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 March 31, 1997
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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 1-12859
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CTG RESOURCES, INC.
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(Exact name of registrant as specified in its charter)
Connecticut 06-1466463
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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
----- -----
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 April 30, 1997: 10,634,496.
FINANCIAL STATEMENTS
CTG RESOURCES, INC.
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 Connecticut Natural Gas Corporation's annual report on Form
10-K (Commission File No. 1-7727). In the opinion of the Company, all
adjustments necessary to present fairly the consolidated financial position
of CTG Resources, Inc. as of March 31, 1997 and 1996 and the results of its
operations and its cash flows for the three months, six months and twelve
months ended March 31, 1997 and 1996 have been included. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year.
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
March 31, Sept. 30, March 31,
ASSETS 1997 1996 1996
------ --------- --------- ---------
Plant and Equipment:
Regulated energy $ 411,515 $ 403,862 $ 393,400
Unregulated energy 60,761 60,515 64,000
Construction work in progress 4,950 6,417 3,615
--------- --------- ---------
477,226 470,794 461,015
Less-Allowance for depreciation 152,593 145,042 140,087
--------- --------- ---------
324,633 325,752 320,928
--------- --------- ---------
Investments, at equity 11,308 9,914 5,549
--------- --------- ---------
Current Assets:
Cash and cash equivalents 11,832 8,515 21,167
Accounts and notes receivable 60,261 29,852 63,796
Allowance for doubtful accounts (5,975) (4,819) (5,699)
Accrued utility revenue 15,716 4,180 16,187
Inventories 5,364 15,968 2,687
Prepaid expenses 5,073 10,920 3,069
--------- --------- ---------
92,271 64,616 101,207
--------- --------- ---------
Deferred Charges and Other Assets:
Unrecovered future taxes 39,181 44,812 48,641
Recoverable transition costs 2,004 2,858 3,899
Other assets 20,363 19,027 20,177
--------- --------- ---------
61,547 66,697 72,717
--------- --------- ---------
$ 489,759 $ 466,979 $ 500,401
========= ========= =========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS (Concluded)
(Thousands of Dollars)
March 31, Sept. 30, March 31,
CAPITALIZATION AND LIABILITIES 1997 1996 1996
------------------------------ --------- --------- ---------
Capitalization:
Common Stock $ 120,264 $ 120,620 $ 105,063
Retained Earnings 60,368 49,026 60,204
--------- --------- ---------
180,632 169,646 165,267
Unearned compensation -
Restricted stock awards (1,238) (312) (286)
Treasury stock - (452) (129)
--------- --------- ---------
Common stock equity 179,394 168,882 164,852
Preferred stock, not subject to
mandatory redemption 885 899 902
Long-term debt 135,464 136,432 149,372
--------- --------- ---------
315,743 306,213 315,126
--------- --------- ---------
Current Liabilities:
Current portion of long-term debt 13,914 13,968 3,923
Notes payable - - -
Accounts payable and accrued expenses 34,206 40,721 39,791
Refundable purchased gas costs 15,068 6,012 22,937
Accrued liabilities 12,333 4,479 11,898
--------- --------- ---------
75,521 65,180 78,549
--------- --------- ---------
Deferred Credits:
Deferred income taxes 48,148 40,011 47,048
Unfunded deferred income taxes 39,181 44,812 48,641
Investment tax credits 3,092 3,203 3,313
Refundable taxes 3,486 3,445 3,501
Other 4,588 4,115 4,223
--------- --------- ---------
98,495 95,586 106,726
--------- --------- ---------
$ 489,759 $ 466,979 $ 500,401
========= ========= =========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars except for per share data)
Three Months Ended
March 31,
-----------------------------
1997 1996
---------- ----------
Operating Revenues $ 124,681 $ 130,606
Less: Cost of Energy 69,307 73,314
State Gross Receipts Tax 4,671 4,854
---------- ----------
