10,138 $ 8,794 $ 9,379
======== ======== ========
Income taxes $ 9,972 $ 9,837 $ 8,337
======== ======== ========
The accompanying notes are an integral part of these financial statements.
Consolidated Statements of Capitalization
September 30, 1994 and 1993
(Thousands of Dollars)
1994 1993
Common Stock Equity: ---- ----
Common stock, $3.125 par value, authorized
20,000,000 shares, issued 9,542,296 shares
in 1994 and 1993, outstanding 9,539,079
shares in 1994 and 9,542,296 shares in 1993 $ 29,820 $ 29,820
Capital in excess of par value 66,657 66,915
Retained earnings 43,264 39,744
-------- --------
139,741 136,479
-------- --------
Less: Unearned compensation - restricted
stock awards (157) (157)
Treasury stock, 3,217 shares in 1994 (103) -
-------- --------
139,481 136,322
-------- --------
Preferred Stock, Not Subject to Mandatory
Redemption:
$3.125 par value, 8%, noncallable, authorized
916,952 shares in 1994 and 927,687 shares
in 1993, issued and outstanding 141,480 shares
in 1994 and 152,215 shares in 1993, entitled to
preference on liquidation at $6.25 per share 442 476
$100 par value, callable, authorized 9,999,635
shares in 1994 and 9,999,644 shares in 1993
6% Series B, issued and outstanding 4,671
shares in 1994 and 4,680 shares in 1993 467 468
-------- --------
909 944
-------- --------
Long-Term Debt:
First Mortgage Bonds -
8.8%, due 2001 14,000 16,000
9.16%, due 2004 18,000 18,000
Industrial Revenue Demand Bonds -
1986 and 1988 series,
weighted average interest rate of
2.677% in 1994 and 3.18% in 1993, due 2006 13,400 14,000
First Mortgage Notes -
10.5%, due 2010 1,058 1,084
Secured Note, 6.89%, due 2010 14,495 14,997
Secured Term Note, 8.3%, due 1994 - 900
Secured Term Note, 10.72%, due 1997 2,031 2,656
Unsecured Medium Term Notes -
6.48%, due 1997 10,000 10,000
7.61% to 7.82%, due 2002 to 2004 20,000 10,000
6.85% to 8.12%, due 2012 to 2014 30,000 25,000
8.96% to 9.1%, due 2016 to 2017 30,000 30,000
8.49%, due 2024 5,000 -
Less - Current Maturities (3,791) (4,653)
-------- --------
154,193 137,984
-------- --------
$294,583 $275,250
======== ========
The accompanying notes are an integral part of these financial statements.
Consolidated Statements of Common Stock Equity
For the Years Ended September 30, 1994, 1993 and 1992
(Thousands of Dollars Except for Share Data)
Common Stock
------------------- Capital in
Number of Par Excess of Treasury Unearned Retained
Shares Value Par Value Stock Compensation Earnings
--------- ------- ---------- -------- ------------ ---------
Balance at September 30,
1991 8,608,991 $26,906 $49,128 $ (16) $ (321) $34,232
Issuance through dividend
reinvestment and employee
benefit plans 182,315 570 3,294 - - -
Net income after preferred
dividends - - - - - 15,197
Issuance of treasury stock 750 - - 14 - -
Amortization and
adjustment of restricted
shares - - 75 - 13 -
Dividends - - - - - (12,541)
--------- ------- ------- ------ ------ --------
Balance at September 30,
1992 8,792,056 27,476 52,497 (2) (308) 36,888
Public offering 750,000 2,344 14,217 - - -
Issuance through dividend
reinvestment and employee
benefit plans 136 - 4 - - -
Net income after preferred
dividends - - - - - 16,788
Issuance of treasury stock 104 - 1 2 - -
Amortization and
adjustment of restricted
shares - - 196 - 151 -
Dividends - - - - - (13,932)
--------- ------- ------- ------ ------ --------
Balance at September 30,
1993 9,542,296 29,820 66,915 - (157) 39,744
Net income after preferred
dividends - - - - - 17,637
Purchase of restricted
stock awards - - - - (728) -
Amortization and
adjustment of restricted
shares (3,217) - (258) (103) 728 -
Dividends - - - - - (14,117)
--------- ------- ------- ------ ------ --------
Balance at September 30,
1994 9,539,079 $29,820 $66,657 $ (103) $ (157) $43,264
========= ======= ======= ====== ====== ========
The accompanying notes are an integral part of these financial statements.
NOTES TO FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts)
September 30, 1994
1. Summary of Significant Accounting Policies:
Principles of consolidation-
The consolidated financial statements represent the Connecticut Natural Gas
Corporation (the Company), including its wholly-owned nonregulated
subsidiaries: Energy Networks, Inc. (ENI), ENI Transmission Company (ENIT)
and CNG Realty Corp. (CNGR). All significant intercompany transactions and
accounts have been eliminated in consolidation. Certain prior year amounts
have been reclassified to conform with current year classifications.
Revenues-
Revenues are recorded based on the amount of product delivered to customers
through the end of the accounting period. Regulated gas operations
revenues are based on rates authorized by the Connecticut Department of
Public Utility Control (DPUC).
The Company is required to provide service (and grant credit) to
residential customers within its defined service territory and is precluded
by the DPUC from discontinuing service to hardship customers during a
winter moratorium period (November - April). The Company reviews new
customers' credit worthiness and may request security deposits from
nonhardship customers based on that review.
In compliance with Connecticut law, the Company has a receivable
forgiveness program for qualified hardship natural gas customers. The
total payments made by these customers and energy assistance funds received
on their behalf are matched and forgiven by the Company. Amounts forgiven
are deferred and recovered from ratepayers in a future period in accordance
with DPUC treatment as outlined in the Company's December, 1993 rate
decision (see Note 2). This decision allowed annual recovery of $1,770 for
hardship forgiveness amounts and deferral for future recovery of certain
unrecovered hardship receivable balances. At September 30, 1994 and 1993
the deferred balances pending future amortization and recovery from
ratepayers were $5,700 and $3,500, respectively.
Purchased gas costs-
The Company passes on to its firm customers increases or decreases in gas
costs from those reflected in its tariff charges. In accordance with this
procedure, any current under or over-recoveries of gas costs are charged or
credited to cost of gas and included in current assets or liabilities.
Such amounts are collected or refunded in subsequent periods under
purchased gas adjustment provisions.
Allowance for funds used during construction-
In the ordinary course of business an allowance for funds used during
construction (AFUDC) is calculated on the construction of physical assets
(such as gas mains and services) which are constructed over a long period
of time. AFUDC is computed at the weighted average cost of capital allowed
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
by the DPUC for the regulated operations and at current borrowing rates for
the nonregulated operations. The AFUDC included in the statements of
income in fiscal 1993 is primarily related to the Company's new customer
information and distribution/construction information system which went
into operation in 1993.
Plant-
Plant is stated at original cost which includes indirect costs consisting
of payroll taxes, pension and other employee benefit costs, general and
administrative costs, and, for certain long-term construction projects,
AFUDC.
Substantially all of the plant of the regulated operations is subject to
the lien of the Indenture of Mortgage and Deed of Trust securing its First
Mortgage Bonds. Most properties of the nonregulated operations are also
subject to the liens associated with their term loans or letters of credit
(see Notes 7 and 8).
Depreciation-
The Company and its subsidiaries, except CNGR, provide depreciation on a
straight-line basis. The rates applied by the regulated operations are
approved by the DPUC. The current allowed rates were increased in the
December, 1993 rate decision (see Note 2) and include a cost of removal and
salvage factor. Such rates were equivalent to a composite rate of 4.2% in
1994, 3.7% in 1993 and 3.6% in 1992, excluding the operating and
administrative center. The operating and administrative center is owned by
CNGR and is being depreciated under a DPUC approved sinking fund method
through 2010.
The depreciation rates for nonregulated depreciable plant were 3.3% in 1994
and 1993 and 3.7% in 1992.
Cash and cash equivalents-
Cash in excess of daily requirements is invested in short-term interest
bearing securities with maturities of three months or less.
Investments-
Investments at September 30, 1994 include $4,353 for ENIT's 2.4% ownership
interest in the Iroquois Gas Transmission System Partnership (Iroquois).
Iroquois operates a natural gas pipeline which transports Canadian natural
gas into New York State, Massachusetts and Connecticut. The Company also
has a $794 (50% ownership) investment in the Downtown Cogeneration
Associates Limited Partnership (DCA) which owns and operates a cogeneration
facility in Hartford, CT. These investments are being accounted for on the
equity method of accounting.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
Inventories-
Gas inventories are stated at their weighted average cost. Other
inventories are stated at the lower of cost or market using the first-in,
first-out or average cost method.
2. Rate Proceedings
In December, 1993 the DPUC issued a decision which allowed the Company to
increase its rates $7,600 or 2.8%. This decision reduced the Company's
allowed rate of return on equity from 12.9% to 11.2% and provided for
adequate recovery of all significant items deferred on the balance sheet
pending recovery at September 30, 1993. New rates became effective for
service rendered on or after December 16, 1993.
3. Pension and Employee Benefit Plans:
The Company has noncontributory retirement plans (Plans) covering
substantially all employees. Pension benefits are based on years of
credited service and employees' average annual earnings, as defined in the
Plans. The Company's funding policy is to contribute, annually, an amount
at least equal to that which will satisfy the requirements of the Employee
Retirement Income Security Act.
