UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-7727
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CONNECTICUT NATURAL GAS CORPORATION
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(Exact name of registrant as specified in its charter)
Connecticut 06-0383860
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Columbus Boulevard, Hartford, Connecticut 06103
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(Address of principal executive offices) (Zip Code)
(203) 727-3000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report).
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (applicable only
to Corporate Issuers). Number of shares of common stock outstanding as of
the close of business on January 23, 1996: 9,931,279.
FINANCIAL STATEMENTS
CONNECTICUT NATURAL GAS CORPORATION
The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although the Company believes that
the disclosures are adequate to make the information presented not
misleading, it is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K. In the opinion
of the Company, all adjustments necessary to present fairly the consolidated
financial position of the Connecticut Natural Gas Corporation as of December
31, 1995 and 1994 and the results of its operations and its cash flows for
the three months and twelve months ended December 31, 1995 and 1994 have
been included. The results of operations for such interim periods are not
necessarily indicative of the results for the full year.
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
Dec. 31, Sept. 30, Dec. 31,
ASSETS 1995 1995 1994
------ --------- --------- ---------
Plant and Equipment:
Regulated energy $ 391,297 $ 387,906 $ 369,485
Nonregulated energy 64,021 63,937 62,767
Construction work in progress 3,645 3,564 2,379
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458,963 455,407 434,631
Less-Allowance for depreciation 137,106 133,314 122,934
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321,857 322,093 311,697
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Investments, at equity 5,859 5,743 5,304
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Current Assets:
Cash and cash equivalents 874 3,042 1,145
Accounts and notes receivable 42,503 31,504 36,967
Allowance for doubtful accounts (4,844) (4,590) (3,573)
Accrued utility revenue 21,663 5,093 17,138
Inventories 11,333 14,511 17,833
Prepaid expenses 2,170 6,095 2,637
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73,699 55,655 72,147
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Deferred Charges and Other Assets:
Unrecovered future taxes 49,210 51,634 46,759
Recoverable transition costs 4,210 4,636 6,281
Other assets 20,845 25,278 27,221
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74,265 81,548 80,261
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$ 475,680 $ 465,039 $ 469,409
========= ========= =========
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED BALANCE SHEETS (Concluded)
(Thousands of Dollars)
Dec. 31, Sept. 30, Dec. 31,
CAPITALIZATION AND LIABILITIES 1995 1995 1994
------------------------------ --------- --------- ---------
Capitalization:
Common Stock $ 31,045 $ 31,045 $ 31,045
Capital in excess of par value 74,018 74,018 73,906
Retained Earnings 50,006 45,522 45,658
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155,069 150,585 150,609
Unearned compensation -
Restricted stock awards (358) (371) (130)
Treasury stock (103) (103) (103)
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Common stock equity 154,608 150,111 150,376
Preferred stock, not subject to
mandatory redemption 902 904 909
Long-term debt 149,525 150,390 153,604
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305,035 301,405 304,889
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Notes Payable Under Revolving Credit
Agreements - - 2,000
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Current Liabilities:
Current portion of long-term debt 3,922 3,921 3,884
Notes payable and commercial paper 14,100 4,200 16,000
Accounts payable and accrued expenses 41,945 46,341 40,818
Refundable purchased gas costs 5,449 2,300 -
Accrued liabilities 6,938 6,539 5,712
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72,354 63,301 66,414
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Deferred Credits:
Deferred income taxes 38,482 37,985 37,492
Unfunded deferred income taxes 49,210 51,634 46,759
Investment tax credits 3,368 3,423 3,589
Refundable taxes 3,202 3,365 3,275
Accrued transition costs - - 1,281
Other 4,029 3,926 3,710
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98,291 100,333 96,106
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$ 475,680 $ 465,039 $ 469,409
========= ========= =========
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars except for per share data)
Three Months Ended
December 31,
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1995 1994
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Operating Revenues $ 90,462 $ 76,531
Less: Cost of Energy 49,072 41,883
State Gross Receipts Tax 3,790 3,225
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Operating Margin 37,600 31,423