Operating Margin 50,703 52,438
---------- ----------
Other Operating Expenses:
Operations & maintenance expenses 14,571 15,814
Depreciation 4,540 4,416
Income taxes 13,457 13,031
Other taxes 2,085 1,944
---------- ----------
34,653 35,205
---------- ----------
Operating Income 16,050 17,233
---------- ----------
Other Income (Deductions):
Allowance for equity funds used
during construction 21 38
Equity in partnership earnings 635 282
Other deductions (688) (127)
Income Taxes (131) (86)
---------- ----------
(163) 107
---------- ----------
Interest and Debt Expense 3,198 3,452
---------- ----------
Net Income 12,689 13,888
Less-Dividends on Preferred Stock 15 15
---------- ----------
Net Income Applicable to Common Stock $ 12,674 $ 13,873
========== ==========
Income Per Average Share of
Common Stock $ 1.19 $ 1.40
========== ==========
Dividends Per Share of Common Stock $ 0.38 $ 0.37
========== ==========
Average Common Shares Outstanding
During the Period 10,634,496 9,931,120
========== ==========
CTG RESOURCES, INC. "UNAUDITED"
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars except for per share data)
Six Months Ended
March 31,
-----------------------------
1997 1996
---------- ----------
Operating Revenues $ 213,950 $ 221,068
Less: Cost of Energy 119,414 122,386
State Gross Receipts Tax 8,141 8,644
---------- ----------
Operating Margin 86,395 90,038
---------- ----------
Operating Expenses:
Operations & maintenance expenses 28,516 29,312
Depreciation 8,952 8,799
Income taxes 19,435 19,461
Other taxes 4,021 3,866
---------- ----------
60,924 61,438
---------- ----------
Operating Income 25,471 28,600
---------- ----------
Other Income (Deductions):
Allowance for equity funds used
during construction 70 83
Equity in partnership earnings 1,486 684
Other deductions (856) (236)
Income Taxes (435) (238)
---------- ----------
265 293
---------- ----------
Interest and Debt Expense 6,331 6,831
---------- ----------
Net Income 19,405 22,062
Less-Dividends on Preferred Stock 31 31
---------- ----------
Net Income Applicable to Common Stock $ 19,374 $ 22,031
========== ==========
Income Per Average Share of
Common Stock $ 1.82 $ 2.22
========== ==========
Dividends Per Share of Common Stock $ 0.76 $ 0.74
========== ==========
Average Common Shares Outstanding
During the Period 10,628,754 9,931,199
========== ==========
CTG RESOURCES, INC. "UNAUDITED"
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars except for per share data)
Twelve Months Ended
March 31,
-----------------------------
1997 1996
---------- ----------
Operating Revenues $ 308,245 $ 314,182
Less: Cost of Energy 172,203 171,693
State Gross Receipts Tax 11,207 12,500
---------- ----------
Operating Margin 124,835 129,989
---------- ----------
Operating Expenses:
Operations & maintenance expenses 57,459 56,692
Depreciation 17,918 17,275
Income taxes 14,338 16,809
Other taxes 7,745 7,489
---------- ----------
97,460 98,265
---------- ----------
Operating Income 27,375 31,724
---------- ----------
Other Income (Deductions):
Allowance for equity funds used
during construction 131 126
Equity in partnership earnings 2,839 1,182
Other income (deductions) (372) (602)
Nonrecurring items 892 3,624
Income Taxes (1,312) (1,942)
---------- ----------
2,178 2,388
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Interest and Debt Expense 13,215 14,039
---------- ----------
Net Income 16,338 20,073
Less-Dividends on Preferred Stock 63 62
---------- ----------
Net Income Applicable to Common Stock $ 16,275 $ 20,011
========== ==========
Income Per Average Share of
Common Stock $ 1.55 $ 2.01
========== ==========
Dividends Per Share of Common Stock $ 1.52 $ 1.48
========== ==========
Average Common Shares Outstanding
During the Period 10,495,345 9,931,239
========== ==========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Three Months Ended
March 31,
----------------------
1997 1996
---- ----
Cash Flows from Operations $ 28,529 $ 41,130
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (4,640) (3,895)
Other investing activities 113 999
-------- --------
