UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-12859
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CTG RESOURCES, INC.
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(Exact name of registrant as specified in its charter)
Connecticut 06-1466463
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Columbus Boulevard, Hartford, Connecticut 06103
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(Address of principal executive offices) (Zip Code)
(860) 727-3010
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report).
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (applicable only
to Corporate Issuers). Number of shares of common stock outstanding as of
the close of business on April 24, 1998: 8,652,171.
FINANCIAL STATEMENTS
CTG RESOURCES, INC.
The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although the Company believes that
the disclosures are adequate to make the information presented not
misleading, it is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Company's annual report on Form 10-K. In the opinion of the
Company, all adjustments necessary to present fairly the consolidated
financial position of CTG Resources, Inc. as of March 31, 1998 and 1997 and
the results of its operations and its cash flows for the three months, six
months and twelve months ended March 31, 1998 and 1997 have been included.
The results of operations for such interim periods are not necessarily
indicative of the results for the full year.
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
March 31, Sept. 30, March 31,
ASSETS 1998 1997 1997
------ --------- --------- ---------
Plant and Equipment:
Regulated energy $ 434,944 $ 423,087 $ 411,515
Unregulated energy 61,277 61,163 60,761
Construction work in progress 1,548 7,703 4,950
--------- --------- ---------
497,769 491,953 477,226
Less-Allowance for depreciation 169,504 160,313 152,593
--------- --------- ---------
328,265 331,640 324,633
--------- --------- ---------
Investments, at equity 11,648 11,530 11,308
--------- --------- ---------
Current Assets:
Cash and cash equivalents 4,229 4,458 11,832
Accounts and notes receivable 57,485 28,726 60,261
Allowance for doubtful accounts (5,364) (3,439) (5,975)
Accrued utility revenue 12,277 4,624 15,716
Inventories 8,770 17,584 5,364
Prepaid expenses 5,540 8,903 5,073
--------- --------- ---------
82,937 60,856 92,271
--------- --------- ---------
Deferred Charges and Other Assets:
Unrecovered future taxes 12,889 17,263 18,642
Recoverable transition costs 89 839 2,004
Other assets 22,544 22,245 20,362
--------- --------- ---------
35,522 40,347 41,008
--------- --------- ---------
$ 458,372 $ 444,373 $ 469,220
========= ========= =========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS (Concluded)
(Thousands of Dollars)
March 31, Sept. 30, March 31,
CAPITALIZATION AND LIABILITIES 1998 1997 1997
------------------------------ --------- --------- ---------
Capitalization:
Common Stock $ 67,445 $ 120,409 $ 120,264
Retained Earnings 63,509 49,924 60,368
--------- --------- ---------
130,954 170,333 180,632
Unearned compensation -
Restricted stock awards (840) (1,034) (1,238)
--------- --------- ---------
Common stock equity 130,114 169,299 179,394
Preferred stock, not subject to
mandatory redemption 883 884 885
Long-term debt 183,364 126,787 135,464
--------- --------- ---------
314,361 296,970 315,743
--------- --------- ---------
Current Liabilities:
Current portion of long-term debt 4,086 1,487 13,914
Notes Payable 6,000 27,500 -
Accounts payable and accrued expenses 34,863 36,968 34,206
Refundable purchased gas costs 9,980 4,714 15,068
Accrued liabilities 14,822 4,531 12,333
--------- --------- ---------
69,751 75,200 75,521
--------- --------- ---------
Deferred Credits:
Deferred income taxes 47,674 44,302 48,148
Unfunded deferred income taxes 12,889 17,263 18,642
Investment tax credits 2,871 2,982 3,092
Refundable taxes 4,546 3,491 3,486
Other 6,280 4,165 4,588
--------- --------- ---------
74,260 72,203 77,956
--------- --------- ---------
$ 458,372 $ 444,373 $ 469,220
========= ========= =========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars except for per share data)
Three Months Ended
March 31,
-----------------------------
