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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, 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 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 2, 1998 was $204,386,631.
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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 November 30, 1998 was 8,652,171.
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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 February 1999 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"). 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 which are primarily engaged in district heating and cooling
("DHC") and also include the Company's equity investments in two
partnerships, one of which is the Iroquois Gas Transmission System Limited
Partnership ("Iroquois").
CTG's headquarters are in Hartford, Connecticut. At September 30, 1998,
the Company employed 555 people. The Company's common stock is traded on
the New York Stock Exchange, under the symbol CTG. 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. The activities of Iroquois are regulated at the Federal level.
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,
November to March. 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 both 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. Similarly, the Company has offered firm transportation rate
tariffs to nonresidential customers, since April of 1996. 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 an on-system sale of natural gas.
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 of using 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 diversified businesses own and operate DHC systems which distribute
and sell steam, hot water and chilled water to office complexes and other
large buildings in the City of Hartford. The extent of competition to the
DHC business from alternate fuels is diminished after a customer has made
its commitment to DHC 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 an equity partner in 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 21 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 $262,446,000 for the fiscal year
ended September 30, 1998 and were derived approximately 50% from
residential customers, 20% from commercial firm customers, 1% from
industrial firm customers, 16% from interruptible customers, 11% from off-
system sales and 2% from the aggregate of transportation of customer-owned
gas and other gas-related revenues. There were $2,299,000 of revenues
from sales to affiliated companies. The gas distribution business
contributed 93% of consolidated revenues over the three fiscal years
ending 1998. During the fiscal year ended September 30, 1998, the peak-
day sendout of gas was 248,659 thousands of cubic feet ("mcf") which
occurred on December 31, 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 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 supply, but it permits the Company to
liquefy and store gas supplies purchased during the summer and to deliver
this 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 April 1997, the DPUC began an investigation into improving the existing
firm transportation programs in the state and expanding competition to all
residential customers. In August 1997, the DPUC initiated a generic
proceeding to investigate firm transportation and unbundling in
Connecticut. This proceeding was divided into two phases. The DPUC
issued a decision regarding the issues of Phase I in July 1998, addressing
the status of existing firm transportation service for commercial and
industrial customers, streamlining the Connecticut local gas distribution
companies' ("LDCs") administrative processes and thereby making firm
transportation more readily accessible to customers.
In Phase II, the DPUC is addressing the potential deregulation of the
residential natural gas sales market in Connecticut and the future role of
Connecticut's LDCs in natural gas commodity sales. This phase of the
review will explore the many important issues related to fully unbundled,
competitive gas service for all customers, including residential. These
issues will include recovery of potentially 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.
Concurrently, the Connecticut State Legislature has undertaken a task
force investigation related to residential deregulation. Although the
Company cannot predict the outcome of these proceedings, the Company
anticipates that the timing of any DPUC decision will be related to the
timing of the completion and announcement of the results of the
Connecticut State Legislature's activities.
In 1997 the DPUC informed CNG that it plans to initiate a second phase of
the management audit which it performed in 1995 and 1996. This second
phase will focus on several areas of CNG's operations in which
opportunities for improvements were identified by the initial audit. The
DPUC has not yet scheduled this second phase of its management audit.
Diversified Businesses (Unregulated)
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At September 30, 1998, the diversified businesses of the Company included
TEN and its wholly-owned subsidiaries The Hartford Steam Company ("HSC"),
TEN Transmission, ENI Gas Services, Inc. ("ENI Gas"), TEN Gas Services,
Inc.("TEN Gas") and ENServe Incorporated ("ENServe").
TEN was incorporated in 1982 and is engaged in the operations described in
the following paragraphs. TEN and HSC provide DHC services to many
buildings and complexes in the south-end and downtown neighborhoods of
Hartford, Connecticut. TEN also holds a fifty percent interest in the
Downtown Cogeneration Associates partnership which owns and operates a
4.2-Megawatt cogeneration facility in downtown Hartford, Connecticut.
TEN's other operating division offers energy equipment rentals. ENI Gas
and TEN Gas together own 100% of KBC Energy Services ("KBC"), a gas
marketing business which is in the process of winding down its operations.
TEN Transmission owns the Company's share of its investment in the
Iroquois pipeline.
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. Although TEN Transmission is not regulated, Iroquois is
regulated by the FERC.
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 the southend and
downtown neighborhoods of Hartford, Connecticut.
In June 1998, HSC acquired the assets of cogeneration facility which is
located adjacent to and serves Hartford Hospital, providing both steam and
electricity. HSC will manage the facility and supply the hospital with
steam and electricity over a twenty-year contract period. HSC will also
sell electricity to the local electric utility. The facility is currently
off-line for repowering as a 7.5-Megawatt facility and is scheduled to be
back on line by January 1999 under HSC's management.
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 4.2-
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 owns natural gas water heaters and
natural gas conversion burners which it leases to customers in the
residential market.
In fiscal 1998, TEN sold the physical assets and business of ENServe and
essentially completed the wind-down of its operations. 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, a New England
natural gas marketer. At September 30, 1997 TEN had a 50% ownership
interest in this partnership. During the second quarter of fiscal 1998
TEN Gas was formed to own a portion of KBC, and together ENI Gas and TEN
Gas assumed full control of KBC. The KBC operations were deemed not core
to TEN's strategic focus on asset-based businesses. Accordingly, ENI Gas
and TEN Gas began the sale of KBC's assets and the wind down of its
operations.
The Energy Network Alliance
In October 1998, TEN entered into a marketing alliance with Pratt &
Whitney Canada, Inc., Carrier Corporation and Oxford Technologies, Inc. to
provide energy for heating, cooling and electricity to large commercial,
industrial and institutional facilities by combining cogeneration and
district energy. As its role in this alliance, TEN will own and operate
the individual customers' on-site district energy plants which will be
equipped with state-of-the-art energy systems provided by the other
members of the alliance.
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, 1998, 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.
HSC owns a cogeneration facility which is located on the campus of
Hartford Hospital and supplies steam for heating and electricity for power
to Hartford Hospital. This facility is currently off-line for repowering
as a 7.5-megawatt facility and is scheduled to be on line by January 1999
under HSC management. The purchase and repowering of this property were
financed with a long-term secured term note.
The equipment rentals 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 CNG. The center is subject to the lien of the Mortgage Deed
under which the CNGR's first mortgage notes are issued.
Adriaen's Landing
The Company has been approached by local businesses and government
agencies regarding the development of a stadium and convention center
along with hotel, retail, recreational and housing facilities. The
development, known as Adriaen's Landing, would be built in the area of the
Company's headquarters, operating center and steam/chilled water
production facilities. The Company, in order to accommodate the
development as it is currently planned, would be required to relocate its
facilities. Discussions are now underway with the participants in order
to accomplish this at no cost to the Company or its customers. The area
of development, which includes Company property, may contain hazardous
materials that the project participants will be required to address.
ITEM 3. LEGAL PROCEEDINGS
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In November 1995, certain Connecticut plumbers and HVAC contractors filed
several class action suits against CNG and the State's two other LDCs,
claiming that the LDCs engaged in unfair trade practices and similar
allegations, all 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.
In January 1998, the court granted CNG's motion to strike all but one
count of the complaint: the antitrust conspiracy claim. The plumbers and
contractors subsequently filed two additional lawsuits against CNG and the
other LDCs alleging violations arising from the same business activities
as in the first lawsuit. In 1998, all of these cases were assigned to the
Connecticut Superior Court Complex Litigation docket, and CNG successfully
resisted the plumbers' and contractors' efforts to consolidate all of
these cases. A trial date for one of the suits tentatively is expected in
the fourth quarter of calendar year 1999.
The plumbers and contractors are currently asserting claims for profits
which they allege were lost during certain specific periods. 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. In its decision issued in October 1998, the court upheld the
Company's franchise rights in the disputed area.
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, 1998.
Executive Officers of the Registrant
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All executive officers' terms of office are one year.
Arthur C. Marquardt Age - 51
President and Chief Operating Officer
Business experience:
1998 - Present President and Chief Executive Officer
1997 - 1998 President and Chief Operating Officer
1996 - 1997 President and Chief Operating Officer, Connecticut
Natural Gas Corporation
1992 - 1996 Senior Vice President - Gas Business Unit, Long Island
Lighting Company
James P. Bolduc Age - 49
Executive Vice President and Chief Financial Officer
Business experience:
1997 - Present Executive Vice President and Chief Financial Officer
1996 - 1997 Executive Vice President and Chief Financial Officer,
Connecticut Natural Gas Corporation
1993 - 1996 Senior Vice President - Financial Services and Chief
Financial Officer, Connecticut Natural Gas
Corporation
Anthony C. Mirabella, Age - 58
Senior Vice President - District Heating and Cooling, The Energy Network, Inc.
Business experience:
1998 - Present Senior Vice President - District Heating and Cooling,
The Energy Network, Inc.
1997 - 1998 Senior Vice President - Operations and Chief Engineer,
Connecticut Natural Gas Corporation
1993 - 1997 Vice President - Operations and Chief Engineer,
Connecticut Natural Gas Corporation
Reginald L. Babcock Age - 47
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, Connecticut Natural Gas
Corporation
1993 - 1996 Vice President - Corporate Services and General Counsel
and Secretary, Connecticut Natural Gas Corporation
Executive Officers of the Registrant (Concluded)
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Andrew H. Johnson Age - 50
Treasurer and Chief Accounting Officer
Business experience:
1997 - Present Treasurer and Chief Accounting Officer
1993 - 1997 Treasurer and Chief Accounting Officer, Connecticut
Natural Gas Corporation
1986 - 1993 Treasurer, Connecticut Natural Gas Corporation
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, 1998 and 1997 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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1998 1997
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Fiscal Year High Low High Low
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First Quarter 26 1/2 22 3/4 25 1/2 22 5/8
Second Quarter 26 3/4 23 3/8 25 3/8 21 3/8
Third Quarter 25 15/16 21 15/16 22 1/4 20 3/4
Fourth Quarter 24 1/2 22 3/8 23 13/16 21 5/8
There were 7,384 record holders of the Company's common stock at November
2, 1998
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 $1.00 per share in 1998 and $1.52 per share in
1997. 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 $25,174,000 were
available for CNG to pay dividends at September 30, 1998. 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.
Under 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
7 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.
ITEM 6. SELECTED FINANCIAL DATA
--------------------------------
FIVE-YEAR SUMMARY OF CONSOLIDATED OPERATIONS
(Thousands of Dollars)
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
Operating revenues $282,748 $305,295 $315,103 $274,935 $290,420
Net income applicable
to common stock $ 15,135 $ 17,013 $ 18,932 $ 16,957 $ 17,637
Earnings per share (1) $ 1.71 $ 1.60 $ 1.87 $ 1.71 $ 1.85
Total assets $459,181 $444,373 $443,574 $437,372 $437,622
Long-term obligations $215,852 $126,787 $136,432 $150,390 $154,193
Cash dividends declared
per common share $ 1.00 $ 1.52 $ 1.50 $ 1.48 $ 1.48
Dividend payout ratio 58.5% 95.0% 80.2% 86.6% 80.0%
P/E ratio 14 14 13 13 13
Market price as a %
of book value -
year-end 170.2% 145.9% 152.9% 146.8% 162.0%
(Certain amounts for 1997 and prior years have been reclassified to conform
with 1998 classifications.)