Net cash used in investing activities (4,527) (2,896)
-------- --------
Cash Flows from Financing Activities:
Dividends paid (4,057) (3,689)
Issuance of common stock (370) -
Other stock activity, net (14) -
Principal retired on long-term debt (165) (152)
Short-term debt (9,000) (14,100)
-------- --------
Net cash used in
financing activities (13,606) (17,941)
-------- --------
Increase in Cash and
Cash Equivalents 10,396 20,293
Cash and Cash Equivalents at
Beginning of Period 1,436 874
-------- --------
Cash and Cash Equivalents at
End of Period $ 11,832 $ 21,167
======== ========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Thousands of Dollars)
Three Months Ended
March 31,
----------------------
1997 1996
---- ----
Schedule Reconciling Earnings to
Cash Flows from Operations:
Income $ 12,689 $ 13,888
-------- --------
Adjustments to reconcile income
to net cash:
Depreciation and amortization 4,740 4,561
Deferred income taxes, net 7,786 8,810
Equity in partnership earnings (635) (282)
Change in assets and liabilities:
Accounts receivable (17,812) (20,383)
Accrued utility revenue 659 5,476
Inventories 8,628 8,646
Purchased gas costs 11,753 17,488
Prepaid expenses (1,365) (899)
Accounts payable and accrued expenses 1,903 7,007
Other assets/liabilities 183 (3,182)
-------- --------
Total adjustments 15,840 27,242
-------- --------
Cash flows from operations $ 28,529 $ 41,130
======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (net of amount capitalized) $ 4,936 $ 2,135
======== ========
Income taxes $ 1,517 $ 2,313
======== ========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Six Months Ended
March 31,
----------------------
1997 1996
---- ----
Cash Flows from Operations $ 21,343 $ 37,839
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (8,262) (7,899)
Other investing activities 322 783
-------- --------
Net cash used in investing activities (7,940) (7,116)
-------- --------
Cash Flows from Financing Activities:
Dividends paid (8,064) (7,380)
Issuance of common stock (370) -
Other stock activity, net (630) (2)
Principal retired on long-term debt (1,022) (1,016)
Short-term debt - (4,200)
-------- --------
Net cash used in
financing activities (10,086) (12,598)
-------- --------
Increase in Cash and
Cash Equivalents 3,317 18,125
Cash and Cash Equivalents at
Beginning of Period 8,515 3,042
-------- --------
Cash and Cash Equivalents at
End of Period $ 11,832 $ 21,167
======== ========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Thousands of Dollars)
Six Months Ended
March 31,
----------------------
1997 1996
---- ----
Schedule Reconciling Earnings to
Cash Flows from Operations:
Income $ 19,405 $ 22,062
-------- --------
Adjustments to reconcile income
to net cash:
Depreciation and amortization 9,303 9,062
Deferred income taxes, net 8,067 9,089
Equity in partnership earnings (1,486) (684)
Cash distributions received from
investments 200 360
Change in assets and liabilities:
Accounts receivable (29,818) (31,001)
Accrued utility revenue (11,536) (11,094)
Inventories 10,604 11,824
Purchased gas costs 9,056 20,637
Prepaid expenses 5,847 3,026
Accounts payable and accrued expenses 2,193 3,436
Other assets/liabilities (492) 1,122
-------- --------
Total adjustments 1,938 15,777
-------- --------
Cash flows from operations $ 21,343 $ 37,839
======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (net of amount capitalized) $ 4,936 $ 6,232
======== ========
Income taxes $ 1,517 $ 6,920
======== ========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Twelve Months Ended
March 31,
----------------------
1997 1996
---- ----
Cash Flows from Operations $ 21,787 $ 47,123
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (24,644) (24,811)
Nonrecurring Items 892 4,124
Other investing activities (1,799) 892
-------- --------
Net cash used in investing activities (25,551) (19,795)
-------- --------
Cash Flows from Financing Activities:
Dividends paid (16,175) (14,761)
Issuance of common stock 15,187 -
Other stock activity, net (666) (4)
Principal retired on long-term debt (3,917) (3,873)
Short-term debt - (1,000)
-------- --------
