<PAGE>
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDING MARCH 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number 1-6788
THE UNITED ILLUMINATING COMPANY
(Exact name of registrant as specified in its charter)
Connecticut 06-0571640
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
157 Church Street, New Haven, Connecticut 06506
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 203-499-2000
None
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- ------
The number of shares outstanding of the issuer's only class of
common stock, as of April 30, 1994, was 14,084,291.
- 1 -<PAGE>
<PAGE>
<TABLE>
INDEX
Part I. FINANCIAL INFORMATION
<CAPTION>
Page
Number
------
<S> <C>
Item 1. Financial Statements. 3
Consolidated Statement of Income for the three
months ended March 31, 1994 and 1993. 3
Consolidated Balance Sheet as of March 31, 1994 and
December 31, 1993. 4
Consolidated Statement of Cash Flows for the three months
ended March 31, 1994 and 1993. 6
Notes to Consolidated Financial Statements. 7
- Statement of Accounting Policies 7
- Capitalization 8
- Accounting for Phase-in Plan 8
- Income Taxes 9
- Short-term Credit Arrangements 10
- Supplementary Information 11
- Pension and Other Post-Employment Benefits 12
- Fuel Financing Obligations and Other Lease Obligations 12
- Commitments and Contingencies 12
- Capital Expenditure Program 12
- Seabrook 12
- Nuclear Insurance Contingencies 13
- Other Commitments and Contingencies 14
- Hydro-Quebec 14
- Reorganization Charge 14
- Site Remediation Costs 14
- Property Taxes 14
- Nuclear Fuel Disposal and Nuclear Plant Decommissioning 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 16
- Major Influences on Financial Condition 16
- Capital Expenditure Program 17
- Liquidity and Capital Resources 18
- Results of Operations 20
- Outlook 21
Part II. OTHER INFORMATION
Item 1. Legal Proceedings. 22
Item 6. Exhibits and Reports on Form 8-K. 22
SIGNATURES 23
</TABLE>
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<TABLE>
PART I: FINANCIAL INFORMATION
ITEM I: FINANCIAL STATEMENTS
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED STATEMENT OF INCOME
(Thousands except per share amounts)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1994 1993
---- ----
<S> <C> <C>
Operating Revenues (Note G) $167,579 $161,936
------- -------
Operating Expenses
Operation
Fuel and energy 38,275 36,965
Capacity purchased 11,576 10,204
Other 36,352 35,845
Maintenance 7,543 6,523
Depreciation 14,473 13,763
Amortization of cancelled nuclear project 293 293
Amortization of deferred fossil fuel costs - 152
Income taxes (Note E) 11,098 11,310
Other taxes (Note G) 15,343 15,717
------- -------
Total 134,953 130,772
------- -------
Operating Income 32,626 31,164
------- -------
Other Income and (Deductions)
Allowance for equity funds used during construction 294 213
Deferred return - Seabrook Unit 1 - 1,874
Other-net (Note G) 201 388
Non-operating income taxes 645 2,094
------- -------
Total 1,140 4,569
------- -------
Income Before Interest Charges 33,766 35,733
------- -------
Interest Charges
Interest on long-term debt 18,875 20,404
Other interest (Note G) 2,321 3,353
Allowance for borrowed funds used during construction (662) (610)
------- -------
Net Interest Charges 20,534 23,147
------- -------
Income Before Cumulative Effect of Accounting Change 13,232 12,586
------- -------
Cumulative effect for years prior to 1994 of accounting
change for postemployment benefits
(net of income taxes of $956)(Note H) (1,294) -
------- -------
Net Income 11,938 12,586
Dividends on Preferred Stock 1,080 1,080
------- -------
Income Applicable to Common Stock $10,858 $11,506
======= =======
Average Number of Common Shares Outstanding 14,084 14,043
Earnings per share of Common Stock before
cumulative effect of accounting change $0.86 $0.82
Cumulative effect for years prior to 1994 of accounting
change for postemployment benefits (0.09) -
------- -------
Earnings per share of Common Stock $0.77 $0.82
======= =======
Cash Dividends Declared per share of Common Stock $0.69 $0.665
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial statements.