[FN]
(1) Earnings per share for 1998 reflect the impact of the October, 1997
stock repurchase and the related assumption of additional debt (See Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations, and Item 8. Financial Statements and Supplementary Date, Notes
to the Financial Statements, herein).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATIONS, SEPTEMBER 30, 1998
-----------------------------------------
(Thousands of Dollars Except for Per Share Data)
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 which are primarily engaged in
district heating and cooling ("DHC") and also include the Company's
equity investments in two partnerships, one of which is the Iroquois Gas
Transmission System ("Iroquois").
In October 1997, TEN repurchased approximately 2.0 million shares of CTG
common stock for approximately $53,000. 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. Higher fiscal 1998 earnings per share are
primarily related to this common stock buy-back. 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, 1998, 1997 and 1996 were $15,135
($1.71), $17,013 ($1.60) and $18,932 ($1.87), respectively. As a result
of a first quarter fiscal 1998 stock repurchase, earnings per share have
been impacted by both the benefit of lower weighted average shares
outstanding and the cost of the debt which financed the transaction.
Together these factors provided net benefits to earnings per share of
approximately $.11 for the twelve months ended September 1998 and have
offset the lower earnings per share impact of a second consecutive
warmer winter as compared to the prior year.
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. Earnings for 1996 include a nonrecurring item: the
proceeds from the sale of a building by TEN, equivalent to $.05 per
share.
Gas Operating Margin
Gas operating margin is equal to gas revenues less the cost of gas and
Connecticut Gross Earnings Tax which is applied to revenues. The
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
following table presents consolidated gas revenues, gas operating
margin, heating degree days (a measure of weather) and gas deliveries
for fiscal 1998, 1997 and 1996, respectively:
1998 1997 1996
---- ---- ----
Gas Revenues $262,446 $283,324 $292,852
======== ======== ========
Gas Operating Margin $109,241 $112,446 $116,104
======== ======== ========
Heating Degree Days (30-Year Normal -
6,107) 5,543 6,056 6,410
===== ===== =====
Commodity and Transportation
Volumes (mmcf)
Firm Gas Sales 20,577 22,354 23,911
Interruptible Gas Sales 9,079 9,573 8,614
Off-System Gas Sales 11,459 10,164 12,435
Transportation Services 4,376 4,131 4,336
------- ------- -------
Total 45,491 46,222 49,296
======= ======= =======
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.
Changes in weather patterns from year to year impact the contribution to
operating margin by the different customer classes, the proportionate
amount of sales 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 winters historically mean lower firm sales and a higher
proportion of overall sales to other classes.
During the fiscal 1998 heating season, the Company's service area has
experienced warmer winter weather, as compared to the prior year, for
the second consecutive fiscal year. This warmer weather resulted in
lower use per customer and reduced sales and operating margin,
especially from the firm class of customers.
The Company's regulated gas business continues to add customers from
year to year and to realize additional firm gas sales from customers who
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
add gas heating to their existing cooking and hot water service. The
full potential benefit to earnings from the addition of firm heating
customers since fiscal 1996 has been more than offset by the effects of
the warmer winter weather.
When the Company's firm customers' need less gas in warmer winters, more
of the Company's gas supplies are available for sale to interruptible
customers. Thus, in warmer winters, the Company's interruptible sales
tend to be higher. However, interruptible sales were lower in fiscal
1998 because of lower usage in this even still warmer winter. The
Company did record higher interruptible sales in fiscal 1997.
Interruptible per-unit margins were higher in fiscal 1998 but lower in
fiscal 1997 because of changes in the cost of gas associated with those
sales. A percentage of interruptible sales margin earned above a target
level prescribed by the Connecticut Department of Public Utility Control
("DPUC") is refunded to firm ratepayers.
Off-system sales permit the Company to make short-term gas sales and
sales of transportation services by contract with customers nationwide.
These sales 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 higher in fiscal 1998, reflecting the Company's
marketing efforts, the signing of favorably priced off-system sales
contracts prior to the start of the heating season, and the availability
of natural gas in the warmer winter. Off-system sales were lower in
fiscal 1997, as compared to 1996, because of the absence of production
area sales that were made in prior years.
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.
Weather Stabilization Program
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
In September 1998, CNG purchased an insurance program for the winter
heating season (November through March). The program is designed to
reduce the effects of abnormal winter weather on its earnings. This
program will help to offset lost margins and thus provide CNG with
additional earnings in the event of significantly abnormal warm winter
weather in return for an insurance premium which increases in the event
of significantly abnormal cold winter weather. CNG management expects
that this program will reduce significant winter weather-related
earnings fluctuations.
Operating and Maintenance Expenses
Consolidated operations and maintenance ("O&M") expenses are lower in
fiscal 1998 as compared to fiscal 1997. A significant factor is the
absence in fiscal 1998 of expenses related to TEN's HVAC operations.
Those assets were sold in the first quarter of 1998 (See "Earnings from
Diversified Operations", below.). The Company has also recorded many
other variations in O&M expenses between all comparable periods which
tend to offset each other. Lower costs have been incurred for labor,
employee benefits, regulatory expenses, outside purchased services,
workers' compensation insurance and corporate insurance reserves.
Higher expenses have been recorded for pension related costs, bad debts
and computer-related services.
Medical insurance costs declined because of lower actual and projected
claims realized as a result of the Company's aggressive management of
claims. Pension costs reflect a reduction in payments because of fewer
claims, offset by higher costs related to changes in actuarial
assumptions in the plans. Employee benefits expenses reflect an
increase in medical claims. Offsetting some of this increase are
reduced costs resulting from changes in benefit programs.
In July 1998, the Company determined that the size of its Greenwich,
Connecticut regulated gas operations could be reduced while still
maintaining the level and quality of service. Many of the activities
previously handled in Greenwich have been integrated into the Hartford,
Connecticut operations. In conjunction with this decision, eleven
positions have been eliminated from the Greenwich division. The net
fiscal 1998 savings from this realignment is approximately $10. Future
annual savings in payroll costs are estimated at approximately $292.
Lower operating and maintenance expenses recorded in fiscal 1997 also
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
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 accruals 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.
Year to year increases in depreciation result from annual additions to
depreciable plant and reflect the Company's continued growth.
Income Taxes
Lower taxable income and the benefits of reductions to the Company's
income tax reserves are the principal reasons for lower income taxes in
fiscal 1998. Other contributing factors include a lower State of
Connecticut corporate income tax rate and the Connecticut Fixed Capital
Asset Tax Credit.
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.
Other Income/(Deductions)
Changes in the Company's equity in partnership earnings are discussed in
"Earnings from Diversified Businesses."
Other income adds to earnings while other deductions reduce earnings.
The other income/(deductions) amount reported for fiscal 1998 includes
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
$1,012 of after-tax costs incurred by TEN related to the wind down of
certain operations, as described below in the section "Earnings from
Diversified Businesses." Absent the impact of these costs, other income
would have been higher in fiscal 1998. This results from the net effect
of lower income from investments of available cash being more than
offset by the benefits of lower promotional and advertising expenses,
lower life insurance premiums and the absence of fiscal 1997 costs
associated with the termination of the Company's regulated propane
service program.
Other 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 TEN's sale of land
and a building in August 1996. The net after tax gain was $515,
equivalent to $.05 per share.
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.
Interest related to long-term debt declined in fiscal 1997 as the amount
of principal outstanding was reduced by scheduled sinking fund payments
and early repurchases of issues that were near maturity.
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.
In addition to seasonal working capital requirements, short-term
borrowings in fiscal 1998 were used to temporarily finance a portion of
the stock repurchase and the acquisition of a cogeneration facility (See
"Investing Activities", below).
Short-term borrowings were needed in both 1997 and 1996 to supplement
the seasonal changes in available cash from operations. In fiscal 1997,
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
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 fiscal 1997
and 1996 for the diversified businesses were minimal as they were able
to meet their working capital needs from cash generated by day to day
operations.
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, TEN Gas Services, ENServe Corporation
("ENServe"), and TEN Transmission Company ("TEN Transmission"). TEN and
HSC provide DHC services to many buildings and complexes in the south-
end and downtown neighborhoods of Hartford, Connecticut. TEN also holds
a fifty percent interest in the Downtown Cogeneration Associates
partnership which owns and operates a 4.2-Megawatt cogeneration facility
in downtown Hartford, Connecticut. ENI Gas Services and TEN Gas
Services together own 100% of KBC Energy Services ("KBC"), a small gas
marketer which is in the process of winding down its operations. TEN
Transmission owns the Company's share of its investment in the Iroquois
pipeline. Although TEN Transmission is not regulated, Iroquois is
regulated by the Federal Energy Regulatory Commission ("FERC"). Refer
to Note 1 to the Financial Statements for additional information
regarding these investments.
Earnings contributed by the Company's diversified, unregulated
businesses were $.08 per share in fiscal 1998, compared to earnings per
share of $.25, and $.30 in 1997 and 1996. Each fiscal year has been
impacted by special items, each of which is discussed in detail below.
When the effects of these items are set aside, earnings from ongoing
diversified operations are $.34 per share for fiscal 1998, $.32 for
fiscal 1997 and $.25 for fiscal 1996.
The fiscal 1998 benefit to earnings per share resulting from the lower
weighted average shares outstanding is approximately $.01 for the twelve
months ended September 30, 1998. This is offset by the cost of the
added debt issued to finance the repurchase, equivalent to $(.19) per
share, for a net earnings impact from the stock repurchase of $(.18).
Fiscal 1998 earnings from ongoing operations for TEN include the benefit
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
of lower energy and production costs for district heating and cooling,
which have been realized as a result of lower energy prices, and higher
chilled water sales for cooling because of the warmer summer weather.
These benefits were partially offset by the effects of lower steam and
hot water sales during the warmer winter.
Earnings from the diversified businesses in fiscal 1998 also reflect the
measures that have been taken in the last few years to position this
area of the Company for future growth and development. Several
significant factors impacting TEN's earnings have occurred in fiscal
1998. In the first quarter, the assets of TEN's wholly-owned HVAC
subsidiary, ENServe, were sold. The subsequent winding down of this
operation is complete. TEN's fiscal 1998 earnings have benefited $.07
per share from the absence of losses that had been recorded by ENServe
in fiscal 1997. During the second quarter of fiscal 1998, TEN assumed
the full ownership of KBC and began the wind down of its operations.
The Company's share of KBC's operating losses for fiscal 1998 was
approximately $(.11). Management does not anticipate any significant
future impact to earnings related to the closing of these businesses.
In fiscal 1996, the property management business sold its land and
building, realizing a gain of $.05 per share, and ceased operations.
The wind down of KBC and the sale of the assets of ENServe will enable
the Company to focus its investments on operating assets in capital
intensive businesses in keeping with its strategic plan. As a part of
this plan, in June 1998 the diversified operations purchased a
cogeneration facility which supplies a major local hospital with steam
and electricity and sells electricity to the local electric utility.
(See "Investing Activities," below.)
The reduction in TEN's earnings in fiscal 1997, as compared to 1996, is
primarily the result of losses incurred by ENServe. Earnings from
ongoing operations partially offset these losses. 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. Lower interest
expense was incurred throughout fiscal 1997 because ongoing cash from
operations eliminated the need for short-term borrowings for working
capital. DHC earnings in fiscal 1997 were also impacted by changes in
weather: Warmer winter weather and cooler summer weather resulted in
lower sales volumes for both heating and cooling.
