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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
For the fiscal year ended September 30, 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 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 (860) 727-3010
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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 - No Par 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. x
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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 3, 1997 was $263,567,358.
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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 1, 1997 was 8,652,169.
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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 1998 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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CTG Resources, Inc. ("the Company" or "CTG") is a Connecticut corporation
organized as a holding company with two wholly owned subsidiaries:
Connecticut Natural Gas Corporation ("CNG") and The Energy Network, Inc.
("TEN"). CTG was established as a holding company and the parent of CNG
in March of 1997. CTG subsequently became the parent of CNG's wholly
owned subsidiary, TEN, in April of 1997. This reorganization into a
holding company structure effectively separated the Company's regulated
natural gas business, CNG, and the diversified unregulated businesses held
by TEN. Management believes that the holding company structure offers the
best means of providing the Company with the increased flexibility which
will be required to compete in the rapidly deregulated energy marketplace.
CTG's headquarters are in Hartford, Connecticut. At September 30, 1997,
the Company employed 573 people. The Company's no par common stock is
traded on the New York Stock Exchange, under the symbol CTG. Previously
issued preferred stock of CNG is traded on the over-the-counter market.
CTG's principal business is the distribution, transportation and sale of
natural gas through CNG. This business is subject to extensive
regulation. CTG's diversified businesses are unregulated and provide
energy-related products and services, primarily district heating and
cooling.
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 unregulated district heating and cooling businesses
experience peak loads during the winter heating and summer cooling
seasons.
Competition
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In recent years, the natural gas industry has undergone structural changes
in response to Federal regulatory policy intended to increase competition.
In 1992, the Federal Energy Regulatory Commission ("FERC") issued Order
636, which required all interstate gas pipelines to provide "unbundled,"
or separate, gas transportation and storage services and to discontinue
their bundled merchant sales operations, which included the gas
acquisition function. Similarly, the Company has offered firm
transportation rate tariffs to nonresidential customers since April 1,
1996. The impact of the FERC Order 636 and the resulting deregulation of
the gas industry has continued to heighten competition and has changed the
nature of the Company's business.
The Company has historically distributed and sold natural gas to its
customers without substantial competition from other gas utilities,
cooperatives or other providers of natural gas. At the local level, as a
result of FERC Order 636 and Connecticut deregulation, the Company faces
increasing competitive pressures as other providers of gas seek
opportunities to make gas sales to the Company's commercial and industrial
customers.
The Company also competes with suppliers of oil, electricity and propane
for cooking, heating, air conditioning and other purposes. Competition is
greatest among the large commercial and industrial customers who have the
capability to use alternative fuels. The volatile effect of this price-
sensitive load is somewhat overcome through the use of flexible rate
schedules which allow gas pricing to meet alternative-fuel competition.
The Company's transportation rate tariffs are designed to recover a margin
on each transaction that is comparable to the margin that the Company
would have received if it were making a system sale of natural gas.
The diversified businesses own and operate district heating and cooling
systems ("DHC"), which distribute and sell steam, hot water and chilled
water to office complexes and other large buildings in the City of
Hartford. Once DHC has been selected, the risk of competition from
alternate fuels is diminished because of the cost of the equipment
necessary to utilize an alternative energy source.
Regulatory Jurisdiction
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CNG's principal business is the distribution of natural gas, and this
business is subject to regulation by the Connecticut Department of Public
Utility Control ("DPUC") as a public service company. The scope of this
regulation encompasses rates, standards of service, issuance of certain
securities, safety practices and other matters. Retail sales of gas by
the Company and deliveries 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 some 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).
Businesses operated by TEN are not public service companies under state
law, and hence they are not subject to regulation by the DPUC. However,
intercompany transactions between CNG and its affiliates are subject to
review and/or approval by the DPUC.
The regulation of interstate sales of natural gas is under the
jurisdiction of the FERC. The Company is subject to the direct
jurisdiction of the FERC for any off-system sales the Company makes in
interstate commerce. The FERC regulates the Company's pipeline gas
suppliers and transporters, and the Company closely follows and
participates in numerous proceedings before FERC. Through an unregulated
subsidiary, of TEN, TEN Transmission Company ("TEN Transmission"), the
Company is a 4.87% equity partner in the Iroquois Gas Transmission System
Limited Partnership ("Iroquois"), which is subject to regulation by FERC.
Natural Gas Business (Regulated)
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CNG is a Connecticut corporation organized in 1848 and headquartered in
Hartford, Connecticut. CNG is engaged in the distribution, transportation
and sale of natural gas in Hartford and 20 other cities and towns in
central Connecticut and in Greenwich, Connecticut. This business is
subject to extensive regulation. Many aspects of this traditional
business have changed or are expected to change as deregulation of the
industry occurs. Later sections of this document address these changes
(See, for example, the sections entitled "Regulatory Matters" and
"Competition.").
Consolidated gas operating revenues were $283,324,000 for the fiscal year
ended September 30, 1997 and were derived approximately 51% from
residential customers, 21% from commercial firm customers, 1% from
industrial firm customers, 15% from interruptible customers, 10% from off-
system sales and 2% from the aggregate of transportation of customer-owned
gas and other gas-related revenues. There were $2,403,000 of revenues
from sales to affiliated companies. The gas distribution business
contributed 93% of consolidated revenues over the three fiscal years
ending 1997. During the fiscal year ended September 30, 1997, the peak-
day sendout of gas was 263,878 thousands of cubic feet ("mcf") which
occurred on January 18, 1997.
CNG has one wholly owned subsidiary, CNG Realty, Corp. ("CNGR"), which was
formed in 1977. CNGR is a single purpose corporation which owns the
Company's Operating and Administrative Center located on a 7-acre site in
downtown Hartford, Connecticut. This facility is leased to CNG. CNGR
engages in no other business activity.
Gas Supply -
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, flexible, best-cost gas supply portfolio,
which allows the Company to respond quickly and appropriately as customer
needs change.
The Company purchases natural gas on a long-term and seasonal 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
southeast 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. Because of limited transportation capacity,
pipelines may be unable to meet all of the Company's needs during the
coldest periods of the year. Therefore, the Company also utilizes
liquefied natural gas ("LNG") and, to a much lesser extent, propane mixed
with air ("LP-Air"). LNG and LP-Air are usually 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 ("AGT"), CNG Transmission Corporation
("CNGT"), Iroquois Gas Transmission System ("IGTS"), National Fuel Gas
Supply Corporation ("NFGS"), Tennessee Gas Pipeline Company ("TGP"), Texas
Eastern Gas Transmission Corporation ("TETCO"), and Transcontinental Gas
Pipeline Corporation ("TRANSCO"). The various agreements expire at
different times through 2012 and provide for the delivery of a total
maximum daily quantity of approximately 170,596 mcf and maximum annual
quantity of approximately 48,708,730 mcf. The Company also has signed
supply contracts directly with upstream producers to provide the natural
gas for these transportation arrangements.
The Company has contracted for storage service in various locations and
with diverse expiration dates through 2012. Under these arrangements, gas
available during the warmer months of the year is stored underground in
locations that, although out-of-state, are accessible for use during the
colder winter months of the year and for balancing throughout the year.
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.
Under FERC Order 636, a pipeline may not terminate service to a long-term
firm transportation customer if that customer elects to exercise a "right
of first refusal" following the initial contract term expiration. This
requires the customer to match the price and length terms of another offer
made to the pipeline to continue to purchase such service. 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 720,000 gallons of on-site propane storage which can produce
the equivalent of approximately 8,208 MCF of natural gas per day.
Regulatory Matters -
In August 1997 the DPUC initiated a generic proceeding to investigate firm
transportation and unbundling in Connecticut. The unbundling review
process, which includes collaboration between many industry stakeholders,
will be held in two phases. Phase I, currently in progress, will address
the status of existing firm transportation service for commercial and
industrial customers, primarily focusing on streamlining the local natural
gas distribution companies' ("LDCs") administrative processes.
Phase II will explore the myriad of important issues related to fully
unbundled, competitive gas service for all customers, including
residential. These issues will include recovery of stranded costs, the
LDCs' obligation to serve customers who choose other suppliers, a marketer
code of conduct and consumer protection, use/role of fixed price hedging
tools, future decisions regarding pipeline capacity entitlements, and
public policy programs.
In August 1996, CNG filed an application to expand firm transportation
service to multi-unit residential customers with six or more dwelling
units (i.e., large apartment complexes). Transportation had only been
available to commercial and industrial customers. The Department approved
this proposal in December 1996, allowing CNG to better compete in this
market relative to alternate fuel competition.
In February 1996, the Department initiated a DPUC Review of the Purchased
Gas Adjustment ("PGA") clause. The purpose of the generic review was to
determine the appropriateness of the PGA mechanism in light of emerging
competition and the evolution of "unbundling" of services provided by LDCs
and the pipelines. The PGA allows LDCs to recover gas costs on an
automatic flow-through basis. The DPUC's April 1997 Decision reaffirmed
the appropriateness of the PGA clause given the continued volatility of
gas prices and significant proportion of gas costs relative to an LDC's
total operating and maintenance expenses.
In August 1996, CNG filed a petition to extend its meter test cycle in an
effort to save costs. Existing regulations required CNG to remove and
test all meters that are in the field for ten years. CNG requested that
the test period be extended to twenty years, noting improved quality and
accuracy in current metering technology. The DPUC approved a performance-
based test plan in September 1997.
In September 1996, CNG and CTG filed and application with the DPUC to
reorganize CNG into a holding company structure under which CNG would
become one of two wholly owned subsidiaries of CTG Resources, Inc. The
new holding company structure, which was approved in November 1997 and
became effective in March 1997, allows CNG to better position its
management, financing vehicles, and energy related products and services
to the distinct regulated and unregulated markets in which it competes.
In August 1995, the DPUC initiated a management audit of CNG which was
performed by an independent management consulting firm. A final report
containing the firm's findings, conclusions and recommendations was issued
in November 1996. CNG issued a response to the recommendations contained
in the report in March 1997, indicating the course of action to be taken
with respect to each recommendation with which it concurred and the
reasons for disagreement with those to which it took exception. In the
opinion of management, the recommendations being implemented will not have
any material adverse effect on the Company's results of operations. The
DPUC has informed CNG that it will initiate a second phase of the
management audit which will focus on several areas of CNG's operations in
which opportunities for improvements were identified by the initial audit.
The second phase is scheduled to begin in December 1997.
Diversified Businesses (Unregulated)
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At September 30, 1997, the diversified businesses of the Company included
TEN and its wholly owned subsidiaries The Hartford Steam Company ("HSC"),
TEN Transmission Company ("TEN Transmission"), ENI Gas Services, Inc.
("ENI Gas") and ENServe Incorporated ("ENServe").
TEN was incorporated in 1982 and is engaged in the operations described in
the following paragraphs. TEN and HSC together provide DHC services to a
number of large buildings in Hartford, Connecticut. TEN Transmission owns
the Company's share of Iroquois. ENServe offers energy system operating
and maintenance services. ENI Gas owns the Company's one-half interest in
KBC Energy Services ("KBC"). TEN's other operating divisions offer energy
equipment rentals, property rentals and financing services.
TEN Transmission, which was formed in 1986, owns the Company's 4.87% share
of Iroquois. Iroquois operates a natural gas pipeline which transports
Canadian natural gas into the states of New York, Massachusetts and
Connecticut.
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,
Connecticut.
HSC chills its own water supply for district cooling and produces its own
steam from its existing boilers. HSC also purchases steam from the
Downtown Cogeneration Associates Limited Partnership ("DCA"), which sells
steam to HSC under a twenty-year contract. TEN is a 50% partner in the
DCA with two unrelated third parties. The DCA owns and operates a four-
megawatt cogeneration facility on the roof of a downtown Hartford building
complex. Electricity generated from this unit is sold to The Connecticut
Light and Power Company under a twenty-year contract expiring in 2007.
During fiscal 1997, TEN provided cogeneration management and consulting
services to DCA.
The Capitol Area System ("CAS") is a district heating and cooling system
serving a section of the City of Hartford, Connecticut. TEN owns the
distribution system and purchases hot and chilled water from a third
party. TEN also provides marketing services to this third party.
TEN's energy equipment rentals division and its financing division were
joined to form TEN's financing operations in fiscal 1997. TEN owns
natural gas water heaters and natural gas conversion burners which it
leases to customers in the residential market.
In October 1997, the Company entered into an agreement to sell the
physical assets and business of ENServe, subject to arrangements
concerning certain uncompleted contracts and commitments. These
arrangements are expected to be completed in fiscal 1998. ENServe
previously had offered energy system management services and energy
conservation services to residential, commercial and industrial customers
throughout Connecticut.
ENI Gas was formed to own the Company's interest in KBC. KBC markets
natural gas supplies, other energy sources and energy management related
services on a nonregulated basis to commercial and industrial end users,
primarily in New England.
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.
Franchises
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CNG 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, 1997, CNG owns 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.
TEN owns a distribution system located in the Capitol area of Hartford,
Connecticut for the distribution of hot water for heating and chilled
water for cooling. This property was financed with industrial revenue
bonds secured by a letter of credit with a bank.
The financing division of TEN 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, Connecticut
for the processing and distribution of steam for heating and chilled water
for cooling.
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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In November 1995, certain Connecticut plumbers and HVAC contractors filed
a class action suit against CNG and the State's two other LDCs, claiming
that the LDCs engaged in unfair trade practices relating to customer
service work. The action alleged that the LDCs unfairly competed with
licensed plumbers and contractors by performing customer service work
using customer service employees who did not possess State trade licenses.
Previously, the LDCs claimed that the work was performed under a statutory
exemption enacted in 1965 and amended in 1967. In 1996, the Connecticut
Court of Appeals upheld an administrative ruling against the LDCs'
position.
The plumbers and contractors are currently asserting claims for profits
which they allege were lost during prior years. There has not been any
settlement demand or any formal statement of alleged damages. As a
result, management cannot estimate CNG's potential exposure related to
these claims. CNG is vigorously defending this matter.
On July 28, 1997, CNG filed suit in state court against another
Connecticut local gas distribution company seeking to enjoin that company
from serving retail customers in a town in which CNG currently serves
customers. A hearing is scheduled for January 1998, and a decision on the
merits of CNG's claims is expected in a matter of weeks following that
hearing. The outcome of this litigation and its impact cannot be assessed
at this time.
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, 1997.
Executive Officers of the Registrant
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All executive officers' terms of office are one year.
Victor H. Frauenhofer Age - 64
Chairman and Chief Executive Officer and Director
Business experience:
1996 - Present Chairman and Chief Executive Officer
1991 - 1996 Chairman, President and Chief Executive Officer
1987 - 1991 President and Chief Executive Officer
1983 - 1987 President and Chief Operating Officer
Arthur C. Marquardt Age - 50
President and Chief Operating Officer
Business experience:
1996 - Present President and Chief Operating Officer
1992 - 1996 Senior Vice President - Gas Business Unit,
Long Island Lighting Company
1991 - 1992 Vice President - Strategic Business Planning,
Long Island Lighting Company
James P. Bolduc Age - 48
Executive Vice President and Chief Financial Officer
Business experience:
1996 - Present Executive Vice President and Chief Financial Officer
1993 - 1996 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
Anthony C. Mirabella, Age - 57
Senior Vice President - Operations and Chief Engineer
Business experience:
1997 - Present Senior Vice President - Operations and Chief Engineer
1993 - 1997 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
Executive Officers of the Registrant (Concluded)
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Reginald L. Babcock Age - 46
Vice President, General Counsel and Secretary
Business experience:
1997 - Present Vice President, General Counsel and Secretary
1996 - 1997 Vice President - Administrative Services and General
Counsel and Secretary
1993 - 1996 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
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
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SECURITY HOLDER MATTERS
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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, 1997 and 1996 were as presented in the table below. These
prices are based on the New York Stock Exchange NYSENet stock quotation
service.