- 3 -<PAGE>
<PAGE>
<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEET
ASSETS
(Thousands of Dollars)
<CAPTION>
March 31, December 31,
1994 1993*
---- ----
(Unaudited)
<S> <C> <C>
Utility Plant at Original Cost
In service $1,705,403 $1,690,142
Less, accumulated provision for depreciation 459,484 446,716
---------- ----------
1,245,919 1,243,426
Construction work in progress 53,884 77,395
Nuclear fuel 36,047 40,285
---------- ----------
Net Utility Plant 1,335,850 1,361,106
---------- ----------
Other Property and Investments 18,234 17,811
---------- ----------
Current Assets
Cash and temporary cash investments 21,049 48,171
Accounts receivable
Customers, less allowance for doubtful
accounts of $4,600 and $4,700 67,025 62,703
Other 28,762 28,160
Accrued utility revenues 21,808 22,765
Fuel, materials and supplies, at average cost 23,294 21,178
Prepayments 17,390 4,963
Other 55 41
---------- ----------
Total 179,383 187,981
---------- ----------
Regulatory Assets (future amounts due from customers
through the ratemaking process)
Income taxes due principally to book-tax
differences (Note A) 407,640 408,272
Deferred return - Seabrook Unit 1 62,929 62,929
Unamortized cancelled nuclear projects 26,671 26,964
Unamortized redemption costs 30,917 32,573
Sales adjustment revenues 9,835 13,113
Uranium enrichment decommissioning cost 1,572 1,600
Deferred fossil fuel costs 198 198
Unamortized debt issuance expenses 6,380 6,631
Other 14,741 15,114
---------- ----------
Total 560,883 567,394
---------- ----------
$2,094,350 $2,134,292
========== ==========
*Derived from audited financial statements
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial statements.
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<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED BALANCE SHEET
CAPITALIZATION AND LIABILITIES
(Thousands of Dollars)
<CAPTION>
March 31, December 31,
1994 1993*
---- ----
(Unaudited)
<S> <C> <C>
Capitalization (Note B)
Common stock equity
Common stock $284,059 $284,028
Paid-in capital 736 734
Capital stock expense (3,163) (3,163)
Retained earnings 142,865 141,725
---------- ----------
424,497 423,324
Preferred stock 60,945 60,945
Long-term debt 759,171 875,268
---------- ----------
Total 1,244,613 1,359,537
---------- ----------
Noncurrent Liabilities
Obligations under capital leases 887 19,871
Uranium enrichment decommissioning reserve 1,486 1,486
Nuclear decommissioning obligation 6,078 5,606
Other 2,306 2,156
---------- ----------
Total 10,757 29,119
---------- ----------
Current Liabilities
Current portion of long-term debt 199,133 143,333
Notes payable 42,500 -
Accounts payable 36,959 49,424
Dividends payable 10,798 10,445
Taxes accrued 15,953 6,851
Pensions accrued 34,673 33,547
Interest accrued 19,775 21,972
Obligations under capital leases 1,808 1,838
Other accrued liabilities 28,805 26,813
---------- ----------
Total 390,404 294,223
---------- ----------
Customers' Advances for Construction 2,663 2,667
---------- ----------
Regulatory Liabilities (future amounts owed to
customers through the
ratemaking process)
Accumulated deferred investment tax credits 19,243 19,433
Deferred gain on sale of utility plant 1,716 2,070
Other 1,834 1,837
---------- ----------
Total 22,793 23,340
---------- ----------
Deferred Income Taxes (future tax liabilities owed
to taxing authorities) 423,120 425,406
Commitments and Contingencies - -
---------- ----------
$2,094,350 $2,134,292
========== ==========
*Derived from audited financial statements
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial statements.