1998 1997
---------- ----------
Operating Revenues $ 105,416 $ 124,681
Less: Cost of Energy 54,622 69,307
State Gross Receipts Tax 3,725 4,671
---------- ----------
Operating Margin 47,069 50,703
---------- ----------
Other Operating Expenses:
Operations & maintenance expenses 15,856 14,571
Depreciation 4,791 4,540
Income taxes 10,246 13,457
Other taxes 2,007 2,085
---------- ----------
32,900 34,653
---------- ----------
Operating Income 14,169 16,050
---------- ----------
Other Income (Deductions):
Allowance for equity funds used
during construction (13) 21
Equity in partnership earnings 789 635
Other deductions (1,731) (688)
Income Taxes 481 (131)
---------- ----------
(474) (163)
---------- ----------
Interest and Debt Expense 3,968 3,198
---------- ----------
Net Income 9,727 12,689
Less-Dividends on Preferred Stock 16 15
---------- ----------
Net Income Applicable to Common Stock $ 9,711 $ 12,674
========== ==========
Income Per Average Share of
Common Stock $ 1.12 $ 1.19
========== ==========
Dividends Per Share of Common Stock $ 0.25 $ 0.38
========== ==========
Average Common Shares Outstanding
During the Period 8,652,171 10,634,496
========== ==========
CTG RESOURCES, INC. "UNAUDITED"
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars except for per share data)
Six Months Ended
March 31,
-----------------------------
1998 1997
---------- ----------
Operating Revenues $ 197,812 $ 213,950
Less: Cost of Energy 105,915 119,414
State Gross Receipts Tax 7,094 8,141
---------- ----------
Operating Margin 84,803 86,395
---------- ----------
Operating Expenses:
Operations & maintenance expenses 29,378 28,516
Depreciation 9,480 8,952
Income taxes 16,484 19,435
Other taxes 3,820 4,021
---------- ----------
59,162 60,924
---------- ----------
Operating Income 25,641 25,471
---------- ----------
Other Income (Deductions):
Allowance for equity funds used
during construction 35 70
Equity in partnership earnings 1,663 1,486
Other deductions (1,557) (856)
Income Taxes (66) (435)
---------- ----------
75 265
---------- ----------
Interest and Debt Expense 7,866 6,331
---------- ----------
Net Income 17,850 19,405
Less-Dividends on Preferred Stock 31 31
---------- ----------
Net Income Applicable to Common Stock $ 17,819 $ 19,374
========== ==========
Income Per Average Share of
Common Stock $ 1.96 $ 1.82
========== ==========
Dividends Per Share of Common Stock $ 0.50 $ 0.76
========== ==========
Average Common Shares Outstanding
During the Period 9,091,731 10,628,754
========== ==========
CTG RESOURCES, INC. "UNAUDITED"
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars except for per share data)
Twelve Months Ended
March 31,
-----------------------------
1998 1997
---------- ----------
Operating Revenues $ 289,427 $ 308,245
Less: Cost of Energy 153,286 172,203
State Gross Receipts Tax 10,060 11,207
---------- ----------
Operating Margin 126,081 124,835
---------- ----------
Operating Expenses:
Operations & maintenance expenses 57,785 57,459
Depreciation 18,712 17,918
Income taxes 14,008 14,338
Other taxes 7,522 7,745
---------- ----------
98,027 97,460
---------- ----------
Operating Income 28,054 27,375
---------- ----------
Other Income (Deductions):
Allowance for equity funds used
during construction 91 131
Equity in partnership earnings 3,087 2,839
Other deductions (1,039) (372)
Nonrecurring items - 892
Income Taxes (296) (1,312)
---------- ----------
1,843 2,178
---------- ----------
Interest and Debt Expense 14,377 13,215
---------- ----------
Net Income 15,520 16,338
Less-Dividends on Preferred Stock 62 63
---------- ----------
Net Income Applicable to Common Stock $ 15,458 $ 16,275
========== ==========
Income Per Average Share of
Common Stock $ 1.57 $ 1.55
========== ==========
Dividends Per Share of Common Stock $ 1.26 $ 1.52
========== ==========
Average Common Shares Outstanding
During the Period 9,865,595 10,495,345
========== ==========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Three Months Ended
March 31,
----------------------
1998 1997
---- ----
Cash Flows from Operations $ 34,167 $ 28,529
-------- --------
Cash Flows for Investing Activities:
Capital expenditures (2,859) (4,640)
Other 205 113
-------- --------
Net cash used in investing activities (2,654) (4,527)