QUARTERLY COMMON STOCK PRICES
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1997 1996
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Fiscal Year High Low High Low
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First Quarter 25 1/2 22 5/8 25 1/8 21 5/8
Second Quarter 25 3/8 21 3/8 24 1/2 22 3/4
Third Quarter 22 1/4 20 3/4 24 5/8 21 7/8
Fourth Quarter 23 13/16 21 5/8 24 1/4 22
There were 8,744 record holders of the Company's common stock at November
3, 1997.
Cash dividends are declared on the Company's common stock on a quarterly
basis out of funds legally available therefor. The total amount of
dividends declared was $1.52 per share in 1997 and $1.50 per share in
1996. Funds utilized by the Company for the payment of dividends are
typically received as dividends from its subsidiaries, CNG and TEN. Under
the most restrictive terms of the open-end indenture securing CNG's first
mortgage bonds, as amended, retained earnings of $23,135,000 were
available for CNG to pay dividends at September 30, 1997. There are also
certain restrictions relating to CNG's classes of preferred stock as to
which dividends and sinking fund obligations must be paid prior to the
payment of common stock dividends.
As a provision of a Forward Equity Purchase Agreement between CTG and TEN,
dated October 1, 1997, the Company is restricted from declaring or paying
any dividends or distributions to holders of its common stock if any
amounts due and payable under this agreement are in arrears (See Note 12
to the Financial Statements in Part II, Item 8). There are no other
restrictions on the Company's present or future ability to pay such
dividends. The Company expects that future cash for dividends will be
available.
In connection with a stock repurchase plan which occurred in the first
quarter of fiscal 1998 (See Note 12 to the Financial Statements in Part
II, Item 8) the Company reduced its quarterly dividend on common stock
from $0.38 ($1.52 annually) to $0.25 ($1.00 annually) per share, effective
with the first quarterly dividend of fiscal 1998, payable on December 19,
1997 to shareholders of record on December 5, 1997. The Company's Board
of Directors has recently established a target of paying out as dividends
approximately 50% to 55% of the Company's earnings on average. The
declaration and payment of future dividends will be dependent on the
Company's earnings and financial condition, economic and market conditions
and other factors deemed relevant by the Company's Board of Directors.
ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
FIVE-YEAR SUMMARY OF CONSOLIDATED OPERATIONS
(Thousands of Dollars)
1997 1996 1995 1994 1993
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Operating revenues $305,565 $315,363 $275,185 $290,662 $265,337
Net income applicable
to common stock $ 17,013 $ 18,932 $ 16,957 $ 17,637 $ 16,788
Earnings per share $ 1.60 $ 1.87 $ 1.71 $ 1.85 $ 1.76
Total assets $464,287 $466,979 $465,039 $458,554 $444,585
Long-term obligations $126,787 $136,432 $150,390 $154,193 $137,984
Cash dividends declared
per common share $ 1.52 $ 1.50 $ 1.48 $ 1.48 $ 1.46
Dividend payout ratio 95.0% 80.2% 86.6% 80.0% 83.0%
P/E ratio 14 13 13 13 18
Market price as a %
of book value -
year-end 145.9% 152.9% 146.8% 162.0% 225.6%
(Certain amounts for 1996 and prior years have been reclassified to conform
with 1997 classifications.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS, SEPTEMBER 30, 1997
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(Thousands of Dollars Except for Per Share Data)
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"). As of the close of
business on April 30, 1997, CNG's unregulated business and wholly owned
subsidiary, The Energy Network, Inc. ("TEN"), became a wholly owned
subsidiary of CTG. Management believes that this is the preferred form
of organization for CTG 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. For financial
reporting purposes, the consolidated statements for CTG are consistent
with those that have been previously presented for CNG.
CNG is an energy provider engaged in the regulated distribution, sale
and transportation of natural gas. CTG's diversified businesses are
unregulated and are held by TEN. The diversified businesses are offered
through operating divisions or wholly owned subsidiaries and include
energy-related products and services, district heating and cooling,
energy equipment rentals and financing, energy system management and
operating services and the Company's equity investments in several
partnerships.
In October 1997, subsequent to year-end, TEN repurchased 2.0 million
shares of CTG common stock for $52,000. TEN financed the purchase with
a combination of revolving bank debt and the issuance of Senior
Subordinated Notes. The shares repurchased by TEN were transferred by
the depositary directly to CTG. In connection with the repurchase, CTG
reduced its quarterly dividend on common stock from $0.38 ($1.52
annually) to $0.25 ($1.00 annually) per share, effective with the first
quarter of fiscal 1998. In future periods the lower shares outstanding
should help to increase overall earnings per share. In the long-term,
the lower dividend will enable CTG to retain more of its earnings to
fund the future growth of the Company.
RESULTS OF OPERATIONS
---------------------
Net income applicable to common stock and earnings per share for the
fiscal years ended September 30, 1997, 1996 and 1995 were $17,013
($1.60), $18,932 ($1.87) and $16,957 ($1.71), respectively. Earnings
for 1996 include a nonrecurring item: the proceeds from the sale of a
building by the diversified businesses, equivalent to $.05 per share.
Earnings in 1995 include two nonrecurring items: a gain of $.24 per
share relating to a negotiated settlement for the termination of a steam
supply contract and a charge of $(.05) per share in connection with the
settlement of legal matters relating to the Company's interest in the
Iroquois Gas Transmission System ("Iroquois").
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1997 (continued)
----------------------------------------------------
Lower fiscal 1997 earnings are the result of the warmer weather
experienced in the Company's natural gas service area during the winter
heating season. The Company's 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. Bad debt expense
is lower because of both smaller customers' bills and overall favorable
collection efforts. Overtime labor is lower because of fewer weather
related calls. The impact of a higher effective income tax rate
somewhat offset these benefits to earnings. 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.
An increase in natural gas rates granted to the Company by the
Connecticut Department of Public Utility Control ("DPUC"), effective
October 1995, and a significantly colder winter are the principal
reasons for the higher earnings reported for fiscal 1996. Higher
operating expenses and a higher effective income tax rate somewhat
offset these benefits to earnings.
Earnings from our diversified businesses represent the net effect of
several diverse and offsetting influences.
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 revenues,
gas operating margin and gas commodity and transportation volumes for
fiscal 1997, 1996 and 1995, respectively:
1997 1996 1995
---- ---- ----
Gas Revenues $283,324 $292,852 $254,006
======== ======== ========
Gas Operating Margin $112,446 $116,104 $103,267
======== ======== ========
Commodity and Transportation
Volumes (mmcf)
Firm Gas Sales 22,354 23,911 21,361
Interruptible Gas Sales 9,573 8,614 8,554
Off-System Gas Sales 10,164 12,435 16,265
Transportation Services 4,131 4,336 7,695
------- ------- -------
Total 46,222 49,296 53,875
======= ======= =======
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1997 (continued)
----------------------------------------------------
Changes in weather patterns from year to year impact the contribution to
operating margin by the different customer classes, because of required
changes in overall throughput mix among the various customer classes and
the different per-unit margin contributed by each customer class. Firm
sales contribute the highest per-unit operating margin of all customer
classes.
Warmer weather during the fiscal 1997 heating season resulted in lower
use per customer and reduced sales and operating margin, especially from
the firm class of customers. Off-system sales and transportation
services have also shown decreases in fiscal 1997 as a result of the
warmer winter weather.
The reduced firm customers' needs in the 1997 winter made gas available
for sale to interruptible customers and resulted in higher interruptible
sales in fiscal 1997. However, interruptible per-unit margins were
lower in fiscal 1997 because of the cost of gas associated with those
sales. Margin earned above a prescribed target level on interruptible
sales is refunded to firm ratepayers, as required by the DPUC.
New, higher firm rates, approved by the DPUC effective October 1995,
together with significantly colder winter weather, resulted in the
higher gas operating margin earned in fiscal 1996.
Off-system sales permit the Company to market short-term gas supplies
and transportation services by contract with customers nationwide.
However, these sales volumes contribute the smallest per-unit operating
margin. The significance of the off-system sales program is that the
Company acts as an independent marketer of natural gas and
transportation, enabling the Company to generate operating margin from a
source not restricted by the capacity of the Company's own distribution
system or curtailment limitations driven by system demand. A
significant portion of margin earned on off-system sales is refunded to
firm ratepayers, as directed by the DPUC.
Off-system sales were lower in fiscal 1997, as compared to 1996, because
of the warmer winter weather and corresponding reduced need for fuel for
heating purposes and the absence of production area sales that were made
in prior years. Off-system sales are lower in fiscal 1996, as compared
to 1995, for two reasons. During the colder winter the Company chose to
be more conservative and selective in its off-system sales, pursuing
opportunities for better contributions to margin rather than higher
volume sales. In the summer months the Company first used available gas
supplies to fill storage facilities in preparation for the coming winter
before offering available supply for off-system sales.
Transportation services are sold under per-unit operating margins
comparable to those earned on similar gas sales. Therefore the Company
is financially indifferent as to whether it transports gas or sells gas
and transportation together. The decrease in transportation throughput
from 1995 to 1996 reflects the September 30, 1995 closing of the Hacogen
cogeneration facility, which provided steam, under contract, to the
district heating and cooling ("DHC") operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1997 (continued)
----------------------------------------------------
Operating and Maintenance Expenses
Lower operating and maintenance expenses recorded in fiscal 1997
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. A reduction in pension costs
reflects the absence of the expenses related to the early retirement
program offered in fiscal 1996 and reduced costs because of those
retirements. Bad debt costs are lower mainly because of the lower
natural gas bills experienced as a result of the warmer winter heating
season. Costs related to workers compensation insurance were lower
because of lower actual and projected claims (used to set the Company's
premiums) as a result of the Company's aggressive monitoring of claims.
Lower costs were also recorded for outside purchased services. Higher
margins generated by service contract work also helped to offset
increases in other expense categories.
The October 1995, rate decision allowed the Company to recover certain
expenses that had been previously deferred pending the outcome of the
rate proceedings. Because of these additional amortizations and
increases in certain other expense categories, higher operations and
maintenance expenses were recorded beginning in fiscal 1996. Increases
were recorded in the categories of wages and salaries, pension costs,
employee benefits, conservation program expenses, insurance-related
costs, regulatory commission and rate proceedings expenses and outside
purchased services. The colder fiscal 1996 winter also resulted in
increased bad debt costs related to the higher bills. These increases
were somewhat offset by lower costs incurred for computer hardware
rentals and maintenance and margins generated from service contract
activity.
The Company announced a voluntary early retirement program ("VERO") in
September 1996, and 16 employees accepted retirement effective December
1, 1996. The VERO resulted in an overall 1.5 percent reduction in the
total workforce.
Year to year increases in depreciation result from annual additions to
depreciable plant and reflect the Company's continued growth.
Income Taxes
The on-going turn around of flow-through tax depreciation differences on
older plant and the absence, in fiscal 1997, of cost of removal
deductions related to prior periods that were recorded during fiscal
1996, have resulted in an overall higher effective income tax rate in
fiscal 1997. Higher taxable income and an increase to the Company's
income tax reserve also added to the increase in income taxes in fiscal
1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1997 (continued)
----------------------------------------------------
The overall effective income tax rate was also higher in fiscal 1996, as
compared to 1995, due to the on-going turn around of flow-through tax
depreciation differences on older plant and the absence of cost of
removal deductions taken during 1995. These higher taxes are being
recovered in CNG's rates.
Other Income/(Deductions)
The Company's equity in partnership earnings is a part of the results of
operations from the CTG's diversified businesses and is explained in
that context under the section "Earnings from Diversified Businesses."
Higher deductions were recorded in fiscal 1997 because of lower interest
income from overnight cash investments, higher promotional and
advertising expenses and higher premiums related to insurance. These
additional costs and reduced income were somewhat offset by the absence
of the 1996 costs associated with converting the Company's regulated
propane service program to natural gas.
Nonrecurring income of $892 in fiscal 1996 relates to the diversified
businesses' sale of land and a building in August 1996. The net after
tax gain was $515, equivalent to $.05 per share. Aside from this item,
more Other Income was recorded in fiscal 1996 from interest income
earned by the investment of available cash balances and lower insurance
costs realized from the reconfiguration of certain plans. This higher
income was partially offset by increased promotional expenses and
additional costs related to the conversion of the Company's regulated
propane service program to natural gas.
Two nonrecurring items were recorded in fiscal 1995: a one-time, after
tax benefit of $2,379, equivalent to $.24 per share, from the
termination of a steam supply agreement by the DHC operations, and a
charge of $500, or $(.05) per share, to reflect the accrual of the
Company's proportionate share of expenses in connection with legal
matters of Iroquois.
Interest and Debt Expense
Interest related to long-term debt continues to decline as the amount of
principal outstanding is reduced by scheduled sinking fund payments and
early repurchases of issues that are near maturity. In fiscal 1996, the
Company also realized the benefit of lower average interest rates on
variable rate long-term debt.
Other interest relates primarily to interest on short-term borrowings
and interest associated with pipeline refunds and deferred gas costs.
Short-term interest fluctuates as a result of changes in interest rates,
short-term cash requirements and conversions to long-term debt.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1997 (continued)
----------------------------------------------------
Short-term borrowings were needed in both 1997 and 1996 to supplement
the seasonal changes in available cash from operations. In fiscal 1997,
because of the warmer winter, the Company did not need to borrow as much
cash on a short-term basis to support working capital requirements. The
Company also recorded lower interest related to natural gas pipeline
refunds and deferred gas costs. Short-term borrowings in the
diversified businesses have been minimal as they have been able to meet
their working capital needs from cash generated by day to day
operations. In fiscal 1996, cash was available because of the timing of
collections through the purchased gas adjustment ("PGA"), which was
ultimately refunded to customers, and available cash on hand for working
capital from the issue of common stock in June 1996.
Earnings from Diversified Businesses
The Company's diversified businesses are all unregulated and include TEN
and TEN's wholly owned subsidiaries: The Hartford Steam Company
("HSC"), ENI Gas Services, ENServe, and TEN Transmission Company ("TEN
Transmission"). TEN's Capitol Area Systems division and HSC provide DHC
services to a majority of buildings in downtown Hartford, CT. ENServe
offers energy system operating and maintenance services. TEN's other
operating divisions offer energy equipment rentals and financing
services. TEN Transmission owns the Company's share of Iroquois. ENI
Gas Services owns the Company's one-half interest in KBC Energy Services
("KBC"). Refer to Note 1 to the Financial Statements for additional
information regarding these investments.
Earnings from the diversified businesses reflect the measures that have
been taken in the last few years to position this area of the Company
for future growth and development. In fiscal 1996, the property
management business sold its land and building, realizing a gain of $.05
per share, and ceased operations. In April of 1996, the Company's
equity interest in Iroquois was increased from 2.40% to 4.87%, and its
equity in partnership earnings from Iroquois increased accordingly. In
fiscal 1995, the DHC reached a settlement agreement related to steam
supply and recorded a gain of $.24 per share. Earnings per share from
ongoing operations were $.25 in 1997, $.30 in 1996 and $.25 in 1995.
The reduction in earnings from ongoing operations in fiscal 1997
reflects the impact of two items: additional outside consultant
expenses and losses incurred by ENServe. Subsequent to year-end, the
physical assets of ENServe were sold.