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<TABLE>
THE UNITED ILLUMINATING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<CAPTION>
Three Months Ended
March 31,
1994 1993
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $11,938 $12,586
------- -------
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 16,486 16,151
Deferred income taxes (699) 1,016
Deferred investment tax credits - net (190) (190)
Amortization of nuclear fuel 4,373 5,660
Cumulative effect for years prior to 1994 of
accounting change for postemployment benefits-net 1,294 -
Allowance for funds used during construction (956) (823)
Deferred return - Seabrook Unit 1 - (1,874)
Sales adjustment revenue 3,278 1,917
Changes in:
Accounts receivable - net (4,924) 2,130
Fuel, materials and supplies (2,116) (2,104)
Prepayments (12,427) (6,163)
Accounts payable (12,465) (27,501)
Interest accrued (2,197) (2,946)
Taxes accrued 9,102 8,018
Other assets and liabilities 3,260 6,772
------- -------
Total Adjustments 1,819 63
------- -------
Net Cash provided by Operating Activities 13,757 12,649
------- -------
Cash Flows from Financing Activities
Common stock 33 661
Notes payable 42,500 6,073
Securities retired and redeemed, including premiums:
Long-term debt (60,333) (62,833)
Lease obligations (566) (570)
Dividends
Preferred stock (1,080) (1,080)
Common stock (9,365) (8,936)
------- -------
Net Cash used in Financing Activities (28,811) (66,685)
------- -------
Cash Flows from Investing Activities
Plant expenditures, including nuclear fuel (12,068) (10,862)
Investment in debt securities - 94,529
------- -------
Net Cash provided by (used in) Investing Activities (12,068) 83,667
------- -------
Cash and Temporary Cash Investments:
Net change for the period (27,122) 29,631
Balance at beginning of period 48,171 11,102
------- -------
Balance at end of period $21,049 $40,733
======= =======
Cash paid during the period for:
Interest (net of amount capitalized) $20,968 $22,244
======= =======
Income taxes $2,000 $750
======= =======
</TABLE>
The accompanying Notes to Consolidated Financial
Statements are an integral part of the financial statements.
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The consolidated financial statements of the Company and its
wholly-owned subsidiaries, Bridgeport Electric Company, United
Resources, Inc., Research Center, Inc. and United Energy
International, Inc., have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. The
statements reflect all adjustments that are, in the opinion of
management, necessary to a fair statement of the results for the
periods presented. All such adjustments are of a normal
recurring nature. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. The Company
believes that the disclosures are adequate to make the
information presented not misleading. These consolidated
financial statements should be read in conjunction with the
consolidated financial statements and the notes to consolidated
financial statements included in the annual report on Form 10-K
for the year ended December 31, 1993. Such notes are
supplemented as follows:
(A) STATEMENT OF ACCOUNTING POLICIES
Reclassification of Previously Reported Amounts
Certain amounts previously reported have been reclassified to
conform with current year presentations.
Allowance for Funds Used During Construction (AFUDC)
The AFUDC rate applied in the first three months of 1994 and
1993 was 8.75% on a before-tax basis.
Cash and Cash Equivalents
For cash flow purposes, the Company considers all highly
liquid debt instruments with a maturity of three months or less
at the date of purchase to be cash equivalents.
Pension and Other Post-Employment Benefits
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Post-Employment Benefits." This statement
establishes accounting standards for employers who provide
benefits, such as unemployment compensation, severance benefits
and disability benefits to former or inactive employees after
employment but before retirement and requires recognition of the
obligation for these benefits. The effect of adopting this
statement is reported as a change in accounting principle and
decreased first quarter 1994 earnings for common stock by $1.3
million or $.09 per share.