The assumptions used in determining the pension obligations were:
1994 1993 1992
---- ---- ----
Weighted Average Discount Rate ......... 8.25% 8.25% 8.25%
Rate of Increase in Future Compensation
Levels .............................. 5.00% 5.50% 5.50%
Expected Long-term Rate of Return on
Assets .............................. 8.95% 8.95% 8.95%
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
The following table represents the Plans' funded status and amounts
included in the balance sheets at September 30, 1994 and 1993:
1994 1993
---- ----
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $57,164 in 1994 and of $52,120 in
1993 $ 58,494 $ 53,463
======== ========
Projected benefit obligation for service rendered
to date $ 72,752 $ 69,967
Assets at fair value, primarily publicly traded stocks
and bonds 80,518 79,541
-------- --------
Value of assets over the projected benefit obligation
7,766 9,574
Unrecognized net gain from past experience different
from that assumed (6,929) (8,704)
Prior service cost not yet recognized in net periodic
pension cost 1,110 1,224
Unrecognized net asset at January 1, 1986 being
recognized over 15 years (2,014) (2,439)
-------- --------
Accrued pension liability $ (67) $ (345)
======== ========
Net pension costs included in the statements of income for the years ending
September 30, include the following components:
1994 1993 1992
---- ---- ----
Service cost $ 2,021 $ 2,009 $ 1,880
Interest cost 5,469 5,068 4,704
Return on plan assets (2,597) (6,410) (6,126)
Net amortization and deferral (4,784) (327) (400)
-------- -------- --------
Net cost $ 109 $ 340 $ 58
======== ======== ========
The Company also provides its officers with a supplemental retirement plan.
The actuarially determined accumulated benefit obligation was approximately
$3,400 at both September 30, 1994 and 1993. The cost of this plan is being
accrued over the service lives of the individual officers. Net expense
related to this plan was $505 for 1994, $306 for 1993 and $282 for 1992.
The Company contributes to a trust to fund the liability for supplemental
retirement plan benefits. The trust balance included in other assets at
September 30, 1994 and 1993 was $2,073 and $1,415, respectively.
NOTES TO FINANCIAL STATEMENTS (continued)
In thousands of dollars, except per share amounts)
In August, 1994 the Company announced an early retirement program for
nonunion employees which resulted in the reduction of approximately 3% of
the total workforce through voluntary early retirement. The cost of this
program of $1,341 included pension enhancements and other benefits and was
fully recognized by the Company in the fourth quarter of fiscal 1994.
In November, 1992 the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" (SFAS No. 112). This statement requires
employers to record any obligation which exists to provide certain benefits
to former or inactive employees after employment but before retirement.
The Company is required to adopt these new standards during fiscal 1995.
In the opinion of management, the impact of SFAS No. 112 will not be
material.
4. Postretirement Benefits Other Than Pensions:
The Company provides certain health care and life insurance benefits
through a benefit plan to retired employees. These benefits are available
for employees leaving the Company who are otherwise eligible to retire and
have met specific service requirements. Through September 30, 1993 the
Company recognized the cost of these benefits as they were paid (pay-as-
you-go). In December, 1990 the FASB issued Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" (SFAS No. 106). This new standard requires
that the expected cost of postretirement benefits, primarily health care
and life insurance benefits, must be charged to expense during the years
that eligible employees render service.
Effective October 1, 1993 the Company adopted SFAS No. 106 on a prospective
basis and began amortizing its approximately $22,000 accumulated benefit
obligation over a twenty-year period. Total health care and life insurance
costs under SFAS No. 106 were $2,931 in 1994 compared to costs of $1,575 in
1993 and $1,715 in 1992 on a pay-as-you-go basis. In its December, 1993
rate decision (see Note 2) the DPUC approved a five-year phase-in of SFAS
No. 106 expenses with an allowed annual recovery of $1,946 and deferral of
each year's additional SFAS No. 106 expenses for future recovery through
amortization over a five-year period. At September 30, 1994 $985 has been
deferred pending future amortization and recovery through 1999.
NOTES TO FINANCIAL STATEMENTS (continued)
In thousands of dollars, except per share amounts)
The following table represents the plan's funded status reconciled to the
consolidated balance sheet at September 30, 1994:
1994
----
Accumulated postretirement benefit obligation of:
Retirees $ 3,186
Fully eligible active employees 5,332
Active employees not eligible to retire 13,241
--------
Total accumulated postretirement benefit obligation
21,759
Less: Market value of plan assets 1,803
--------
Accumulated postretirement benefit obligation in
excess of plan assets 19,956
Unrecognized transition amount (18,635)
Unrecognized net gain 254
--------
Accrued postretirement benefit liability $ 1,575
========
The components of SFAS No. 106 health care and life insurance costs for the
fiscal year ended September 30, 1994 are:
1994
----
Service cost $ 367
Interest cost 1,664
Return on plan assets (81)
Net amortization 981
--------
Net health care and life insurance costs
$ 2,931
========
For measurement purposes annual rates of increase of 16% and 12% are
assumed for nonmedicare and medicare eligible retirees, respectively, in
the per capita cost of covered health care benefits. The rate was assumed
to decrease to 6% for both groups in 2003. The effect of increasing the
assumed health care cost trend rates by one percentage point in each year
would increase the accumulated postretirement benefit obligation as of
September 30, 1994 by $964 and the aggregate of the service and interest
cost for the year then ended by $130. The weighted average discount rate
used in determining the accumulated post retirement benefit obligation was
8.25% and was determined by analyzing the interest rates, as of September
30, 1994, of long-term, high quality corporate debt securities having a
duration comparable to the plan.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
The Company has established Employee Benefit Trusts (VEBA) to pay current
retiree health care and life insurance benefits and to fund the Company's
retirement benefit liability. In 1994 the Company funded $1,350 for SFAS
No. 106 costs. The VEBA balances at September 30, 1994 and 1993 were
$1,803 and $1,507, respectively and are primarily invested in life
insurance policies and equity products.
5. Income Taxes:
The following is an analysis of the provision for federal and state income
taxes:
September 30,
------------------------
1994 1993 1992
---- ---- ----
Charged to operations:
Federal:
Current $ 3,822 $10,877 $ 5,247
Deferred 6,098 (1,024) 3,429
------- ------- -------
9,920 9,853 8,676
------- ------- -------
State:
Current 1,424 4,325 2,218
Deferred 2,230 (519) 1,661
------- ------- -------
3,654 3,806 3,879
------- ------- -------
Deferred investment tax credits (221) (221) (221)
------- ------- -------
Total charged to operations 13,353 13,438 12,334
------- ------- -------
Charged to other income/(deductions):
Federal:
Current 198 356 255
Deferred (118) 47 -
------- ------- -------
80 403 255
------- ------- -------
State:
Current 77 133 119
Deferred (44) 16 -
------- ------- -------
33 149 119
------- ------- -------
Total charged to other income/(deductions)
113 552 374
------- ------- -------
Total $13,466 $13,990 $12,708
======= ======= =======
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
Depreciation for federal income tax purposes is computed using accelerated
cost recovery methods and different lives as permitted under the Internal
Revenue Code (Code). The DPUC has allowed the Company to normalize taxes
on accelerated depreciation, as required under the Code, for depreciable
property additions made by the regulated operations subsequent to 1980.
For certain other temporary differences, tax reductions are accounted for
as a reduction of federal income tax expense in accordance with the flow-
through method of accounting as required by the DPUC. Under the
established ratemaking practices followed by the DPUC, deferred income
taxes not provided for previously are collected in customer rates when such
taxes become payable.
Deferred income taxes are primarily a result of normalized plant items and
temporary differences related to gas costs. For the regulated operations,
deferred investment tax credits are amortized to income over the average
life of the related property. The nonregulated operations provide deferred
taxes on all temporary differences, including depreciation.
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,
adopted by the Company in 1988. In accordance with SFAS No. 109, the
regulated operations reflect refundable taxes to ratepayers for reductions
in the statutory federal income tax rate on normalized plant related
temporary differences. The regulated operations also recognize the
cumulative deferred income taxes on temporary differences which were
previously flowed through to ratepayers. At September 30, 1994 and 1993
the Company had $46,759 and $51,023, respectively, on the balance sheet as
an unfunded deferred income tax liability, with a corresponding unrecovered
receivable, for temporary differences previously flowed through to
ratepayers. These amounts have been adjusted for the tax effect of future
revenue requirements and will be amortized over the life of the related
depreciable assets concurrent with their recovery in rates.
In October, 1994 the Company received formal approval from the Internal
Revenue Service (IRS) to deduct for tax purposes current as well as certain
prior incurred cost of removal expenses associated with retirements of
plant and equipment. During fiscal 1994 the Company recognized current
period cost of removal expenses which reduced the 1994 federal and state
income tax provision by $880 or $.09 per share. The Company anticipates
recording the tax benefit of additional cost of removal deductions related
to the IRS approval during fiscal 1995.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
A reconciliation of the consolidated federal income tax expense, at the
statutory tax rate of 35% for 1994, blended tax rate of 34.75% for 1993 and
at the tax rate of 34% for 1992, to the consolidated federal income tax
expense is as follows:
1994 1993 1992
---- ---- ----
Consolidated statutory federal income tax expense
$ 9,619 $ 9,309 $ 8,152
Change in consolidated federal income tax expense
resulting from:
Excess book over tax depreciation 1,797 1,590 1,338
Investment tax credits (221) (221) (221)
Bad debts 131 (315) (39)
Contributions in aid of construction 66 64 60
Premiums on reacquired debt, net 50 (209) (636)
1993 tax act impact - 244 -
Tax reserves 105 (618) -
Computer software (899) - -
Cost of removal (744) - -
All other items (125) 191 56
------- ------- -------
Consolidated federal income tax expense $ 9,779 $10,035 $ 8,710
======= ======= =======
IRS audits of the Company's federal income tax returns for 1986, 1987 and
1988 were settled during fiscal 1994. The outcome did not have a material
impact on the Company's financial condition or results of operations.