Higher earnings recorded from the Company's equity interest in several
partnerships, as described above, and positive earnings from DHC
activities in fiscal 1997 have offset the majority of the impact of the
items described above. During fiscal 1997, the DHC business implemented
cost-containment measures and upgraded and/or modified the equipment
which produces steam for heating, reducing the cost of company-produced
steam from 1996 levels. DHC operating earnings also benefited from
lower interest expense because ongoing cash from operations eliminated
the need for short-term borrowings for working capital throughout fiscal
1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1997 (continued)
----------------------------------------------------
DHC earnings in fiscal 1997 are also impacted by changes in weather.
Warmer winter weather and cooler summer weather did result in lower
sales volumes, but variable costs of DHC service also declined and
overall sales were not as low as they could have been because customer
usage patterns did not fluctuate as much as the changes in the weather.
In fiscal 1996, DHC activities incurred higher operations and
maintenance expenses. The impact of these costs was somewhat offset by
higher winter season steam and hot water sales, as a result of the
colder weather, and lower average interest rates on variable rate long-
term debt. Initial operating losses related to energy system operating
and maintenance services offered by ENServe also lowered earnings from
ongoing operations in fiscal 1996.
Steam Supply
Through fiscal 1995 one of the DHC operations' suppliers of steam was a
cogeneration facility owned by an unrelated third party, the Hacogen
partnership ("Hacogen"). The steam supply agreement with Hacogen was
terminated, effective September 30, 1995. According to the terms of the
negotiated settlement, the DHC operations received consideration of
$9,519, representing the payment of all past due amounts owed by Hacogen
and certain additional amounts as a result of the contract termination:
$4,967 was received as of September 30, 1995, and the balance was
received in December 1995. The 1995 pretax, nonrecurring income related
to this settlement was $4,124.
In October 1995, the DHC operations resumed steam production from their
own boilers. In fiscal 1996, the DHC operations were reassessed to
determine future cost control and operational options. In response,
equipment was upgraded and/or modified and other cost-containment
measures were implemented, reducing the cost of company-produced steam.
Year 2000 Compliance
Over the last several years the Company has improved and upgraded its
core financial and operating systems. In addition, the Company is
reviewing its other computer and operating systems to assure that they
will be able to process transactions in the year 2000. The Company is
not aware of the need for any significant future expenditures in order
to comply with Year 2000 software requirements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1997 (continued)
----------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Natural gas sales in New England are seasonal, and the Company's cash
flows vary accordingly because regulated natural gas operations are the
principal segment of the Company's business. The Company manages its
changes in cash requirements, primarily to fund gas purchases and
customer accounts receivable, by using cash flows generated from
operations supplemented by short-term financing from lines of credit.
Cash flows from operations have generally been sufficient to satisfy the
diversified operations' cash requirements. Existing credit lines are
used to balance seasonal variations in available cash resources.
Cash Flows from Operating Activities
The levels of construction expenditures, dividends, 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 through the
PGA. The volumes of gas sold magnify the impact of changing prices.
During fiscal 1997, a combination of the cash on hand at year-end 1996,
short-term borrowings and cash received from ongoing operations paid for
the expenses related to ongoing operations and for construction,
dividends and principal payments that were due on long-term debt. Cash
flows from operations are lower in fiscal 1997, as compared to 1996,
primarily due to lower sales as a result of this year's warmer winter.
In both fiscal 1996 and 1995, the expenses of operations, construction,
dividends and principal payments were paid for from the cash received
from ongoing operations and proceeds from issues of common stock. Cash
flows from operations were higher in 1995 because of a large amount of
natural gas pipeline refunds that were received in 1995 and later
returned to customers in 1995 and 1996. Such refunds result from
pipeline regulatory activity at the federal level and are beyond the
control of the Company. The proceeds from the issues of Common Stock
were used by the regulated operations and reduced the need for short-
term financing.
Investing Activities
Construction expenditures in 1997, 1996 and 1995 were $24,593, $24,281
and $26,839, respectively. Capital spending for the fiscal year ending
September 30, 1998 is estimated to be $22,600 for the regulated
operations. The diversified businesses are projecting to expend $13,200
in fiscal 1998 primarily to fund the expansion of the DHC system to
serve an additional neighborhood of large building complexes in Hartford
CT. CTG's construction program is subject to continuous review and
modification, and actual expenditures may vary from these estimates.
The Company plans to fund capital expenditures and other commitments
through a combination of sources.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1997 (continued)
----------------------------------------------------
In May 1997, the Company invested $100 for a 2.15% interest in the AGA
Gas Finance Company ("GasFinCo"). GasFinCo provides loans through
Fannie Mae to finance energy investments in owner-occupied residences.
In June 1997, the Company and Koch Gas Services Company acquired the
partnership interest of Bay State Energy Enterprises in KBC. As a
result of this transaction the Company's interest in KBC has increased
from one third to one half.
Cash flows from investing activities in fiscal 1996 include the proceeds
from the diversified businesses' sale of a building and land and the
receipt of the balance of the settlement amount due from the termination
of a steam supply contract.
Financing Activities
The Company uses short-term debt to finance working capital
requirements. Capital expenditures are also temporarily funded with
short-term debt. The Company raises short-term funds through the use of
available bank lines of credit and revolving credit agreements (See Note
8 to the Financial Statements). Long-term debt and equity issues are
used to reduce outstanding short-term debt and to permanently finance
completed construction.
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.
In August 1997, the Company repurchased $10,000 of existing 8.8% long-
term mortgage debt, due in 2001, with available working capital.
Common Stock and Dividend Matters
In March 1997, pursuant to the Agreement and Plan of Exchange approved
by shareholders, each outstanding share of common stock, $3.125 par
value of CNG was exchanged for one new share of common stock, without
par value, of CTG. Each outstanding share of CTG common stock held by
CNG prior to this exchange was cancelled. As a result, CTG became the
sole common stock shareholder of CNG, CNG became a subsidiary of CTG and
all of the common stock of CTG was owned by the former common stock
shareholders of CNG. The consolidated assets, liabilities and equity of
the Company did not change as a result of the reorganization.
During fiscal 1997, 29,145 original issue shares of the Company's no par
common stock were issued through various Company-sponsored plans.
In June 1996, the Company sold 700,000 shares of its $3.125 Par Common
Stock at $23.25 per share. The Company received net proceeds of $15,557
which were added to working capital and used by the regulated operations
to fund the current year's construction program and general operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1997 (continued)
----------------------------------------------------
Under the most restrictive terms of the indenture securing the Company's
First Mortgage Bonds, retained earnings of $23,135 are available for CNG
to pay dividends at September 30, 1997. CTG's ability to pay dividends
is not restricted by these terms. Dividends paid on common and
preferred stock in fiscal 1997 were $16,177. The preferred stock on the
balance sheet is issued by CNG. CNG 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.
Environmental Matters
In the ordinary course of business, the Company may incur costs to clean
up environmental contaminants related to natural gas activity. In those
instances the Company expects that the remediation costs will be
recoverable in rates. In the opinion of management, any existing
environmental issues will not be significant to the future financial
condition or results of operations of the Company.
Competitive Environment
In recent years, the natural gas industry has undergone structural
changes in response to Federal regulatory policy intended to increase
competition. In 1992, the Federal Energy Regulatory Commission ("FERC")
issued Order 636, which required all interstate gas pipelines to provide
"unbundled," or separate, gas transportation and storage services and to
discontinue their bundled merchant sales operations, which included the
gas acquisition function. Similarly, the Company has offered firm
transportation rate tariffs to nonresidential customers, effective April
1, 1996. The impact of the FERC Order 636 and the resulting
deregulation of the gas industry has continued to heighten competition
and has changed the nature of the Company's business.
The Company has historically distributed and sold natural gas to
customers within its franchise area without substantial competition
from other providers of natural gas. At the local level, as a result of
FERC Order 636 and Connecticut deregulation, the Company faces
increasing competitive pressures as providers of gas seek to make sales
to the Company's commercial and industrial customers.
The Company also competes with suppliers of oil, electricity and propane
for cooking, heating, air conditioning and other purposes. Competition
is greatest for the Company's large commercial and industrial customers
who have the capability to use alternative fuels. The volatile effect
of this price-sensitive load is somewhat overcome through the use of
flexible rate schedules which allow gas pricing to meet alternative-fuel
competition. The Company's transportation tariffs are designed to
recover a margin on each transaction that is comparable to the margin
that the Company would have received if it were making a system sale of
natural gas.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1997 (continued)
----------------------------------------------------
The diversified businesses 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. Once DHC has been selected, the
competition from alternate energy types is diminished because of the
cost of the equipment necessary to utilize an alternative energy source.
Regulatory Proceedings
Connecticut local gas distribution companies ("LDCs") pass on to firm
customers any increases or decreases in gas costs from those reflected
in tariff charges under PGA provisions. During fiscal 1996, the DPUC
initiated a review of the need to continue or modify PGA accounting for
all Connecticut LDCs. The review was prompted by the offering of
unbundled services by LDCs that began in fiscal 1996. In April 1997,
the DPUC issued a decision affirming the need to continue the PGA.
In October 1995, the DPUC issued a decision which allowed the Company to
increase its rates $8,900 or 3.64%. This decision allowed a rate of
return on equity of 10.76% and provided for recovery of all significant
items that had been deferred pending recovery.
Legal Proceedings
In November 1995, certain Connecticut plumbers and HVAC contractors
filed a class action suit against the Company and the State's two other
LDCs, claiming that the LDCs engaged in unfair trade practices relating
to customer service work. The plumbers and contractors are currently
asserting claims for profits which they allege were lost during prior
years. There has not been any settlement demand or any formal statement
of alleged damages. As a result, management cannot estimate the
Company's potential exposure related to these claims. The Company is
vigorously defending this matter.
On July 28, 1997, the Company filed suit in State court against another
Connecticut LDC seeking to enjoin that company from serving retail
customers in a town in which the Company currently serves customers. A
hearing is scheduled for January 1998, and a decision on the merits of
the Company's claims is expected in a matter of weeks following that
hearing. The outcome of this litigation and its impact cannot be
assessed at this time.
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 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1997 (continued)
----------------------------------------------------
Effects of Regulation
The Company's natural gas distribution business is subject to cost-of-
service regulation by the DPUC. Based on current regulation and recent
DPUC decisions, the Company believes that its use of regulatory
accounting is appropriate and in accordance with the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 71 (See Note 1
to the Financial Statements).
Other Tax Matters
A State tax matter that was being reviewed by the State of New York was
settled during fiscal 1997 with no impact to the Company's financial
condition or results of operations.
CNG and other gas marketers, including KBC, may be subject to State
taxation of off-system sales of natural gas. Management is working with
the states involved in order to clarify each state's position on the
taxation of these sales.
The Company is also subject to audit by State and Federal authorities as
it relates to income, sales, use and property tax returns filed. In the
opinion of management, the ultimate resolution of these issues will not
have a material impact on the Company's results of operations.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings Per Share." This statement specifies the
computation, presentation and disclosure requirements for earnings per
share for entities with publicly held common stock. Adoption of SFAS
No. 128 is required in fiscal 1998. Based on current analyses and
assumptions, the Company does not expect that the adoption of SFAS No.
128 will change its computation or presentation of earnings per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display
of comprehensive income and its components in the financial statements.
Adoption of SFAS No. 130 is required in fiscal 1999. Based on current
analyses and assumptions, the Company does not expect that the adoption
of SFAS No. 130 will have a material impact on its current presentation
of stockholders' equity.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." This statement requires that
public business enterprises report certain information about operating
segments in complete sets of financial statements of the enterprise and
in condensed financial statements of interim periods issued to
shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1997 (continued)
----------------------------------------------------
areas in which they operate, and their major customers. Adoption of
SFAS No. 131 is required in fiscal 1999. The Company currently
discloses certain financial data by segment (See Note 11 to the
Financial Statements) in accordance with existing accounting and
disclosure requirements. At the appropriate time the Company will
modify its current presentation, if necessary, to meet the requirements
of SFAS No. 131. The adoption of SFAS No. 131 will have no impact on
the Company's financial condition or results of operations.
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.
SUBSEQUENT EVENTS
Recapitalization Plan
In October 1997, TEN repurchased 2.0 million shares of CTG common stock
for $52,000. The common stock repurchase was financed by TEN primarily
through the issue of $45,000 of Senior Subordinated Notes at 6.99%, due
in 2009. The principal is retired through semi-annual payments of
$2,500 beginning in 2001.
In a Forward Equity Purchase Agreement dated October 1, 1997, CTG has
committed to fund $7,500 per year into TEN from 1998 through 2009 for an
aggregate additional cash infusion into TEN of $90,000. In exchange,
TEN caused all shares of CTG common stock purchased through the October
1997 tender offer to be transferred directly to CTG by the depositary.
As a provision of this agreement, CTG is restricted from declaring or
paying any dividends or distributions to its holders of common stock if
any amounts due and payable under this agreement are in arrears.
On October 1, 1997, TEN entered into a 364-day secured revolving credit
agreement for $10,000 with a bank. This agreement matures on September
29, 1998. Interest is based on a Bank Rate or a LIBOR rate plus a
variable margin. It is determined at the time of each borrowing. There
is a one-time $5 commitment fee and a one-time .375% facility fee upon
renewal.
On October 1, 1997, TEN entered into a three-year revolving credit
agreement for $10,000 with a bank. The maximum borrowing amount is
reduced by $500 on each fiscal quarter, beginning January 1, 1998.
Interest is based on a Bank Rate or a LIBOR rate plus a variable margin
and is determined at the time of each borrowing. There is a one-time $5
commitment fee and an on-going .45% to .6% facility fee on the unused
portion of the agreement.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1997 (concluded)
----------------------------------------------------
Long-Term Debt
In October 1997, the Company issued a total of $19,000 of Medium Term
Notes ("MTNs") due 2007. These MTNs are unsecured and have no call
provisions or sinking fund requirements. The proceeds were used to
refinance existing short-term debt. The face values and interest rates
of these MTNs are:
Face Value Interest Rate
---------- -------------
$ 1,000 6.62%
$ 1,000 6.65%
$17,000 6.69%
The MTNs are rated at A3 by Moody's and A- by Standard and Poor's.
Sale of Assets
On October 6, 1997, the Company signed an agreement to sell the physical
assets and related contracts of ENServe Corp., a wholly owned
subsidiary of TEN engaged in the HVAC business, for approximately
$1,200. This transaction will be finalized in fiscal 1998. Any gain
or loss is not expected to be significant.