TEN continues to record higher earnings from its equity interest in two
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
partnerships. The majority of these earnings are from Iroquois. In
August 1998 Iroquois' rates allowed by the FERC were reduced. Thus the
Company anticipates that these earnings may be somewhat lower in fiscal
1999.
New legislation, restructuring the electric utility industry, passed in
Connecticut in April, 1998, is expected to result in reduced costs for
electricity for TEN in the future. Purchased power agreements currently
in effect between TEN and the local electric utility will not be
affected by this legislation.
Year 2000 Compliance
CTG's State of Readiness
CTG has been preparing for Year 2000 ("Y2k") issues for a number of
years. In 1989, CTG started the implementation of a Long-Range
Information Systems Plan that addressed the replacement or redevelopment
of all key CTG applications. All systems replaced or redeveloped since
1989 have been required to be Y2k compliant. In January 1998, a task
force was organized to address all Y2k issues throughout CTG operations.
The task force, headed up by a Y2k compliance officer, is comprised of
individuals from every business unit within CTG and charged with
assembling an inventory of date-impacted systems, identifying critical
vendors and customers for compliance, prioritizing non-compliant
systems, identifying critical dates for compliance, developing test
plans for all high priority systems, developing remediation plans for
noncompliant vendors or systems, and certifying that all systems and
critical vendors are compliant. A subcommittee was also formed to
communicate with the Board of Directors, customers, stockholders, the
DPUC, vendors and employees of CTG regarding the status of CTG's
activities. All of the above-noted activities of the task force, with
the exception of the certification phase, are scheduled for completion
during December 1998. The certification of systems and critical vendors
will be completed during the first six months of 1999.
During December 1998 and the first half of 1999, all internal
application programs and embedded technology will be tested. Test plans
have been developed for each system. The purpose of these tests will be
to verify that the date-sensitive features of these systems will perform
properly in the year 2000. CTG has four systems that are not compliant
at this time: Payroll/HR, Computer Aided Gas Dispatch, and TEN's
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
financial system. Through the normal replacement schedule, these systems
will be brought into compliance by mid 1999.
In April 1998, a letter and survey were sent to CTG's vendors requesting
a status of their Y2k efforts. In September 1998, a second letter and
survey were sent to vendors who did not respond. For all critical
vendors who are not Y2k compliant by the critical dates identified, CTG
will make arrangements for alternate suppliers and service providers.
This process will take place throughout the remaining months of 1998 and
the first six months of 1999. Parts and materials purchased from non-
compliant vendors which are critical to CTG's operations, will be
acquired in adequate quantities and inventoried prior to the end of
1999.
Although not all vendors have returned surveys, no third parties with
whom CTG has significant business relationships have disclosed problems
which would indicate the potential for business interruptions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
Costs to Address CTG's Year 2000 Issues
CTG has not incurred significant incremental costs, nor does it expect
to incur significant outside consulting costs relating to the Y2k issue.
In accordance with the aforementioned Long-Range Systems Plan, CTG has
been replacing or redeveloping its major computer applications during
the past decade and the timetable called for by this plan was not
accelerated as a result of the advent of the Y2k issue.
Risks of CTG's Year 2000 Issues
Although the Company has not received responses from all of its vendors,
CTG has not identified any known Y2k-related event, trend, demand,
commitment, or uncertainty which would likely have a material effect on
CTG's business, results of operations, liquidity, capital resources or
financial condition. CTG has canvassed its critical vendors and no such
vendor has indicated it will not be Y2k compliant. CTG has assigned
critical dates throughout 1999 for these vendors to show compliance. If
a vendor does not show compliance by a specific date, CTG will either
find a replacement vendor or develop a work-around for such
noncompliance.
CTG's Contingency Plans
CTG's contingency plan includes selecting alternate vendors that are Y2k
compliant, using back-up systems which do not rely on computers, and
obtaining critical parts and materials. Critical dates for compliance
have been established for systems and vendors utilized throughout CTG.
These critical dates have been established in order to allow sufficient
time for CTG to either remediate any date-sensitive features in existing
computer software and applications critical to CTG's business or to
acquire services and products from alternate providers who are Y2k
compliant.
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
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
changes in cash requirements, primarily to fund gas purchases,
construction expenditures and customer accounts receivable, by using
cash flows generated from operations supplemented by short-term
financing from lines of credit.
The diversified operations' cash resources and requirements are also
seasonal. Cash requirements have generally been satisfied with cash
flows from operations together with short-term financing from lines of
credit.
Long-term debt issued in fiscal 1998 was used to finance a stock
repurchase and to refinance existing long-term and short-term debt.
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
Purchased Gas Adjustment provisions ("PGA") of the Company's tariffs.
The volumes of gas sold magnify the impact of changing prices.
In fiscal 1998, the Company relied on cash from operations and its
available lines of credit to satisfy cash requirements for working
capital, dividends, asset acquisitions and construction expenditures.
Cash from operations is lower from year to year, following the trend of
warmer winter weather and the resulting reduction in operating margin.
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.
Investing Activities
Construction expenditures in 1998, 1997 and 1996 were $26,060, $24,593
and $24,281 respectively. Capital spending for the fiscal year ending
September 30, 1999 is estimated to be $26,100 for the regulated
operations. The diversified businesses are projecting to expend $14,000
in fiscal 1999 primarily to fund the expansion of the DHC system. CTG's
construction program is subject to continuous review and modification,
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
and actual expenditures may vary from these estimates. The Company
plans to fund capital expenditures and other commitments through a
combination of sources.
Ten continues to investigate other DHC systems and other investment
opportunities which are alligned with its overall capital asset
investment strategy. Additional borrowings and/or funds may be required
to realize such transations. The Company has been working with its
banks and other sources in order to be prepared if such an opportunity
arises.
In June 1998, TEN acquired the assets of a 16-Megawatt capacity
cogeneration facility which supplies Hartford Hospital with steam and
electricity. The purchase price of approximately $16,969 was financed
through existing lines of credit. The assets acquired in the
transaction include $1,588 of current assets, $1,744 of plant and
equipment and a note receivable of $13,637 of which $4,889 is current
and classified in accounts and notes receivable in the consolidated
balance sheet. The note receivable relates to an existing termination
agreement with the local electric utility which is now assigned to HSC.
Pursuant to this agreement, the utility will make payments to HSC
through December 2000.
HSC will now supply the hospital with steam and electricity over a
twenty-year contract period. The facility is currently off-line for
repowering as a 7.5-Megawatt facility and is scheduled to be back on
line by January 1999 under HSC's management. Thus, revenues are
expected to be realized from this facility beginning in the second
quarter of fiscal 1999. This investment is directly linked with the
diversified operations' growth strategy of focusing on the ownership and
operation of energy facility assets.
In May 1997, the Company invested $100 for a 2.15% interest in the AGA
Gas Finance Company ("GasFinCo"). In July 1998, GasFinCo ceased
operations and the Company wrote off its investment.
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 had increased
from one third to one half. During the second quarter of fiscal 1998,
two of TEN's subsidiaries together assumed the full ownership and
control of KBC and began the sale of its assets and the wind down of its
operations.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
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.
Adriaen's Landing
The Company has been approached by local businesses and government
agencies regarding the development of a stadium and convention center
along with hotel, retail, recreational and housing facilities. The
development, known as Adriaen's Landing, would be built in the area of
the Company's headquarters, operating center and steam/chilled water
production facilities. The Company, in order to accommodate the
development as it is currently planned, would be required to relocate
its facilities. Discussions are now underway with the participants in
order to accomplish this at no cost to the Company or its customers.
The area of development, which includes Company property, may contain
hazardous materials that the project participants will be required to
address. This project is in line with the Company's vision and
direction for growth.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
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
9 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 October 1998 the Company refinanced $30,800
of short-term borrowings with long-term debt (see "Subsequent Events",
below).
The Company's 9.16%, Series AA First Mortgage Bonds are subject to
redemption by sinking fund scheduled at $2,500 per year. The Company
exercised its option to increase the principal payment amount due on
October 1, 1998, by an additional $2,500, for a total of $5,000. This
increased the Company's current portion of long-term debt by $2,500 at
September 30, 1998.
In August 1998, the Company refinanced its outstanding $10,600 1986 and
1988 series of tax exempt, seven-day put, Industrial Revenue Variable
Rate Demand Bonds ("IRBs") issued by the Connecticut Development
Authority. The 1998 series of IRBs mature in 2025 and have no sinking
fund requirements. The original IRBs financed TEN's Capitol Area
district heating and cooling facilities in Hartford, Connecticut. At
the same time, the Company replaced the letter of credit which supports
these IRBs. The IRBs have been assigned the rating of A+/A-1 by
Standard & Poor's.
In October 1997, TEN issued Senior Secured Notes for $45,000, due in
2009, at 6.99%. The principal will be retired through semi-annual
payments of $2,500 beginning in 2001. The proceeds were used to
repurchase approximately 2.0 million shares of CTG common stock.
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%
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
$ 1,000 6.65%
$17,000 6.69%
The MTNs are rated at A3 by Moody's and A- by Standard and Poor's.
In March 1998, the Company renewed its $20,000 revolving credit
agreement to 2001 with two subsequent one-year renewal options.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
In February 1998, the Company replaced its expiring $9,000 bank line of
credit with a seasonally adjusted $10,000 to $15,000 line of credit
through February of 1999.
In October 1997, TEN entered into a 364-day secured revolving credit
agreement for $10,000 with a bank. This agreement matured on September
29, 1998 and was extended for sixty days at that time. The Company
expects to renew this agreement for one year beginning December 1998.
In October 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.
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
On October 30, 1997, through a tender offer made by TEN, the Company
repurchased approximately 2.0 million shares of CTG common stock for
approximately $53,000. TEN financed the purchase with a combination of
revolving bank debt and the issuance of Senior Secured Notes. The
shares repurchased by TEN were transferred by the depositary directly to
CTG. In connection with the repurchase, effective with the first
quarter of fiscal 1998, CTG reduced its quarterly dividend on common
stock from $0.38 ($1.52 annually) to $0.25 ($1.00 annually) per share.
The lower shares outstanding 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.
During fiscal 1997, 29,145 original issue shares of the Company's no par
common stock were issued through various Company-sponsored plans.
Under the most restrictive terms of the indenture securing the Company's
First Mortgage Bonds, retained earnings of $25,174 are available for CNG
to pay dividends at September 30, 1998. CTG's ability to pay dividends
is not restricted by these terms. Dividends paid on common and
preferred stock in fiscal 1998 were $8,657. 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
Forward Equity Purchase Agreement
In a Forward Equity Purchase Agreement dated October 1, 1997, and
amended October 14, 1998, CTG has committed to fund from $7,500 to
$16,100 per year into TEN from 1998 through 2009 for an aggregate
additional cash infusion into TEN of $122,600. 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.
Deferred Income Taxes
In fiscal 1998, 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 its deferred tax calculation. Effective
March 31, 1998, the Company normalized cost of removal costs in its
calculation of deferred taxes. The normalization of the cost of removal
costs for 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 September 30, 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.
Other Tax Matters
The Company is subject to audit by State of Connecticut and Federal
authorities as it relates to income, sales, use and property tax returns
filed. In addition, the Company has several ongoing issues related to
the taxability of off-system gas sales by state taxing authorities. In
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
the opinion of management, the ultimate resolution of these issues will
not have a material impact on the Company's results of operations.
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 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.
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. Similarly, the
Company has offered firm transportation rate tariffs to nonresidential
customers, since April of 1996. 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.