Nuclear Decommissioning Trusts
External trust funds are maintained to fund the estimated
future decommissioning costs of the nuclear generating units in
which the Company has an ownership interest. These costs are
accrued as a charge to depreciation expense over the estimated
service lives of the units and are recovered in rates on a
current basis. The Company paid $417,000 and $404,000 in the
first quarter of 1994 and 1993, respectively, into the
decommissioning trust funds for Seabrook Unit 1 and Millstone
Unit 3. At March 31, 1994, the Company's share of the trust fund
balances, which included accumulated earnings on the funds, were
$4.1 million and $2.0 million for Seabrook Unit 1 and Millstone
Unit 3, respectively. These fund balances are included in "Other
Property and Investments" and the accrued decommissioning
obligation is included in "Noncurrent Liabilities" on the
Company's Consolidated Balance Sheet.
- 7 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(B) CAPITALIZATION
(a) Common Stock
The number of shares outstanding of the Company's common
stock, no par value, at March 31, 1994 was 14,084,291.
In 1990, the Company's Board of Directors and the shareowners
approved a stock option plan for officers and key employees of
the Company. The plan provides for the awarding of options to
purchase up to 750,000 shares of the Company's common stock over
periods of from one to ten years following the dates when the
options are granted. On June 5, 1991, the DPUC approved the
issuance of 500,000 shares of stock pursuant to this plan. The
exercise price of each option cannot be less than the market
value of the stock on the date of the grant. Options to purchase
211,200 shares of stock at an exercise price of $30.75 per share,
2,800 shares of stock at an exercise price of $28.3125 per share,
1,800 shares of stock at an exercise price of $31.1875 per share,
4,000 shares of stock at an exercise price of $35.625 per share,
36,200 shares of stock at an exercise price of $39.5625 per share
and 5,000 shares of stock at an exercise price of $42.375 per
share have been granted by the Board of Directors and remain
outstanding at March 31, 1994. Options to purchase 1,000 shares
of stock at an exercise price of $30.75 per share were exercised
during the first quarter of 1994.
(b) Retained Earnings Restriction
The indenture under which the Company's Medium-Term Notes and
Notes are issued places limitations on the payment of cash
dividends on common stock and on the purchase or redemption of
common stock. Retained earnings in the amount of $83.7 million
were free from such limitations at March 31, 1994.
(c) Preferred and Preference Stock
On April 15, 1994, the Company redeemed all of the 600,000
outstanding shares of its 8.80% Preferred Stock, 1976 Series, at
$25.25 per share plus accrued dividends.
(d) Long-term Debt
In January 1994, the Company repaid $60 million principal
amount of maturing 10.32% First Mortgage Bonds of the Company's
wholly-owned subsidiary, Bridgeport Electric Company, and a $5
million 13.1% term loan. These repayments were made with a
portion of the net proceeds from the issuance and sale, in
December 1993, of $100 million five-year and one month Notes at a
coupon rate of 6.20%.
(D) ACCOUNTING FOR PHASE-IN PLAN
The Company has been phasing into rate base its allowable
investment in Seabrook Unit 1, amounting to $640 million, since
January 1, 1990. In conjunction with this phase-in plan, the
Company has been allowed to record a deferred return on the
portion of allowable investment excluded from rate base during
the phase-in period. The accumulated deferred return has been
added to rate base each year since January 1, 1991 in the same
proportion as the phase-in installment for that year has borne to
the portion of the $640 million remaining to be phased-in. On
January 1, 1994, the Company phased into rate base the remaining
$74.5 million of allowable investment, plus the remaining $28.2
million of accumulated deferred return. At December 31, 1993,
the Company had recorded $62.9 million of accumulated deferred
return and no additional deferred return on Seabrook Unit 1 will
be recognized in income during 1994. The Company will recover
the accumulated deferred return over a five-year period
commencing January 1, 1995.