FORWARD LOOKING INFORMATION
This report and other Company reports, including filings with the
Securities and Exchange Commission, press releases and oral statements,
contain forward looking statements. Forward looking statements are
made based upon management's expectations and beliefs concerning future
developments and their potential effect upon the Company. The Company
cautions that, while it believes such statements to be reasonable and
makes them in good faith, they almost always vary from actual results,
and the differences between assumed facts or basis and actual results
can be material, depending upon the circumstances. Investors should be
aware of important factors that could have a material impact on future
results. These factors include, but are not limited to, weather, the
regulatory environment, legislative and judicial developments which
affect the Company or significant groups of its customers, economic
conditions in the Company's service territory, fluctuations in energy-
related commodity prices, customer conservation efforts, financial
market conditions, interest rate fluctuations, customers' preferences,
unforeseen competition, and other uncertainties, all of which are
difficult to predict and beyond the control of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Stockholders and The Board of Directors
of CTG Resources, Inc.:
We have audited the accompanying consolidated balance sheets and
consolidated statements of capitalization of CTG Resources, Inc. (a
Connecticut Corporation) and subsidiaries as of September 30, 1997 and 1996,
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,
1997. These financial statements and the schedule referred to below 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 CTG
Resources, Inc. and subsidiaries as of September 30, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years
in the period ended September 30, 1997, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the schedule
index is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, fairly states 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 6, 1997
Consolidated Balance Sheets
September 30, 1997 and 1996
(Thousands of Dollars)
Assets 1997 1996
---- ----
Plant and Equipment:
Plant in service $ 484,250 $ 464,377
Construction work in progress 7,703 6,417
--------- ---------
491,953 470,794
Less-Allowance for depreciation 160,313 145,042
--------- ---------
331,640 325,752
--------- ---------
Investments, at equity 11,530 9,914
--------- ---------
Current Assets:
Cash and cash equivalents 4,458 8,515
Accounts receivable (less allowance for
doubtful accounts of $3,439 in 1997
and $4,819 in 1996) 25,287 25,033
Accrued utility revenue 4,624 4,180
Inventories 17,584 15,968
Prepaid expenses 8,903 10,920
--------- ---------
Total Current Assets 60,856 64,616
--------- ---------
Other Assets:
Unrecovered future taxes 37,177 44,812
Recoverable transition costs 839 2,858
Other assets 22,245 19,027
--------- ---------
Total Other Assets 60,261 66,697
--------- ---------
$ 464,287 $ 466,979
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Balance Sheets (Concluded)
September 30, 1997 and 1996
(Thousands of Dollars)
1997 1996
---- ----
Capitalization and Liabilities
Capitalization (see accompanying statements):
Common stock equity $ 169,299 $ 168,882
Preferred stock, not subject to
mandatory redemption 884 899
Long-term debt 126,787 136,432
--------- ---------
296,970 306,213
--------- ---------
Current Liabilities:
Current portion of long-term debt 1,487 13,968
Notes payable and commercial paper 27,500 -
Accounts payable and accrued expenses 36,968 40,721
Refundable purchased gas costs 4,714 6,012
Accrued taxes 484 -
Accrued interest 4,047 4,479
--------- ---------
Total Current Liabilities 75,200 65,180
--------- ---------
Deferred Credits:
Deferred income taxes 44,302 40,011
Unfunded deferred income taxes 37,177 44,812
Investment tax credits 2,982 3,203
Refundable taxes 3,491 3,445
Other 4,165 4,115
--------- ---------
Total Deferred Credits 92,117 95,586
--------- ---------
Commitments and Contingencies
--------- ---------
$ 464,287 $ 466,979
========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Income
For the Years Ended September 30, 1997, 1996 and 1995
(Thousands of Dollars Except for Per Share Data)
1997 1996 1995
---- ---- ----
Operating Revenues $ 305,565 $ 315,363 $ 275,185
Less: Cost of energy 169,188 175,175 147,764
State gross revenues tax 11,107 11,710 11,296
--------- --------- ---------
Operating Margin 125,270 128,478 116,125
--------- --------- ---------
Operating Expenses:
Operations 45,838 49,640 45,311
Maintenance 8,682 8,615 7,917
Depreciation and amortization 18,184 17,765 16,977
Income taxes 16,959 14,364 9,430
Local property taxes 5,323 5,277 5,148
Other taxes 2,400 2,313 2,183
--------- --------- ---------
97,386 97,974 86,966
--------- --------- ---------
Operating Income 27,884 30,504 29,159
--------- --------- ---------
Other Income/(Deductions),
net of income taxes:
Allowance for equity funds used
during construction 125 144 106
Equity in partnership earnings 2,910 2,037 1,032
Other income/(deductions) (338) 248 (872)
Nonrecurring items - 892 3,624
Income taxes (665) (1,115) (1,839)
--------- --------- ---------
2,032 2,206 2,051
--------- --------- ---------
Income Before Interest Charges 29,916 32,710 31,210
--------- --------- ---------
Interest and Debt Expense, net:
Interest on long-term debt 11,345 11,825 12,158
Other interest 1,200 1,585 1,650
Allowance for borrowed funds used
during construction (84) (96) (70)
Amortization of debt expense 380 401 453
--------- --------- ---------
12,841 13,715 14,191
--------- --------- ---------
Net Income 17,075 18,995 17,019
Less-Dividends on Preferred Stock 62 63 62
--------- --------- ---------
Net Income Applicable to Common Stock $ 17,013 $ 18,932 $ 16,957
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Income (Concluded)
For the Years Ended September 30, 1997, 1996 and 1995
(Thousands of Dollars Except for Per Share Data)
1997 1996 1995
---- ---- ----
Net Income Applicable to Common Stock $ 17,013 $ 18,932 $ 16,957
========= ========= =========
Average Common Shares Outstanding
During the Period 10,632,001 10,146,932 9,926,980
========== ========== =========
Income Per Average Share of
Common Stock $ 1.60 $ 1.87 $ 1.71
========= ========= =========
Dividend Per Share of Common Stock $ 1.52 $ 1.50 $ 1.48
========= ========= =========
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Cash Flows
For the Years Ended September 30, 1997, 1996 and 1995
(Thousands of Dollars)
1997 1996 1995
---- ---- ----
Cash Flows from Operations: $ 31,315 $ 39,175 $ 53,415
-------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures (24,593) (24,281) (26,839)
Other investing activities 54 (1,338) (395)
-------- -------- --------
Net cash used in investing activities (24,539) (25,619) (27,234)
-------- -------- --------
Cash Flows from Financing Activities:
Dividends paid (16,177) (15,491) (14,761)
Issuance of common stock 622 15,557 8,474
Other stock activity, net (652) (38) (5)
Principal retired on long-term debt (22,126) (3,911) (3,673)
Short-term debt 27,500 (4,200) (14,300)
-------- -------- --------
Net cash provided (used) by
financing activities (10,833) (8,083) (24,265)
-------- -------- --------
Increase (Decrease) in Cash and
Cash Equivalents (4,057) 5,473 1,916
Cash and Cash Equivalents at
Beginning of Year 8,515 3,042 1,126
-------- -------- --------
Cash and Cash Equivalents at
End of Year $ 4,458 $ 8,515 $ 3,042
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Cash Flows (Concluded)
For the Years Ended September 30, 1997, 1996 and 1995
(Thousands of Dollars)
1997 1996 1995
---- ---- ----
Schedule Reconciling Earnings to
Cash Flows from Operations:
Net Income $ 17,075 $ 18,995 $ 17,019
-------- -------- --------
Adjustments to reconcile income
to net cash:
Depreciation and amortization 18,098 17,909 17,216
Provision for uncollectible
accounts 3,855 4,600 4,886
Deferred income taxes, net 4,115 1,886 897
Equity in partnership earnings (2,910) (2,037) (1,032)
Cash distributions received from
investments 1,761 2,061 336
Changes in assets and liabilities:
Accounts receivable (3,873) (1,640) (5,571)
Accrued utility revenue (444) 913 (1,379)
Inventories (1,616) (1,457) 3,815
Purchased gas costs (1,298) 3,712 6,069
Prepaid expenses 2,017 (4,825) 4,012
Accounts payable and accrued expenses (1,682) (5,902) 7,671
Other assets/liabilities (3,783) 4,960 (524)
-------- -------- --------
Total adjustments 14,240 20,180 36,396
-------- -------- --------
Net cash provided by
operations $ 31,315 $ 39,175 $ 53,415
======== ======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Year for:
Interest $ 13,058 $ 12,193 $ 12,446
======== ======== ========
Income taxes $ 8,261 $ 17,633 $ 8,967
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Capitalization
September 30, 1997 and 1996
(Thousands of Dollars)
1997 1996
---- ----
Common Stock Equity:
Common stock, no par, authorized 20,000,000
shares, issued and outstanding 10,652,169
shares in 1997 and 10,620,439 shares in 1996 $120,409 $120,168
Retained earnings 49,924 49,026
-------- --------
170,333 169,194
-------- --------
Less: Unearned compensation - restricted
stock awards (1,034) (312)
-------- --------
169,299 168,882
-------- --------
Preferred Stock, Not Subject to Mandatory
Redemption:
$3.125 par value, 8%, noncallable, authorized
909,898 shares in 1997 and 913,832 shares
in 1996, issued and outstanding 134,426 shares
in 1997 and 138,360 shares in 1996, entitled to
preference on liquidation at $6.25 per share 420 432
$100 par value, callable, authorized 9,999,602
shares in 1997 and 9,999,631 shares in 1996
6% Series B, issued and outstanding 4,638
shares in 1997 and 4,667 shares in 1996 464 467
-------- --------
884 899
-------- --------
Long-Term Debt:
First Mortgage Bonds -
8.8%, due 2001 - 10,000
9.16%, due 2004 18,000 18,000
Industrial Revenue Demand Bonds -
1986 and 1988 series,
weighted average interest rate of
3.66% in 1997 and 3.589% in 1996, due 2006 11,400 12,100
First Mortgage Notes -
10.5%, due 2010 963 999
Secured Notes -
9.32%, due 1999 6 10
6.89%, due 2010 12,905 13,510
Secured Term Note, 10.72%, due 1997 - 781
Unsecured Medium Term Notes -
6.48%, due 1997 - 10,000
7.61% to 7.82%, due 2002 to 2004 20,000 20,000
6.85% to 9.1%, due 2012 to 2016 40,000 40,000
8.96%, due 2017 20,000 20,000
8.49%, due 2024 5,000 5,000
Less - Current Maturities (1,487) (13,968)
-------- --------
126,787 136,432
-------- --------
$296,970 $306,213
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
Consolidated Statements of Common Stock Equity
For the Years Ended September 30, 1997, 1996 and 1995
(Thousands of Dollars Except for Share Data)
Common Stock
-------------------- Unearned Retained
Shares Amount Compensation Earnings
---------- ---------- -------------- ---------
Balance at September 30, 1994 9,539,079 $ 96,374 $ (157) $ 43,264
Public offering 392,200 8,474 - -
Net income after
preferred dividends - - - 16,957
Amortization and
adjustment of
restricted shares - 112 (214) -
Dividends - - - (14,699)
---------- -------- -------- --------
Balance at September 30, 1995 9,931,279 104,960 (371) 45,522
Public offering 700,000 15,557 - -
Net income after
preferred dividends - - - 18,932
Purchase of restricted
stock awards - - (33) -
Amortization and
adjustment of
restricted shares (10,840) (349) 92 -
Dividends - - - (15,428)
---------- -------- -------- --------
Balance at September 30, 1996 10,620,439 120,168 (312) 49,026
Net income after
preferred dividends - - - 17,013
Purchase of restricted
stock awards 16,078 501 (1,131) -
Issues to dividend
reinvestment and
employee benefit plans 29,145 622 - -
Establish holding company - (508) - -
Amortization and
adjustment of
restricted shares (13,493) (374) 409 -
Dividends - - - (16,115)
---------- -------- -------- --------
Balance at September 30, 1997 10,652,169 $120,409 $ (1,034) $ 49,924
========== ======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
NOTES TO FINANCIAL STATEMENTS
(In thousands of dollars, except per share amounts)
September 30, 1997
1. Summary of Significant Accounting Policies:
Organization-
As of 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 The Energy Network, Inc. ("TEN")
and CNG Realty Corp. ("CNGR"). As of April 30, 1997, TEN was transferred
to and became a wholly owned subsidiary of CTG. The operating divisions
and subsidiaries of TEN represent the Company's unregulated diversified
businesses.
Principles of consolidation-
The consolidated financial statements represent CTG, including its wholly
owned subsidiaries: CNG and TEN. All significant intercompany
transactions and accounts have been eliminated in consolidation. Certain
prior year amounts have been reclassified to conform with current year
presentations.
Use of estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Revenues-
Revenues are recorded based on deliveries 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 natural gas service to residential
customers within its defined service territory and is precluded by
Connecticut State law from discontinuing service to hardship residential
customers during a winter moratorium period (November - April).
In compliance with Connecticut law, the Company has an accounts receivable
forgiveness program for qualified hardship natural gas customers. The
total payments made by these customers and the energy assistance funds
received on their behalf are matched by the Company. The DPUC allows the
Company to defer this matched amount and to recover it from ratepayers in a
future period. At September 30, 1997 and 1996, deferred balances of
approximately $4,100 and $2,300, respectively, are included in other assets
pending future amortization and recovery from ratepayers.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
Purchased gas costs-
The Company passes on to its firm customers changes 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
the cost of gas and included in current assets or liabilities. Such
amounts are collected or refunded in subsequent periods under purchased gas
adjustment provisions ("PGA").
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
which exceed a minimum cost threshold and are constructed over an extended
period of time.
AFUDC for the regulated operations is computed based on the weighted
average cost of capital used to determine the rates charged to customers,
as allowed by the DPUC. It is computed at current borrowing rates for the
diversified businesses.
Plant-
Plant is stated at original cost, which includes an apportionment of
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 owned by the diversified businesses are
also subject to the liens associated with their term loans or letters of
credit (See Notes 7 and 8).
During the fourth quarter of fiscal 1996, TEN sold land and a building
situated thereon. This resulted in a nonrecurring net gain of $515 or $.05
per share.
In fiscal 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to be Disposed Of" ("SFAS No. 121"). This
statement requires that long-lived assets be reviewed for impairment
whenever events indicate that the carrying amount of any asset may not be
recoverable. The adoption of SFAS No. 121 did not have a material impact
on the Company's financial condition or results of operations.
Depreciation-
The Company and its subsidiaries, except CNGR, provide depreciation on a
straight-line basis. The composite rates applied by the regulated
operations were 4.1% in 1997 and 1996 and 4.2% in 1995, as approved by the
DPUC. The operating and administrative center, owned by CNGR, is being
depreciated under a DPUC approved sinking fund method through 2010.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
The average depreciation rates for diversified businesses' depreciable
plant were 3.6% in 1997, 3.8% in 1996 and 3.7% in 1995.
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-
The Company has investments of $11,530 at September 30, 1997. These
include $10,132 for a 4.87% investment in the Iroquois Gas Transmission
System Partnership ("Iroquois"), $859 for a 50% investment in the Downtown
Cogeneration Associates Limited Partnership ("DCA"), $439 for a 50%
interest in KBC Energy Services ("KBC") and $100 for a 2.15% interest in
the AGA Gas Finance Company ("GasFinCo"). All of the Company's investments
are accounted for on the equity method of accounting.
Iroquois owns and operates a natural gas pipeline which transports Canadian
natural gas into New York State, Massachusetts and Connecticut. DCA owns
and operates a cogeneration facility in Hartford, Connecticut. KBC markets
natural gas supplies, other energy sources and energy management related
services on an unregulated basis primarily to commercial and industrial end
users, mostly in New England. GasFinCo provides loans through Fannie Mae
to finance energy investments in owner-occupied residences.
During fiscal 1997 and 1996, the Company sold gas to KBC which, in total,
was not material to the financial statements. The Company purchases
natural gas transportation service, by contract, from Iroquois.
Inventories-
Gas inventories are stated at their weighted average cost. Other
inventories are accounted for using the first-in, first-out or average cost
method.
Accounting for the effects of regulation-
The Company's natural gas distribution business is subject to regulation by
the DPUC. The Company prepares its financial statements in accordance with
the provisions of SFAS No. 71, "Accounting for the Effects of Certain Types
of Regulation" ("SFAS No. 71"). SFAS No. 71 requires a cost-based, rate-
regulated enterprise such as the Company to reflect the impact of
regulatory decisions in its financial statements. In certain
circumstances, SFAS No. 71 requires that certain costs and/or obligations
(such as incurred costs not currently recovered through rates, but expected
to be so recovered in the future) be reflected in a deferred account in the
balance sheet and not be reflected in the statement of income until
matching revenues and/or expenses are recognized. The Company records
regulatory assets and liabilities based on prior rate orders issued by the
DPUC, which provide a mechanism for recovery in regulated rates, or on
historical rate treatment, which provides evidence as to the probability of
future rate recovery.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
In the application of SFAS No. 71, the Company follows accounting policies
that reflect the impact of the rate treatment of certain events or
transactions that are permitted to differ from generally accepted
accounting principles. The most significant of these policies include the
recording of an unfunded deferred income tax liability, with a
corresponding unrecovered receivable, for temporary differences between
book and tax depreciation previously flowed through to ratepayers,
regulated assets pending future recovery, regulated assets recovered over
time as directed by the DPUC and the method of depreciation utilized for
certain property. The DPUC permits recovery of depreciation on the
operating and administrative center, owned by CNGR, under a sinking fund
method through 2010. The overall impact of annual depreciation expense
under this method, versus straight line depreciation recovery, is not
material to the overall financial statements.