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 of using 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 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. The risk of competition to the DHC
business from alternate energy types is diminished after a customer has
made its commitment to DHC, because of the cost of the equipment
necessary to utilize an alternative energy source. New legislation,
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
restructuring the electric utility industry, passed in Connecticut in
April, 1998, and may result in an increase DHC's competition for
customers if this alternative energy source becomes more affordable.
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).
Regulatory Proceedings
In a second phase of a regulatory review of natural gas deregulation
which began in 1996, the DPUC is addressing the potential deregulation
of the residential natural gas sales market in Connecticut and the
future role of Connecticut's local gas distribution companies in natural
gas commodity sales. Concurrently, the Connecticut State Legislature
has undertaken a task force investigation related to residential
deregulation. Although the Company cannot predict the outcome of these
proceedings, the Company anticipates that the timing of any DPUC
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
decision will be related to the timing of the completion and
announcement of the results of the Connecticut State Legislature's
activities.
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.
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 August 1998, the Company received a notice of
violation from the Connecticut Department of Environmental Protection
("DEP") regarding a number of areas on noncompliance. The Company
submitted the required compliance report in September 1998. The DEP has
advised the Company that a Consent Order and a penalty or supplemental
environmental project ("SEP") will be required to address the areas of
noncompliance, but the DEP has not given the Company any indication of
the amount of any penalty and/or SEP that may be required. The Company
is working with the DEP to resolve this issue. 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.
Legal Proceedings
In November 1995, certain Connecticut plumbers and HVAC contractors
filed a class action suit against the CNG 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. In January 1998, the court granted CNG's motion to strike all
but one count of the complaint: the antitrust conspiracy claim. The
plumbers and contractors subsequently filed two additional lawsuits
against CNG and the other LDCs alleging violations arising from the same
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
business activities as in the first lawsuit. All of the cases were
assigned to the State's complex litigation docket. 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.
In July 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. In
its decision issued in October 1998, the court upheld the Company's
franchise rights in the disputed area.
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.
SUBSEQUENT EVENTS
Long-term Debt
In October 1998, TEN issued $15,000 of Senior Secured Notes, due in
2010, at 6.9%. The full amount of the principal is due at maturity.
The proceeds were used to repay short-term debt that was used to finance
the purchase and repowering of the Hartford Hospital cogeneration
facility (See "Investing Activities", above). The September 30, 1998,
financial statements reflect the classification of the debt that was
retired as a result of this refinancing as long-term debt.
In October 1998, the Company issued a total of $20,000 of MTNs at 6.04%,
due 2008. These MTNs are unsecured and have no call provisions or
sinking fund requirements. The proceeds were used primarily to
refinance $15,800 of short-term debt that was outstanding at fiscal
year-end 1998. The long-term debt amounts shown on the balance sheet
and statement of capitalization at September 30, 1998, include $15,800
of these MTNs.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
The Energy Network Alliance
In October 1998, TEN entered into a marketing alliance with Pratt &
Whitney Canada, Inc., Carrier Corporation and Oxford Technologies, Inc.
to provide energy for heating, cooling and electricity to large
commercial, industrial and institutional facilities by combining
cogeneration and district energy. As its role in this alliance, TEN
will own and operate the individual customers' on-site district energy
plants which will be equipped with state-of-the-art energy systems
provided by the other members of the alliance. TEN's participation in
this alliance is in keeping with TEN's strategic plan to focus its
investments in fixed assets in capital intensive businesses.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("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
disclosure is required in fiscal 1999 and will have no impact on the
Company's financial condition or results of operations.
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
additional information about operating segments. Adoption of SFAS No.
131 is required in fiscal 1999. The adoption of SFAS No. 131 will have
no impact on the Company's financial condition or results of operations.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS No. 132").
This statement standardizes employers' disclosures requirements about
pension and other postretirement benefit plans. Adoption of SFAS No.
132 is required in fiscal 1999. The adoption of SFAS No. 132 will have
no impact on the Company's financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This statement
establishes accounting and reporting standards for derivative
instruments and for hedging activities. Adoption of SFAS No. 133 is
required beginning with the first quarter of fiscal 2000. The Company
is aware of certain provisions which may impact the natural gas industry
but has not yet reviewed these provisions in detail against its existing
accounting practices and disclosures. At this time the Company cannot
predict what impact, if any, the adoption of SFAS No. 133 will have on
its 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
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (continued)
----------------------------------------------------
customers. The Company attempts to minimize the effects of inflation on
other costs through cost control, productivity improvements and
regulatory actions where appropriate.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
------------------------------------------------------------------------
RESULTS OF OPERATIONS, SEPTEMBER 30, 1998 (concluded)
----------------------------------------------------
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. Such statements include but are not
limited to disclosures about Year 2000 Compliance, Adriaen's Landing,
the Weather Stabilization Program, changes in operating and maintenance
expenses, impacts to earnings from the wind down of certain diversified
operations, earnings from equity interests in partnerships, the
restructuring of the electric industry, future construction
expenditures, diversified operations growth strategy, anticipated
earnings from a newly acquired cogeneration facility, a Forward Equity
Purchase Agreement, state and Federal tax audits, the Company's
competitive environment, regulatory proceedings regarding further state
deregulation of the natural gas industry, environmental matters, legal
proceedings, the Energy Network Alliance, and New Accounting Standards.
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.
This Page Intentionally Left Blank
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, 1998 and
1997, 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, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three
years in the period ended September 30, 1998, 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
October 27, 1998
This Page Intentionally Left Blank
Consolidated Balance Sheets
September 30, 1998 and 1997
(Thousands of Dollars)
Assets 1998 1997
---- ----
Plant and Equipment:
Plant in service $ 510,542 $ 484,250
Construction work in progress 3,647 7,703
--------- ---------
514,189 491,953
Less-Allowance for depreciation 176,173 160,313
--------- ---------
338,016 331,640
--------- ---------
Investments, at equity 11,821 11,530
--------- ---------
Current Assets:
Cash and cash equivalents 1,264 4,458
Accounts and notes receivable (less
allowance for doubtful accounts of
$3,283 in 1998 and $3,439 in 1997) 31,513 25,287
Accrued utility revenue 3,789 4,624
Inventories 17,852 17,584
Prepaid expenses 11,707 8,903
--------- ---------
Total Current Assets 66,125 60,856
--------- ---------
Other Assets:
Unrecovered future taxes 10,734 17,263
Other assets 32,485 23,084
--------- ---------
Total Other Assets 43,219 40,347
--------- ---------
$ 459,181 $ 444,373
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Balance Sheets (Concluded)
September 30, 1998 and 1997
(Thousands of Dollars)
Capitalization and Liabilities 1998 1997
---- ----
Capitalization (see accompanying statements):
Common stock equity $ 123,397 $ 169,299
Preferred stock, not subject to
mandatory redemption 879 884
Long-term debt 215,852 126,787
--------- ---------
340,128 296,970
--------- ---------
Current Liabilities:
Current portion of long-term debt 5,733 1,487
Notes payable 2,000 27,500
Accounts payable and accrued expenses 30,813 36,968
Refundable purchased gas costs 1,640 4,714
Accrued taxes 707 484
Accrued interest 4,317 4,047
--------- ---------
Total Current Liabilities 45,210 75,200
--------- ---------
Deferred Credits:
Deferred income taxes 50,175 44,302
Unfunded deferred income taxes 10,734 17,263
Investment tax credits 2,761 2,982
Refundable taxes 4,252 3,491
Other 5,921 4,165
--------- ---------
Total Deferred Credits 73,843 72,203
--------- ---------
Commitments and Contingencies
--------- ---------
$ 459,181 $ 444,373
========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Income
For the Years Ended September 30, 1998, 1997 and 1996
(Thousands of Dollars Except for Per Share Data)
1998 1997 1996
---- ---- ----
Operating Revenues $ 282,748 $ 305,295 $ 315,103
Less: Cost of energy 150,685 166,785 175,175
State gross revenues tax 9,660 11,107 11,710
--------- --------- ---------
Operating Margin 122,403 127,403 128,218
--------- --------- ---------
Operating Expenses:
Operations 45,623 48,241 49,640
Maintenance 8,361 8,682 8,615
Depreciation and amortization 19,305 18,184 17,765
Income taxes 12,210 16,959 14,364
Local property taxes 5,216 5,323 5,277
Other taxes 2,233 2,400 2,313
--------- --------- ---------
92,948 99,789 97,974
--------- --------- ---------
Operating Income 29,455 27,614 30,244
--------- --------- ---------
Other Income/(Deductions),
net of income taxes:
Allowance for equity funds used
during construction 61 125 144
Equity in partnership earnings 3,271 2,910 2,037
Other income/(deductions) (811) (68) 508
Nonrecurring items - - 892
Income taxes (856) (665) (1,115)
--------- --------- ---------
1,665 2,302 2,466
--------- --------- ---------
Income Before Interest Charges 31,120 29,916 32,710
--------- --------- ---------
Interest and Debt Expense, net:
Interest on long-term debt 14,029 11,345 11,825
Other interest 1,463 1,200 1,585
Allowance for borrowed funds used
during construction (41) (84) (96)
Amortization of debt expense 473 380 401
--------- --------- ---------
15,924 12,841 13,715
--------- --------- ---------
Net Income 15,196 17,075 18,995
Less-Dividends on Preferred Stock 61 62 63
--------- --------- ---------
Net Income Applicable to Common Stock $ 15,135 $ 17,013 $ 18,932
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Income (Concluded)
For the Years Ended September 30, 1998, 1997 and 1996
(Thousands of Dollars Except for Per Share Data)
1998 1997 1996
---- ---- ----
Net Income Applicable to Common Stock $ 15,135 $ 17,013 $ 18,932
========= ========= =========
Average Common Shares Outstanding
During the Period:
Basic 8,871,349 10,632,001 10,146,932
========== ========== ==========
Fully diluted 8,922,965 10,683,759 10,175,544
========== ========== ==========
Income Per Average Share of
Common Stock:
Basic $ 1.71 $ 1.60 $ 1.87
========= ========= =========
Fully diluted $ 1.70 $ 1.59 $ 1.86
========= ========= =========
Dividend Per Share of Common Stock $ 1.00 $ 1.52 $ 1.50
========= ========= =========
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Cash Flows
For the Years Ended September 30, 1998, 1997 and 1996
(Thousands of Dollars)
1998 1997 1996
---- ---- ----
Cash Flows from Operations: $ 27,091 $ 29,554 $ 37,114
-------- -------- --------
Cash Flows from Investing Activities:
Capital expenditures (22,435) (24,593) (24,281)
Purchase of Cogeneration Assets (17,067) - -
Cash distributions received from
investments 2,442 1,761 2,061
Other investing activities, net 901 54 (1,338)
-------- -------- --------
Net cash used in investing activities (36,159) (22,778) (23,558)
-------- -------- --------
Cash Flows from Financing Activities:
Dividends paid (8,657) (16,177) (15,491)
Issuance (repurchase) of common stock (53,277) 622 15,557
Other stock activity, net (3) (652) (38)
Issuance of long-term debt 74,600 - -
Principal retired on long-term debt (12,089) (22,126) (3,911)
Short-term debt 5,300 27,500 (4,200)
-------- -------- --------
Net cash provided (used) by
financing activities 5,874 (10,833) (8,083)
-------- -------- --------
Increase (Decrease) in Cash and
Cash Equivalents (3,194) (4,057) 5,473
Cash and Cash Equivalents at
Beginning of Year 4,458 8,515 3,042
-------- -------- --------
Cash and Cash Equivalents at