- 8 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(E) INCOME TAXES
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
---- ----
(000's)
<S> <C> <C>
Income tax expense consists of:
Income tax provisions:
Current
Federal $ 8,373 $ 6,281
State 2,969 2,109
------ ------
Total current 11,342 8,390
------ ------
Deferred
Federal 71 2,184
State (1,726) (1,168)
------ ------
Total deferred (1,655) 1,016
------ ------
Investment tax credits (190) (190)
------ ------
Total income tax expense $ 9,497 $ 9,216
======= =======
Income tax components charged as follows:
Operating expenses $11,098 $11,310
Other income and deductions - net (645) (2,094)
Cumulative effect of change in accounting
for postemployment benefits (956) -
------- -------
Total income tax expense $ 9,497 $ 9,216
======= =======
The following table details the components
of the deferred income taxes:
Accelerated depreciation $ 2,898 $ 3,509
Tax depreciation on unrecoverable plant investment 2,042 2,010
Conservation & load management 691 800
Deferred fossil fuel costs - (300)
Seabrook sale/leaseback transaction (2,682) (2,621)
Premiums on BEC bond redemption (428) (622)
Sales adjustment revenues (1,388) (812)
Pension benefits (548) (399)
Postretirement benefits (416) (551)
Postemployment benefits (956) -
Other - net (868) 2
------ ------
Deferred income taxes - net $(1,655) $ 1,016
====== ======
</TABLE>
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(F) SHORT-TERM CREDIT ARRANGEMENTS
The Company has a revolving credit agreement with a group of
banks, which currently extends to January 19, 1995. The
borrowing limit of this facility is $75 million. The facility
permits the Company to borrow funds at a fluctuating interest
rate determined by the prime lending market in New York, and also
permits the Company to borrow money for fixed periods of time
specified by the Company at fixed interest rates determined by
the Eurodollar interbank market in London, by the certificate of
deposit market in New York, or by bidding, at the Company's
option. If a material adverse change in the business,
operations, affairs, assets or condition, financial or otherwise,
or prospects of the Company and its subsidiaries, on a
consolidated basis, should occur, the banks may decline to lend
additional money to the Company under this revolving credit
agreement, although borrowings outstanding at the time of such an
occurrence would not then become due and payable. As of
March 31, 1994, the Company had $42.5 million in short-term
borrowings outstanding under this facility.
The Company has a Fossil Fuel Supply Agreement with a
financial institution providing for financing up to $37.5 million
in fossil fuel purchases. Under this agreement, the financing
entity acquires and stores natural gas, coal and fuel oil for
sale to the Company, and the Company purchases these fossil fuels
from the financing entity at a price for each type of fuel that
reimburses the financing entity for the direct costs it has
incurred in purchasing and storing the fuel, plus a charge for
maintaining an inventory of the fuel determined by reference to
the fluctuating interest rate on thirty-day, dealer-placed
commercial paper in New York. The Company is obligated to insure
the fuel inventories and to indemnify the financing entity
against all liability, taxes and other expenses incurred as a
result of its ownership, storage and sale of fossil fuel to the
Company. This agreement currently extends to May 1995. At March
31, 1994, approximately $15.7 million of fossil fuel purchases
were being financed under this agreement.
- 10 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(G) SUPPLEMENTARY INFORMATION
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
---- ----
(000's)
<S> <C> <C>
Operating Revenues
- - ------------------
Retail - Base rates $153,275 $147,336
Wholesale - capacity 1,835 1,389
- energy 11,778 12,198
Other 691 1,013
-------- --------
Total Operating Revenues $167,579 $161,936
======== ========
Other Income and (Deductions) - net
- - -----------------------------------
Interest and dividend income $ 451 $ 519
Equity earnings from Connecticut Yankee unit 348 367
Amortization of oil tank lease (354) (317)
Miscellaneous other income and (deductions) - net (244) (181)
-------- --------
Total Other Income and (Deductions) - net $ 201 $ 388
======== ========
Other Taxes
- - -----------
Charged to:
Operating:
State gross earnings $ 6,771 $ 6,784
Local real estate and personal property 6,681 7,197
Payroll taxes 1,889 1,733
Other 2 3
-------- --------
15,343 15,717
Nonoperating & other accounts 223 247
-------- --------
Total Other Taxes $ 15,566 $ 15,964
======== ========
Other Interest Charges
- - ----------------------
Notes payable $ 365 $ 983
Amortization of debt expense and
repurchase premiums 1,689 1,993
Other 267 377
-------- --------
Total Other Interest Charges $ 2,321 $ 3,353
======== ========
</TABLE>
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<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
(H) PENSION AND OTHER POST-EMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 112, "Employers'
Accounting for Post-Employment Benefits." This statement
establishes accounting standards for employers who provide
benefits, such as unemployment compensation, severance benefits
and disability benefits to former or inactive employees after
employment but before retirement and requires recognition of the
obligation for these benefits. The effect of adopting this
statement is reported as a change in accounting principle and
decreased first quarter 1994 earnings for common stock by $1.3
million or $.09 per share.