Net cash used by
financing activities (5,571) (19,638)
-------- --------
Increase (Decrease) in Cash and
Cash Equivalents (9,335) 7,690
Cash and Cash Equivalents at
Beginning of Period 21,167 13,477
-------- --------
Cash and Cash Equivalents at
End of Period $ 11,832 $ 21,167
======== ========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Thousands of Dollars)
Twelve Months Ended
March 31,
----------------------
1997 1996
---- ----
Schedule Reconciling Earnings to
Cash Flows from Operations:
Income $ 16,338 $ 20,073
-------- --------
Adjustments to reconcile income
to net cash:
Depreciation and amortization 18,150 17,800
Deferred income taxes, net 864 2,822
Equity in partnership earnings (2,839) (1,182)
Nonrecurring Items (892) (4,124)
Cash distributions received from
investments 1,901 528
Change in assets and liabilities:
Accounts receivable 4,143 (10,544)
Accrued utility revenue 471 (4,683)
Inventories (2,677) 5,984
Purchased gas costs (7,869) 10,568
Prepaid expenses (2,004) 381
Accounts payable and accrued expenses (3,255) 7,726
Other assets/liabilities (544) 1,774
-------- --------
Total adjustments 5,449 27,050
-------- --------
Cash flows from operations $ 21,787 $ 47,123
======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (net of amount capitalized) $ 12,875 $ 12,366
======== ========
Income taxes $ 13,259 $ 13,641
======== ========
"UNAUDITED"
CTG RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
(Thousands of Dollars)
(1) Holding Company
As of the close of business on March 31, 1997, CTG Resources, Inc.
("the Company" or "CTG") became the holding company and parent of the
Connecticut Natural Gas Corporation ("CNG") and its unregulated
subsidiaries. Management believes that this is the preferred form of
organization for companies that are engaged in both regulated and
unregulated activities. The holding company structure will provide CTG
and its subsidiaries with the increased flexibility that is needed to
compete in a rapidly deregulated energy marketplace. As of the close
of business on April 30, 1997, as a second step in this reorganization,
CNG's unregulated business and wholly owned subsidiary, The Energy
Network, Inc., became a wholly owned subsidiary of CTG.
(2) Short-term Debt
In February 1997, the Company extended the term of its expiring $9,000
bank line of credit for one year.
In March 1997, the Company exercised its option to extend the term of
its $20,000 revolving credit agreement for one year.
(3) Reclassifications
Certain prior year amounts have been reclassified to conform with
current year classifications.
"UNAUDITED"
CTG RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
MARCH 31, 1997
(Thousands of Dollars Except Per Share Amounts)
HOLDING COMPANY FORMED
As of the close of business on March 31, 1997, CTG Resources, Inc. ("the
Company" or "CTG") became the holding company and parent of the Connecticut
Natural Gas Corporation ("CNG") and its unregulated subsidiaries.
Management believes that this is the preferred form of organization for
utility companies that are engaged in both regulated and unregulated
activities as the era of deregulation in the natural gas industry continues.
The holding company structure will provide CTG and its subsidiaries with the
increased flexibility that is needed to compete in a rapidly changing energy
marketplace. As of the close of business on April 30, 1997, as a second
step in this reorganization, CNG's unregulated business and wholly owned
subsidiary, The Energy Network, Inc., became a wholly owned subsidiary of
CTG.
For financial reporting purposes, the consolidated statements for CTG are
consistent with those that have been previously filed for CNG. This Form
10-Q is the first report under the Securities Exchange Act of 1934 for CTG
and updates the financial data previously filed for CNG for this fiscal
year. For a better understanding of CTG's financial position, the
information in this Form 10-Q can and should be read together with CNG's
Form 10-K for the fiscal year ended September 30, 1996 and with CNG's Form
10-Q for the quarter ended December 31, 1996.