It is the Company's policy to continually assess the recoverability of
costs recognized as regulatory assets and the Company's ability to continue
to account for its regulated activities in accordance with SFAS No. 71,
based on each regulatory action and the criteria set forth in SFAS No. 71.
Based on current regulation and recent DPUC decisions, the Company believes
that its use of regulatory accounting is appropriate and in accordance with
the provisions of SFAS No. 71.
The Company's consolidated balance sheets at September 30, 1997 and 1996
contain the following amounts as a result of the application of SFAS No.
71:
Assets/(Liabilities) 1997 1996
-------------------- ---- ----
Unrecovered Future Taxes $ 37,177 $ 44,812
Hardship Arrearage Forgiveness 4,138 2,331
Deferred Income Taxes 3,141 2,897
Other Postretirement Benefits 2,973 2,654
Other Deferred Charges 1,154 1,554
Recoverable Transition Costs 839 2,858
Revenue Sharing Mechanisms (2,184) (2,349)
Refundable Taxes (3,491) (3,445)
Deferred Gas Costs (4,694) (6,002)
Pipeline Refunds, Surcharges and Interest (5,265) (4,518)
-------- --------
$ 33,788 $ 40,792
======== ========
New accounting standards-
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share" ("SFAS No. 128"). This statement
specifies the computation, presentation and disclosure requirements for
earnings per share for entities with publicly held common stock. Adoption
of SFAS No. 128 is required in fiscal 1998. Based on current analyses and
assumptions, the Company does not expect that the adoption of SFAS No. 128
will change its computation or presentation of earnings per share.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). This statement establishes standards for
reporting and display of comprehensive income and its components in the
financial statements. Adoption of SFAS No. 130 is required in fiscal 1999.
Based on current analyses and assumptions, the Company does not expect that
the adoption of SFAS No. 130 will have a material impact on its disclosure
of stockholders' equity.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS No. 131"). This statement
requires that public business enterprises report certain information about
operating segments in complete sets of financial statements of the
enterprise and in condensed financial statements of interim periods issued
to shareholders. It also requires that public business enterprises report
certain information about their products and services, the geographic areas
in which they operate, and their major customers. Adoption of SFAS No. 131
is required in fiscal 1999. The Company currently discloses certain
financial data by segment (See Note 11) in accordance with existing
accounting and disclosure requirements. At the appropriate time the
Company will modify its current presentation, if necessary, to meet the
requirements of SFAS No. 131. The adoption of SFAS No. 131 will have no
impact on the Company's financial condition or results of operations.
2. Regulatory Matters:
During fiscal 1996, the DPUC initiated a review of the need to continue PGA
accounting for gas costs for all Connecticut natural gas distribution
companies. The review was prompted by the deregulation at the Connecticut
local gas distribution companies ("LDCs") level and the offering of
unbundled services that began in fiscal 1996. It was conducted to
determine whether PGA accounting should be discontinued or modified. In
April 1997, the DPUC issued a decision affirming the need to continue the
PGA.
In October 1995, the DPUC issued a decision which allowed the Company to
increase its rates for natural gas by $8,900 or 3.64% on an annual basis.
This decision allowed a rate of return on equity of 10.76% and provided for
recovery of all significant items deferred on the balance sheet pending
recovery at September 30, 1994. Rates were effective for service rendered
on or after October 13, 1995. As part of this decision, the DPUC also
approved the Company's Firm Transportation rates for commercial and
industrial natural gas customers, effective April 1, 1996 (See Management's
Discussion and Analysis, "Competitive Environment").
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 minimum funding requirements
of the Employee Retirement Income Security Act.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
The assumptions used in determining the pension obligations were:
1997 1996 1995
---- ---- ----
Weighted Average Discount Rate 7.50% 8.25% 8.25%
Rate of Increase in Future Compensation Levels 4.00% 4.40% 4.50%
Expected Long-term Rate of Return on Assets 9.00% 8.75% 8.95%
The following table represents the Plans' funded status and amounts
included in the balance sheets at September 30, 1997 and 1996:
1997 1996
---- ----
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $76,545 in 1997 and of $65,411 in
1996 $ 78,882 $ 67,900
======== ========
Projected benefit obligation for service rendered
to date $ 93,472 $ 79,645
Assets at fair value, primarily publicly traded stocks
and bonds 113,331 97,697
-------- --------
Value of assets over the projected benefit obligation
19,859 18,052
Unrecognized net gain from past experience different
from that assumed (18,294) (18,421)
Prior service cost not yet recognized in net periodic
pension cost 874 981
Unrecognized net asset at January 1, 1986 being
recognized over 15 years (1,087) (1,398)
-------- --------
Accrued/(prepaid) pension liability $ 1,352 $ (786)
======== ========
Net pension costs included in the statements of income for the years ending
September 30, include the following components:
1997 1996 1995
---- ---- ----
Service cost $ 2,113 $ 2,095 $ 2,059
Interest cost 6,373 6,183 6,056
Return on plan assets (18,616) (11,503) (12,474)
Net amortization and deferral 10,139 3,653 4,919
-------- -------- --------
Net cost $ 9 $ 428 $ 560
======== ======== ========
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
The Company also provides its officers with a supplemental retirement plan.
The actuarially determined accumulated benefit obligation was approximately
$4,454 at September 30, 1997 and $3,685 at September 30, 1996. The cost of
this plan is being accrued over the service lives of the individual
officers. Net expense related to this plan was $548 for 1997, $540 for
1996 and $607 for 1995. The Company contributes to a trust to fund the
liability for these supplemental retirement plan benefits. The trust
balance included in other assets at September 30, 1997 and 1996, was $4,953
and $3,708, respectively.
In September 1996, the Company announced an early retirement program for
union employees which resulted in the reduction of approximately 1.5% of
the total workforce through voluntary early retirement. The approximately
$400 cost of this program included pension enhancements and other benefits
and was fully accrued by the Company in the fourth quarter of fiscal 1996.
The Company may provide certain health care, life insurance or income
benefits to former or inactive employees after employment but before
retirement. The Company accounts for these costs on the accrual basis
under SFAS No. 112, "Employers' Accounting for Postemployment Benefits".
4. Postretirement Benefits Other Than Pensions:
The Company provides certain health care and life insurance benefits to
retirees through a benefit plan. These benefits are available for
employees leaving the Company who are otherwise eligible to retire and have
met specific service requirements. The Company accounts for these costs
under SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS No. 106") on a prospective basis. SFAS No. 106
requires the expected cost of postretirement benefits, primarily health
care and life insurance benefits, to be charged to expense during the years
that eligible employees render service.
In fiscal 1994, the Company adopted SFAS No. 106 and began amortizing its
postretirement accumulated benefit obligation over a twenty-year period.
Total health care and life insurance costs under SFAS No. 106 were $3,074
in 1997, $3,293 in 1996 and $3,274 in 1995. Actual costs charged to
expense were $2,755 in 1997 and 1996 and $2,143 in 1995. The DPUC has
approved a five-year phase-in of SFAS No. 106 expenses with an allowed
annual recovery of $2,755 and deferral of additional SFAS No. 106 expenses
for future recovery. At September 30, 1997 and 1996, $2,973 and $2,654,
respectively, were deferred pending future amortization and recovery.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
The following table represents the plan's funded status reconciled to the
consolidated balance sheets at September 30, 1997 and 1996:
1997 1996
---- ----
Accumulated postretirement benefit obligation of:
Retirees $ 19,120 $ 18,577
Active employees fully eligible
to retire 3,015 2,074
Active employees not eligible to retire 6,325 5,977
-------- --------
Total accumulated postretirement benefit obligation
28,460 26,628
Less: Market value of plan assets 8,504 5,695
-------- --------
Accumulated postretirement benefit obligation in
excess of plan assets 19,956 20,933
Unrecognized transition amount (15,693) (16,616)
Unrecognized net loss (1,746) (1,912)
-------- --------
Accrued postretirement benefit
obligation $ 2,517 $ 2,405
======== ========
The components of SFAS No. 106 health care and life insurance costs for the
fiscal years ended September 30, 1997, 1996 and 1995 were:
1997 1996 1995
---- ---- ----
Service cost $ 425 $ 435 $ 398
Interest cost 2,131 2,164 2,054
Return on plan assets (1,436) (578) (290)
Net amortization 1,954 1,272 1,112
-------- -------- --------
Net health care and life insurance costs $ 3,074 $ 3,293 $ 3,274
======== ======== ========
For measurement purposes annual rates of increase of 11% and 9% are assumed
for nonmedicare and medicare eligible retirees, respectively, in the per
capita cost of covered health care benefits. The rate is 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, 1997 and 1996 by $1,402 and $1,530, respectively, and the
aggregate of the service and interest cost for the years ended September
30, 1997, 1996 and 1995 by $134, $133 and $134, respectively. The weighted
average discount rate used in determining the accumulated post retirement
benefit obligation was 7.50% in 1997 and 8.25% in 1996 and 1995 and was
determined by analyzing the interest rates, as of September 30, of each
year, of long-term, high quality corporate debt securities having a
duration comparable to the plan. The expected long-term rate of return on
plan assets was 7.50% in 1997 and 1996.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
The Company has established two Employee Benefit Trusts ("VEBA") to pay
current retiree health care and life insurance benefits and to fund the
Company's retirement benefit liability. In fiscal 1997, 1996 and 1995 the
Company funded $2,459, $2,896 and $5,105, respectively, for SFAS No. 106
costs. The VEBA balances are primarily invested in life insurance policies
and commingled fixed income and equity mutual funds.
5. Taxes:
Income Taxes-
The following is an analysis of the provision for federal and state income
taxes:
September 30,
------------------------
1997 1996 1995
---- ---- ----
Charged to operations:
Federal:
Current $10,330 $ 9,842 $ 6,717
Deferred 3,069 1,082 778
------- ------- -------
13,399 10,924 7,495
------- ------- -------
State:
Current 2,816 3,118 1,751
Deferred 965 543 405
------- ------- -------
3,781 3,661 2,156
------- ------- -------
Deferred investment tax credits (221) (221) (221)
------- ------- -------
Total charged to operations 16,959 14,364 9,430
------- ------- -------
Charged to other income/(deductions):
Federal:
Current 531 552 1,478
Deferred (34) 232 (87)
------- ------- -------
497 784 1,391
------- ------- -------
State:
Current 179 245 480
Deferred (11) 86 (32)
------- ------- -------
168 331 448
------- ------- -------
Total charged to other income/(deductions)
665 1,115 1,839
------- ------- -------
Total $17,624 $15,479 $11,269
======= ======= =======
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
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 previously provided for will be collected in customer rates when
such taxes become payable.
Deferred income taxes result from temporary differences between the
financial statement carrying amounts and the tax basis of existing assets
and liabilities. 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 diversified
businesses provide deferred taxes on all temporary differences, including
depreciation.
The tax effects of the temporary differences which resulted in the deferred
income taxes on the balance sheets at September 30, 1997 and 1996 were:
1997 1996
---- ----
Property, Plant and Equipment $ 47,067 $ 43,562
Other, net (2,765) (3,551)
-------- --------
Deferred Income Taxes $ 44,302 $ 40,011
======== ========
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). Under the caption
"Refundable Taxes" the balance sheet reflects 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, 1997 and 1996, the Company had $37,177 and $44,812,
respectively, on the balance sheets 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.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
A reconciliation of the consolidated federal income tax expense, at the
statutory tax rate of 35%, to the reported consolidated federal income tax
expense is as follows:
1997 1996 1995
---- ---- ----
Consolidated statutory federal income tax expense $10,762 $10,669 $ 8,989
Change in consolidated federal income tax expense
resulting from:
Excess book over tax depreciation 2,253 1,724 1,456
Investment tax credits (221) (221) (221)
Bad debts 175 175 175
Tax reserves 714 (500) 200
Computer software 175 175 (499)
Cost of removal (324) (507) (1,951)
Nondeductible reserves - (200) 397
Other 141 172 119
------- ------- -------
Consolidated reported federal income tax expense $13,675 $11,487 $ 8,665
======= ======= =======
Outstanding tax issues-
CNG and other gas marketers, including KBC, may be subject to state
taxation of off-system sales of gas. Management is working to clarify each
state's position on the taxation of these sales.
The Company is subject to audit by state and federal tax authorities as it
relates to income, sales, use and property tax returns filed. In the
opinion of management, the ultimate resolution of these issues will not
have a material impact on the Company's results of operations.
6. Capital Stock:
Common stock-
In March 1997, pursuant to the Agreement and Plan of Exchange approved by
shareholders, each outstanding share of common stock, $3.125 par value of
CNG was exchanged for one new share of common stock, without par value, of
CTG. Each outstanding share of CTG common stock held by CNG prior to this
exchange was cancelled. As a result, CTG became the sole common stock
shareholder of CNG, CNG became a subsidiary of CTG and all of the common
stock of CTG was owned by the former common stock shareholders of CNG.
In June 1996, the Company issued 700,000 shares of its $3.125 Par Common
Stock at $23.25 per share. The Company received net proceeds of $15,557
which were added to working capital and used by the regulated operations to
fund the current year's construction program and general operations.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
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. The Company's common stock is one
of the investment options offered to employees under the ESP. At September
30, 1997, there were 560,476 shares of the Company's common stock reserved
for issuance under the DRIP and ESP. In the fiscal years ended September
30, 1997, 1996 and 1995, the Company's contribution to the ESP on behalf of
employees was $960, $965 and $958, respectively.
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, October 1, 1993 and October 1, 1996, key
employees were granted 22,146, 24,040 and 41,800, respectively, of
restricted shares of the Company's common stock under this plan.
Restrictions lapse and the shares vest over a one to five year period
beginning October 1, 1990, 1993 and 1996, respectively, as certain
performance goals are achieved. In October 1995, 5,770 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.
In fiscal 1995, the Company adopted the provisions of FASB Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." The impact of the adoption of this standard was not
significant to the results of operations or financial condition of the
Company.
Preferred stock-
The preferred stock on the balance sheet was issued by CNG. CNG 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, 1997, 1996 and
1995:
1997 1996 1995
---- ---- ----
$3.125 par value (3,934) (1,372) (1,748)
======= ======= =======
$100 par value (29) (3) (1)
======= ======= =======
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
7. Long-term Debt:
The Company has various issues of first mortgage bonds and first mortgage
notes outstanding with maturities from 2004 to 2010. Under the most
restrictive terms of the indenture securing the bonds, retained earnings of
$23,135 are available for CNG to pay dividends at September 30, 1997.
Dividends paid on common and preferred stock in fiscal 1997 were $16,177.
Sinking fund requirements for outstanding bonds were paid in cash.
Long-term debt amounts which are due during each of the five years ending
September 30, 1998 through 2002, are as follows:
Sinking Fund Requirements and Maturities
----------------------------------------
Year Total
---- -------
1998 $ 1,487
1999 4,136
2000 4,183
2001 4,343
2002 14,504
-------
$28,653
=======
8. Short-term Borrowings and Lines of Credit:
The Company maintains a line of credit under a revolving credit agreement
with a bank. Under this agreement the Company can borrow up to $20,000 at
a Eurodollar, Certificate of Deposit or Base Rate of interest plus a
variable margin through March of 1998. There is a .1% facility fee and a
.075% commitment fee on the unused portion of the agreement. At September
30, 1997 there were $20,000 outstanding under this agreement.