6. Capital Stock:
Common stock-
In October, 1994 and 1992 the Company sold 392,200 and 750,000 shares of
its $3.125 Par Common Stock at $22.75 and $23.125 per share, respectively.
The Company received net proceeds of approximately $8,500 in 1994 and
$16,600 in 1992 which were used by the regulated operations to retire
existing short-term borrowings and for working capital purposes. The
October, 1994 transaction closed subsequent to year-end and will be
recorded for financial statement purposes in fiscal 1995.
Dividend reinvestment plan and employee savings plans-
The Company maintains a Dividend Reinvestment Plan (DRIP) which provides
the Company's holders of common stock and preferred stock the opportunity
to receive shares of the Company's common stock in lieu of some or all of
their cash dividends. In addition, the Company has Employee Savings Plans
(ESP), which are designed to encourage and assist employees to save and
invest for long-term financial security. All amounts paid into the ESP by
the Company are used to purchase the Company's common stock. At September
30, 1994 there were 1,068,355 shares of the Company's common stock reserved
for issuance under the DRIP and ESP. In the fiscal years ended September
30, 1994, 1993 and 1992 the Company's contribution to the ESP on behalf of
employees was $956, $890 and $825, respectively.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
Executive restricted stock plan-
In 1990 the Company adopted a restricted stock performance plan. The plan
terminates in the year 2000 and is authorized to issue up to 200,000
shares. On October 1, 1990 and October 1, 1993 key employees were granted
22,146 and 24,040 restricted shares of the Company's common stock under
this plan. Restrictions lapse and the shares vest over a three to five
year period beginning October 1, 1990, and 1993, respectively as certain
performance goals are achieved. In October, 1994 and 1993 5,773 and 7,382,
respectively, of the restricted shares became fully vested and were awarded
to qualifying employees.
The market value of the shares awarded under this plan has been recorded as
unearned compensation and is a separate component of common equity. The
unearned compensation is being charged to expense over the vesting period
based on achievement of the performance criteria. Compensation charged to
expense was $166 in 1994, $464 in 1993 and $158 in 1992.
Preferred stock-
The Company is prohibited from, among other things, paying dividends on
common stock and purchasing, redeeming or retiring common stock, if
dividends on preferred stock are in arrears.
The following table sets forth the changes in the number of shares
outstanding for each class of the Company's preferred stock not subject to
mandatory redemption, for the years ended September 30, 1994, 1993 and
1992, respectively:
1994 1993 1992
---- ---- ----
$3.125 par value (10,735) (6,052) (2,804)
======= ======= =======
$100 par value (9) - (158)
======= ======= =======
7. Long-term Debt:
The Company has various issues of first mortgage bonds and first mortgage
notes outstanding with maturities from 2001 to 2010. Under the most
restrictive terms of the indenture securing the bonds, retained earnings of
$41,041 are available for dividends at September 30, 1994. Sinking fund
requirements for outstanding bonds were paid in cash.
In July, 1993 the Company issued a secured note for $15,100, at 6.89%, due
2010. The principal is payable in seventeen (17) consecutive annual
installments, beginning in July, 1994. The proceeds were used to
repurchase $13,900 of 9.25% and $226 of 14.5% existing first mortgage debt
at an aggregate premium of $723, and for working capital purposes. The
premium has been capitalized and is being amortized over the life of the
note, as authorized by the DPUC. The associated income tax benefits were
accounted for using the flow-through method of accounting.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
In September, 1993 the Company issued $20,000 of Medium Term Notes (MTN) at
6.85%, due 2013. The MTNs are unsecured and have no call provisions or
sinking fund requirements. The September, 1993 proceeds were used by the
regulated operations to refinance $20,000 of existing short-term debt.
This issue completed the $75,000 Series A MTN program approved by the DPUC
in 1992.
In June, 1994, with the approval of the DPUC, the Company established a
Series B MTN program which permits the issue of up to $75,000 of unsecured
MTNs over a four-year period at maturities not exceeding thirty years,
under varying terms. Under this program the Company has issued the
following MTNs in fiscal 1994 with no sinking fund requirements:
Date Face Value Interest Rate Maturity Call Provision
--------------- ---------- ------------- ----------- ------------------
July, 1994 $10,000 7.82% 2004 None
August, 1994 $ 5,000 8.12% 2014 None
August, 1994 $ 5,000 8.49% 2024 Callable in 2004
The proceeds were used by the regulated operations to refinance $15,000 of
existing short-term debt and for general working capital purposes. The
average interest rate of the retired short-term debt was 4.85%.
Long-term debt amounts which are due during each of the five years ending
September 30 through 1999, are as follows:
Sinking Fund Requirements and Maturities
----------------------------------------
Year Total
---- -------
1995 $ 3,791
1996 3,930
1997 13,505
1998 5,993
1999 6,142
-------
$33,361
=======
8. Short-term Borrowings and Lines of Credit:
The Company maintains a line of credit under a revolving credit agreement
with a large regional bank. Under this agreement the Company can borrow up
to $20,000, less any commercial paper outstanding, at a Eurodollar,
Certificate of Deposit or Base Rate of interest plus a variable margin.
The initial expiration date is March 30, 1996, with two optional one-year
extensions. There is also a .1% facility fee and a .075% commitment fee on
the unused portion of the agreement. At September 30, 1994, there were no
borrowings outstanding under this agreement. At September 30, 1994, there
were $11,000 of commercial paper outstanding.
The Company also maintains a one-year line of credit with a bank for
$9,000. The Company pays a 3/8 of 1% commitment fee on the unused portion.
The interest rate varies according to market conditions. The terms of this
line of credit require no maintenance or compensating balance. This line
of credit expires on February 20, 1995. At September 30, 1994, there were
$3,800 of borrowings outstanding under this line of credit.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
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 expired on April 30, 1994.
In November, 1993 ENI entered into an agreement for a $5,000 temporary
unsecured line of credit with a bank. The interest rate is based on
current money market rates determined at the time of each borrowing. This
agreement is in the process of being converted to a three-year unsecured
line of credit expiring in 1997, with a 1/5 of 1% commitment fee on the
unused line. The interest rate will be based upon the certificate of
deposit, libor or money market rate plus a variable margin and is
determined at the time of each borrowing. At September 30, 1994 there were
no borrowings outstanding under this arrangement.
The Hartford Steam Company (HSC), a wholly-owned subsidiary of ENI, has
maintained a line of credit under a revolving credit agreement with a bank.
Under the terms of this agreement HSC could borrow up to $9,000 at
prime, bank or libor rate plus a fraction of a percent with no compensating
balance requirements, through September 29, 1994. HSC has obtained a
commitment for a replacement agreement for a $5,000 secured line of credit,
through October, 1997, with a 1/5 of 1% commitment fee on the unused
portion of the available credit line. The interest rate is based upon the
certificate of deposit, libor or money market rate plus a variable margin,
determined at the time of each borrowing. At September 30, 1994, there
were $3,700 of borrowings outstanding under this arrangement.
Additional information relating to lines of credit and commercial paper for
each of the three fiscal years ended September 30, is set forth below:
1994 1993 1992
-------- -------- --------
Balance at end of year
Borrowings $18,500 $14,500 $17,950
Unused lines of credit 20,500 23,500 20,050
------- ------- -------
Total $39,000 $38,000 $38,000
======= ======= =======
Maximum borrowings outstanding
during the year $42,900 $29,800 $28,900
Average outstanding borrowings
during the year $21,673 $15,916 $13,184
Interest rates
End of year 4.82%-6.25% 3.3%-6.25% 3.62%-4.5%
Average for year 3.96% 3.83% 3.94%
9. Fair Value of Financial Instruments:
The fair value amounts disclosed below have been reported to meet the
disclosure requirements of Statement of Financial Accounting Standards No.
107, "Disclosures About Fair Values of Financial Instruments" and are not
necessarily indicative of the amounts that the Company could realize in a
current market exchange.
The carrying amount of cash and cash equivalents; accounts receivable;
notes payable under revolving credit agreements; notes payable and
commercial paper; accounts payable and accrued expenses; and unrecovered or
refundable purchased gas costs approximates fair value.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
At September 30, 1994 and 1993 the fair value of the Company's long-term
debt, including current maturities, is $158,962 and $160,567, respectively.
The fair value at year-end 1994 and 1993, of $144,583 and $128,637 of
fixed-rate long-term debt, based on the market value of similar
instruments, is estimated at $145,562 in 1994 and $146,567 in 1993. The
carrying amount of the variable-rate long-term debt of $13,400 in 1994 and
$14,000 in 1993 approximates fair value.
The Company has guaranteed 2.4% of a letter of credit for Iroquois,
equivalent to approximately $958 at September 30, 1994 and 1993, which
approximates fair value. The letter of credit is used to satisfy
Iroquois's cash retention requirements with respect to agreements between
Iroquois and its lenders.
10. Commitments and Contingencies:
Construction expenditures-
Construction expenditures for the fiscal year ending September 30, 1995 are
estimated at $27,405 for the regulated operations and $2,868 for the
nonregulated operations.
Gas supply-
The Company is party to short-term and long-term contracts for the purchase
of natural gas and transportation and storage services.