RESULTS OF OPERATIONS
Consolidated earnings per share were $1.19 for the quarter ending March
1997, compared to $1.40 recorded for the same quarter of fiscal 1996.
Earnings of $1.82 were recorded for the six months ended March 1997, as
compared to $2.22 recorded in the first six months of fiscal 1996. Twelve
months ended March 31 earnings were $1.55 in fiscal 1997 and $2.01 in 1996.
The twelve months ended March 1997 include earnings per share of $.05
related to the sale of a building and land. Earnings recorded for the
twelve months ended March 31, 1996 include 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 4.87% interest in the Iroquois Gas Transmission System partnership
(Iroquois). Without the effect of these items, earnings per share for the
twelve months ended periods would be $1.50 in fiscal 1997 and $1.82 in
fiscal 1996.
Lower fiscal 1997 earnings in all periods are the result of the warmer
weather experienced in the Company's service area during the winter heating
season. Our customers' greatest use of energy during the year is in the
winter, mostly for the purpose of heating their homes or businesses.
Warmer weather also impacts several other areas of the financial statements.
For example, the cost of energy is lower because the Company acquired less
gas to satisfy customers' requirements. Interest expense is lower because
the Company did not need to borrow as much cash on a short-term basis to buy
equivalent gas volumes. Income taxes are lower because the Company earned
less and had lower taxable income. Bad debt expense is lower because
customers' bills were smaller. Overtime labor is lower because of fewer
weather related emergencies.
Operating Margin
Gas operating margin is equal to gas revenues less the cost of gas and
Connecticut gross revenues tax. Lower gas operating margin was earned in
1997, as compared to 1996, for all periods presented. The following table
presents the changes in revenues, gas operating margin, heating degree days
(a measure of weather) and gas deliveries for all periods reported in the
statements of income:
Three Months Six Months Twelve Months
Ended Ended Ended
March 31, March 31, March 31,
1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- --------
Gas Revenues $119,215 $124,661 $203,494 $209,856 $286,490 $291,824
======== ======== ======== ======== ======== ========
Gas Operating Margin $ 46,995 $ 48,457 $ 79,485 $ 82,387 $113,202 $115,729
======== ======== ======== ======== ======== ========
Heating Degree Days 2,906 3,258 5,075 5,549 5,936 6,487
===== ===== ===== ===== ===== =====
Commodity and
Transportation
Volumes(mmcf):
Firm Gas Sales 10,219 11,261 17,034 18,577 22,374 23,739
Interruptible Gas
Sales 2,863 2,353 5,692 4,854 9,543 8,123
Off-System Gas
Sales 2,254 1,511 5,501 5,189 12,747 16,528
Transportation
Services 1,134 1,093 2,294 2,147 4,483 5,878
------ ------ ------ ------ ------ ------
Total 16,470 16,218 30,521 30,767 49,147 54,268
====== ====== ====== ====== ====== ======
The decline in gas operating margin between fiscal 1997 and fiscal 1996 is
the result of fewer gas sales to the firm class of customers as a
consequence of the warmer winter weather. Firm sales generate the highest
per-unit margin, and changes in firm sales impact gas operating margin more
than changes in other sales categories. The reduced firm customers' needs
this winter made gas available for sale to interruptible customers and
resulted in higher interruptible sales in fiscal 1997. Because of higher
rates, these sales also contributed higher interruptible margins and offset
some of the overall reduction in operating margin throughout fiscal 1997.
In the three and six months ended March 1997 higher off-system sales of gas
also offset some of the decline in gas operating margin.