The Company also maintains a one-year line of credit with a bank for $9,000
through February 1998. The Company pays a 1/5 of 1% commitment fee on this
line of credit. The interest rate varies according to market conditions.
At September 30, 1997 there were $7,500 outstanding under this line of
credit.
TEN has a $5,000 unsecured revolving credit facility that expires on
December 15, 1997. There is a 1/5 of 1% annual facility fee. The interest
rate is based upon the Certificate of Deposit, Eurodollar or Cost of Funds
rate plus a variable margin and is determined at the time of each
borrowing. At September 30, 1997 there were no borrowings outstanding
under this arrangement.
The weighted average interest rate on short-term borrowings outstanding was
6.26% at September 30, 1997. No short-term borrowings were outstanding at
September 30, 1996.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
9. Fair Value of Financial Instruments:
The fair value amounts disclosed below have been reported to meet the
disclosure requirements of SFAS 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 and commercial paper; accounts payable and accrued expenses;
and unrecovered or refundable purchased gas costs approximates fair value.
At September 30, 1997 and 1996, the fair value of the Company's long-term
debt, including current maturities, is estimated to be $139,810 and
$155,108, respectively. The fair value at year-end 1997 and 1996, of
$116,875 and $138,299 of fixed-rate long-term debt, based on the market
value of similar instruments, is estimated at $128,410 in 1997 and $143,008
in 1996. The carrying amount of the variable-rate long-term debt of
$11,400 in 1997 and $12,100 in 1996 approximates fair value.
The Company has committed to support 4.87% of a letter of credit for
Iroquois, equivalent to approximately $1,568 at September 30, 1997, which
approximates fair value. The letter of credit is used to satisfy Iroquois'
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, 1998 are
estimated at $22,600 for the regulated operations and $13,200 for the
diversified businesses.
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. Through September 30, 1997, the Company has paid
and recovered from ratepayers $15,000 of an estimated $15,800 of transition
costs.
In the opinion of management the DPUC has allowed the Company a sufficient
number of recovery mechanisms to provide for the full recovery of all
transition costs. For this reason, management believes 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 $800
at September 30, 1997 is included in Accounts Payable and Accrued Expenses.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
Steam supply-
Along with generating steam from their own internal boilers, the district
heating and cooling ("DHC") operations are party to long-term contracts for
the purchase of steam.
Through fiscal 1995, one of the DHC operations' suppliers of steam was a
cogeneration facility owned by an unrelated third party, the Hacogen
partnership ("Hacogen"). This agreement was terminated, effective
September 30, 1995. According to the terms of the negotiated settlement,
the DHC received consideration of $9,519, representing the payment of all
past due amounts owed by Hacogen and certain additional amounts as a result
of the contract termination. The fiscal 1995 pretax, nonrecurring income
related to this settlement was $4,124.
Letters of credit-
The Company has outstanding letters of credit amounting to $1,500 for
workers' compensation claims and $2,000 for a purchasing credit line. As a
condition of its ownership in the DCA, TEN is contingently liable under a
letter of credit amounting to $6,000. As a condition to its variable rate
long-term debt, TEN holds a long-term letter of credit amounting to the
principal outstanding: $11,400 at September 30, 1997 and $12,100 at
September 30, 1996.
Environmental matters-
In the ordinary course of business, the Company may incur costs to clean up
environmental contaminants related to natural gas activity. In those
instances the Company expects that the remediation costs will be
recoverable in rates. In the opinion of management, any existing
environmental matters will not be significant to the future financial
condition or results of operations of the Company.
Leases-
The Company has entered into operating lease agreements for the use of
computer and office equipment. For fiscal 1997, 1996 and 1995, these lease
payments were $1,378, $1,092 and $1,561, respectively. Future lease
payments are not expected to change significantly from those shown above.
Legal proceedings-
In November 1995, certain Connecticut plumbers and HVAC contractors filed a
class action suit against the Company and the State's two other LDCs,
claiming that the LDCs unfairly competed with licensed plumbers and
contractors by performing customer service work using customer service
employees who did not possess State trade licenses. Previously, the LDCs
have claimed that the work was performed under a statutory exemption
enacted in 1965 and amended in 1967. The Connecticut courts have upheld an
administrative ruling against the LDCs' position.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
The plumbers and contractors are currently asserting claims for profits
which they allege were lost during prior years. There has not been any
settlement demand or any formal statement of alleged damages. As a result,
management cannot estimate the potential exposure related to these claims.
The Company is vigorously defending this matter.
On July 28, 1997, the Company filed suit in state court against another
Connecticut LDC seeking to enjoin that company from serving retail
customers in a town in which the Company currently serves customers. A
hearing is scheduled for January 1998, and a decision on the merits of the
Company's claims is expected in a matter of weeks following that hearing.
The outcome of this litigation and its impact cannot be assessed at this
time.
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.
11. Segment Information:
The Company operates in two segments: regulated gas related activities and
unregulated diversified businesses. Gas related activities consist
primarily of natural gas distribution to residential, commercial and
industrial customers. Diversified businesses 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:
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
1997 1996 1995
-------- -------- --------
Revenues:
Gas related activities $287,401 $297,016 $255,680
Diversified businesses 22,906 23,628 22,306
Intersegment revenues (4,742) (5,281) (2,801)
-------- -------- --------
Total $305,565 $315,363 $275,185
======== ======== ========
Pre-Tax Operating Income:
Gas related activities $ 42,839 $ 41,130 $ 33,309
Diversified businesses 2,004 3,739 5,280
-------- -------- --------
Total 44,843 44,869 38,589
Income taxes 16,959 14,365 9,430
-------- -------- --------
Consolidated Operating Income $ 27,884 $ 30,504 $ 29,159
======== ======== ========
Depreciation and Amortization:
Gas related activities $ 16,019 $ 15,399 $ 14,655
Diversified businesses 2,165 2,366 2,322
-------- -------- --------
Total $ 18,184 $ 17,765 $ 16,977
======== ======== ========
Property Additions:
Gas related activities $ 23,726 $ 23,894 $ 25,311
Diversified businesses 867 387 1,528
-------- -------- --------
Total $ 24,593 $ 24,281 $ 26,839
======== ======== ========
Identifiable Assets:
Gas related activities $402,203 $404,210 $400,064
Diversified businesses 62,084 62,769 64,975
-------- -------- --------
Consolidated Identifiable Assets $464,287 $466,979 $465,039
======== ======== ========
12. Subsequent Events:
Recapitalization plan-
In October 1997, TEN repurchased 2.0 million shares of CTG common stock for
$52,000. The purchase was the result of a "dutch auction" tender offer
that was completed on October 30, 1997. TEN financed the purchase with a
combination of revolving bank debt and the issue of $45,000 of Senior
Subordinated Notes at 6.99%, due 2009. The Senior Subordinated Notes will
be repaid in semi-annual principal payments of $2,500 beginning in 2001.
The shares repurchased by TEN were transferred directly to CTG by the
depositary. In connection with the repurchase, the Company reduced its
quarterly dividend on common stock from $0.38 ($1.52 annually) to $0.25
($1.00 annually) per share, effective with the first quarter of fiscal
1998.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
The following summary of pro forma financial information gives effect to
the repurchase of the shares as if the transaction had occurred at the
beginning of each year presented, in the case of income statement data, or
at year-end in the case of balance sheet data. This summary pro forma
financial information is for comparison purposes only and does not purport
to be indicative of the results that would actually have been obtained had
the repurchase of the shares been completed at the dates indicated.
Year Ended Year Ended Year Ended
September 30, 1997 September 30, 1996 September 30, 1995
------------------ ------------------ ------------------
Pro Forma Pro Forma Pro Forma
$26.00 per $26.00 per $26.00 per
Share Share Share
As Purchase As Purchase As Purchase
Reported Price Reported Price Reported Price
-------- --------- -------- --------- -------- ---------
Income Statement Data:
---------------------
Net Income Applicable to
Common Stock $ 17,013 $ 14,855 $ 18,932 $ 16,780 $ 16,957 $ 14,818
======== ======== ======== ======== ======== ========
Income Per Average Share of
Common Stock (1)
$ 1.60 $ 1.72 $ 1.87 $ 2.06 $ 1.71 $ 1.87
====== ====== ====== ====== ====== ======
Average Common Shares
Outstanding During the
Period (2) 10,632 8,632 10,147 8,147 9,927 7,927
====== ====== ====== ====== ===== =====
Dividends per Share of
Common Stock (3) $ 1.52 $ 1.00 $ 1.50 $ 1.00 $ 1.48 $ 1.00
====== ====== ====== ====== ====== ======
Balance Sheet Data:
------------------
Total Assets $464,287 $464,287 $466,979 $466,979 $465,039 $465,039
======== ======== ======== ======== ======== ========
Long-term Debt (Less
Current Maturities) (4) $126,787 $177,254 $136,432 $186,899 $150,390 $200,857
======== ======== ======== ======== ======== ========
Total Common Equity $169,299 $116,599 $168,882 $116,182 $150,111 $ 97,411
======== ======== ======== ======== ======== ========
----------------------------------------------------------------------------
<FN>
(1) Represents earnings per share based on pro forma net income divided
by the pro forma shares outstanding. Lower pro forma earnings
reflect additional after tax interest due to the higher debt
outstanding.
(2) Represents shares outstanding less the 2,000 shares purchased pursuant
to the tender offer.
(3) Pro Forma represents dividends at $0.25 per share per quarter.
(4) Represents long-term debt outstanding plus $45,000 of pro forma debt
from the Senior Subordinated Notes at 6.99% and $8,200 of pro forma
debt at a rate of 6.37% under the revolving credit facilities.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1997
In a Forward Equity Purchase Agreement dated October 1, 1997, CTG has
committed to fund $7,500 per year into TEN from 1998 through 2009 for an
aggregate additional cash infusion in TEN of $90,000. In exchange, TEN
caused all shares of CTG common stock purchased through the October 1997
tender offer to be transferred directly to CTG by the depositary. As a
provision of this agreement CTG is restricted from declaring or paying any
dividends or distributions to its holders of common stock if any amounts
due and payable under this agreement are in arrears.
Long-term debt-
In October 1997, the Company issued a total of $19,000 of Medium Term Notes
("MTNs") due 2007. These MTNs are unsecured and have no call provisions or
sinking fund requirements. The proceeds were used to refinance existing
short-term debt. The face values and interest rates of these MTNs are:
Face Value Interest Rate
---------- -------------
$ 1,000 6.62%
$ 1,000 6.65%
$17,000 6.69%
Sale of assets-
In October 1997, the Company entered into an agreement to sell the physical
assets and contracts of ENServe Corp., a wholly owned subsidiary of TEN
engaged in the HVAC business, for approximately $1,200. The transaction
will be completed in fiscal 1998.
13. Quarterly Results (Unaudited):
The following table sets forth information with respect to the consolidated
quarterly results of operations for the fiscal years 1997 and 1996. The
amounts are unaudited but, in the opinion of management, 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.
NOTES TO FINANCIAL STATEMENTS (Concluded)
(In thousands of dollars, except per share amounts)
September 30, 1997
Consolidated Results of Operations
----------------------------------
--------------------------------------------------------------------------------------------
December 31, March 31, June 30, September 30,
Quarter Ended 1996 1997 1997 1997
--------------------------------------------------------------------------------------------
Operating Revenues $ 89,269 $124,681 $ 53,234 $ 38,381
Operating Income (Loss) $ 9,421 $ 16,050 $ 3,342 $ (929)
Net Income (Loss) $ 6,716 $ 12,689 $ 658 $ (2,988)
Net Income (Loss) Per Common
Share* $ .63 $ 1.19 $ .06 $ (.28)
--------------------------------------------------------------------------------------------
December 31, March 31, June 30, September 30,
Quarter Ended 1995 1996 1996 1996
--------------------------------------------------------------------------------------------
Operating Revenues $ 90,462 $130,606 $ 53,954 $ 40,341
Operating Income (Loss) $ 11,367 $ 17,233 $ 2,407 $ (503)
Net Income (Loss) $ 8,174 $ 13,888 $ (562) $ (2,505)
Net Income (Loss) Per Common
Share* $ .82 $ 1.40 $ (.06) $ (.24)
* The sum of quarterly earnings per share does not equal annual earnings
per share as reported on the statements of income because of quarterly
changes in weighted average shares outstanding.
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 proxy statement for its January 1998
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", "Change of Control",
"Long Term Incentive Plan", "Retirement Plans" and "Corporate
Performance Graph" in the Company's proxy statement for its January 1998
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 proxy statement
for its January 1998 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
-------------------------------------------------------
The information required by this item is contained in the section
entitled "Certain Relationships and Related Transactions" in the
Company's proxy statement for its January 1998 Annual Meeting, which the
Company files with the Securities and Exchange Commission pursuant to
Regulation 14A. This information is hereby incorporated by reference.
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 6, 1997,
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.
II Valuation and Qualifying Accounts and Reserves for the fiscal
years ended September 30, 1997, 1996 and 1995
Schedules I, III, IV, and V are not submitted because they are not
applicable or the information required to be included therein is
contained in the financial statements and footnotes.
3. Exhibits
--------
Exhibit
Number
------------
3 Articles of Incorporation and By-Laws
(1) Amended and Restated Certificate of Incorporation of the
Company, filed as Exhibit 3.2 to the Company's Registration
Statement on Form S-4, Amendment No. 1, filed with the
Commission on December 27, 1996 (Commission File No. 333-
16297)
(2) Amended and Restated By-Laws of the Company, filed as Exhibit
No. 3.4 to the Company's Registration Statement on Form S-4,
Amendment No. 1, filed with the Commission on December 27,
1996 (Commission File No. 333-16297)
4 Instruments Defining Rights of Security Holders, Including Indentures
(1) 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
Connecticut Natural Gas Corporation's Registration Statement
on Form S-7 filed with the Commission on December 8, 1970
(Commission File No. 2-38993)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
(2) In addition to the Indenture of Mortgage and Deed of Trust
referred to in 4(1) 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 Connecticut Natural Gas Corporation'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 Connecticut Natural Gas Corporation'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 Connecticut Natural Gas Corporation'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 Connecticut Natural Gas Corporation'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 Connecticut Natural Gas Corporation'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 Connecticut Natural Gas Corporation'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 Connecticut Natural Gas Corporation'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 Connecticut Natural Gas Corporation'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
(1) Canadian gas transportation contract (rate schedule CGT-NE)
between the Connecticut Natural Gas Corporation and
Tennessee, dated December 1, 1987, filed as Exhibit No.