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Other Operating Expenses:
Operations & maintenance expenses 13,498 11,863
Depreciation 4,383 4,214
Income taxes 6,430 4,180
Other taxes 1,922 1,789
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26,233 22,046
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Operating Income 11,367 9,377
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Other Income (Deductions):
Allowance for equity funds used
during construction 46 30
Equity in partnership earnings 402 375
Other income (deductions) (219) (153)
Income Taxes (42) (118)
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187 134
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Interest and Debt Expense 3,380 3,427
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Net Income 8,174 6,084
Less-Dividends on Preferred Stock 16 15
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Net Income Applicable to Common Stock $ 8,158 $ 6,069
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Income Per Average Share of
Common Stock $ 0.82 $ 0.61
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Dividends Per Share of Common Stock $ 0.37 $ 0.37
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Average Common Shares Outstanding
During the Period 9,931,279 9,914,226
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CONNECTICUT NATURAL GAS CORPORATION "UNAUDITED"
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars except for per share data)
Twelve Months Ended
December 31,
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1995 1994
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Operating Revenues $ 289,116 $ 287,053
Less: Cost of Energy 154,953 153,459
State Gross Receipts Tax 11,861 12,067
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Operating Margin 122,302 121,527
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Operating Expenses:
Operations & maintenance expenses 54,863 54,551
Depreciation 17,146 16,358
Income taxes 11,680 12,824
Other taxes 7,464 7,425
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91,153 91,158
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Operating Income 31,149 30,369
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Other Income (Deductions):
Allowance for equity funds used
during construction 121 38
Equity in partnership earnings 1,059 1,017
Other deductions (938) (773)
Nonrecurring items 3,624 -
Income Taxes (1,763) (286)
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2,103 (4)
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Interest and Debt Expense 14,143 13,258
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Net Income 19,109 17,107
Less-Dividends on Preferred Stock 63 64
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Net Income Applicable to Common Stock $ 19,046 $ 17,043
========== ==========
Income Per Average Share of
Common Stock $ 1.92 $ 1.77
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Dividends Per Share of Common Stock $ 1.48 $ 1.48
========== ==========
Average Common Shares Outstanding
During the Period 9,931,279 9,633,636
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"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Three Months Ended
December 31,
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1995 1994
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Cash Flows from Operations $ (7,612) $ 1,119
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Cash Flows from Investing Activities:
Capital expenditures (4,004) (4,156)
Other investing activities 4,105 (732)
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Net cash used in investing activities 101 (4,888)
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Cash Flows from Financing Activities:
Dividends paid (3,691) (3,690)
Issuance of common stock - 8,474
Other stock activity, net (2) -
Principal retired on long-term debt (864) (496)
Short-term debt 9,900 (500)
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Net cash provided by
financing activities 5,343 3,788
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Increase/(Decrease) in Cash and
Cash Equivalents (2,168) 19
Cash and Cash Equivalents at
Beginning of Period 3,042 1,126
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Cash and Cash Equivalents at
End of Period $ 874 $ 1,145
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"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Thousands of Dollars)
Three Months Ended
December 31,
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1995 1994
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Schedule Reconciling Earnings to
Cash Flows from Operations:
Income $ 8,174 $ 6,084
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Adjustments to reconcile income
to net cash:
Depreciation and amortization 4,501 4,352
Deferred income taxes, net 279 521
Equity in partnership earnings (402) (375)
Cash distributions received from
investments 240 168
Change in assets and liabilities:
Accounts receivable (10,618) (9,018)
Accrued utility revenue (16,570) (13,424)
Inventories 3,178 493
Purchased gas costs 3,149 3,769
Prepaid expenses 3,925 7,470
Accounts payable and accrued expenses (3,571) 845