End of Year $ 1,264 $ 4,458 $ 8,515
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Cash Flows (Concluded)
For the Years Ended September 30, 1998, 1997 and 1996
(Thousands of Dollars)
1998 1997 1996
---- ---- ----
Schedule Reconciling Earnings to
Cash Flows from Operations:
Net Income $ 15,196 $ 17,075 $ 18,995
-------- -------- --------
Adjustments to reconcile income
to net cash:
Depreciation and amortization 20,628 18,098 17,909
Provision for uncollectible
accounts 5,044 3,855 4,600
Deferred income taxes, net 6,414 4,115 1,886
Equity in partnership earnings (3,271) (2,910) (2,037)
Changes in assets and liabilities:
Accounts receivable (5,410) (3,873) (1,640)
Accrued utility revenue 835 (444) 913
Inventories (268) (1,616) (1,457)
Purchased gas costs (3,074) (1,298) 3,712
Prepaid expenses (2,804) 2,017 (4,825)
Accounts payable and accrued expenses (4,823) (1,682) (5,902)
Other assets/liabilities (1,376) (3,783) 4,960
-------- -------- --------
Total adjustments 11,895 12,479 18,119
-------- -------- --------
Net cash provided by
operations $ 27,091 $ 29,554 $ 37,114
======== ======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Year for:
Interest $ 14,222 $ 13,058 $ 12,193
======== ======== ========
Income taxes $ 8,042 $ 8,261 $ 17,633
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Capitalization
September 30, 1998 and 1997
(Thousands of Dollars)
1998 1997
---- ----
Common Stock Equity:
Common stock, no par, authorized 20,000,000
shares, issued and outstanding 8,652,171
shares in 1998 and 10,652,169 shares in 1997 $ 67,448 $120,409
Retained earnings 56,447 49,924
-------- --------
123,895 170,333
-------- --------
Less: Unearned compensation - restricted
stock awards (498) (1,034)
-------- --------
123,397 169,299
-------- --------
Preferred Stock, Not Subject to Mandatory
Redemption:
$3.125 par value, 8%, noncallable, authorized
909,898 shares in 1998 and 1997, issued and
outstanding 134,426 shares in 1998 and 1997,
entitled to preference on liquidation at
$6.25 per share 420 420
$100 par value, callable, authorized 9,999,557
shares in 1998 and 9,999,602 shares in 1997
6% Series B, issued and outstanding 4,593
shares in 1998 and 4,638 shares in 1997 459 464
-------- --------
879 884
-------- --------
Long-Term Debt:
First Mortgage Bonds -
9.16%, due 2004 18,000 18,000
Industrial Revenue Demand Bonds -
1986 and 1988 series,
weighted average interest rate of
3.492% in 1998 and 3.66% in 1997, due 2006 - 11,400
1998 series, weighted average interest rate
of 3.36% in 1998, due 2025 10,600 -
First Mortgage Note -
10.5%, due 2010 925 963
Senior Secured Notes -
6.99%, due 2009 45,000 -
6.90%, due 2010 15,000 -
Secured Notes -
9.32%, due 1999 - 6
6.89%, due 2010 12,260 12,905
Unsecured Medium Term Notes -
7.61%, due 2002 10,000 10,000
7.82%, due 2004 10,000 10,000
6.62%, due 2007 1,000 -
6.65%, due 2007 1,000 -
6.69%, due 2007 17,000 -
6.04%, due 2008 15,800 -
8.05%, due 2012 5,000 5,000
6.85%, due 2013 20,000 20,000
8.12%, due 2014 5,000 5,000
9.10%, due 2016 10,000 10,000
8.96%, due 2017 20,000 20,000
8.49%, due 2024 5,000 5,000
Less - Current Maturities (5,733) (1,487)
-------- --------
215,852 126,787
-------- --------
$340,128 $296,970
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
Consolidated Statements of Common Stock Equity
For the Years Ended September 30, 1998, 1997 and 1996
(Thousands of Dollars Except for Share Data)
Common Stock
------------------------ Unearned Retained
Shares Amount Compensation Earnings
---------- ---------- ------------ ---------
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
Repurchase Common Stock (1,999,998) (52,891) - -
Net income after
preferred dividends - - - 15,135
Issues to dividend
reinvestment and
employee benefit plans - 63 - -
Amortization and
adjustment of
restricted shares - (133) 536 (16)
Dividends - - - (8,596)
---------- -------- ------ --------
Balance at September 30, 1998 8,652,171 $67,448 $ (498) $ 56,447
========== ======== ====== ========
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, 1998
1. Summary of Significant Accounting Policies:
Organization-
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"). TEN holds and operates, through divisions or
wholly-owned subsidiaries, CTG's unregulated, diversified businesses which
also include the Company's equity investments in two partnerships, one of
which is the Iroquois Gas Transmission System ("Iroquois").
Nature of the business-
CTG's principal business is the distribution, transportation and sale of
natural gas through CNG. This business is subject to extensive regulation.
CTG is also engaged in unregulated diversified businesses through TEN and
its subsidiaries. These business activities are primarily focused on
district heating and cooling ("DHC") and also include other energy-related
products and services and new business development. The activities of
Iroquois are regulated by the Federal Energy Regulatory Commission.
Principles of consolidation-
CTG owns all of the capital stock of its subsidiaries, CNG and TEN. The
consolidated financial statements represent the accounts of the Company
after the elimination of intercompany transactions. 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-
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
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
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
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, 1998 and 1997, deferred balances of
approximately $5,400 and $4,100, respectively, are included in other assets
pending future amortization and recovery from ratepayers.
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
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
the lien of the Indenture of Mortgage and Deed of Trust securing its First
Mortgage Bonds. The Capitol Area DHC properties owned by TEN are also
subject to the liens associated with TEN's Industrial Revenue Variable Rate
Demand Bonds and related letter of credit (See Notes 8 and 9).
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.
Depreciation-
CTG and its subsidiaries, except CNG's wholly-owned subsidiary, CNG Realty
Corp. ("CNGR"), provide depreciation on a straight-line basis. The
composite rate applied by the regulated operations was 4.1% in 1998, 1997
and 1996, 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.
The average depreciation rates for diversified businesses' depreciable
plant were 3.6% in 1998 and 1997 and 3.8% in 1996.
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 $11,821 at September 30, 1998. These
include $10,937 for a 4.87% investment in Iroquois and $884 for a 50%
investment in the Downtown Cogeneration Associates Limited Partnership
("DCA"). These 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 4.2-Megawatt cogeneration facility in Hartford, Connecticut.
During the second quarter of fiscal 1998, TEN assumed control of KBC Energy
Services ("KBC"), a New England natural gas marketer, and began the sale of
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
its assets and the wind down of its operations. At September 30, 1997 TEN
had a 50% ownership interest in this partnership. The fiscal 1998 charge
to earnings related to the wind down of KBC was $1,012, net of income
taxes. Management does not anticipate any significant future activity
related to KBC.
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-
CNG's natural gas distribution business is subject to regulation by the
DPUC. CNG 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 CNG 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. CNG 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.
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. Specifically, 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,
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
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, 1998 and 1997
contain the following amounts as a result of the application of SFAS No.
71:
Assets/(Liabilities) 1998 1997
-------------------- ---- ----
Unrecovered Future Taxes $ 10,734 $ 17,263
Hardship Arrearage Forgiveness 5,388 4,138
Other Postretirement Benefits 2,974 2,973
Deferred Income Taxes 1,797 3,141
Other Deferred Charges 1,280 1,626
Recoverable Transition Costs - 839
Pipeline Refunds, Surcharges and Interest (535) (5,265)
Deferred Gas Costs (1,496) (4,694)
Revenue Sharing Mechanisms (3,329) (2,481)
Refundable Taxes (4,252) (3,491)
-------- --------
$ 12,561 $ 14,049
======== ========
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
New accounting standards-
In June 1997, the Financial Accounting Standards Board ("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
disclosure is required in fiscal 1999 and will have no impact on the
Company's financial condition or results of operations.
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 additional
information about operating segments. Adoption of SFAS No. 131 is required
in fiscal 1999. The adoption of SFAS No. 131 will have no impact on the
Company's financial condition or results of operations.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits" ("SFAS No. 132"). This
statement standardizes employers' disclosures requirements about pension
and other postretirement benefit plans. Adoption of SFAS No. 132 is
required in fiscal 1999. The adoption of SFAS No. 132 will have no impact
on the Company's financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS No. 133"). This statement
establishes accounting and reporting standards for derivative instruments
and for hedging activities. Adoption of SFAS No. 133 is required beginning
with the first quarter of fiscal 2000. The Company is aware of certain
provisions which may impact the the natural gas industry but has not yet
reviewed these provisions in detail against existing accounting practices
and disclosures. At this time the Company cannot predict what impact, if
any, the adoption of SFAS No. 133 will have on its financial condition or
results of operations.
2. Regulatory Matters:
In a second phase of a regulatory review of natural gas deregulation which
began in 1996, the DPUC is addressing the potential deregulation of the
residential natural gas sales market in Connecticut and the future role of
Connecticut's local gas distribution companies in natural gas commodity
sales. Concurrently, the Connecticut State Legislature has undertaken a
task force investigation related to residential deregulation. Although the
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Company cannot predict the outcome of these proceedings, the Company
anticipates that the timing of any DPUC decision will be related to the
timing of the completion and announcement of the results of the Connecticut
State Legislature's activities.
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.
3. Purchase of Cogeneration Facility:
In June 1998, TEN acquired the assets of a 16-Megawatt capacity
cogeneration facility which supplies Hartford Hospital with steam and
electricity. The purchase price of approximately $17,000 was financed
through existing lines of credit. The assets acquired in the transaction
include $1,619 of current assets, $1,744 of plant and equipment and a note
receivable of $13,637, of which $4,889 is current and classified in
accounts and notes receivable in the consolidated balance sheet. The note
receivable relates to an existing termination agreement with the local
electric utility which is now assigned to The Hartford Steam Company
("HSC"), a wholly-owned subsidiary of TEN. Pursuant to this agreement, the
utility will make payments to HSC through December 2000.
HSC will now supply the hospital with steam and electricity over a twenty-
year contract period. The facility is currently off-line for repowering as
an 7.5-Megawatt facility and is scheduled to be back on line by January
1999 under HSC's management.
4. 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, 1998
The assumptions used in determining the pension obligations were:
1998 1997 1996
---- ---- ----
Weighted Average Discount Rate ......... 7.50% 7.50% 8.25%
Rate of Increase in Future Compensation Levels
.............................. 4.00% 4.00% 4.40%
Expected Long-term Rate of Return on Assets
.............................. 9.00% 9.00% 8.75%
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
The following table represents the Plans' funded status and amounts
included in the balance sheets at September 30, 1998 and 1997:
1998 1997
---- ----
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $84,328 in 1998 and of $76,545 in
1997 $ 87,222 $ 78,882
======== ========
Projected benefit obligation for service rendered
to date $101,853 $ 93,472
Assets at fair value, primarily publicly traded stocks
and bonds 123,611 113,331
-------- --------
Value of assets over the projected benefit obligation
21,758 19,859
Unrecognized net gain from past experience different
from that assumed (19,997) (18,294)
Prior service cost not yet recognized in net periodic
pension cost 303 874
Unrecognized net asset at January 1, 1986 being
recognized over 15 years (776) (1,087)
-------- --------
Accrued pension liability $ 1,288 $ 1,352
======== ========
Net pension costs included in the statements of income for the years ending
September 30, include the following components:
1998 1997 1996
---- ---- ----
Service cost $ 2,377 $ 2,113 $ 2,095
Interest cost 6,856 6,373 6,183
Return on plan assets (14,897) (18,616) (11,503)
Net amortization and deferral 5,728 10,139 3,653
-------- -------- --------
Net cost $ 64 $ 9 $ 428
======== ======== ========
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
The Company also provides its officers with a supplemental retirement plan.