(K) FUEL FINANCING OBLIGATIONS AND OTHER LEASE OBLIGATIONS
The Company has a Fossil Fuel Supply Agreement with a
financial institution providing for financing up to $37.5 million
in fossil fuel purchases. Under this agreement, the financing
entity acquires and stores natural gas, coal and fuel oil for
sale to the Company, and the Company purchases these fossil fuels
from the financing entity at a price for each type of fuel that
reimburses the financing entity for the direct costs it has
incurred in purchasing and storing the fuel, plus a charge for
maintaining an inventory of the fuel determined by reference to
the fluctuating interest rate on thirty-day, dealer-placed
commercial paper in New York. The Company is obligated to insure
the fuel inventories and to indemnify the financing entity
against all liability, taxes and other expenses incurred as a
result of its ownership, storage and sale of fossil fuel to the
Company. This agreement currently extends to May 1995. At March
31, 1994, approximately $15.7 million of fossil fuel purchases
were being financed under this agreement.
In January 1994, the Company restructured a lease agreement
for a service facility under which the Company had recognized an
obligation of approximately $19 million representing an option to
purchase the facility in 1994. The restructured lease is being
treated as an operating lease. The effect of restructuring the
lease was a noncash financing activity during the first quarter
of 1994 and therefore not reflected in the Consolidated Statement
of Cash Flows. The restructuring of the lease reduced the
amounts recognized as obligations under capital leases and plant
in service by approximately $19 million.
(L) COMMITMENTS AND CONTINGENCIES
Capital Expenditure Program
The Company has entered into commitments in connection with
its continuing capital expenditure program, which is presently
estimated at approximately $366.6 million, excluding AFUDC, for
1994 through 1998.
Seabrook
After experiencing increasing financial stress beginning in
May 1987, Public Service Company of New Hampshire (PSNH), which
held the largest ownership share (35.6%) in Seabrook, commenced a
proceeding under Chapter 11 of the Bankruptcy Code in January of
1988. Under this statute, PSNH continued its operations while
seeking a financial reorganization. A reorganization plan
proposed by Northeast Utilities (NU) was confirmed by the
bankruptcy court in April of 1990 and, on May 16, 1991, PSNH
completed the financing required for payment of its
pre-bankruptcy secured and unsecured debt under the first stage
of the reorganization plan and emerged from bankruptcy. On May
19, 1992, the NRC issued the final regulatory approval necessary
for the second stage of the NU reorganization plan, under which
PSNH would be acquired by NU; and on June 5, 1992, this
acquisition was completed. As part of the transaction, PSNH's
ownership share of Seabrook Unit 1 was transferred to a wholly-
owned subsidiary of NU. Two previous regulatory approvals of the
NU reorganization plan for PSNH, by the Federal Energy Regulatory
Commission (FERC) and the Securities and
- 12 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Exchange Commission (SEC), continue to be challenged in court
proceedings, and the Company is unable to predict the outcome of
these proceedings.