Other assets/liabilities 103 234
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Total adjustments (15,786) (4,965)
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Cash flows from operations $ (7,612) $ 1,119
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Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (net of amount capitalized) $ 4,070 $ 4,075
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Income taxes $ 4,607 $ 928
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"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Twelve Months Ended
December 31,
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1995 1994
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Cash Flows from Operations $ 45,531 $ 41,358
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Cash Flows from Investing Activities:
Capital expenditures (26,687) (28,009)
Other investing activities 3,595 971
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Net cash used in investing activities (23,092) (27,038)
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Cash Flows from Financing Activities:
Dividends paid (14,762) (14,328)
Issuance of common stock - 8,464
Other stock activity, net (7) (51)
Issuance of long-term debt - 20,000
Principal retired on long-term debt (4,041) (4,037)
Short-term debt (3,900) (23,891)
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Net cash used by
financing activities (22,710) (13,843)
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Increase/(Decrease) in Cash and
Cash Equivalents (271) 477
Cash and Cash Equivalents at
Beginning of Period 1,145 668
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Cash and Cash Equivalents at
End of Period $ 874 $ 1,145
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"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Thousands of Dollars)
Twelve Months Ended
December 31,
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1995 1994
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Schedule Reconciling Earnings to
Cash Flows from Operations:
Income $ 19,109 $ 17,107
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Adjustments to reconcile income
to net cash:
Depreciation and amortization 17,365 17,192
Deferred income taxes, net 655 5,291
Equity in partnership earnings (1,059) (1,017)
Cash distributions received from
investments 240 408
Change in assets and liabilities:
Accounts receivable (2,285) 1,423
Accrued utility revenue (4,525) (310)
Inventories 6,500 936
Purchased gas costs 5,359 (1,403)
Prepaid expenses 467 (742)
Accounts payable and accrued expenses 3,345 4,593
Other assets/liabilities 360 (2,120)
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Total adjustments 26,422 24,251
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Cash flows from operations $ 45,531 $ 41,358
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Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (net of amount capitalized) $ 11,325 $ 10,541
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Income taxes $ 12,647 $ 5,699
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"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
(Thousands of Dollars)
(1) Rate Matters
In October, 1995 the Connecticut Department of Public Utility Control
(DPUC) issued a decision which allowed the Company to increase its
rates by $8,900 or 3.64%. The DPUC conducted this proceeding in two
phases. New, interim rates, based on a review of the Company's revenue
requirements became effective October 13, 1995. In January, 1996 the
DPUC issued a decision on Phase II, approving final natural gas rates
related to this rate increase. These final rates are effective
February 9, 1996. As part of this Phase II decision, the DPUC also
approved the Company's Firm Transportation rates for Commercial and
Industrial customers, effective April 1, 1996.
(2) Reclassifications
Certain prior year amounts have been reclassified to conform with
current year classifications.
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
DECEMBER 31, 1995
(Thousands of Dollars Except Per Share Amounts)
RESULTS OF OPERATIONS
Higher earnings were recorded at the end of the first quarter of fiscal,
1996, for both the three months and twelve months ended comparable periods.
First quarter, 1996 earnings per share were $.82, compared to $.61 recorded
for the first quarter of fiscal, 1995. Twelve months ended December 31
earnings were $1.92 in fiscal 1996 and $1.77 in 1995. Earnings recorded for
the twelve months ended December 31, 1995 include two nonrecurring items: a
gain of $.24 per share from a negotiated settlement for the termination of a
steam supply contract; and a charge of $(.05) per share in connection with
legal matters related to the Company's 2.4% interest in the Iroquois Gas
Transmission System partnership (Iroquois). Without the effect of these two
items, earnings per share for this period would be $1.73.
The major factors impacting earnings from operations in fiscal, 1996 are a
significantly colder winter and the increase in natural gas rates granted to
the Company by the Connecticut Department of Public Utility Control (DPUC),
effective in October, 1995.