The actuarially determined accumulated benefit obligation was approximately
$4,360 at September 30, 1998 and $4,454 at September 30, 1997. The cost of
this plan is being accrued over the service lives of the individual
officers. Net expense related to this plan was $634 for 1998, $548 for
1997 and $540 for 1996. 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, 1998 and 1997, was $5,805
and $4,953, respectively.
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 Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits".
5. 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 $2,748
in 1998, $3,074 in 1997 and $3,293 in 1996. Actual costs charged to
expense were $2,813 in 1998 and $2,755 in 1997 and 1996. In 1995, the DPUC
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, 1998 and 1997, $2,975 and $2,973,
respectively, were deferred pending future amortization and recovery.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
The following table represents the plan's funded status reconciled to the
consolidated balance sheets at September 30, 1998 and 1997:
1998 1997
---- ----
Accumulated postretirement benefit obligation of:
Retirees $ 18,143 $ 19,120
Active employees fully eligible
to retire 2,960 3,015
Active employees not eligible to retire 8,152 6,325
-------- --------
Total accumulated postretirement benefit obligation
29,255 28,460
Less: Market value of plan assets 11,037 8,504
-------- --------
Accumulated postretirement benefit obligation in
excess of plan assets 18,218 19,956
Unrecognized transition amount (13,519) (15,693)
Unrecognized net loss (1,870) (1,746)
-------- --------
Accrued postretirement benefit
obligation $ 2,829 $ 2,517
======== ========
The components of SFAS No. 106 health care and life insurance costs for the
fiscal years ended September 30, 1998, 1997 and 1996 were:
1998 1997 1996
---- ---- ----
Service cost $ 456 $ 425 $ 435
Interest cost 2,045 2,131 2,164
Return on plan assets (1,505) (1,436) (578)
Net amortization 1,752 1,954 1,272
-------- -------- --------
Net health care and life insurance costs $ 2,748 $ 3,074 $ 3,293
======== ======== ========
For measurement purposes annual rates of increase of 8% and 7% 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 4.5% for both groups in 2004. 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
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
September 30, 1998 and 1997 by $1,701 and $1,402, respectively, and the
aggregate of the service and interest cost for the years ended September
30, 1998, 1997 and 1996 by $119, $134 and $133, respectively. The weighted
average discount rate used in determining the accumulated post retirement
benefit obligation was 7.50% in 1998 and 1997 and 8.25% in 1996 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 8.00% in 1998 and 7.50% in 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 1998, 1997 and 1996 the
Company funded $2,493, $2,459 and $2,896, respectively, for SFAS No. 106
costs. The VEBA balances are primarily invested in life insurance policies
and commingled fixed income and equity mutual funds.
6. Taxes:
Income Taxes-
The following is an analysis of the provision for federal and state income
taxes:
September 30,
------------------------
1998 1997 1996
---- ---- ----
Charged to operations:
Federal:
Current $ 4,742 $10,330 $ 9,842
Deferred 5,277 3,069 1,082
------- ------- -------
10,019 13,399 10,924
------- ------- -------
State:
Current 427 2,816 3,118
Deferred 1,985 965 543
------- ------- -------
2,412 3,781 3,661
------- ------- -------
Deferred investment tax credits (221) (221) (221)
------- ------- -------
Total charged to operations 12,210 16,959 14,364
------- ------- -------
Charged to other income/(deductions):
Federal:
Current 590 531 552
Deferred 62 (34) 232
------- ------- -------
652 497 784
------- ------- -------
State:
Current 183 179 245
Deferred 21 (11) 86
------- ------- -------
204 168 331
------- ------- -------
Total charged to other income/(deductions) 856 665 1,115
------- ------- -------
Total $13,066 $17,624 $15,479
======= ======= =======
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
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, 1998 and 1997 were:
1998 1997
---- ----
Property, Plant and Equipment $ 53,297 $ 47,067
Other, net (3,122) (2,765)
-------- --------
Deferred Income Taxes $ 50,175 $ 44,302
======== ========
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, 1998 and 1997, the Company had $10,734 and $17,263,
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
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
been adjusted for the tax effect of future revenue requirements and will be
amortized over the life of the related depreciable assets concurrent with
their recovery in rates.
In fiscal 1998, the Company performed a detailed study of 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
its deferred tax calculation. Effective March 31, 1998, the Company
normalized cost of removal costs in its calculation of deferred taxes. The
normalization of the cost of removal costs for deferred tax requirements
reduced the amounts of unrecovered future taxes from rate payers and
unfunded deferred income taxes on the balance sheet. Amounts shown on the
balance sheet for the unfunded deferred income tax liability, and the
corresponding unrecovered receivable related to SFAS No. 109 reflect this
adjustment.
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.
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:
1998 1997 1996
---- ---- ----
Consolidated statutory federal income tax expense $ 8,976 $10,762 $10,669
Change in consolidated federal income tax expense
resulting from:
Excess book over tax depreciation 2,654 2,253 1,724
Investment tax credits (221) (221) (221)
Bad debts 44 175 175
Tax reserves (866) 714 (500)
Computer software 175 175 175
Cost of removal (381) (324) (507)
Other 69 141 (28)
------- ------- -------
Consolidated reported federal income tax expense $10,450 $13,675 $11,487
======= ======= =======
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Outstanding tax issues-
The Company is subject to audit by State of Connecticut and Federal
authorities as it relates to income, sales, use and property tax returns
filed. In addition, the Company has several ongoing issues related to the
taxability of off-system gas sales by state taxing authorities. In the
opinion of management, the ultimate resolution of these issues will not
have a material impact on the Company's results of operations.
7. 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.
Recapitalization plan-
On October 30, 1997, through a tender offer made by TEN, the Company
repurchased approximately 2.0 million shares of CTG common stock for
approximately $53,000. TEN financed the purchase with a combination of
revolving bank debt and the issuance of Senior Secured Notes. The shares
repurchased by TEN were transferred by the depositary directly to CTG. In
connection with the repurchase, effective with the first quarter of fiscal
1998, CTG reduced its quarterly dividend on common stock from $0.38 ($1.52
annually) to $0.25 ($1.00 annually) per share.
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.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Year Ended
September Year Ended Year Ended
30, 1998 September 30, 1997 September 30, 1996
----------- ------------------ ------------------
Pro Forma Pro Forma
As As Stock As Stock
Income Statement Data: Reported Reported Repurchase Reported Repurchase
------------------- -------- -------- --------- -------- ---------
Net Income Applicable to
Common Stock $ 15,135 $ 17,013 $ 14,855 $ 18,932 $ 16,780
======== ======== ======== ======== ========
Income Per Average Share
of Common Stock (1) $ 1.71 $ 1.60 $ 1.72 $ 1.87 $ 2.06
====== ====== ====== ====== ======
Average Common Shares
Outstanding During the
Period (2) 8,871,349 10,632,001 8,632,001 10,146,932 8,146,932
========= ========== ========= ========== =========
Dividends per Share of
Common Stock (3) $ 1.00 $ 1.52 $ 1.00 $ 1.50 $ 1.00
====== ====== ====== ====== ======
Balance Sheet Data:
------------------
Total Assets $459,181 $464,287 $464,287 $466,979 $466,979
======== ======== ======== ======== ========
Long-term Debt (Less
Current Maturities) (4) $185,052 $126,787 $179,678 $136,432 $189,323
======== ======== ======== ======== ========
Total Common Equity $123,397 $169,299 $116,408 $168,882 $115,991
======== ======== ======== ======== ========
[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 1,999,998 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 $7,891 of pro forma
debt at a rate of 6.37% under the revolving credit facilities.
Forward equity purchase agreement-
In a Forward Equity Purchase Agreement dated October 1, 1997, and amended
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
October 14, 1998, CTG has committed to fund from $7,500 to $16,100 per year
into TEN from 1998 through 2009 for an aggregate additional cash infusion
into TEN of $122,600. 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.
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, 1998, there were 315,542 shares of the Company's common stock reserved
for issuance under the DRIP and ESP. In the fiscal years ended September
30, 1998, 1997 and 1996, the Company's contribution to the ESP on behalf of
employees was $1,032, $960 and $965, 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.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Earnings per share-
The income statement discloses both basic and fully diluted earnings per
share. The decrease in basic earnings per share is the result of the
dilutive effect of each year's weighted average of shares related to the
restricted stock plan. For the fiscal years ended September 30, the basic
weighted average shares were reduced by 51,616 in 1998, 51,758 in 1997 and
28,612 in 1996.
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, 1998, 1997 and
1996:
1998 1997 1996
---- ---- ----
$3.125 par value - (3,934) (1,372)
======= ======= =======
$100 par value (45) (29) (3)
======= ======= =======
8. Long-term Debt:
The Company has various issues of first mortgage bonds and first mortgage
notes outstanding with maturities from 2004 to 2010, secured notes with
maturities from 1999 to 2010, industrial revenue variable rate demand bonds
which mature in 2025 and unsecured medium term notes with maturities from
2002 to 2024. Under the most restrictive terms of the indenture securing
the bonds, retained earnings of $25,174 are available for CNG to pay
dividends at September 30, 1998. CTG's ability to pay dividends is not
restricted by these terms. Dividends paid on common and preferred stock in
fiscal 1998 were $8,657. Sinking fund requirements for outstanding bonds
were paid in cash.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
The Company's 9.16%, Series AA First Mortgage Bonds are subject to
redemption by sinking fund scheduled at $2,500 per year. The Company
exercised its option to increase the principal payment amount due on
October 1, 1998, by an additional $2,500, for a total of $5,000. This
increased the Company's current portion of long-term debt by $2,500 at
September 30, 1998.
In August 1998, the Company refinanced its outstanding $10,600 1986 and
1988 series of tax exempt, seven-day put, Industrial Revenue Variable Rate
Demand Bonds ("IRBs") issued by the Connecticut Development Authority. The
1998 series of IRBs mature in 2025 and have no sinking fund requirements.
The original IRBs financed TEN's capitol area district heating and cooling
facilities in Hartford, Connecticut. At the same time, the Company
replaced the letter of credit which supports these IRBs.
In October 1997, TEN issued Senior Secured Notes for $45,000, due in 2009,
at 6.99%. The principal will be retired through semi-annual payments of
$2,500 beginning in 2001. The proceeds were used to repurchase
approximately 2.0 million shares of CTG common stock.
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%
Long-term debt amounts which are due during each of the five years ending
September 30, 1999 through 2003, are as follows:
Sinking Fund Requirements and Maturities
----------------------------------------
Year Total
---- -------
1999 $ 5,733
2000 3,283
2001 5,843
2002 18,404
2003 8,465
-------
$41,728
=======
9. 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 or Base Rate of interest plus a variable margin. In March of
1998, the Company renewed this agreement to 2001 with two subsequent one-
year renewal options. There is a variable .15% to .5% commitment fee. At
September 30, 1998 there were $10,000 outstanding under this agreement.