-------- --------
Cash Flows from Financing Activities:
Dividends paid (2,179) (4,057)
Issuance of common stock, net - (370)
Repurchase of common stock (123) -
Other stock activity, net - (14)
Issuance of long-term debt - -
Principal retired on long-term debt (4,009) (165)
Short-term debt (24,500) (9,000)
-------- --------
Net cash used by
financing activities (30,811) (13,606)
-------- --------
Increase in Cash and
Cash Equivalents 702 10,396
Cash and Cash Equivalents at
Beginning of Period 3,527 1,436
-------- --------
Cash and Cash Equivalents at
End of Period $ 4,229 $ 11,832
======== ========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Thousands of Dollars)
Three Months Ended
March 31,
----------------------
1998 1997
---- ----
Schedule Reconciling Earnings to
Cash Flows from Operations:
Income $ 9,727 $ 12,689
-------- --------
Adjustments to reconcile income
to net cash:
Depreciation and amortization 5,002 4,740
Deferred income taxes, net 3,032 7,786
Equity in partnership earnings (789) (635)
Change in assets and liabilities:
Accounts receivable (10,296) (17,812)
Accrued utility revenue 8,036 659
Inventories 5,644 8,628
Purchased gas costs 4,403 11,753
Prepaid expenses (327) (1,365)
Accounts payable and accrued expenses 9,480 1,903
Other assets/liabilities 255 183
-------- --------
Total adjustments 24,440 15,840
-------- --------
Cash flows from operations $ 34,167 $ 28,529
======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (net of amount capitalized) $ 2,821 $ 1,960
======== ========
Income taxes $ 1,808 $ 1,029
======== ========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Six Months Ended
March 31,
----------------------
1998 1997
---- ----
Cash Flows from Operations $ 24,128 $ 21,343
-------- --------
Cash Flows for Investing Activities:
Capital expenditures (7,181) (8,262)
Other 2,470 322
-------- --------
Net cash used in investing activities (4,712) (7,940)
-------- --------
Cash Flows from Financing Activities:
Dividends paid (4,357) (8,064)
Issuance of common stock, net 622 (370)
Repurchase of common stock (53,584) -
Other stock activity, net (2) (630)
Issuance of long-term debt 64,000 -
Principal retired on long-term debt (4,824) (1,022)
Short-term debt (21,500) -
-------- --------
Net cash used by
financing activities (19,645) (10,086)
-------- --------
Increase/(Decrease) in Cash and
Cash Equivalents (229) 3,317
Cash and Cash Equivalents at
Beginning of Period 4,458 8,515
-------- --------
Cash and Cash Equivalents at
End of Period $ 4,229 $ 11,832
======== ========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Thousands of Dollars)
Six Months Ended
March 31,
----------------------
1998 1997
---- ----
Schedule Reconciling Earnings to
Cash Flows from Operations:
Net Income $ 17,850 $ 19,405
-------- --------
Adjustments to reconcile net income
to net cash:
Depreciation and amortization 9,897 9,303
Deferred income taxes, net 4,317 8,067
Equity in partnership earnings (1,663) (1,486)
Cash distributions received from
investments 244 200
Change in assets and liabilities:
Accounts receivable (26,601) (29,818)
Accrued utility revenue (7,653) (11,536)
Inventories 8,814 10,604
Purchased gas costs 5,266 9,056
Prepaid expenses 3,363 5,847
Accounts payable and accrued expenses 8,936 2,193
Other assets/liabilities 1,358 (492)
-------- --------
Total adjustments 6,278 1,938
-------- --------
Cash flows from operations $ 24,128 $ 21,343
======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (net of amount capitalized) $ 6,691 $ 6,914
======== ========
Income taxes $ 3,422 $ 2,546
======== ========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Twelve Months Ended
March 31,
----------------------
1998 1997
---- ----
Cash Flows from Operations $ 34,100 $ 21,787
-------- --------
Cash Flows for Investing Activities:
Capital expenditures (23,512) (24,644)
Nonrecurring Items - 892
Other (5,832) (1,799)
-------- --------
Net cash used in investing activities (29,344) (25,551)
-------- --------
Cash Flows from Financing Activities:
Dividends paid (4,437) (16,175)
Issuance of common stock, net 622 15,187
Repurchase of common stock (53,116) -
Other stock activity, net 500 (666)
Issuance of long-term debt 64,000 -