FERC Order No. 636 transition costs-
The Company began to be billed for transition costs associated with Federal
Energy Regulatory Commission (FERC) Order No. 636 from its pipeline
suppliers in June, 1993. These costs are expected to be billed to the
Company over three years. Through September 30, 1994 the Company has paid
and recovered from ratepayers $8,075 of an estimated $15,000 of transition
costs.
In July, 1994 the DPUC issued a decision allowing companies under its
jurisdiction to recover these costs from amounts which would otherwise have
been refunded to customers and the opportunity, if necessary, for
surcharges added to customers' future bills.
In the opinion of management the Company has available a sufficient number
of recovery mechanisms to provide for the full recovery of all transition
costs. For this reason it is the opinion of management that these
transition costs will not have a material impact on the Company's financial
condition or results of operations. The unpaid estimated liability of
$6,925 at September 30, 1994 is included in Accounts Payable and Accrued
Expenses and Accrued Transition Costs.
Steam supply-
The nonregulated operations are party to three long-term contracts for the
purchase of steam.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
The nonregulated operations' primary steam supplier has indicated a desire
to negotiate a termination of its long-term steam supply contract with HSC.
Accordingly, management has entered into discussions with this supplier
and, at a minimum, will seek reimbursement of all amounts recorded from the
supplier and any additional amounts that may be owing as a result of the
termination of the steam supply contract and related agreements. The
nonregulated operations have also developed a plan for alternative steam
supply sources. Management believes that adequate alternate sources of
steam are available and that any change in its source of steam supply will
not have any material impact on customers' supply or service. Furthermore,
management does not believe that the resolution of this matter will have
any material adverse effect on the Company's financial condition or results
of operations. However, the ultimate impact will depend upon a number of
factors including the final terms of any settlement agreed to with the
supplier and the terms of any new steam supply.
Letter of credit-
As a condition of its ownership in the DCA, ENI is contingently liable
under a letter of credit amounting to $2,000.
Environmental matters-
There are three sites on which are located the Company's former gas
manufacturing facilities. The Company has not been required to undertake
any action on these sites by any state or federal agency since 1989. The
Company will continue to review the condition of these sites. No
determination has been made as to whether any remediation will be required.
In the December, 1993 rate decision the DPUC allowed the deferral of any
potential environmental remediation costs that may be incurred related to
manufactured gas sites for consideration for recovery in future rate
proceedings.
In 1990 the owner of property adjacent to one of these sites claimed that
contaminants similar to residues from gas manufacturing activities were
present on its property. The Company is unable to predict the outcome of
this matter.
Management does not anticipate any material future cash requirements
relating to these environmental issues. As a result, the above matters are
not expected to have a material adverse effect on the Company's financial
condition or results of operations. If circumstances changed and
environmental expenditures were required, the Company would seek
appropriate regulatory recovery of any amounts expended to return these
sites to their original condition.
The nonregulated operations are subject to compliance with Clean Air Act
requirements. They expect to incur approximately $2,000 of capital
expenditures over the next five fiscal years to satisfy these requirements.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
Legal proceedings-
Two civil and criminal investigations related to environmental issues,
brought against Iroquois in 1992, are still pending. Although the Company
cannot predict the outcome of these proceedings, the Company does not
believe the ultimate resolution of these matters will have a material
adverse effect on the Company's financial condition or results of
operations. Iroquois is a partnership of which the Company is a 2.4% owner
(see Note 1).
The Company is not a party to any other litigation other than ordinary
routine litigation incident to the operations of the Company or its
subsidiaries. In the opinion of management, the resolution of such
litigation will not have a material adverse effect on the Company's
financial condition or results of operations.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
11. Segment Information:
The Company operates in two segments: gas related activities and
nonregulated activities. Gas related activities consist primarily of
natural gas distribution to residential, commercial and industrial
customers. Nonregulated activities consist primarily of district heating
and cooling services.
Intersegment sales are priced in accordance with terms of existing tariffs
and contracts. Information about the Company's operations, by business
segment, is presented below:
1994 1993 1992
--------- --------- ---------
Revenues:
Gas related activities $269,433 $244,516 $215,931
Nonregulated activities 24,298 24,284 24,034
Intersegment revenues (3,069) (3,463) (3,776)
-------- -------- --------
Total $290,662 $265,337 $236,189
======== ======== ========
Pre-Tax Operating Income:
Gas related activities $ 37,636 $ 35,182 $ 33,940
Nonregulated activities 6,629 6,442 6,293
-------- -------- --------
Total 44,265 41,624 40,233
Income taxes 13,353 13,438 12,334
-------- -------- --------
Consolidated Operating Income $ 30,912 $ 28,186 $ 27,899
======== ======== ========
Depreciation and Amortization:
Gas related activities $ 13,481 $ 10,699 $ 9,243
Nonregulated activities 2,026 1,950 2,090
-------- -------- --------
Total $ 15,507 $ 12,649 $ 11,333
======== ======== ========
Property Additions:
Gas related activities $ 25,352 $ 22,696 $ 24,088
Nonregulated activities 2,507 2,835 2,057
-------- -------- --------
Total $ 27,859 $ 25,531 $ 26,145
======== ======== ========
Identifiable Assets:
Gas related activities $394,229 $380,745 $334,602
Nonregulated activities 64,325 63,840 62,968
-------- -------- --------
Consolidated Identifiable Assets
$458,554 $444,585 $397,570
======== ======== ========
NOTES TO FINANCIAL STATEMENTS (concluded)
(In thousands of dollars, except per share amounts)
12. Quarterly Results (Unaudited):
The following table sets forth information with respect to the consolidated
quarterly results of operations for the fiscal years 1994 and 1993. The
amounts are unaudited but, in the opinion of management, include only
normal, recurring adjustments necessary to present fairly the results of
operations.
The quarterly results of operations reflect the seasonal nature of the
Company's operations. The results of any one quarter during the year are
not indicative of the results of future quarters or the results of the
Company's fiscal year.
Consolidated Results of Operations
----------------------------------
--------------------------------------------------------------------------------------------
December 31, March 31, June 30, September 30,
Quarter Ended 1993 1994 1994 1994
--------------------------------------------------------------------------------------------
Operating Revenues $ 80,140 $122,565 $ 50,003 $ 37,954
Operating Income $ 9,920 $ 18,256 $ 2,442 $ 294
Net Income (Loss) $ 6,680 $ 15,036 $ (908) $ (3,105)
Net Income (Loss) Per Common
Share $ .70 $ 1.57 $ (.10) $ (.33)
--------------------------------------------------------------------------------------------
December 31, March 31, June 30, September 30,
Quarter Ended 1992 1993 1993 1993
--------------------------------------------------------------------------------------------
Operating Revenues $ 76,551 $106,397 $ 42,267 $ 40,122
Operating Income $ 9,116 $ 16,537 $ 2,176 $ 357
Net Income (Loss) $ 6,146 $ 13,350 $ 123 $ (2,764)
Net Income (Loss) Per Common
Share $ .65 $ 1.40 $ .01 $ (.29)
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
------------------------------------------------------------
There have been no disagreements required to be disclosed under this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
-----------------------------------------------------------
The information required by this item regarding directors of the
registrant and the disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is contained in the section entitled "Biographical
Information" in the Company's definitive proxy statement for its January,
1995 Annual Meeting, which the Company files with the Securities and
Exchange Commission pursuant to Regulation 14A of the Securities Exchange
Act of 1934. This information is hereby incorporated by reference. The
information required by this item regarding executive officers of the
registrant is included in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION
-------------------------------
The information required by this item is contained in the sections
entitled "Compensation of Directors","Compensation Committee Report on
Executive Compensation", "Compensation Committee Interlocks and Insider
Participation", "Summary Executive Compensation", "Long Term Incentive
Plan Awards Table", "Retirement Plans" and "Comparison of Five Year
Cumulative Total Return" performance graph in the Company's definitive
proxy statement for its January, 1995 Annual Meeting, which the Company
files with the Securities and Exchange Commission pursuant to Regulation
14A. This information is hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
-----------------------------------------------------------------------
The information required by this item is contained in the section
entitled "Ownership of Company Stock" in the Company's definitive proxy
statement for its January, 1995 Annual Meeting, which the Company files
with the Securities and Exchange Commission pursuant to Regulation 14A.
This information is hereby incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
-------------------------------------------------------
There were no transactions during the year which would require disclosure
pursuant to this item.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
(a) 1. Financial Statements:
--------------------
The consolidated balance sheets, statements of income, statements of
cash flows, statements of capitalization and statements of common
stock equity, together with the notes to the financial statements
and report thereon of Arthur Andersen LLP dated November 21, 1994,
are included in Part II, Item 8 herein.
2. Financial Statement Schedules:
-----------------------------
The following financial statement schedules included herein under
Item 14(d) are filed as part of this report. Schedules I, II, III,
IV, VII, IX, X, XI, XII, and XIII are not submitted because they are
not applicable or the information required to be included therein is
contained in the financial statements and footnotes.
V Property, Plant and Equipment (including intangibles) for the
fiscal years ended September 30, 1994, 1993 and 1992
VI Accumulated Depreciation and Amortization of Property, Plant
and Equipment for the fiscal years ended September 30, 1994,
1993, and 1992
VIII Valuation and Qualifying Accounts and Reserves for the fiscal
years ended September 30, 1994, 1993 and 1992
Individual financial statements for the Company have been omitted as
not being required since -
1. Consolidated statements of the Company and one or more of its
subsidiaries are filed; and
2. The Company's total assets, exclusive of investments in and
advances to its consolidated subsidiaries, constitute 75
percent or more of the total assets shown by the most recent
year-end consolidated balance sheet filed and the Company's
total gross revenues, exclusive of interest and dividends
received, or its equity in the income of the consolidated
subsidiaries, for the most recent period for which an income
statement is filed, constitute 75 percent or more of the
total gross revenues shown by the consolidated income
statement filed.