Operating Margin
Gas operating margin is equal to gas revenues less the cost of gas and
Connecticut gross revenues tax and was higher in both the first quarter and
twelve months ended December 31, 1995 as compared to 1994. The following
table presents the changes in revenues, gas operating margin and gas
throughput for all periods presented in the statements of income:
Three Months Twelve Months
Ended Ended
December 31, December 31,
1995 1994 1995 1994
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Gas Revenues $ 90,462 $ 76,531 $289,116 $287,053
======== ======== ======== ========
Gas Operating Margin $ 37,600 $ 31,423 $122,302 $121,527
======== ======== ======== ========
Gas Throughput (mmcf)
Firm Sales 7,316 6,388 22,289 23,257
Interruptible Sales 2,501 2,526 8,529 8,423
Off-System Sales 3,678 2,730 17,213 9,272
Transportation
Services 1,054 1,954 6,795 7,307
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Total System
Throughput 14,549 13,598 54,826 48,259
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Fiscal, 1996 operating margin between the comparable quarters is higher
primarily because of higher volumes sold to the Company's gas customers, in
response to the 20% colder winter weather experienced in this quarter in the
Company's service area. This effect was amplified by the higher natural gas
rates implemented by the Company in October, 1995, as approved by the DPUC.
The increase in operating margin between the twelve months ended December,
1995 and December, 1994 is less because the impact of one quarter of colder
weather and higher rates only partially offset the effects of the warmer
winter weather experienced in fiscal, 1995 and included in the twelve months
ended December, 1995 results.
Operations and Maintenance Expenses
In October, 1995 the Company began to recognize expenses for the DPUC
allowed amortization of expenses that had been previously deferred pending
the outcome of the October, 1995 rate decision. Because of these additional
amortizations and a few specific items, such as higher pension costs, higher
expenses were recorded in the quarter in the categories of insurance costs,
employee benefits, conservation program costs, regulatory commission
expenses and rate proceedings and outside purchased services. Collectively,
theses generated an overall increase in operations and maintenance expenses
when comparing the three months ended December, 1995 to 1994.
Operations and maintenance expenses are nearly the same for both the twelve
months ended December,1995 and 1994, reflecting the offset of increases and
decreases in various costs. Higher expenses were recorded for insurance,
conservation programs, regulatory commission and rate proceedings costs and
outside purchased services. Lower expenses were recorded related to
employee benefits and pensions, uncollectibles and labor. Total expenses
also benefited from a higher contribution from customer service activities.
Other Income (Deductions)
Other income (deductions) recorded in the three months ended December, 1995,
includes less income from merchandise sales and the costs of terminating the
Company's Gas Roots, regulated propane service, program, as directed by the
DPUC late in fiscal, 1995.
Nonrecurring items recorded in the twelve months ended December, 1995,
include a one-time pretax benefit of $4,124 from the negotiated settlement
of a contract termination agreement with the nonregulated operations'
principal steam supplier and a charge of $500 for the Company's share of
expenses in connection with legal matters related to its 2.4% ownership
interest in Iroquois. Other income (deductions) reflect less income from
the merchandise sales program and the costs of terminating the Company's Gas
Roots program, offset by reduced promotional expenses.
Interest and Debt Expense
Interest expense between the comparable quarter ended periods is relatively
unchanged. In fiscal, 1996, lower short-term borrowing rates offset the
impact of greater short-term borrowings made to pay for higher volumes of
gas needed to supply customers during the colder winter weather.
Higher fiscal, 1996 interest expense for the twelve months ended period is
attributed to interest related to pipeline refunds and deferred gas costs.