Principal retired on long-term debt (25,928) (3,917)
Short-term debt 6,000 -
-------- --------
Net cash used by
financing activities (12,359) (5,571)
-------- --------
Decrease in Cash and
Cash Equivalents (7,603) (9,335)
Cash and Cash Equivalents at
Beginning of Period 11,832 21,167
-------- --------
Cash and Cash Equivalents at
End of Period $ 4,229 $ 11,832
======== ========
"UNAUDITED"
CTG RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Thousands of Dollars)
Twelve Months Ended
March 31,
----------------------
1998 1997
---- ----
Schedule Reconciling Earnings to
Cash Flows from Operations:
Net Income $ 15,520 $ 16,338
-------- --------
Adjustments to reconcile net income
to net cash:
Depreciation and amortization 18,692 18,150
Deferred income taxes, net 365 864
Equity in partnership earnings (3,087) (2,839)
Nonrecurring Items - (892)
Cash distributions received from
investments 1,805 1,901
Change in assets and liabilities:
Accounts receivable 3,199 4,143
Accrued utility revenue 3,439 471
Inventories (3,406) (2,677)
Purchased gas costs (5,088) (7,869)
Prepaid expenses (467) (2,004)
Accounts payable and accrued expenses 5,061 (3,255)
Other assets/liabilities (1,933) (544)
-------- --------
Total adjustments 18,580 5,449
-------- --------
Cash flows from operations $ 34,100 $ 21,787
======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (net of amount capitalized) $ 12,835 $ 12,875
======== ========
Income taxes $ 9,137 $ 13,259
======== ========
"UNAUDITED"
CTG RESOURCES, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Thousands of Dollars)
(1) Deferred Income Taxes
During the quarter, the Company performed a detailed study of Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109) concerning deferred income tax liabilities. As a
result of the study, the Company identified that cost of removal costs
were not being normalized in the SFAS No. 109 deferred tax calculation.
Effective March 31, 1998, the Company normalized cost of removal costs
in the calculation of SFAS No. 109 deferred taxes. The normalization
of the cost of removal costs for SFAS No. 109 deferred tax requirements
reduced the amounts of unrecovered future taxes from rate payers and
unfunded deferred income taxes on the balance sheet. These amounts are
reflected on the March 31, 1998 balance sheet and have been
reclassified for prior periods to conform with the current period
presentation.
(2) Short-term debt
In March 1998, the Company renewed its expiring $20,000 revolving
credit agreement for three years. The Company also renewed its
expiring $9,000 one-year line of credit and increased the available
borrowing level to a two-tier program of $10,000 or $15,000 which
varies to meet the Company's seasonal working capital requirements.
(3) Reclassifications
Certain prior year amounts have been reclassified to conform with
current year classifications.
"UNAUDITED"
CTG RESOURCES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
MARCH 31, 1998
(Thousands of Dollars Except Per Share Amounts)
CTG Resources, Inc. ("the Company" or "CTG")is a holding company and parent
of the Connecticut Natural Gas Corporation ("CNG") and The Energy Network,
Inc. ("TEN"). CNG is an energy provider engaged in the regulated
distribution, sale and transportation of natural gas. TEN holds and
operates, through divisions or wholly-owned subsidiaries, CTG's unregulated,
diversified businesses. The diversified businesses are primarily engaged in
district heating and cooling and also include energy equipment rentals and
the Company's equity investments in several partnerships.
RESULTS OF OPERATIONS
Consolidated earnings per share were $1.12 for the quarter, $1.96 for the
six months and $1.57 for the twelve months ended March 31, 1998. These
compare to $1.19 for the quarter, $1.82 for the six months and $1.55 for the
twelve months ended March 31, 1997. Lower weighted average shares
outstanding, as a result of a first quarter fiscal 1998 stock repurchase
described below, provided benefits to earnings per share equivalent to $.21
for the quarter, $.29 for the six months and $.11 for the twelve months
ended March 1998. The twelve months ended March 1997 include earnings per
share of $.05 related to the sale of a building and land.