3. Exhibits
--------
Exhibit
Number
------------
3 Articles of Incorporation and By-Laws
(i) Charter of the Company and all Amendments thereto
(ii) By-Laws of the Company, as amended
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
4 Instruments Defining Rights of Security Holders, Including Indentures
(i) Indenture of Mortgage and Deed of Trust between The Hartford
Gas Company and The First National Bank of Hartford, Trustee
dated February 1, 1947, filed as Exhibit No. 2.2 to the
Company's Registration Statement on Form S-7 filed with the
Commission on December 8, 1970 (Commission File No. 2-38993)
(ii) In addition to the Indenture of Mortgage and Deed of Trust
referred to in 4(i) above, there have been sixteen
supplemental indentures thereto, all of which have been filed
with the Commission as follows:
(a) Supplemental indentures 1-9 filed as Exhibit No. 2.2 to
the Company's Registration Statement on Form S-7 filed
with the Commission on December 8, 1970 (Commission File
No. 2-38993)
(b) Tenth Supplemental Indenture filed as Exhibit No. 2.3 to
the Company's Registration Statement on Form S-7 filed
with the Commission on March 3, 1972 (Commission File
No. 2-43286)
(c) Eleventh Supplemental Indenture filed as Exhibit No. V
to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1974, filed with the
Commission in March, 1975 (Commission File No. 1-7727)
(d) Twelfth Supplemental Indenture filed as Exhibit No. 4(h)
to the Company's Registration Statement on Form S-7
filed with the Commission on December 23, 1981
(Commission File No. 2-75457)
(e) Thirteenth Supplemental Indenture filed as Exhibit No. 4
to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1982, filed with the Commission
in August, 1982 (Commission File No. 1-7727)
(f) Fourteenth Supplemental Indenture filed as Exhibit No.
4(iii) to the Company's Current Report on Form 8-K,
dated August 28, 1986, filed with the Commission in
September, 1986 (Commission File No. 1-7727)
(g) Fifteenth Supplemental Indenture filed as Exhibit No.
4(iii) to the Company's Current Report on Form 8-K,
dated December 8, 1987, filed with the Commission in
December, 1987 (Commission File No. 1-7727)
(h) Sixteenth Supplemental Indenture filed as Exhibit No.
4(ii)(h) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1989, filed with the
Commission in November, 1989 (Commission File No. 1-
7727)
9 Voting Trust Agreement
Not applicable
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 Material Contracts
(i) Underground storage service agreement (rate schedule SS-1)
between the Company and PYEC, filed as Exhibit No. 10(vii) to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1981, filed with the Commission on March
30, 1982 (Commission File No. 1-7727)
(ii) Storage service transportation contract (rate schedule SST-
NE) between the Company and Tennessee for firm delivery of
gas stored by PYEC, filed as Exhibit No. 10(x) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1981, filed with the Commission on March
30, 1982 (Commission File No. 1-7727)
(iii) Agreement dated November 1, 1980 between the Company and
Robert H. Willis, filed as Exhibit No. 10(j) to the Company's
Registration Statement on Form S-7 filed with the Commission
on December 23, 1981 (Commission File No. 2-75457)
(iv) Firm storage service transportation contract (rate schedule
FSST-NE) between the Company and Tennessee for delivery of
gas stored by Penn York, filed as Exhibit No. 10(xviii) to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1985, filed with the Commission on March
30, 1986 (Commission File No. 1-7727)
(v) Loan Agreement and Amendments thereto, between The Hartford
Steam Company and Connecticut National Bank, filed as Exhibit
No. 10(xxii) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1986, filed with the
Commission on March 31, 1987 (Commission File No. 1-7727)
(vi) Steam Supply Agreement and Amendments thereto, between the
Hartford Steam Company and O'Brien Energy Systems, Inc. dated
September 19, 1985, and as amended on February 25, 1987, and
October 6, 1987, filed as Exhibit No. 10(xxi) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987, filed with the Commission on March
29, 1988 (Commission File No. 1-7727)
(vii) Canadian gas transportation contract (rate schedule CGT-NE)
between the Company and Tennessee, dated December 1, 1987,
filed as Exhibit No. 10(xxiii) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1987,
filed with the Commission on March 29, 1988 (Commission File
No. 1-7727)
(viii) Gas purchase contract between the Company and TransCanada
Pipelines Limited, dated September 14, 1987, filed as Exhibit
No. 10(xxiv) to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1987, filed with the
Commission on March 29, 1988 (Commission File No. 1-7727)
(ix) Gas sales agreement between the Company and Boundary Gas,
Inc., dated September 14, 1987, filed as Exhibit No. 10(xxv)
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987, filed with the Commission on
March 29, 1988 (Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (x) Restated and Amended Letter of Credit and Reimbursement
Agreement by and between Affiliated Resources Corporation and
Canadian Imperial Bank of Commerce, New York Agency, dated
March 1, 1988, filed as Exhibit No. 10(xxiv) to the Company's
Annual Report Form 10-K for the fiscal year ended December
31, 1988, filed with the Commission on March 29, 1989
(Commission File No. 1-7727)
(xi) Third Amendment, dated April 7, 1988, to the Steam Supply
Agreement, between The Hartford Steam Company and O'Brien
Energy Systems, Inc. dated September 19, 1985 (filed as
Exhibit No. 10(xxi) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1987, filed with
the Commission on March 29, 1988 (Commission File No. 1-
7727)), filed as Exhibit No. 10(xxv) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1988, filed with the Commission on March 29, 1989 (Commission
File No. 1-7727)
(xii) Fourth Amendment, dated March 1, 1989, to the Steam Supply
Agreement between The Hartford Steam Company and O'Brien
Energy Systems, Inc., dated September 19, 1985 (filed as
Exhibit No. 10(xxi) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1987, filed with
the Commission on March 29, 1988 (Commission File No. 1-
7727)), filed as Exhibit No. 10(xxiv) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1989, filed with the Commission on March 28, 1990 (Commission
File No. 1-7727)
(xiii) Steam Supply Agreement between The Hartford Steam Company and
Independent Energy Operations, Inc., dated December 3, 1987,
filed as Exhibit No. 10(xxv) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989,
filed with the Commission on March 28, 1990 (Commission File
No. 1-7727)
(xiv) Partial Release of Mortgage agreement, dated March 1, 1989,
to the Open-End Mortgage and Security Agreement between The
Hartford Steam Company and The Connecticut National Bank,
dated March 1, 1983 (filed as Exhibit No. 10(xxii) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1986, filed with the Commission on March
31, 1987 (Commission File No. 1-7727)), filed as Exhibit No.