10(xxiii) to the Connecticut Natural Gas Corporation'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)
(2) Gas purchase contract between the Connecticut Natural Gas
Corporation and TransCanada Pipelines Limited, dated
September 14, 1987, filed as Exhibit No. 10(xxiv) to the
Connecticut Natural Gas Corporation'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)
(3) Gas sales agreement between the Connecticut Natural Gas
Corporation and Boundary Gas, Inc., dated September 14, 1987,
filed as Exhibit No. 10(xxv) to the Connecticut Natural Gas
Corporation'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)
(4) 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 Connecticut Natural Gas
Corporation'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)
(5) 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 Connecticut
Natural Gas Corporation'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)
(6) 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(5) herein), filed as
Exhibit No. 10(xxix) to the Connecticut Natural Gas
Corporation'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)
(7) Precedent Agreement to First Amendment, dated September 14,
1988, to the Gas Sales Agreement between the Connecticut
Natural Gas Corporation and Boundary Gas, Inc., dated
September 14, 1987, filed as Exhibit No. 10(xxxi) to the
Connecticut Natural Gas Corporation'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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (8) First Amendment, dated January 1, 1990, to the Gas Sales
Agreement between the Connecticut Natural Gas Corporation and
Boundary Gas, Inc., dated September 14, 1987, filed as
Exhibit 10(xxxii) to the Connecticut Natural Gas
Corporation'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)
(9) 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
Connecticut Natural Gas Corporation'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)
(10) 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 Connecticut Natural Gas
Corporation'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)
(11) Connecticut Natural Gas Corporation Executive Restricted
Stock Plan, filed as Exhibit A to the Connecticut Natural Gas
Corporation's definitive proxy statement dated March 26,
1991, filed with the Commission on March 26, 1991 (Commission
File No. 1-7727)
(12) Gas Transportation Contract for Firm Reserved Service, dated
February 7, 1991, between the Connecticut Natural Gas
Corporation and the Iroquois Gas Transmission System, L.P.,
filed as Exhibit No. 10(xxxvii) to the Connecticut Natural
Gas Corporation'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)
(13) Gas Sales Agreement No. 1, dated February 7, 1991, between
the Connecticut Natural Gas Corporation and Alberta Northeast
Gas Limited, filed as Exhibit No. 10(xxxviii) to the
Connecticut Natural Gas Corporation'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)
(14) Gas Sales Agreement No. 2, dated February 7, 1991, between
the Connecticut Natural Gas Corporation and Alberta Northeast
Gas Limited, filed as Exhibit No. 10(xxxix) to the
Connecticut Natural Gas Corporation'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 (15) Gas Sales Agreement (ProGas), dated February 7, 1991, between
the Connecticut Natural Gas Corporation and Alberta Northeast
Gas Limited, filed as Exhibit No. 10(xl) to the Connecticut
Natural Gas Corporation'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)
(16) Gas Sales Agreement (ATCOR), dated February 7, 1991, between
the Connecticut Natural Gas Corporation and Alberta Northeast
Limited, filed as Exhibit No. 10(xli) to the Connecticut
Natural Gas Corporation'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)
(17) Gas Sales Agreement (AEC), dated February 7, 1991, between
the Connecticut Natural Gas Corporation and Alberta Northeast
Gas Limited, filed as Exhibit No. 10(xlii) to the Connecticut
Natural Gas Corporation'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)
(18) Gas Transportation Contract for Firm Reserved Service, dated
October 20, 1992, between the Connecticut Natural Gas
Corporation and the Iroquois Gas Transmission System, L.P.,
filed as Exhibit No. 10(xlvii) to the Connecticut Natural Gas
Corporation'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)
(19) Revolving Credit Agreement, dated March 30, 1993, between the
Connecticut Natural Gas Corporation and The First National
Bank of Boston, filed as Exhibit No. 10(xlviii) to the
Connecticut Natural Gas Corporation'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)
(20) 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 Connecticut Natural Gas
Corporation'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)
(21) 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 Connecticut Natural Gas Corporation'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)
(22) 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 Connecticut Natural Gas
Corporation'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 (23) Service Agreement #89102 (Rate Schedule AFT-1), dated June 1,
1993, between the Connecticut Natural Gas Corporation and
Algonquin Gas Transmission Company, filed as Exhibit No.
10(xxxviii) to the Connecticut Natural Gas Corporation'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)
(24) Service Agreement #93205 (Rate Schedule AFT-1), dated June 1,
1993, between the Connecticut Natural Gas Corporation and
Algonquin Gas Transmission Company, filed as Exhibit No.
10(xl) to the Connecticut Natural Gas Corporation'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)
(25) Service Agreement #.6426, dated June 1, 1993, between the
Connecticut Natural Gas Corporation and Transcontinental Gas
Pipe Line Corporation, filed as Exhibit No. 10(xlv) to the
Connecticut Natural Gas Corporation'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)
(26) Service Agreement #800294 (Rate Schedule FT-1), dated June 1,
1993, between the Connecticut Natural Gas Corporation and
Texas Eastern Transmission Corporation, filed as Exhibit No.
10(xlviii) to the Connecticut Natural Gas Corporation'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)
(27) Service Agreement #800295 (Rate Schedule FT-1), dated June 1,
1993, between the Connecticut Natural Gas Corporation and
Texas Eastern Transmission Corporation, filed as Exhibit No.
10(xlix) to the Connecticut Natural Gas Corporation'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)
(28) Service Agreement (Rate Schedule FTNN), dated October 1,
1993, between the Connecticut Natural Gas Corporation and CNG
Transmission Corporation, filed as Exhibit No. 10(liii) to
the Connecticut Natural Gas Corporation'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)
(29) Service Agreement (Rate Schedule GSS), dated November 1,
1993, between the Connecticut Natural Gas Corporation and CNG
Transmission Corporation, filed as Exhibit No. 10(liv) to the
Connecticut Natural Gas Corporation'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 (30) Amended and Restated CNG Officers' Retirement Plan, dated
June 28, 1994, filed as Exhibit No. 10(liii) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended September 30, 1994, filed with
the Commission December 27, 1994 (Commission File No. 1-7727)
(31) The Connecticut Natural Gas Corporation Officers' Retirement
Plan Trust Agreement, dated January 9, 1989, filed as Exhibit
No. 10(liv) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1994, filed with the Commission December 27,
1994 (Commission File No. 1-7727)
(32) First Amendment to the Connecticut Natural Gas Corporation
Officers' Retirement Plan and Deferred Compensation Plan
Trust Agreement, dated August 5, 1993, filed as Exhibit No.
10(lv) to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994, filed with the Commission December 27, 1994 (Commission
File No. 1-7727)
(33) The Connecticut Natural Gas Corporation Deferred Compensation
Plan, as amended, dated January 1, 1993, filed as Exhibit No.
10(lvi) to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994, filed with the Commission December 27, 1994 (Commission
File No. 1-7727)
(34) First Amendment to the Connecticut Natural Gas Corporation
Deferred Compensation Plan, dated December 2, 1993, filed as
Exhibit No. 10(lvii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994, filed with the Commission December
27, 1994 (Commission File No. 1-7727)
(35) Second Amendment to the Connecticut Natural Gas Corporation
Deferred Compensation Plan, dated June 28, 1994, filed as
Exhibit No. 10(lviii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994, filed with the Commission December
27, 1994 (Commission File No. 1-7727)
(36) Agreement and Declaration of Trust, Connecticut Natural Gas
Corporation Employee Benefit Trust, dated December 28, 1987,
filed as Exhibit No. 10(lix) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994, filed with the Commission December
27, 1994 (Commission File No. 1-7727)
(37) First Amendment to Agreement and Declaration of Trust,
Connecticut Natural Gas Corporation Employee Benefit Trust,
Dated December 2, 1993, filed as Exhibit No. 10(lx) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended September 30, 1994, filed with
the Commission December 27, 1994 (Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (38) Agreement and Declaration of Trust, Connecticut Natural Gas
Corporation Union Employee Benefit Trust, dated December 2,
1993, filed as Exhibit No. 10(lxi) to the Connecticut Natural
Gas Corporation's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994, filed with the Commission
December 27, 1994 (Commission File No. 1-7727)
(39) CNG Annual Incentive Plan, 1994, filed as Exhibit No.
10(lxii) to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended September 30,
1994, filed with the Commission December 27, 1994 (Commission
File No. 1-7727)
(40) Letter of Credit and Reimbursement Agreement by and between
Energy Networks, Inc. and The Bank of Nova Scotia, dated
October 14, 1994, filed as Exhibit No. 10(lxiv) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended September 30, 1994, filed with
the Commission December 27, 1994 (Commission File No. 1-7727)
(41) 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, filed as
Exhibit No. 10(lxvi) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994, filed with the Commission December
27, 1994 (Commission File No. 1-7727)
(42) 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, filed as Exhibit No. 10(lxvii) to the Connecticut
Natural Gas Corporation's Annual Report on Form 10-K for the
fiscal year ended September 30, 1994, filed with the
Commission December 27, 1994 (Commission File No. 1-7727)
(43) Gas Storage Contract, dated February 16, 1990, between the
Connecticut Natural Gas Corporation and ENDEVCO Industrial
Gas Sales Company, filed as Exhibit No. 10(lxix) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended September 30, 1994, filed with
the Commission December 27, 1994 (Commission File No. 1-7727)
(44) Commercial Revolving Credit Agreement by and between Fleet
Bank, National Association, and Energy Networks, Inc., dated
December 21, 1994, filed as Exhibit No. 10(lxx) to the
Connecticut Natural Gas Corporation's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1994, filed with
the Commission January 31, 1995 (Commission File No. 1-7727)
(45) Service Agreement #86006 (Rate Schedule AFT-1), dated
September 1, 1994, between the Connecticut Natural Gas
Corporation and Algonquin Gas Transmission Company, filed as
Exhibit No. 10(lxxi) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, filed with the Commission August 2, 1995
(Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (46) Service Agreement #93005 (Rate Schedule AFT-1), dated
September 1, 1994, between the Connecticut Natural Gas
Corporation and Algonquin Gas Transmission Company, filed as
Exhibit No. 10(lxxii) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, filed with the Commission August 2, 1995
(Commission File No. 1-7727)
(47) Service Agreement #9B103 (Rate Schedule AFT-1), dated
September 1, 1994, between the Connecticut Natural Gas
Corporation and Algonquin Gas Transmission Company, filed as
Exhibit No. 10(lxxiii) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, filed with the Commission August 2, 1995
(Commission File No. 1-7727)
(48) Service Agreement #9W005 (Rate Schedule AFT-1), dated
September 1, 1994, between the Connecticut Natural Gas
Corporation and Algonquin Gas Transmission Company, filed as
Exhibit No. 10(lxxiv) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, filed with the Commission August 2, 1995
(Commission File No. 1-7727)
(49) KBC Energy Services Partnership Agreement, dated June 19,
1995, By and Among Bay State Energy Enterprises, Inc., ENI
Gas Services, Inc., and Koch Energy Alliance Company, filed
as Exhibit No. 10(lxxv) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1995, filed with the Commission August 2, 1995
(Commission File No. 1-7727)
(50) Gas Storage Agreement No. 1626 (Rate Schedule FS), dated
September 1, 1993, by and between the Connecticut Natural Gas
Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(lxix) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995, filed with the Commission December
18, 1995 (Commission File No. 1-7727)
(51) Gas Transportation Agreement No. 2498 (Rate Schedule FT-A),
dated September 1, 1993, by and between the Connecticut
Natural Gas Corporation and Tennessee Gas Pipeline Company,
filed as Exhibit No. 10(lxx) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995, filed with the Commission December
18, 1995 (Commission File No. 1-7727)
(52) Gas Transportation Agreement No. 3900 (Rate Schedule FT-A),
dated October 1, 1993, by and between the Connecticut Natural
Gas Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(lxxi) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995, filed with the Commission December
18, 1995 (Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (53) Gas Transportation Agreement No. 3901 (Rate Schedule FT-A),
dated October 1, 1993, by and between the Connecticut Natural
Gas Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(lxxii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995, filed with the Commission December
18, 1995 (Commission File No. 1-7727)
(54) Gas Transportation Agreement No. 2075 (Rate Schedule FT-A),
dated September 1, 1993, by and between the Connecticut
Natural Gas Corporation and Tennessee Gas Pipeline Company,
filed as Exhibit No. 10(lxxiii) to the Connecticut Natural
Gas Corporation's Annual Report on Form 10-K for the fiscal
year ended September 30, 1995, filed with the Commission
December 18, 1995 (Commission File No. 1-7727)
(55) Second Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated June 27, 1995, filed as Exhibit
No. 10(lxxvi) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, filed with the Commission December 18,
1995 (Commission File No. 1-7727)
(56) Second Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan, dated January 24, 1995, filed as
Exhibit No. 10(lxxvii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995, filed with the Commission December
18, 1995 (Commission File No. 1-7727)
(57) Third Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan, dated June 27, 1995, filed as Exhibit
No. 10(lxxviii) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, filed with the Commission December 18,
1995 (Commission File No. 1-7727)
(58) Amendment to Connecticut Natural Gas Corporation Officers'
Retirement Plan, dated June 27, 1995, filed as Exhibit No.
10(lxxix) to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended September 30,
1995, filed with the Commission December 18, 1995 (Commission
File No. 1-7727)
(59) Third Amendment to Connecticut Natural Gas Corporation
Deferred Compensation Plan, dated June 27, 1995, filed as
Exhibit No. 10(lxxx) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1995, filed with the Commission December
18, 1995 (Commission File No. 1-7727)
(60) Third Amendment to The Connecticut Natural Gas Corporation
Officers' Retirement Plan and Deferred Compensation Plan
Trust Agreement, dated September 12, 1995, filed as Exhibit
No. 10(lxxxi) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, filed with the Commission December 18,
1995 (Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (61) Second Amendment to Restricted Stock Agreement (Under the
Connecticut Natural Gas Corporation Executive Restricted
Stock plan), dated June 27, 1995, filed as Exhibit No.
10(lxxxii) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, filed with the Commission December 18,
1995 (Commission File No. 1-7727)
(62) Third Amendment to Restricted Stock Agreement (Under the
Connecticut Natural Gas Corporation Executive Restricted
Stock plan), dated June 27, 1995, filed as Exhibit No.
10(lxxxiii) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1995, filed with the Commission December 18,
1995 (Commission File No. 1-7727)
(63) Amended and Restated CNG Nonemployee Directors' Fee Plan,
dated September 29, 1995, filed as Exhibit No. 10(lxxxiv) to
the Connecticut Natural Gas Corporation's Annual Report on
Form 10-K for the fiscal year ended September 30, 1995, filed
with the Commission December 18, 1995 (Commission File No. 1-
7727)
(64) CNG Nonemployee Directors' Fee Plan Trust Agreement, by and
between the Connecticut Natural Gas Corporation and Fleet
Bank, N.A., dated September 28, 1995, filed as Exhibit No.
10(lxxxv) to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended September 30,
1995, filed with the Commission December 18, 1995 (Commission
File No. 1-7727)
(65) Irrevocable Standby Letter of Credit by and between Energy
Networks, Inc. and The Bank of Nova Scotia, dated March 20,
1996, filed as Exhibit No. 10(lxxxvii) to the Connecticut
Natural Gas Corporation's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1996, filed with the Commission
May 1, 1996 (Commission File No. 1-7727)
(66) Gas Transportation Agreement (FT-A Rate Schedule, Service
Package No. 86) dated September 1, 1993, between the
Connecticut Natural Gas Corporation and Tennessee Gas
Pipeline Company, filed as Exhibit No. 10(lxxxviii) to the
Connecticut Natural Gas Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed with the
Commission July 29, 1996 (Commission File No. 1-7727)
(67) Gas Transportation Agreement (FT-A Rate Schedule, Service
Package No. 1625) dated September 1, 1993, between the
Connecticut Natural Gas Corporation and Tennessee Gas
Pipeline Company, filed as Exhibit No. 10(lxxxix) to the
Connecticut Natural Gas Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed with the
Commission July 29, 1996 (Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (68) Gas Transportation Agreement (FT-A Rate Schedule, Service
Package No. 2655) dated September 1, 1993, between the
Connecticut Natural Gas Corporation and Tennessee Gas
Pipeline Company, filed as Exhibit No. 10(xc) to the
Connecticut Natural Gas Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed with the
Commission July 29, 1996 (Commission File No. 1-7727)
(69) Gas Storage Contract (Rate Schedule FS, Service Package No.