Operations and Maintenance Expenses
Lower operations and maintenance expenses recorded in the three months and
six months ended March 1997, as compared to 1996, represent the net effect
of variations in many different costs. Lower costs were incurred for labor,
reflecting the savings from early retirements and reduced overtime costs as
a result of the warmer winter and fewer weather related expenses. Computer
hardware rentals and maintenance costs are lower, because of renegotiated
contracts. Lower costs were also recorded for employee benefits and pension
expenses, outside purchased services and lower levels of bad debts, which
are down because of lower customer bills -- the result of less energy used
because of the warmer winter. Higher margins generated by service contract
work also offset increases in other expense categories. Expenses related to
conservation programs increased because our customers have become more aware
of these programs and more customers have applied for and been granted funds
for qualified conservation projects. Costs for corporate insurance premiums
were also higher.
Operations and maintenance expenses are somewhat higher in 1997 between the
comparable twelve months ended periods. The twelve months ended March 1997
include the one-time costs related to a voluntary early retirement program,
recorded in September of 1996. With the exception of costs incurred for
outside purchased services, which are higher in the twelve months ended
March 1997, all the other expense variables listed for the three and six
months ended periods impact the comparable twelve months ended periods in
the same way.
Income Taxes
The on-going turn around of flow-through book tax depreciation differences
on older plant and the absence of prior periods' cost of removal deductions
taken during fiscal 1996 have resulted in an overall higher effective income
tax rate in fiscal 1997. The Company applies this tax rate consistently to
all reporting periods throughout the fiscal year. In fiscal 1997, this
higher rate has offset the benefits of lower taxable income that were
recorded because of the warmer winter weather.
Other Income (Deductions)
Lower income from other income (deductions) was recorded in the six months
and twelve months ended March 1997. Higher other deductions were recorded
for the quarter ended March 1997, as compared to 1996. Higher income from
merchandising operations, interest income from the investment of available
cash balances and the absence of the initial costs associated with
terminating the Company's regulated propane service program were offset by
higher premiums related to certain executive life insurance plans and higher
promotional and advertising expenses in all reported periods.
Interest and Debt Expense
Less interest expense has been recorded in all periods ending March 31,
1997, as compared to 1996. This decline in interest expense reflects lower
levels of long-term debt outstanding, as a result of scheduled sinking fund
payments, a reduced need for short-term borrowings for working capital,
because of the warmer winter, and lower interest related to pipeline refunds
and deferred gas costs.
Earnings from Unregulated Operations
The unregulated operations contributed $.03, $.09 and $.30 to earnings per
share for the three, six and twelve months ended March 1997. These compare
to $.07, $.15 and $.47 contributed to earnings per share for the three, six
and twelve months ended March 1996.
Twelve months ended March 1997 and 1996 unregulated earnings include $.05
and $.24 per share, respectively, from certain special items. These were
the sale of a building and land in the twelve months ended March 1997 and
the settlement related to the termination agreement negotiated with a
supplier of steam in the twelve months ended March 1996. The twelve months
ended March 1996 earnings also include a charge of $(.05) per share in
connection with legal matters related to the Company's interest in Iroquois.
In April 1996 the Company chose to increase its ownership interest in
Iroquois from 2.4% to 4.87%. As a result, proportionately higher earnings
from Iroquois were recorded throughout fiscal 1997. These have offset lower
contributions to earnings from district heating and cooling ("DHC") and
other energy services that have resulted from increases in operating
expenses which have been absorbed by the DHC in order to maintain
competitive pricing, lower sales for winter heating because of the warmer
weather, and the absence of rental income from the building that was sold in
fiscal 1996.
MATERIAL CHANGES IN FINANCIAL CONDITION
Common Equity
To complete the holding company reorganization, CTG issued and exchanged one
share of its no par common stock for each issued share of CNG $3.125 par
value common stock. As a result, the full amount of CTG's common stock is
now reported in one line item on the balance sheet. The consolidated
assets, liabilities and equity of the Company did not change as a result of
the reorganization.