10(xxvi) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, filed with the
Commission on March 28, 1990 (Commission File No. 1-7727)
(xv) Fourth Amendment, dated August 15, 1989, to the Open End
Mortgage and Security Agreement between The Hartford Steam
Company and The Connecticut National Bank, dated March 1,
1983 (filed as Exhibit No. 10(xxii) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1986, filed with the Commission on March 31, 1987 (Commission
File No. 1-7727)), filed as Exhibit No. 10(xxvii) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1989, filed with the Commission on March
28, 1990 (Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (xvi) Open-End Mortgage and Security Agreement between Energy
Networks, Inc. and The Connecticut National Bank, dated March
1, 1989, filed as Exhibit No. 10(xxviii) to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1989, filed with the Commission on March 28, 1990
(Commission File No. 1-7727)
(xvii) Collateral Assignment of Lease and Rentals, dated March 1,
1989, to the Open-End Mortgage and Security Agreement between
Energy Networks, Inc. and The Connecticut National Bank,
dated March 1, 1989 (filed as Exhibit 10(xxviii) herein),
filed as Exhibit No. 10(xxix) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1989,
filed with the Commission on March 28, 1990 (Commission File
No. 1-7727)
(xviii) Amended and Restated Loan Agreement between The Hartford
Steam Company and The Connecticut National Bank, dated March
31, 1983, filed as Exhibit No. 10(xxx) to the Company's
Annual Report on Form 10-K for the fiscal year ended December
31, 1989, filed with the Commission on March 28, 1990
(Commission File No. 1-7727)
(xix) Precedent Agreement to First Amendment, dated September 14,
1988, to the Gas Sales Agreement between the Company and
Boundary Gas, Inc., dated September 14, 1987 (filed as
Exhibit No. 10(xxv) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1987, filed with
the Commission on March 29, 1988 (Commission File No. 1-
7727)), filed as Exhibit No. 10(xxxi) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31,
1989, filed with the Commission March 28, 1990 (Commission
File No. 1-7727)
(xx) First Amendment, dated January 1, 1990, to the Gas Sales
Agreement between the Company and Boundary Gas, Inc., dated
September 14, 1987 (filed as Exhibit No. 10(xxv) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1987, filed with the Commission on March
29, 1988 (Commission File No. 1-7727)), filed as Exhibit
10(xxxii) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, filed with the
Commission on March 28, 1990 (Commission File No. 1-7727)
(xxi) Sixth Amendment, dated September 30, 1991, to the Loan
Agreement between The Hartford Steam Company and The
Connecticut National Bank, dated March 1, 1983 (filed as
Exhibit No. 10(xxii) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1986, filed with
the Commission on March 31, 1987 (Commission File No. 1-
7727)), filed as Exhibit No. 10(xxxviii) to the Company's
Transition Report on Form 10-K for the period October 1, 1990
to September 30, 1991, filed with the Commission on December
23, 1991, (Commission File No. 1-7727)
(xxii) Medium Term Notes, Series A, Placement Agency Agreement among
Connecticut Natural Gas Corporation, PaineWebber Incorporated
and Smith Barney, Harris Upham & Co. Incorporated, dated
November 1, 1991, filed as Exhibit No. 10(xxxix) to the
Company's Transition Report on Form 10-K for the period
October 1, 1990 to September 30, 1991, filed with the
Commission on December 23, 1991, (Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (xxiii) Issuing and Paying Agency Agreement between The Connecticut
National Bank and Connecticut Natural Gas Corporation, for
the Medium Term Notes, Series A, dated November 1, 1991,
filed as Exhibit No. 10(xl) to the Company's Transition
Report on Form 10-K for the period October 1, 1990 to
September 30, 1991, filed with the Commission on December 23,
1991, (Commission File No. 1-7727)
(xxiv) Connecticut Natural Gas Corporation Executive Restricted
Stock Plan, filed as Exhibit A to the Company's definitive
proxy statement dated March 26, 1991, filed with the
Commission on March 26, 1991 (Commission File No. 1-7727)
(xxv) Gas Transportation Contract for Firm Reserved Service, dated
February 7, 1991, between the Company and the Iroquois Gas
Transmission System, L.P., filed as Exhibit No. 10(xxxvii) to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1992, filed with the Commission on
December 23, 1992, (Commission File No. 1-7727)
(xxvi) Gas Sales Agreement No. 1, dated February 7, 1991, between
the Company and Alberta Northeast Gas Limited, filed as
Exhibit No. 10(xxxviii) to the Company's Annual Report on
Form 10-K for the fiscal year ended September 30, 1992, filed
with the Commission on December 23, 1992, (Commission File
No. 1-7727)
(xxvii) Gas Sales Agreement No. 2, dated February 7, 1991, between
the Company and Alberta Northeast Gas Limited, filed as
Exhibit No. 10(xxxix) to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1992, filed with
the Commission on December 23, 1992, (Commission File No. 1-
7727)
(xxviii) Gas Sales Agreement (ProGas), dated February 7, 1991, between
the Company and Alberta Northeast Gas Limited, filed as
Exhibit No. 10(xl) to the Company's Annual Report on Form 10-
K for the fiscal year ended September 30, 1992, filed with
the Commission on December 23, 1992, (Commission File No. 1-
7727)
(xxix) Gas Sales Agreement (ATCOR), dated February 7, 1991, between
the Company and Alberta Northeast Limited, filed as Exhibit
No. 10(xli) to the Company's Annual Report on Form 10-K for
the fiscal year ended September 30, 1992, filed with the
Commission on December 23, 1992, (Commission File No. 1-7727)
(xxx) Gas Sales Agreement (AEC), dated February 7, 1991, between
the Company and Alberta Northeast Gas Limited, filed as
Exhibit No. 10(xlii) to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1992, filed with
the Commission on December 23, 1992, (Commission File No. 1-
7727)
(xxxi) Gas Transportation Contract for Firm Reserved Service, dated
October 20, 1992, between the Company and the Iroquois Gas
Transmission System, L.P., filed as Exhibit No. 10(xlvii) to
the Company's Annual Report on Form 10-K for the fiscal year
ended September 30, 1992, filed with the Commission on
December 23, 1992, (Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (xxxii) Revolving Credit Agreement, dated March 30, 1993, between the
Company and The First National Bank of Boston, filed as
Exhibit No. 10(xlviii) to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1993, filed with
the Commission on May 3, 1993 (Commission File No. 1-7727)
(xxxiii) Secured Note Purchase Agreement, dated July 15, 1993, between
the CNG Realty Corp. and the Aid Association for Lutherans,
filed as Exhibit No. 10(xlix) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1993,
filed with the Commission on August 3, 1993 (Commission File
No. 1-7727)
(xxxiv) Capital Contribution Support Agreement, dated April 15, 1993,
among Connecticut Natural Gas Corporation, ENI Transmission
Company and Bank of Montreal, filed as Exhibit No. 10(l) to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1993, filed with the Commission on August 3,
1993 (Commission File No. 1-7727)
(xxxv) Steam and Chilled Water Supply Agreement, dated May 28, 1986,
between Capitol District Energy Center Cogeneration
Associates and Energy Networks, Incorporated, filed as
Exhibit No. 10(xxxvii) to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1993, filed with
the Commission December 28, 1993 (Commission File No. 1-7727)
(xxxvi) Service Agreement #89102 (Rate Schedule AFT-1), dated June 1,
1993, between the Company and Algonquin Gas Transmission
Company, filed as Exhibit No. 10(xxxviii) to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed with the Commission December 28,
1993 (Commission File No. 1-7727)
(xxxvii) Service Agreement #93005 (Rate Schedule AFT-1), dated June 1,
1993, between the Company and Algonquin Gas Transmission
Company, filed as Exhibit No. 10(xxxix) to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed with the Commission December 28,
1993 (Commission File No. 1-7727)
(xxxviii) Service Agreement #93205 (Rate Schedule AFT-1), dated June 1,
1993, between the Company and Algonquin Gas Transmission
Company, filed as Exhibit No. 10(xl) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30,
1993, filed with the Commission December 28, 1993 (Commission
File No. 1-7727)
(xxxix) Service Agreement #93305 (Rate Schedule AFT-1), dated June 1,
1993, between the Company and Algonquin Gas Transmission
Company, filed as Exhibit No. 10(xli) to the Company's Annual
Report on Form 10-K for the fiscal year ended September 30,
1993, filed with the Commission December 28, 1993 (Commission
File No. 1-7727)
(xl) Service Agreement #93404 (Rate Schedule AFT-1), dated June 1,
1993, between the Company and Algonquin Gas Transmission
Company, filed as Exhibit No. 10(xlii) to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed with the Commission December 28,
1993 (Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (xli) Service Agreement #9B103 (Rate Schedule AFT-1), dated June 1,
1993, between the Company and Algonquin Gas Transmission
Company, filed as Exhibit No. 10(xliii) to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed with the Commission December 28,
1993 (Commission File No. 1-7727)
(xlii) Service Agreement #9W005 (Rate Schedule AFT-1), dated June 1,
1993, between the Company and Algonquin Gas Transmission
Company, filed as Exhibit No. 10(xliv) to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed with the Commission December 28,
1993 (Commission File No. 1-7727)
(xliii) Service Agreement #.6426, dated June 1, 1993, between the
Company and Transcontinental Gas Pipe Line Corporation, filed
as Exhibit No. 10(xlv) to the Company's Annual Report on Form
10-K for the fiscal year ended September 30, 1993, filed with
the Commission December 28, 1993 (Commission File No. 1-7727)
(xliv) Service Agreement #800380 (Rate Schedule CDS), dated June 1,
1993, between the Company and Texas Eastern Transmission
Corporation, filed as Exhibit No. 10(xlvi) to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed with the Commission December 28,
1993 (Commission File No. 1-7727)
(xlv) Service Agreement #800341 (Rate Schedule FT-1), dated June 1,
1993, between the Company and Texas Eastern Transmission
Corporation, filed as Exhibit No. 10(xlvii) to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed with the Commission December 28,
1993 (Commission File No. 1-7727)
(xlvi) Service Agreement #800294 (Rate Schedule FT-1), dated June 1,
1993, between the Company and Texas Eastern Transmission