1626) dated December 1, 1994, between the Connecticut Natural
Gas Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(xciii) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, filed with the Commission July 29, 1996
(Commission File No. 1-7727)
(70) Amendment No.1-A to Gas Storage Contract (Rate Schedule FS,
Service Package No. 1626) dated July 1, 1995 between the
Connecticut Natural Gas Corporation and Tennessee Gas
Pipeline Company, filed as Exhibit No. 10(xciv) to the
Connecticut Natural Gas Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed with the
Commission July 29, 1996 (Commission File No. 1-7727)
(71) Service Agreement (#N01719, FST Service) dated March 28, 1996
between the Connecticut Natural Gas Corporation and National
Fuel Gas Supply Corporation, filed as Exhibit No. 10(xcv) to
the Connecticut Natural Gas Corporation's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1996, filed with the
Commission July 29, 1996 (Commission File No. 1-7727)
(72) Amendment No. 1 to Service Agreement (#N01719, FST Service)
dated April 1, 1996, between the Connecticut Natural Gas
Corporation and National Fuel Gas Supply Corporation, filed
as Exhibit No. 10(xcvi) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, filed with the Commission July 29, 1996
(Commission File No. 1-7727)
(73) Service Agreement (#O01718, FSS Service) dated March 28, 1996
between the Connecticut Natural Gas Corporation and National
Fuel Gas Supply Corporation, filed as Exhibit No. 10(xcvii)
to the Connecticut Natural Gas Corporation's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996, filed with
the Commission July 29, 1996 (Commission File No. 1-7727)
(74) Amendment No. 1 to Service Agreement (#O01718, FSS Service)
dated April 1, 1996, between the Connecticut Natural Gas
Corporation and National Fuel Gas Supply Corporation, filed
as Exhibit No. 10(xcviii) to the Connecticut Natural Gas
Corporation's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, filed with the Commission July 29, 1996
(Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (75) First Amendment to Agreement and Declaration of Trust,
Connecticut Natural Gas Corporation Union Employee Benefit
Trust, dated January 24, 1995, between the Connecticut
Natural Gas Corporation and Fleet Bank, N.A., filed as
Exhibit No. 10(xcii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(76) CNG Nonemployee Directors' Fee Plan, dated October 1, 1996,
filed as Exhibit No. 10(xciii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(77) First Amendment to CNG Nonemployee Directors' Fee Plan Trust
Agreement, dated October 1, 1996, between the Connecticut
Natural Gas Corporation and Putnam Fiduciary Trust Company,
filed as Exhibit No. 10(xciv) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(78) Second Amendment to CNG Nonemployee Directors' Fee Plan Trust
Agreement, dated October 1, 1996, between the Connecticut
Natural Gas Corporation and Putnam Fiduciary Trust Company,
filed as Exhibit No. 10(xcv) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(79) Third Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated October 31, 1995, filed as
Exhibit No. 10(xcvi) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(80) Fourth Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated December 19, 1995, filed as
Exhibit No. 10(xcvii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(81) Fifth Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated February 27, 1996, filed as
Exhibit No. 10(xcviii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (82) Fourth Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan, dated October 31, 1995, filed as
Exhibit No. 10(xcix) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(83) Fifth Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan, dated December 19, 1995, filed as
Exhibit No. 10(c) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(84) Sixth Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan, dated February 27, 1996, filed as
Exhibit No. 10(ci) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(85) Settlement Agreement and Release of All Claims between
Connecticut Natural Gas Corporation and Harry Kraiza, Jr.,
dated September 25, 1996, filed as Exhibit No. 10(cii) to the
Connecticut Natural Gas Corporation's Annual Report on Form
10-K for the fiscal year ended September 30, 1996, filed with
the Commission on December 19, 1996 (Commission File No. 1-
7727)
(86) Service Agreement (#93305, Rate Schedule AFT-1), dated June
1, 1993, between the Connecticut Natural Gas Corporation and
Algonquin Gas Transmission Company, filed as Exhibit No.
10(ciii) to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended September 30,
1996, filed with the Commission on December 19, 1996
(Commission File No. 1-7727)
(87) Service Agreement (#400507, Rate Schedule FSS-1), dated
November 15,1996, between the Connecticut Natural Gas
Corporation and Texas Eastern Transmission Corporation, filed
as Exhibit No. 10(civ) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(88) Service Agreement (#800424, Rate Schedule CDS), dated
November 15, 1996, between the Connecticut Natural Gas
Corporation and Texas Eastern Transmission Corporation, filed
as Exhibit No. 10(cvii) to the Connecticut Natural Gas
Corporation's Annual Report on Form 10-K for the fiscal year
ended September 30, 1996, filed with the Commission on
December 19, 1996 (Commission File No. 1-7727)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (89) Connecticut Natural Gas Corporation Employee Savings Plan
Trust Agreement, including amendments thereto, filed as
exhibit 4(ii) to the Connecticut Natural Gas Corporation
Employee Savings Plan Registration Statement on Form S-8,
filed with the Commission on July 20, 1994 (Commission File
No. 33-54643)
(90) Connecticut Natural Gas Corporation Union Employee Savings
Plan Trust Agreement, including amendments thereto, filed as
exhibit 4(ii) to the Connecticut Natural Gas Corporation
Union Employee Savings Plan Registration Statement on Form S-
8, filed with the Commission on July 20, 1994 (Commission
File No. 33-54653)
(91) First Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan Trust Agreement, dated March 25, 1997,
filed as Exhibit No. 10(cx) to the CTG Resources, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, filed with the Commission on August 14, 1997
(Commission File No. 1-12859)
(92) First Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan Trust Agreement, dated March 25, 1997,
filed as Exhibit No. 10(cxi) to the CTG Resources, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, filed with the Commission on August 14, 1997
(Commission File No. 1-12859)
(93) Amendment to Connecticut Natural Gas Corporation Officers'
Retirement Plan, dated March 25, 1997, filed as Exhibit No.
10(cxii) to the CTG Resources, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, filed with the
Commission on August 14, 1997 (Commission File No. 1-12859)
(94) Fourth Amendment to Connecticut Natural Gas Corporation
Deferred Compensation Plan, dated March 25, 1997, filed as
Exhibit No. 10(cxiii) to the CTG Resources, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997,
filed with the Commission on August 14, 1997 (Commission File
No. 1-12859)
(95) First Amendment to Connecticut Natural Gas Corporation
Executive Restricted Stock Plan, dated March 25, 1997, filed
as Exhibit No. 10(cxiv) to the CTG Resources, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997, filed with the Commission on August 14, 1997
(Commission File No. 1-12859)
(96) Third Amendment to CNG Nonemployee Directors' Fee Plan Trust
Agreement, dated March 25, 1997, filed as Exhibit No. 10(cxv)
to the CTG Resources, Inc.'s Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, filed with the
Commission on August 14, 1997 (Commission File No. 1-12859)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (97) Fourth Amendment to The Connecticut Natural Gas Corporation
Officers Retirement Plan and Deferred Compensation Plan Trust
Agreement, dated March 25, 1997, filed as Exhibit No.
10(cxvi) to the CTG Resources, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, filed with the
Commission on August 14, 1997 (Commission File No. 1-12859)
(98) Second Amendment to Agreement and Declaration of Trust,
Connecticut Natural Gas Corporation Employee Benefit Trust,
dated March 25, 1997, filed as Exhibit No. 10(cxvii) to the
CTG Resources, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, filed with the Commission on
August 14, 1997 (Commission File No. 1-12859)
(99) Sixth Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan (As Amended and Restated, Effective as
of January 1, 1989), dated May 2, 1997, filed as Exhibit No.
10(cxviii) to the CTG Resources, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1997, filed with the
Commission on August 14, 1997 (Commission File No. 1-12859)
(100) Seventh Amendment to Connecticut Natural Gas Corporation
Union Employee Savings Plan (As Amended and Restated,
Effective as of January 1, 1989), dated May 2, 1997, filed as
Exhibit No. 10(cxix) to the CTG Resources, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997,
filed with the Commission on August 14, 1997 (Commission File
No. 1-12859)
(101) First Amendment to CNG Nonemployee Directors' Fee Plan, dated
May 2, 1997, filed as Exhibit No. 10(cxxx) to the CTG
Resources, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, filed with the Commission on
August 14, 1997 (Commission File No. 1-12859)
(102) Three-year Revolving Credit Agreement between TEN and Fleet
National Bank, filed as Exhibit No. 99(B)(2) to the CTG
Resources, Inc.'s Issuer Tender Offer Statement on Schedule
13E-4, filed with the Commission on October 2, 1997
(Commission File No. 5-51659)
(103) 364-Day Revolving Credit Agreement between and TEN and Fleet
National Bank, filed as Exhibit No. 99(B)(3) to the CTG
Resources, Inc.'s Issuer Tender Offer Statement on Schedule
13E-4, filed with the Commission on October 2, 1997
(Commission File No. 5-51659)
(104) Note Purchase Agreement among TEN, Metropolitan Life
Insurance Company and Texas Life Insurance Company, filed as
Exhibit No. 99(B)(4) to the CTG Resources, Inc.'s Issuer
Tender Offer Statement on Schedule 13E-4, filed with the
Commission on October 2, 1997 (Commission File No. 5-51659)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (105) Forward Equity Purchase Agreement, dated October 1, 1997,
between CTG and TEN, filed as Exhibit No. 99(C) to the CTG
Resources, Inc.'s Issuer Tender Offer Statement on Schedule
13E-4, filed with the Commission on October 2, 1997
(Commission File No. 5-51659)
(106)* Amendment to ANE Gas Sales Agreement No. 1, dated August 19,
1997, between the Connecticut Natural Gas Corporation and
Alberta Northeast Gas Limited
(107)* Amendment to ANE Gas Sales Agreement No. 2, dated August 19,
1997, between the Connecticut Natural Gas Corporation and
Alberta Northeast Gas Limited
(108)* Amendment to Phase 2 Gas Sales Agreement, dated August 20,
1997, between the Connecticut Natural Gas Corporation and
Boundary Gas, Inc.
(109)* Storage Service Agreement (#300094, Rate Schedule GSS), dated
April 1, 1997, between the Connecticut Natural Gas
Corporation and CNG Transmission Corporation
(110)* Seasonal Transportation Service Agreement (#200106, Rate
Schedule FT), dated April 1, 1997, between the Connecticut
Natural Gas Corporation and CNG Transmission Corporation
(111)* Storage Service Agreement (#1623, Rate Schedule SS-NE), dated
September 1, 1993, between the Connecticut Natural Gas
Corporation and Tennessee Gas Pipeline Company
(112)* Transportation Service Agreement (#1627, Rate Schedule FT-A),
dated September 1, 1993, between the Connecticut Natural Gas
Corporation and Tennessee Gas Pipeline Company
(113)* Transportation Service Agreement (#10781, Rate Schedule FT-
A), dated June 1, 1995, between the Connecticut Natural Gas
Corporation and Tennessee Gas Pipeline Company
(114)* Amended Transportation Service Agreement (#10781, Rate
Schedule FT-A), dated November 21, 1996, between the
Connecticut Natural Gas Corporation and Tennessee Gas
Pipeline Company
(115)* Service Agreement (#820009, Rate Schedule CDS), dated
November 15, 1996, between the Connecticut Natural Gas
Corporation and Texas Eastern Transmission Corporation
(116)* Service Agreement (#830035, Rate Schedule FT-1), dated
November 15, 1996, between the Connecticut Natural Gas
Corporation and Texas Eastern Transmission Corporation
(117)* Service Agreement (#400223, Rate Schedule SS-1), dated
November 15, 1996, between the Connecticut Natural Gas
Corporation and Texas Eastern Transmission Corporation
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (118)* First Amendment to Issuing and Paying Agency Agreement, dated
August 13, 1997, by and among State Street Bank and Trust
Company, Fleet National Bank and Connecticut Natural Gas
Corporation
(119)* Medium Term Notes, Series B, Amended and Restated Placement
Agency Agreement, dated August 13, 1997, among Connecticut
Natural Gas Corporation, PaineWebber Incorporated and A.G.
Edwards & Sons, Inc.
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,
1997
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
99 Additional Exhibits
(1)* Exhibit Index
(a) 3. Exhibits (concluded)
--------
99 (2) Information required by Form 11-K with respect to the
Connecticut Natural Gas Corporation Employee Savings Plan for
the fiscal year ending December 31, 1996, filed as Exhibit
99(ii) to the Connecticut Natural Gas Corporation's Annual
Report on Form 10-K for the fiscal year ended September 30,
1996, filed with the Commission on December 19, 1996, as
amended by Form 10-K Amendment No. 1, filed with the
Commission on June 5, 1997 (Commission File No. 1-7727)
(3) 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, 1996, filed as
Exhibit 99(iii) to the Connecticut Natural Gas Corporation's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1996, filed with the Commission on December 19,
1996, as amended by Form 10-K Amendment No. 1, filed with the
Commission on June 5, 1997 (Commission File No. 1-7727)
* All exhibits listed above which have an asterisk (*) next to the
exhibit number are filed herewith. All other exhibits listed above which
have previously 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.
(b) Reports on Form 8-K
-------------------
There were no current reports filed on Form 8-K during the last quarter
of fiscal 1997.
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.
CTG RESOURCES, INC.
-----------------------------------
(Registrant)
S/ Victor H. Frauenhofer
------------------------------------
(Victor H. Frauenhofer)
Chairman and Chief Executive Officer
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, Chief Executive December 17, 1997
------------------------------- Officer and Director
(Victor H. Frauenhofer)
S/ Arthur C. Marquardt President, Chief December 17, 1997
------------------------------- Operating Officer and
(Arthur C. Marquardt) Director
S/ James P. Bolduc Executive Vice President December 17, 1997
------------------------------- and Chief Financial
(James P. Bolduc) Officer
S/ Andrew H. Johnson Treasurer and Chief December 17, 1997
------------------------------- Accounting Officer
(Andrew H. Johnson)
S/ R. L. Babcock December 17, 1997
-------------------------------
(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
Michael W. Tomasso Director
CTG RESOURCES, INC.
Annual Report on Form 10-K
Schedule Index
Fiscal Year Ended September 30, 1997
Item Description
---------- -----------
II Financial Statement Schedule II; Valuation and
Qualifying Accounts and Reserves for the fiscal years
ended September 30, 1997, 1996 and 1995
(d) Financial Statement Schedules
----------------------------- Page 1 of 1
CTG RESOURCES, INC. AND SUBSIDIARIES
-------------------------------------
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
--------------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
-----------------------------------------------------
(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, 1997
-----------------------------
RESERVE DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts -
Gas $ 4,425 $ 3,689 $ - $ 5,148 $ 2,966
Other 394 166 - 87 473
-------- -------- -------- -------- --------
$ 4,819 $ 3,855 $ - $ 5,235 $ 3,439
======== ======== ======== ======== ========
YEAR ENDED SEPTEMBER 30, 1996
-----------------------------
RESERVE DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts -
Gas $ 4,066 $ 4,959 $ - $ 4,600 $ 4,425
Other 524 82 - 212 394
-------- -------- -------- -------- --------
$ 4,590 $ 5,041 $ - $ 4,812 $ 4,819
======== ======== ======== ======== ========
YEAR ENDED SEPTEMBER 30, 1995
-----------------------------
RESERVE DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts -
Gas $ 3,273 $ 4,653 $ - $ 3,860 $ 4,066
Other (2) 744 233 24 477 524
-------- -------- -------- -------- --------
$ 4,017 $ 4,886 $ 24 $ 4,337 $ 4,590
======== ======== ======== ======== ========
[FN]
Note: (1) Deductions From Reserves include the write-off of uncollectible
accounts, net of recoveries of accounts previously written off.
(2) $24 Charged to Other Accounts represents recognition of trade
receivables acquired with the purchase of certain assets by the
unregulated operations.