The Company also maintained a one-year line of credit with a bank for
$9,000 through February 1998. The Company paid a 1/5 of 1% commitment fee
on this line of credit. The interest rate varied according to market
conditions. In February 1998, the Company replaced this line of credit
with a seasonally variable $10,000 to $15,000 line of credit through
February of 1999. 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, 1998 there were $5,800 outstanding under this line of credit.
TEN had a $5,000 unsecured revolving credit facility that expired on
December 15, 1997. There was a 1/5 of 1% annual facility fee. The
interest rate was 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. This credit facility was not renewed.
In October 1997, TEN entered into a 364-day secured revolving credit
agreement for $10,000 with a bank. This agreement matured on September 29,
1998 and was extended for sixty days at that time. The Company expects to
renew this agreement for one year beginning December 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 .375% facility fee upon renewal. At September 30,
1998 there were $9,000 outstanding under this line of credit.
In October 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
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
time of each borrowing. There is a one-time $5 commitment fee and an on-
going .45% to .6% facility fee. At September 30, 1998 there were $8,000
outstanding under this line of credit.
In October 1998, the $10,000 outstanding at September 30, 1998, under the
$20,000 revolving credit agreement and the $5,800 outstanding at September
30, 1998, under the $10,000 to $15,000 line of credit were refinanced with
MTNs. A secured note for $15,000 was also issued to refinance $15,000 of
TEN's outstanding short-term borrowings at fiscal year-end 1998 (see Note
13, "Subsequent Events").
The weighted average interest rate on short-term borrowings outstanding was
5.98% at September 30, 1998 and 6.26% at September 30, 1997.
10. 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, 1998 and 1997, the fair value of the Company's long-term
debt, including current maturities, is estimated to be $209,121 and
$139,810, respectively. The fair value at year-end 1998 and 1997, of
$180,185 and $116,875 of fixed-rate long-term debt, based on the market
value of similar instruments, is estimated at $198,521 in 1998 and $128,410
in 1997. The carrying amount of the variable-rate long-term debt of
$10,600 in 1998 and $11,400 in 1997 approximates fair value.
The Company has committed to support 4.87% of a letter of credit for
Iroquois, equivalent to approximately $1,487 at September 30, 1998, 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.
11. Commitments and Contingencies:
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Construction expenditures-
Construction expenditures for the fiscal year ending September 30, 1999 are
estimated at $26,100 for the regulated operations and $14,000 for the
diversified businesses.
Adriaen's landing-
The Company has been approached by local businesses and government agencies
regarding the development of a stadium and convention center along with
hotel, retail, recreational and housing facilities. The development, known
as Adriaen's Landing, would be built in the area of the Company's
headquarters, operating center and steam/chilled water production
facilities. The Company, in order to accommodate the development as it is
currently planned, would be required to relocate its facilities.
Discussions are now underway with the developers in order to accomplish
this at no cost to the Company or its customers. The area of development,
which includes Company property, may contain hazardous materials that the
project participants will be required to address. This project is in line
with the Company's vision and direction for growth.
Gas supply-
The Company is party to short-term and long-term contracts for the purchase
of natural gas and transportation and storage services.
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
Steam supply-
Along with generating steam from their own internal boilers, the DHC
operations are party to long-term contracts for the purchase of steam.
Letters of credit-
The Company has outstanding letters of credit amounting to $1,500 for
workers' compensation claims and $500 for a purchasing credit line. As a
condition of its ownership in the DCA, TEN is contingently liable under two
letters of credit amounting to $8,800. As a condition to its variable rate
long-term debt, TEN holds a long-term letter of credit amounting to $10,757
at September 30, 1998 and $11,400 at September 30, 1997.
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 August 1998, the Company received a notice of
violation from the Connecticut Department of Environmental Protection
("DEP") regarding a number of areas on noncompliance. The Company
submitted the required compliance report in September 1998. The DEP has
advised the Company that a Consent Order and a penalty or supplemental
environmental project ("SEP") will be required to address the areas of
noncompliance, but the DEP has not given the Company any indication of the
amount of any penalty and/or SEP that may be required. The Company is
working with the DEP to resolve this issue. 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.
Leases-
The Company has entered into operating lease agreements for the use of
computer and office equipment, facilities and motor vehicles. For fiscal
1998, 1997 and 1996, these lease payments were $2,058, $1,378 and $1,092,
respectively.
Lease payment amounts projected for each of the five years ending September
30, 1999 through 2003, are as follows:
Projected Lease Payments
----------------------------------
Year Total
---- -------
1999 $ 1,700
2000 1,600
2001 1,600
2002 1,600
2003 1,600
-------
$ 8,100
=======
Legal proceedings-
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 plumbers and contractors are currently asserting claims for
profits which they allege were lost during prior years. In January 1998,
the court granted CNG's motion to strike all but one count of the
complaint: the antitrust conspiracy claim. The plumbers and contractors
subsequently filed two additional lawsuits against CNG and the other LDCs
alleging violations arising from the same business activities as in the
first lawsuit. All of the cases were assigned to the State's complex
litigation docket. A trial date of August 1999 has been set in one of the
cases against CNG. 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.
In July 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. In
its decision issued in October 1998, the court upheld the Company's
franchise rights in the disputed area.
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.
12. Segment Information:
The Company operates in two segments: regulated gas related activities and
unregulated diversified businesses. Gas related activities consist
NOTES TO FINANCIAL STATEMENTS (Continued)
(In thousands of dollars, except per share amounts)
September 30, 1998
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, 1998
1998 1997 1996
-------- -------- --------
Revenues:
Gas related activities $266,418 $287,401 $297,016
Diversified businesses 21,049 22,636 23,368
Intersegment revenues (4,719) (4,742) (5,281)
-------- -------- --------
Total $282,748 $305,295 $315,103
======== ======== ========
Pre-Tax Operating Income:
Gas related activities $ 39,342 $ 42,839 $ 41,130
Diversified businesses 2,323 1,734 3,479
-------- -------- --------
Total 41,665 44,573 44,609
Income taxes 12,210 16,959 14,365
-------- -------- --------
Consolidated Operating Income $ 29,455 $ 27,614 $ 30,244
======== ======== ========
Depreciation and Amortization:
Gas related activities $ 17,087 $ 16,019 $ 15,399
Diversified businesses 2,218 2,165 2,366
-------- -------- --------
Total $ 19,305 $ 18,184 $ 17,765
======== ======== ========
Property Additions:
Gas related activities $ 21,189 $ 23,726 $ 23,894
Diversified businesses 1,246 867 387
-------- -------- --------
Total $ 22,435 $ 24,593 $ 24,281
======== ======== ========
Identifiable Assets:
Gas related activities $382,669 $382,289 $380,805
Diversified businesses 76,512 62,084 62,769
-------- -------- --------
Consolidated Identifiable Assets $459,181 $444,373 $443,574
======== ======== ========
13. Subsequent Events:
Long-term Debt
In October 1998, TEN issued $15,000 of Senior Secured Notes, due in 2010,
at 6.9%. The full amount of the principal is due at maturity. The
proceeds were used to repay short-term debt that was used to finance the
purchase and repowering of the Hartford Hospital cogeneration facility.
The September 30, 1998, financial statements reflect the classification of
the debt that was retired as a result of this refinancing as long-term
debt.
NOTES TO FINANCIAL STATEMENTS (Concluded)
(In thousands of dollars, except per share amounts)
September 30, 1998
In October 1998, the Company issued a total of $20,000 of MTNs at 6.04%,
due 2008. These MTNs are unsecured and have no call provisions or sinking
fund requirements. The proceeds were used primarily to refinance $15,800
of short-term debt that was outstanding at fiscal year-end 1998. The long-
term debt amounts shown on the balance sheet and statement of
capitalization at September 30, 1998, include $15,800 of these MTNs.
14. Quarterly Results (Unaudited):
The following table sets forth information with respect to the consolidated
quarterly results of operations for the fiscal years 1998 and 1997. 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.
Consolidated Results of Operations
----------------------------------
-----------------------------------------------------------------------------
December 31, March 31, June 30, September 30,
Quarter Ended 1997 1998 1998 1998
-----------------------------------------------------------------------------
Operating Revenues $ 92,396 $105,416 $ 48,370 $ 36,566
Operating Income (Loss) $ 11,472 $ 14,169 $ 3,775 $ 39
Net Income (Loss) $ 8,123 $ 9,727 $ 179 $ (2,833)
Net Income (Loss) Per
Common Share* $ .85 $ 1.12 $ .02 $ (.33)
-----------------------------------------------------------------------------
December 31, March 31, June 30, September 30,
Quarter Ended 1996 1997 1997 1997
-----------------------------------------------------------------------------
Operating Revenues $ 89,269 $124,681 $ 53,234 $ 38,111
Operating Income (Loss) $ 9,421 $ 16,050 $ 3,342 $ (1,199)
Net Income (Loss) $ 6,716 $ 12,689 $ 658 $ (2,988)
Net Income (Loss) Per
Common Share* $ .63 $ 1.19 $ .06 $ (.28)
* 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 February 1999
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 February
1999 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 February 1999 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 February 1999 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 October 27, 1998,
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, 1998, 1997 and 1996
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
------------
4 (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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
4 (3) Rights Agreement (including a Form of Certificate of Adoption
of Amendment to the Amended and Restated Articles of
Incorporation of the Company as Exhibit A thereto, a Form of
Right Certificate as Exhibit B thereto and a Summary of
Rights to Purchase Preferred Stock as Exhibit C thereto),
filed as Exhibit 4.1 to the CTG Resources, Inc.'s
Registration Statement on Form 8-A, filed with the Commission
on December 1, 1998 (Commission File No.1-12859)
9 Voting Trust Agreement
Not applicable
10 Material Contracts
Natural Gas Supply, Storage and Transportation
----------------------------------------------
(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) 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 (5) 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)
(6) Amendment to Phase 2 Gas Sales Agreement, dated August 20,
1997, between the Connecticut Natural Gas Corporation and
Boundary Gas, Inc., filed as Exhibit No. 10(108) to the CTG
Resources, Inc.'s Annual Report on Form 10-K for the fiscal
year ended September 30, 1997, filed with the Commission on
December 19, 1997 (Commission File No. 1-12859)
(7) 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)
(8) 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)
(9) Amendment to ANE Gas Sales Agreement No. 1, dated August 19,
1997, between the Connecticut Natural Gas Corporation and
Alberta Northeast Gas Limited, filed as Exhibit No. 10(106)
to the CTG Resources, Inc.'s Annual Report on Form 10-K for
the fiscal year ended September 30, 1997, filed with the
Commission on December 19, 1997 (Commission File No. 1-12859)
(10) 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 (11) Amendment to ANE Gas Sales Agreement No. 2, dated August 19,
1997, between the Connecticut Natural Gas Corporation and
Alberta Northeast Gas Limited, filed as Exhibit No. 10(107)
to the CTG Resources, Inc.'s Annual Report on Form 10-K for
the fiscal year ended September 30, 1997, filed with the
Commission on December 19, 1997 (Commission File No. 1-12859)
(12) 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)
(13) 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)
(14) 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)
(15) 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)
(16) 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)
(17) 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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (18) 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)
(19) 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)
(20) 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)
(21) 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)
(22) 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)
(23) 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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (24) 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)
(25) 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)
(26) 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)
(27) 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)
(28) 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)
(29) 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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (30) 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)
(31) 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)
(32) 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)
(33) 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)
(34) 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)
(35) 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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (36) 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)
(37) 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)
(38) 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)
(39) 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)
(40) 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)
(41) 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 (42) Storage Service Agreement (#300094, Rate Schedule GSS), dated
April 1, 1997, between the Connecticut Natural Gas
Corporation and CNG Transmission Corporation, filed as
Exhibit No. 10(109) to the CTG Resources, Inc.'s Annual
Report on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 19, 1997
(Commission File No. 1-12859)
(43) Seasonal Transportation Service Agreement (#200106, Rate
Schedule FT), dated April 1, 1997, between the Connecticut
Natural Gas Corporation and CNG Transmission Corporation,
filed as Exhibit No. 10(110) to the CTG Resources, Inc.'s
Annual Report on Form 10-K for the fiscal year ended
September 30, 1997, filed with the Commission on December 19,
1997 (Commission File No. 1-12859)
(44) Storage Service Agreement (#1623, Rate Schedule SS-NE), dated
September 1, 1993, between the Connecticut Natural Gas
Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(111) to the CTG Resources, Inc.'s Annual
Report on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 19, 1997
(Commission File No. 1-12859)
(45) Transportation Service Agreement (#1627, Rate Schedule FT-A),
dated September 1, 1993, between the Connecticut Natural Gas
Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(112) to the CTG Resources, Inc.'s Annual
Report on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 19, 1997
(Commission File No. 1-12859)
(46) Transportation Service Agreement (#10781, Rate Schedule FT-
A), dated June 1, 1995, between the Connecticut Natural Gas
Corporation and Tennessee Gas Pipeline Company, filed as
Exhibit No. 10(113) to the CTG Resources, Inc.'s Annual
Report on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 19, 1997
(Commission File No. 1-12859)
(47) Amended Transportation Service Agreement (#10781, Rate
Schedule FT-A), dated November 21, 1996, between the
Connecticut Natural Gas Corporation and Tennessee Gas
Pipeline Company, filed as Exhibit No. 10(114) to the CTG
Resources, Inc.'s Annual Report on Form 10-K for the fiscal
year ended September 30, 1997, filed with the Commission on
December 19, 1997 (Commission File No. 1-12859)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (48) Service Agreement (#830035, Rate Schedule FT-1), dated
November 15, 1996, between the Connecticut Natural Gas
Corporation and Texas Eastern Transmission Corporation, filed
as Exhibit No. 10(116) to the CTG Resources, Inc.'s Annual
Report on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 19, 1997
(Commission File No. 1-12859)
(49) Service Agreement (#400223, Rate Schedule SS-1), dated
November 15, 1996, between the Connecticut Natural Gas
Corporation and Texas Eastern Transmission Corporation, filed
as Exhibit No. 10(117) to the CTG Resources, Inc.'s Annual
Report on Form 10-K for the fiscal year ended September 30,
1997, filed with the Commission on December 19, 1997
(Commission File No. 1-12859)
(50) Service Agreement (#800294R, Rate Schedule FT-1), dated May
20, 1998, between Connecticut Natural Gas Corporation and
Texas Eastern Transmission Corporation, filed as Exhibit No.