Corporation, filed as Exhibit No. 10(xlviii) to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed with the Commission December 28,
1993 (Commission File No. 1-7727)
(xlvii) Service Agreement #800295 (Rate Schedule FT-1), dated June 1,
1993, between the Company and Texas Eastern Transmission
Corporation, filed as Exhibit No. 10(xlix) to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed with the Commission December 28,
1993 (Commission File No. 1-7727)
(xlviii) Service Agreement #400148 (Rate Schedule SS-1), dated June 1,
1993, between the Company and Texas Eastern Transmission
Corporation, filed as Exhibit No. 10(l) to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed with the Commission December 28,
1993 (Commission File No. 1-7727)
(xlix) Service Agreement #400149 (Rate Schedule SS-1), dated June 1,
1993, between the Company and Texas Eastern Transmission
Corporation, filed as Exhibit No. 10(li) to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed with the Commission December 28,
1993 (Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (l) Service Agreement #400150 (Rate Schedule SS-1), dated June 1,
1993, between the Company and Texas Eastern Transmission
Corporation, filed as Exhibit No. 10(lii) to the Company's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1993, filed with the Commission December 28,
1993 (Commission File No. 1-7727)
(li) Service Agreement (Rate Schedule FTNN), dated October 1,
1993, between the Company and CNG Transmission Corporation,
filed as Exhibit No. 10(liii) to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1993,
filed with the Commission December 28, 1993 (Commission File
No. 1-7727)
(lii) Service Agreement (Rate Schedule GSS), dated November 1,
1993, between the Company and CNG Transmission Corporation,
filed as Exhibit No. 10(liv) to the Company's Annual Report
on Form 10-K for the fiscal year ended September 30, 1993,
filed with the Commission December 28, 1993 (Commission File
No. 1-7727)
(liii) Amended and Restated CNG Officers' Retirement Plan, dated
June 28, 1994
(liv) The Connecticut Natural Gas Corporation Officers' Retirement
Plan Trust Agreement, dated January 9, 1989
(lv) First Amendment to the Connecticut Natural Gas Corporation
Officers' Retirement Plan and Deferred Compensation Plan
Trust Agreement, dated August 5, 1993
(lvi) The Connecticut Natural Gas Corporation Deferred Compensation
Plan, as amended, dated January 1, 1993
(lvii) First Amendment to the Connecticut Natural Gas Corporation
Deferred Compensation Plan, dated December 2, 1993
(lviii) Second Amendment to the Connecticut Natural Gas Corporation
Deferred Compensation Plan, dated June 28, 1994
(lix) Agreement and Declaration of Trust, Connecticut Natural Gas
Corporation Employee Benefit Trust, dated December 28, 1987
(lx) First Amendment to Agreement and Declaration of Trust,
Connecticut Natural Gas Corporation Employee Benefit Trust,
Dated December 2, 1993
(lxi) Agreement and Declaration of Trust, Connecticut Natural Gas
Corporation Union Employee Benefit Trust, dated December 2,
1993
(lxii) CNG Annual Incentive Plan, 1994
(lxiii) Settlement Agreement and Release of All Claims by and between
Connecticut Natural Gas Corporation and Donato P. Lauria,
dated November 29, 1993
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (lxiv) Letter of Credit and Reimbursement Agreement by and between
Energy Networks, Inc. and The Bank of Nova Scotia, dated
October 14, 1994
(lxv) Second Amended and Restated Loan Agreement by and between The
Hartford Steam Company and Shawmut Bank Connecticut, N.A.,
dated October 28, 1994
(lxvi) Medium Term Notes, Series B, Placement Agency Agreement among
Connecticut Natural Gas Corporation, Smith Barney Inc., and
A.G. Edwards & Sons, Inc., dated June 14, 1994
(lxvii) Issuing and Paying Agency Agreement between Shawmut Bank
Connecticut, National Association, and Connecticut Natural
Gas Corporation, for Medium Term Notes, Series B, dated June
14, 1994
(lxviii) Service Agreement (EFT Service), dated July 31, 1993, between
the Company and National Fuel Gas Supply Corporation
(lxix) Gas Storage Contract, dated February 16, 1990, between the
Company and ENDEVCO Industrial Gas Sales Company
11 Computation of Consolidated Primary and Fully Diluted Earnings Per
Share
12 Computation of Ratios
Not applicable
13 Annual Report to Stockholders for the Fiscal Year Ended September 30,
1994
Not applicable
16 Letter Regarding Change in Certifying Accountant
Not applicable
18 Letter Regarding Change in Accounting Principles
Not applicable
21 Subsidiaries of the Registrant
22 Published Report Regarding Matters Submitted to Vote of Security
Holders
None
23 Consent of Independent Public Accountants
24 Power of Attorney
27 Financial Data Schedule
28 Information from Reports Furnished to State Insurance Regulatory
Authorities
Not applicable
(a) 3. Exhibits (concluded)
--------
Exhibit
Number
------------
99 Additional Exhibits
(i) Exhibit Index
(ii) Information required by Form 11-K with respect to the
Connecticut Natural Gas Corporation Employee Savings Plan for
the fiscal year ending December 31, 1993, filed as Exhibit
99(ii) to the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993, filed with the
Commission on December 28, 1993, as amended by Form 10-K
Amendment No. 1, filed with the Commission on June 28, 1994
(Commission File No. 1-7727)
(iii) Information required by Form 11-K with respect to the
Connecticut Natural Gas Corporation Union Employee Savings
Plan for the fiscal year ending December 31, 1993, filed as
Exhibit 99(iii) to the Company's Annual Report on Form 10-K
for the fiscal year ended September 30, 1993, filed with the
Commission on December 28, 1993, as amended by Form 10-K
Amendment No. 1, filed with the Commission on June 28, 1994
(Commission File No. 1-7727)
Exhibits 4(i), 4(ii)(a), 4(ii)(b), 4(ii)(c), 4(ii)(d), 4(ii)(e), 4(ii)(f),
4(ii)(g), 4(ii)(h), 10(i), 10(ii), 10(iii), 10(iv), 10(v), 10(vi), 10(vii),
10(viii), 10(ix), 10(x), 10(xi), 10(xii), 10(xiii), 10(xiv), 10(xv),
10(xvi), 10(xvii), 10(xviii), 10(xix), 10(xx), 10(xxi), 10(xxii),
10(xxiii), 10(xxiv), 10(xxv), 10(xxvi), 10(xxvii), 10(xxviii), 10(xxix),
10(xxx), 10(xxxi), 10(xxxii), 10(xxxiii), 10(xxxiv), 10(xxxv), 10(xxxvi),
10(xxxvii), 10(xxxviii), 10(xxxix), 10(xl), 10(xli), 10(xlii), 10(xliii),
10(xliv), 10(xlv), 10(xlvi), 10(xlvii), 10(xlviii), 10(xlix), 10(l),
10(li), 10(lii), 99(ii) and 99(iii) listed above which have been filed with
the Securities and Exchange Commission pursuant to the Securities Act of
1933 and the Securities Exchange Act of 1934, and which were designated as
noted above and have not been amended, are hereby incorporated by
reference. All other exhibits referred to above are filed herewith.
(b) Reports on Form 8-K
-------------------
There were no current reports filed on Form 8-K during the last quarter
of fiscal 1994.
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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
-----------------------------------
(Registrant)
S/ Victor H. Frauenhofer
------------------------------------
(Victor H. Frauenhofer)
Chairman and President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
S/ Victor H. Frauenhofer Chairman, President, December 21, 1994
------------------------------- (Principal Executive
(Victor H. Frauenhofer) Officer) and Director
S/ James P. Bolduc Senior Vice President - December 21, 1994
------------------------------- Financial Services and
(James P. Bolduc) Chief Financial Officer
S/ R. L. Babcock December 21, 1994
-------------------------------
(R. L. Babcock)
as Attorney-in-fact for:
Bessye W. Bennett, Esq. Director
James F. English, Jr. Director
Herman J. Fonteyne Director
Beverly L. Hamilton Director
Harvey S. Levenson Director
Denis F. Mullane Director
Richard J. Shima Director
Laurence A. Tanner Director
DeRoy C. Thomas Director
Angelo Tomasso, Jr. Director
CONNECTICUT NATURAL GAS CORPORATION
Annual Report on Form 10-K
Schedule Index
Fiscal Year Ended September 30, 1994
Item Description
---------- -----------
V. Financial Statement Schedule V; Property, Plant and
Equipment (including intangibles) for the fiscal years
ended September 30, 1994, 1993 and 1992
VI. Financial Statement Schedule VI; Accumulated
Depreciation and Amortization of Property, Plant and
Equipment for the fiscal years ended September 30,
1994, 1993 and 1992
VIII. Financial Statement Schedule VIII; Valuation and
Qualifying Accounts and Reserves for the fiscal years
ended September 30, 1994, 1993 and 1992
(d) Financial Statement Schedules
-----------------------------
Page 1 of 3
CONNECTICUT NATURAL GAS CORPORATION AND SUBSIDIARIES
----------------------------------------------------
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (INCLUDING INTANGIBLES)
------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1994
-------------------------------------
(THOUSANDS OF DOLLARS)
Column A Column B Column C Column D Column E Column F
Balance at Other Balance
Beginning Additions Retirements Changes at End of
Classification of Period at Cost or Sales Add(Deduct) Period
-------------------- ---------- --------- ----------- ----------- ---------
REGULATED GAS PLANT:
Intangible $ 491 $ - $ - $ - $ 491
Production 3,921 118 16 - 4,023
Storage 10,837 386 - - 11,223
Distribution 268,039 19,358 (1) 822 2,339 (3) 288,914
Construction work in progress 1,379 2,444 - (1,324)(3) 2,499
General 40,046 3,046 911 1,412 (2) 43,593
--------- --------- --------- --------- ---------
324,713 25,352 1,749 2,427 350,743
--------- --------- --------- --------- ---------
OPERATING & ADMINISTRATIVE CENTER 17,394 - - - 17,394
--------- --------- --------- --------- ---------
NONREGULATED PLANT:
Production 21,693 861 483 - 22,071
Distribution 37,990 1,286 385 - 38,891
Storage 1,764 2 - - 1,766
Construction work in progress (24) 287 - - 263
--------- --------- --------- --------- ---------
61,423 2,436 868 - 62,991
--------- --------- --------- --------- ---------
$ 403,530 $ 27,788 $ 2,617 $ 2,427 $ 431,128
========= ========= ========= ========= =========
<FN>
NOTES:
(1) This amount is comprised primarily of additions to services, mains, meters and meter installations and primarily
reflects expenditures for main relocations, replacements and improvements and additional customers during the
year.
(2) This amount is related to the Company's new Customer Information and Distribution Information Systems,
transferred from other assets to plant in service during 1994.
(3) This amount represents the transfer of $1,324 of construction work in progress and $1,015 of other assets
transferred to plant in service during 1994 for additions to the natural gas distribution system.
See Part II, Item 8, Notes to the Financial Statements for discussion of depreciation methods and rates.