Earnings from Nonregulated Operations
Nonregulated operations contributed earnings of $.05 and $.48 per share,
respectively, for the quarter and twelve months ended December 31, 1995,
compared to $.06 and $.36 per share for the same periods ended December 31,
1994. Twelve months ended December, 1995 earnings include $.24 per share
from the settlement related to the termination agreement negotiated with a
supplier of steam in the fourth quarter of fiscal, 1995. Lower nonregulated
fiscal, 1996 earnings from operations reflect higher fixed costs of produced
steam, attributed to labor and equipment maintenance expenses, and a net
loss related to startup costs for the nonregulated operations new
subsidiary, ENServe Corporation. The benefit of higher sales, generated
because of the colder winter weather, partially offset these negative
impacts to nonregulated earnings.
MATERIAL CHANGES IN FINANCIAL CONDITION
In the first quarter of fiscal,1996, available cash on hand and short-term
borrowings supported the Company's needs for cash for operations. Outgoing
cash flows from operations primarily reflect high customer accounts
receivable resulting from increased gas purchases to support higher sales
during a colder fiscal, 1996 winter heating season, and higher gas rates,
effective October, 1995. Historically, cash flows from operations are lower
in the first quarter of the fiscal year when high winter heating season out-
going cash requirements for natural gas must be satisfied in advance of cash
payments from customer receivables. This lag between when gas is consumed
and when payment for it is received creates the need to provide cash for
operations from other sources. Greater volumes sold and higher rates
increase this effect because of the need for payment of additional gas
supplies experienced concurrently with higher outstanding customer
receivables. Cash flows from investing activities in the quarter ending
December 31, 1995 reflect the receipt of the balance of the settlement
amount due from the termination of the steam supply contract with the
nonregulated operations' principal steam supplier.
Cash flows from operations and net cash flows provided by financing
activities together met the Company's needs for construction funds during
the first quarter of fiscal 1995. In contrast, the warmer weather in fiscal
1995 reduced purchased gas requirements, easing this seasonal need for cash.
Cash flows from operations during the quarter ended December, 1994 also
benefited from the receipt of refunds from gas pipelines. These were
retained by the Company to offset FERC 636 transition costs, as allowed by
the DPUC.
During the twelve months ended December, 1995 and 1994, cash flows from
operations satisfied the Company's needs for construction funds and net
financing activities.
Rate Matters
In October, 1995 the Connecticut Department of Public Utility Control (DPUC)
issued a decision which allowed the Company to increase its rates by $8,900
or 3.64%. The DPUC conducted this proceeding in two phases. New, interim
rates, based on a review of the Company's revenue requirements became
effective October 13, 1995. In January, 1996 the DPUC issued a decision on
Phase II, approving final natural gas rates related to this rate increase
and based on the Company's cost of service study. These final rates are
effective February 9, 1996.
As part of this Phase II decision, the DPUC also approved the Company's Firm
Transportation (FTS) rates for Commercial and Industrial customers,
effective April 1, 1996. Similar FTS rates have also been approved for
Connecticut's other local natural gas distribution companies (LDC). These
rates allow commercial and industrial customers to purchase their gas from
independent brokers and to pay their LDC only for the transportation of that
gas through its gas lines. In addition, each LDC offers a similar package
of ancillary services from which an FTS customer can choose to ensure that
its business will have an adequate supply of gas in the event that its
broker does not meet its commitment or if the customer's gas use
requirements exceed its contractual purchase.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits
27 Financial Data Schedule
99 (i) Exhibit Index
(b) A report on Form 8-K, dated November 28, 1995, was filed on November
28, 1995 to file with the Commission, under Item 5. Other Information,
the contents of a press release issued by the Company on November 28,
1995 to announce earnings data for the fiscal year ended September 30,
1995 and to file unaudited financial statements for the fiscal year
ended September 30, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONNECTICUT NATURAL GAS CORPORATION
Date 01/29/96 By: S/ Andrew H. Johnson
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(Andrew H. Johnson)
Treasurer and Chief Accounting Officer
(On behalf of the registrant and as
Chief Accounting Officer)