Cash Flows
Cash flows from operations have funded both investing and financing
activities in all reporting periods shown. The twelve months ended March
1997 includes the proceeds from the unregulated operations' sale of a
building and land and the proceeds of the June 1996 issue of CNG common
stock. The twelve months ended March 1996 includes the unregulated
operations' receipt of the settlement amount from the termination of a steam
supply contract.
Historically, cash flows from operations are high at this point of the
Company's fiscal year because March is the last full month of the winter
heating season, and the Company makes most of its sales for the fiscal year
during the heating season. Cash flows from operations are lower in 1997
because our customers used less energy for heat during this year's warmer
winter.
Investing Activities
Cash flows from investing activities in the twelve months ended March 31,
1997 include the proceeds from the unregulated operations' sale of a
building and land.
Cash flows from investing activities in the six and twelve months ending
March 31, 1996 reflect the receipt of the balance of the settlement amount
due from the termination of the steam supply contract with the unregulated
operations' principal steam supplier.
In January 1997, the Company completed a strategic and operational review of
the DHC operations. The review focused on exploring various alternative
actions and procedures that could be followed to maximize the efficiency and
value of the DHC business. The results of this review indicate that future
growth and cost control plans may require up to $10,000 of capital
expenditures over the next five years. The DHC operations are in the
process of implementing the growth and cost control measures recommended in
the study.
Financing Activities
In February 1997, the Company extended the term of its expiring $9,000 bank
line of credit for one year.
In March 1997, the Company exercised its option to extend the term of its
$20,000 revolving credit agreement for one year.
Other Tax Matters
During the second quarter of fiscal 1997 a state tax matter that was being
reviewed by the State of New York was settled with no impact to the
Company's financial condition or results of operations.
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
(a) The 1997 Annual Meeting of the Connecticut Natural Gas Corporation
("CNG") was held on February 25, 1997.
(b) Not required.
(c)
(1) The following members were elected to the Board of Directors:
$3.125 Par Value
Common Shares Preferred Shares
------------- ----------------
J. F. English
-------------
For 9,442,008 104,152
Withheld 174,915 2,544
V. H. Frauenhofer
-----------------
For 9,426,699 103,992
Withheld 190,205 2,723
A. C. Marquardt
---------------
For 9,450,252 103,992
Withheld 166,671 2,704
L. A. Tanner
------------
For 9,439,152 104,152
Withheld 177,771 2,544
(2) The shareholders were asked to vote on a proposal to approve an
Agreement and Plan of Exchange, pursuant to which the outstanding
shares of CNG common stock would be exchanged for shares of the
common stock of a newly formed holding company, to be known as CTG
Resources, Inc. ("CTG"). The Agreement and Plan of Exchange was
approved by the shareholders.
The Vote on this matter was:
$3.125 Par Value
Common Shares Preferred Shares
------------- ----------------
For 7,483,965 79,350
Against 160,571 3,200
Abstain 266,899 2,278
No Vote 1,705,488 21,868
Part II, Item 4. (c) (continued)
(3) The shareholders were asked to vote on a proposal to ratify the
appointment of Arthur Andersen LLP to audit the books and records
of the Company for the fiscal year ending September 30, 1997.
The Vote on this matter was:
$3.125 Par Value
Common Shares Preferred Shares
------------- ----------------
For 9,285,521 100,718
Against 210,662 3,906
Abstain 120,740 2,072
The total number of shares of CNG Common Stock, $3.125 par value, and
Preferred Stock, $3.125 par value, outstanding as of December 18, 1996,
the Record Date, consisted of 10,634,329 shares of CNG Common Stock and
138,360 shares of CNG $3.125 Par Preferred Stock.
(d) Not Applicable
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
27 Financial Data Schedule
99(i) Exhibit Index
(b) No reports on Form 8-K were filed during the quarter ending March 31,
1997.
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.
CTG RESOURCES, INC.
Date 05/02/97 By: S/ Andrew H. Johnson
-------------------- -----------------------------------
(Andrew H. Johnson)
Treasurer and Chief Accounting Officer
(On behalf of the registrant and as
Chief Accounting Officer)