Operating Margin
The following table presents the changes in gas revenues, gas operating
margin, heating degree days (a measure of weather) and gas deliveries for
all periods reported in the statements of income:
Three Months Six Months Twelve Months
Ended Ended Ended
March 31, March 31, March 31,
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- --------
Gas Revenues $ 99,447 $119,215 $187,074 $203,494 $266,904 $286,490
======== ======== ======== ======== ======== ========
Gas Operating Margin $ 42,704 $ 46,995 $ 77,424 $ 79,485 $110,385 $113,202
======== ======== ======== ======== ======== ========
Heating Degree Days 2,587 2,906 4,856 5,075 5,837 5,936
===== ===== ===== ===== ===== =====
Commodity and
Transportation
Volumes(mmcf):
Firm Gas Sales 8,809 10,219 16,051 17,034 21,372 22,374
Interruptible Gas
Sales 2,849 2,863 5,757 5,692 9,638 9,543
Off-System Gas
Sales 3,394 2,254 5,557 5,501 10,219 12,747
Transportation
Services 1,142 1,134 2,244 2,294 4,081 4,483
------ ------ ------ ------ ------ ------
Total 16,194 16,470 29,609 30,521 45,310 49,147
====== ====== ====== ====== ====== ======
Gas operating margin is equal to gas revenues less the cost of gas and
Connecticut gross revenues tax. A lower gas operating margin was earned
throughout fiscal 1998 as compared to fiscal 1997. Warmer winter heating
season weather is the principal reason for this decrease in gas operating
margin. This has resulted in fewer sales of gas to the firm class of
customers for winter heating. Because firm sales generate the highest per-
unit margin, changes in firm sales impact gas operating margin more than
changes in other sales categories. The full potential benefit to earnings
from the addition of heating customers since fiscal 1997 has also been
somewhat diminished by the warmer winter weather. The benefits of more
interruptible sales have been offset by a decline in interruptible margins.
These margins are lower because interruptible tariffs are sensitive to the
prices of the alternative energy, and these have declined relative to gas
prices.
Operations and Maintenance Expenses
Operations and maintenance expenses are modestly higher in all periods of
fiscal 1998 as compared to fiscal 1997. Lower costs were incurred for
labor, reflecting savings from early retirements and from outsourcing of
certain computer related services, while this same outsourcing, together
with the cost of a new, additional system has resulted in higher computer
related costs. Pension costs reflect the absence of the expenses related to
the early retirement program offered in fiscal 1996 and a reduction in
payments because of lower payment activity, offset by higher costs related
to changes in key assumptions in the plans. Variations in levels of bad
debt expenses typically relate to customers' natural gas bills and actual
collection levels. Regulatory commission expenses declined. 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 management of claims.
Income Taxes
Income taxes recorded in all periods ending March 1998, as compared to 1997,
are lower as a result of lower taxable income. In the twelve months ended
March 1998 this effect is partially offset by an increase to the Company's
income tax reserve that was recorded late in fiscal 1997.
Other Income (Deductions)
Other Deductions are higher between all comparable periods because of costs
recognized for the wind down of certain diversified operations, as discussed
below. Without the impact of these costs, overall, the level of other
income (deductions) has not changed significantly between fiscal 1998 and
1997. Several offsetting factors have produced this result. Higher income
from overnight cash investments and lower promotional and advertising
expenses are offset by higher costs for life insurance premiums.
Interest and Debt Expense
Higher interest and debt expense has been recorded in fiscal 1998 primarily
because of the additional long-term debt issued during the first quarter in
conjunction with the stock repurchase program.
Earnings from Diversified Businesses
The diversified, unregulated businesses recorded a loss of $.06 for the
three months ended March 31, 1998, no earnings for the fiscal 1998 year-to-
date period and earnings of $.17 per share for the twelve months ended March
31, 1998. These compare to earnings per share of $.03, $.09 and $.30
recorded for the three, six and twelve months ended March 31, 1997. The
twelve months ended March 1997 include $.05 of earnings per share related to
the sale of a building and land.
Several significant factors impacting earnings from diversified businesses
have occurred in fiscal 1998. In the first quarter, the assets of TEN's
wholly-owned HVAC subsidiary, ENServe Corporation ("ENServe"), were sold.