(d) Financial Statement Schedules
-----------------------------
Page 2 of 3
CONNECTICUT NATURAL GAS CORPORATION AND SUBSIDIARIES
----------------------------------------------------
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (INCLUDING INTANGIBLES)
------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1993
-------------------------------------
(THOUSANDS OF DOLLARS)
Column A Column B Column C Column D Column E Column F
Balance at Other Balance
Beginning Additions Retirements Changes at End of
Classification of Period at Cost or Sales Add(Deduct) Period
-------------------- ---------- --------- ----------- ----------- ---------
REGULATED GAS PLANT:
Intangible $ 491 $ - $ - $ - $ 491
Production 3,837 104 20 - 3,921
Storage 10,760 77 - - 10,837
Distribution 248,961 18,774 (1) 553 857 (3) 268,039
Construction work in progress 1,113 1,123 - (857)(3) 1,379
General 22,914 3,209 780 14,703 (2) 40,046
--------- --------- --------- --------- ---------
288,076 23,287 1,353 14,703 324,713
--------- --------- --------- --------- ---------
OPERATING & ADMINISTRATIVE CENTER 17,394 - - - 17,394
--------- --------- --------- --------- ---------
NONREGULATED PLANT:
Production 20,710 999 119 103 (4) 21,693
Distribution 36,423 420 73 1,220 (4) 37,990
Storage 1,754 15 5 - 1,764
Construction work in progress 1,001 298 - (1,323)(4) (24)
--------- --------- --------- --------- ---------
59,888 1,732 197 - 61,423
--------- --------- --------- --------- ---------
$ 365,358 $ 25,019 $ 1,550 $ 14,703 $ 403,530
========= ========= ========= ========= =========
<FN>
NOTES:
(1) This amount is comprised primarily of additions to services, mains, meters and meter installations
and primarily reflects expenditures for main relocations, replacements and improvements and
additional customers during the year.
(2) This amount represents $14,600 related to the Company's new Customer Information and Distribution
Information Systems and $103 of other software transferred from Other Assets to Plant in Service
during 1993.
(3) This amount represents the transfer of construction work in progress of $857 to plant in service
during 1993 for additions to the natural gas distribution system.
(4) Amounts represents the transfer of construction work in progress of $1,323 to plant in service during
1993 for additions to the district heating and cooling system.
See Part II, Item 8, Notes to the Financial Statements for discussion of depreciation methods and rates.
(d) Financial Statement Schedules
-----------------------------
Page 3 of 3
CONNECTICUT NATURAL GAS CORPORATION AND SUBSIDIARIES
----------------------------------------------------
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT (INCLUDING INTANGIBLES)
------------------------------------------------------------------
FOR THE YEAR ENDED SEPTEMBER 30, 1992
-------------------------------------
(THOUSANDS OF DOLLARS)
Column A Column B Column C Column D Column E Column F
Balance at Other Balance
Beginning Additions Retirements Changes at End of
Classification of Period at Cost or Sales Add(Deduct) Period
-------------------- ---------- --------- ----------- ----------- ---------
REGULATED GAS PLANT:
Intangible $ 491 $ - $ - $ - $ 491
Production 3,679 204 46 - 3,837
Storage 10,550 218 8 - 10,760
Distribution 228,795 20,593 (1) 815 388 (2) 248,961
Construction work in progress - 1,145 - (32) 1,113
General 17,542 1,891 362 3,843 (2) 22,914
--------- --------- --------- --------- ---------
261,057 24,051 1,231 4,199 288,076
--------- --------- --------- --------- ---------
OPERATING & ADMINISTRATIVE CENTER 18,302 37 15 (930)(2) 17,394
--------- --------- --------- --------- ---------
NONREGULATED PLANT:
Production 19,795 1,204 289 - 20,710
Distribution 33,405 587 866 3,297 (3) 36,423
Storage 1,753 1 - - 1,754
Construction work in progress 5 996 - - 1,001
--------- --------- --------- --------- ---------
54,958 2,788 1,155 3,297 59,888
--------- --------- --------- --------- ---------
$ 334,317 $ 26,876 $ 2,401 $ 6,566 $ 365,358
========= ========= ========= ========= =========
<FN>
NOTES:
(1) This amount is comprised primarily of additions to services, mains, meters and meter installations
and primarily reflects expenditures for main relocations, replacements and improvements and
additional customers during the year.
(2) Amounts primarily represent $1,028 of leasehold improvements transferred to regulated gas plant from
the operating and administrative center and $3,472 transferred from other assets to plant in service.
(3) Amount represents $3,297 transferred to continuing operations plant in service in 1992 from
discontinued operations.
See Part II, Item 8, Notes to the Financial Statements for discussion of depreciation methods and rates.
(d) Financial Statement Schedules
----------------------------- Page 1 of 1
CONNECTICUT NATURAL GAS CORPORATION AND SUBSIDIARIES
---------------------------------------------------
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
----------------------------------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
-----------------------------------------------------
(THOUSANDS OF DOLLARS)
Column A Column B Column C Column D Column E Column F
Additions
Balance Charged Other Balance
At to Costs Charges at
Beginning and Retirements add End of
Description of Period Expenses (1) (Deduct) Period
----------- --------- --------- ----------- -------- -------
YEAR ENDED SEPTEMBER 30, 1994
-----------------------------
Depreciation:
Regulated gas plant $ 90,114 $13,079 (2) $ 2,837 $ 591 (3) $100,947
Operating and adminis-
trative Center 2,585 459 - - 3,044
Nonregulated plant 14,220 2,017 836 - 15,401
-------- ------- ------- ------- --------
$106,919 $15,555 $ 3,673 $ 591 $119,392
======== ======= ======= ======= ========
YEAR ENDED SEPTEMBER 30, 1993
-----------------------------
Depreciation:
Regulated gas plant $ 81,417 $10,771 (2) $ 2,448 $ 374 (3) $ 90,114
Operating and adminis-
trative Center 2,250 335 - - 2,585
Nonregulated plant 12,466 1,957 203 - 14,220
-------- ------- ------- ------- --------
$ 96,133 $13,063 $ 2,651 $ 374 $106,919
======== ======= ======= ======= ========
YEAR ENDED SEPTEMBER 30, 1992
-----------------------------
Depreciation:
Regulated gas plant $ 72,196 $ 9,348 (2) $ 1,993 $ 1,866 (3) $ 81,417
Operating and adminis-
trative Center 1,978 332 15 (45) 2,250
Nonregulated plant 10,977 1,981 1,092 600 (4) 12,466
-------- ------- ------- ------- --------
$ 85,151 $11,661 $ 3,100 $ 2,421 $ 96,133
Other ======== ======= ======= ======= ========
<FN>
NOTES:
(1) Cost of removing the property retired is included, and salvage has been deducted.
(2) The totals include charges of $13,022 in 1994, $10,364 in 1993 and $8,911 in 1992 to
depreciation expense. The balance has been allocated to operating expense in accordance
with the Company's practice of allocating depreciation on transportation and special work
equipment, respectively, on a functional basis.
(3) The portion of the depreciation provision charged to other accounts represents
depreciation charged principally to construction in accordance with the Company's policy
explained in Note 2 in the amount of $468 in 1994, $120 in 1993 and $114 in 1992. The
Company received reimbursements of $123 in 1994, $254 in 1993 and $365 in 1992 from state
and local governments due to relocation of facilities for highway purposes. In 1992
$1,342 represents amortization related to deferred accounts transferred to plant in
service and $45 is related to the transfer of leasehold improvements from the Operating
and Administrative Center.
(4) Represents $600 in 1992 related to discontinued operations property transferred to
continuing operations.
(d) Financial Statement Schedules
----------------------------- Page 1 of 1
CONNECTICUT NATURAL GAS CORPORATION AND SUBSIDIARIES
---------------------------------------------------
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
--------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
-----------------------------------------------------
(THOUSANDS OF DOLLARS)
Column A Column B Column C Column D Column E
Additions
--------------------------
Balance At Charged Charged Deductions Balance
Beginning To Costs To Other From At End
Description of Period And Expenses Accounts Reserves (1) of Period
----------- ---------- ------------ -------- ----------- ---------
YEAR ENDED SEPTEMBER 30, 1994
-----------------------------
RESERVE DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts -
Gas $ 2,491 $ 5,990 $ - $ 5,208 $ 3,273
Other (2) 577 592 19 444 744
-------- -------- -------- -------- --------
$ 3,068 $ 6,582 $ 19 $ 5,652 $ 4,017
======== ======== ======== ======== ========
YEAR ENDED SEPTEMBER 30, 1993
-----------------------------
RESERVE DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts -
Gas (3) $ 2,153 $ 3,019 $ 2,200 $ 4,881 $ 2,491
Other (4) 948 450 52 873 577
-------- -------- -------- -------- --------
$ 3,101 $ 3,469 $ 2,252 $ 5,754 $ 3,068
======== ======== ======== ======== ========
YEAR ENDED SEPTEMBER 30, 1992
-----------------------------
RESERVE DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts -
Gas $ 2,098 $ 3,022 $ - $ 2,967 $ 2,153
Other (5) 813 225 135 225 948
-------- -------- -------- -------- --------
$ 2,911 $ 3,247 $ 135 $ 3,192 $ 3,101
======== ======== ======== ======== ========
<FN>
Note: (1) Deductions From Reserves include the write-off of uncollectible accounts, net of
recoveries of accounts previously written off.
(2) $19 Charged to Other Accounts represents interest on receivables.
(3) $2,200 Charged to Other Accounts was recognized as a regulatory asset in other
assets on the balance sheet, pending approval in the Company's December, 1993 rate
decision (See Item 7, Management's discussion and Analysis of Financial Condition
and Results of Operations and Item 8, Notes to the Financial Statements)
(4) $52 Charged to Other Accounts represents interest on receivables.
(5) $111 Charged to Other Accounts represents an allowance for doubtful accounts
reclassified to continuing operations; $24 represents interest on receivables.