10(128) to the CTG Resources, Inc.'s Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, filed with the
Commission on August 14, 1998 (Commission File No. 1-12859)
(51) Service Agreement (#800295R, Rate Schedule FT-1), dated May
20, 1998, between Connecticut Natural Gas Corporation and
Texas Eastern Transmission Corporation, filed as Exhibit No.
10(129) to the CTG Resources, Inc.'s Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, filed with the
Commission on August 14, 1998 (Commission File No. 1-12859)
(52) Service Agreement (#830047, Rate Schedule FT-1), dated May
20, 1998, between Connecticut Natural Gas Corporation and
Texas Eastern Transmission Corporation, filed as Exhibit No.
10(130) to the CTG Resources, Inc.'s Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, filed with the
Commission on August 14, 1998 (Commission File No. 1-12859)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
District Heating and Cooling
----------------------------
10 (53) 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)
(54) 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)
(55)* Asset Purchase Agreement, dated June 26, 1998, by and among
The Hartford Steam Company, CCF-1, Inc. and Kenetech
Facilities Management, Inc.
(56)* Assignment and Consent, dated June 26, 1998, by and among The
Hartford Steam Company, CCF-1, Inc. and The Connecticut Light
and Power Company
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
Financing
---------
10 (57) 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)
(58) 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)
(59) 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)
(60) 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)
(61)* Reimbursement Agreement (Including Irrevocable Letter of
Credit), dated August 1, 1998, between The Energy Network,
Inc. and Fleet National Bank
(62) 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)
(63)* Note Purchase Agreement, dated October 14, 1998, between The
Energy Network, Inc. and Metropolitan Life Insurance Company
(64) 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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (65) First Amendment to Credit Agreement, dated March 30, 1998,
among Connecticut Natural Gas Corporation and BankBoston,
N.A., filed as Exhibit No. 10(124) to the CTG Resources,
Inc.'s Quarterly Report on Form 10-Q for the quarter ended
June 30, 1998, filed with the Commission on August 14, 1998
(Commission File No. 1-12859)
(66) 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)
(67) 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)
(68) 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)
(69) Medium Term Notes, Series B, Amended and Restated Placement
Agency Agreement among Connecticut Natural Gas Corporation,
PaineWebber Incorporated, and A.G. Edwards & Sons, Inc.,
dated August 13, 1997, filed as Exhibit No. 10(119) to the
CTG Resources, Inc.'s Annual Report on Form 10-K for the
fiscal year ended September 30, 1997, filed with the
Commission on December 19, 1997 (Commission File No. 1-12859)
(70) 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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (71) First Amendment to Issuing and Paying Agency Agreement, dated
August 13, 1997, filed as Exhibit No. 10(118) to the CTG
Resources, Inc.'s Annual Report on Form 10-K for the fiscal
year ended September 30, 1997, filed with the Commission on
December 19, 1997 (Commission File No. 1-12859)
(72) 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)
(73)* First Amendment to the Forward Equity Purchase Agreement,
dated October 14, 1998, between CTG Resources, Inc. and The
Energy Network, Inc.
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
Employment, Compensation and Benefits
-------------------------------------
10 (74) 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)
(75) 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)
(76) 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)
(77) 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)
(78) 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)
(79) 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)
(80) 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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (81) Amendment to Connecticut Natural Gas Corporation Officer's
Retirement Plan, dated January 27, 1998, filed as Exhibit No.
10(127) to the CTG Resources, Inc.'s Quarterly Report on Form
10-Q for the quarter ended June 30, 1998, filed with the
Commission on August 14, 1998 (Commission File No. 1-12859)
(82) 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)
(83) 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)
(84) 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)
(85) 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)
(86) 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)
(87) 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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (88) 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)
(89) 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)
(90) 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)
(91) 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)
(92) 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)
(93) 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)
(94) 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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (95) 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)10
(96) 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)
(97) 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)
(98) 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)
(99) 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)
(100) 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)
(101) 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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (102) Seventh Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated January 27, 1998, filed as
Exhibit No. 10.120 to the CTG Resources, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998,
filed with the Commission on May 4, 1998 (Commission File No.
1-12859)
(103) Eighth Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated May 1, 1998, filed as Exhibit
No. 10.121 to the CTG Resources, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, filed with
the Commission on May 4, 1998 (Commission File No. 1-12859)
(104) Ninth Amendment to Connecticut Natural Gas Corporation
Employee Savings Plan, dated June 9, 1998, filed as Exhibit
No. 10(125) to the CTG Resources, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, filed with the
Commission on August 14, 1998 (Commission File No. 1-12859)
(105) 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)
(106) 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)
(107) 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)
(108) 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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (109) 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)
(110) 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)
(111) 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)
(112) 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)
(113) Eighth Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan, dated January 27, 1998, filed as
Exhibit No. 10.122 to the CTG Resources, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998,
filed with the Commission on May 4, 1998 (Commission File No.
1-12859)
(114) Ninth Amendment to Connecticut Natural Gas Corporation Union
Employee Savings Plan, dated June 9, 1998, filed as Exhibit
No. 10(126) to the CTG Resources, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998, filed with the
Commission on August 14, 1998 (Commission File No. 1-12859)
(115) 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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (116) 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)
(117) 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)
(118) 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)
(119) 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)
(120) Second Amendment to CNG Nonemployee Directors' Fee Plan,
dated March 24, 1998, filed as Exhibit No. 10.123 to the CTG
Resources, Inc.'s Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, filed with the Commission on
May 4, 1998 (Commission File No. 1-12859)
(121) 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)
(122) 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)
(a) 3. Exhibits (continued)
--------
Exhibit
Number
------------
10 (123) 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)
(124) 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)
(125) 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)
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,
1998
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
(a) 3. Exhibits (concluded)
--------
Exhibit
Number
------------
28 Information from Reports Furnished to State Insurance Regulatory
Authorities
Not applicable
99 Additional Exhibits
(1)* Exhibit Index
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, 1997, filed as Exhibit
99(2) to the CTG Resources, Inc.'s Annual Report on Form 10-K
for the fiscal year ended September 30, 1997, filed with the
Commission on December 19, 1997, as amended by Form 10-K
Amendment No. 1, filed with the Commission on June 29, 1998
(Commission File No. 1-12859)
(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, 1997, filed as
Exhibit 99(3) to the CTG Resources, Inc.'s Annual Report on
Form 10-K for the fiscal year ended September 30, 1997, filed
with the Commission on December 19, 1997, as amended by Form
10-K Amendment No. 1, filed with the Commission on June 29,
1998 (Commission File No. 1-12859)
* 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 1998.
This Page Intentionally Left Blank
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/ Arthur C. Marquardt
------------------------------------
(Arthur C. Marquardt)
President 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/ Arthur C. Marquardt President, Chief December 2, 1998
------------------------------- Executive Officer and
(Arthur C. Marquardt) Director
S/ James P. Bolduc Executive Vice President December 2, 1998
------------------------------- and Chief Financial
(James P. Bolduc) Officer
S/ Andrew H. Johnson Treasurer and Chief December 2, 1998
------------------------------- Accounting Officer
(Andrew H. Johnson)
S/ R. L. Babcock December 2, 1998
-------------------------------
(R. L. Babcock)
as Attorney-in-fact for:
Victor H. Frauenhofer Chairman of the Board of
Directors
Bessye W. Bennett, Esq. 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
This Page Intentionally Left Blank
CTG RESOURCES, INC.
Annual Report on Form 10-K
Schedule Index
Fiscal Year Ended September 30, 1998
Item Description
---------- -----------
II Financial Statement Schedule II; Valuation and
Qualifying Accounts and Reserves for the fiscal years
ended September 30, 1998, 1997 and 1996
(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, 1998, 1997 AND 1996
-----------------------------------------------------
(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, 1998
-----------------------------
RESERVE DEDUCTED IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts -
Gas $ 2,966 $ 4,463 $ - $ 4,896 $ 2,533
Other (2) 473 93 650 466 750
-------- -------- -------- -------- --------
$ 3,439 $ 4,556 $ 650 $ 5,362 $ 3,283
======== ======== ======== ======== ========
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
======== ======== ======== ======== ========
[FN]
Note: (1) Deductions From Reserves include the write-off of uncollectible
accounts, net of recoveries of accounts previously written off.
(2) $650 Charged to Other Accounts represents the receivables of KBC
Energy Services, Inc. (See Part I, "Diversified Businesses").