The subsequent winding up of this operation is still in progress. Higher
interest costs have been incurred since the first quarter of fiscal 1998 as
a result of an additional $45,000 of long-term debt and $4,000 of short-term
borrowings issued to finance the purchase of approximately 2.0 million
shares of the Company's common stock in a tender offer made by TEN in
October of 1997. Lower energy and production costs for district heating and
cooling have been realized as a result of lower energy prices. Higher sales
were recorded for chilled water for cooling because of the warmer weather.
During the second quarter of fiscal 1998 TEN assumed the full ownership of
KBC Energy Services ("KBC"), a New England natural gas marketer, and began
the wind down of its operations. TEN will supply gas under KBC's contracts
until such time as the contracts expire. TEN recognized a charge of $.07
per share in this quarter related to the wind down of KBC. The Company's
share of KBC's operating losses for the six months ended March 31, 1998 was
approximately $.10, including the wind down charge of $.07. The wind down
of KBC and the previously announced sale of the assets of ENServe will
enable the Company to focus its investments in fixed assets in capital
intensive businesses in keeping with its strategic plan. Management does
not anticipate any significant future impact to earnings related to the wind
down of these businesses.
New legislation, deregulating the electric utility industry, was passed in
Connecticut in April, 1998. It is expected to result in reduced costs for
electricity. While the Company's future operating costs can be expected to
benefit from this, the competition for customers will increase if this
alternative energy source becomes more affordable.
MATERIAL CHANGES IN FINANCIAL CONDITION
Cash Flows
Cash flows from operations satisfied the Company's cash requirements for
working capital, dividend payments, long-term debt principal payments and
construction expenditures during the second quarter of both fiscal 1998 and
1997 and during the six months ended March 31, 1997. Available cash on hand
supplemented cash flows from operations to satisfy these needs for cash
during the six and twelve months ended March 31, 1998 and the twelve months
ended March 31, 1997. Long-term financing issued in the first six months of
fiscal 1998 was used to finance a stock repurchase and to refinance existing
short-term debt.
Cash flows from operations are historically highest at the end of the second
quarter of the fiscal year. The Company makes most of its sales for the
fiscal year during the winter heating season, and March is the last full
month in this season. Fiscal 1998 cash flows from operations are higher
than fiscal 1997 as a result of the warmer 1998 heating season weather. The
Company needed to purchase less gas to fulfill customers' energy needs for
heating, and accounts receivable balances were lower because of reduced
customer bills.
Financing Activities
In March 1998, the Company renewed its expiring $20,000 revolving credit
agreement for three years. The Company also renewed its expiring $9,000
one-year line of credit and increased the available borrowing level to
$15,000 for the winter months and $10,000 for summer months.
Deferred Income Taxes
During the quarter, the Company performed a detailed study of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
No. 109) concerning deferred income tax liabilities. As a result of the
study, the Company identified that cost of removal costs were not being
normalized in the SFAS No. 109 deferred tax calculation. Effective March
31, 1998, the Company normalized cost of removal costs in the calculation of
SFAS No. 109 deferred taxes. The normalization of the cost of removal costs
for SFAS No. 109 deferred tax requirements reduced the amounts of
unrecovered future taxes from rate payers and unfunded deferred income taxes
on the balance sheet. These amounts are reflected on the March 31, 1998
balance sheet and have been reclassified for prior periods to conform with
the current period presentation.
The treatment of cost of removal costs as a normalized item is in accordance
with SFAS No. 109. Although current rates and tax expenses have been set
utilizing flow-through treatment for these costs, the Company anticipates
that, in future rate proceedings, the application of this method will reduce
future income tax expense and corresponding rate payer revenue requirements.
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 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.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
99.1 Exhibit Index
10.120 Seventh Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated January 27, 1998
10.121 Eighth Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated May 1, 1998
10.122 Eighth Amendment to Connecticut Natural Gas Corporation
Union Employee Savings Plan, dated January 27, 1998
10.123 Second Amendment to CNG Nonemployee Directors' Fee Plan,
dated March 24, 1998
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ending March 31,
1998.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CTG RESOURCES, INC.
Date 05/01/98 By: S/ Andrew H. Johnson
-------------------- -----------------------------------
(Andrew H. Johnson)
Treasurer and Chief Accounting Officer
(On behalf of the registrant and as
Chief Accounting Officer)