On February 28, 1991, EUA Power Corporation (EUA Power), the
holder of a 12.1% ownership share in Seabrook, commenced a
proceeding under Chapter 11 of the Bankruptcy Code. EUA Power, a
wholly-owned subsidiary of Eastern Utilities Associates (EUA),
was organized solely for the purpose of acquiring an ownership
share in Seabrook and selling in the wholesale market its share
of the electric power produced by Seabrook. EUA Power commenced
this bankruptcy proceeding because the cash generated by its
sales of power at current market prices was insufficient to pay
its obligations on its outstanding debt. Subsequently, EUA
Power's name was changed to Great Bay Power Corporation (Great
Bay). The official committee of Great Bay's bondholders
(Bondholders Committee) proposed, and the bankruptcy court
confirmed, a reorganization plan for Great Bay, under which
substantially all of the equity ownership of Great Bay would have
passed to its bondholders. However, on February 2, 1994, the
Bondholders Committee accepted a financing proposal that would
inject $35 million of new ownership equity into Great Bay in
return for a 60% equity ownership position. The bankruptcy court
is considering whether this alternative structure should be
approved, in order that a revised reorganization plan can become
effective. Further approvals are also required from the NRC,
FERC and the New Hampshire Public Utilities Commission. The
bankruptcy court has approved an agreement among Great Bay, the
Bondholders Committee, UI and The Connecticut Light and Power
Company (CL&P), under which UI and CL&P have been making, as
needed until the reorganization plan becomes effective, advance
payments against their respective future monthly Seabrook payment
obligations. The maximum aggregate amount of advance payments by
UI and CL&P that may be outstanding at any time under this
agreement is $20 million, of which UI's share is $8 million. At
April 30, 1994, $1.1 million of the Company's advances remained
outstanding. This agreement can be terminated by UI and CL&P
upon thirty days notice or upon failure of the reorganization
process to achieve certain milestones by specified dates. UI is
unable to predict what impact, if any, failure of the
reorganization plan to become effective will have on the
operating license for Seabrook Unit 1, or what other actions UI
and the other joint owners of the unit may be required to take in
response to developments in this bankruptcy proceeding as it may
affect Seabrook.
Nuclear generating units are subject to the licensing
requirements of the Nuclear Regulatory Commission (NRC) under the
Atomic Energy Act of 1954, as amended, and a variety of other
state and federal requirements. Although Seabrook Unit 1 has
been issued a 40-year operating license, NRC proceedings and
investigations prompted by inquiries from Congressmen and by NRC
licensing board consideration of technical contentions may arise
and continue for an indefinite period of time in the future.
Nuclear Insurance Contingencies
The Price-Anderson Act, currently extended through August 1,
2002, limits public liability resulting from a single incident at
a nuclear power plant. The first $200 million of liability
coverage is provided by purchasing the maximum amount of
commercially available insurance. Additional liability coverage
will be provided by an assessment of up to $75.5 million per
incident, levied on each of the nuclear units licensed to operate
in the United States, subject to a maximum assessment of $10
million per incident per nuclear unit in any year. In addition,
if the sum of all public liability claims and legal costs
resulting from any nuclear incident exceeds the maximum amount of
financial protection, each reactor operator can be assessed an
additional 5% of $75.5 million, or $3.775 million. The maximum
assessment is adjusted at least every five years to reflect the
impact of inflation. Based on its interests in nuclear
generating units, the Company estimates its maximum liability
would be $20.3 million per incident. However, assessment would
be limited to $3.1 million per incident, per year. With respect
to each of the operating nuclear generating units in which the
Company has an interest, the Company will be obligated to pay its
ownership and/or leasehold share of any statutory assessment
resulting from a nuclear incident at any nuclear generating unit.
- 13 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The NRC requires nuclear generating units to obtain property
insurance coverage in a minimum amount of $1.06 billion and to
establish a system of prioritized use of the insurance proceeds
in the event of a nuclear incident. The system requires that the
first $1.06 billion of insurance proceeds be used to stabilize
the nuclear reactor to prevent any significant risk to public
health and safety and then for decontamination and cleanup
operations. Only following completion of these tasks would the
balance, if any, of the segregated insurance proceeds become
available to the unit's owners. For each of the nuclear
generating units in which the Company has an interest, the
Company is required to pay its ownership and/or leasehold share
of the cost of purchasing such insurance.
Other Commitments and Contingencies
Hydro-Quebec
The Company is a participant in the Hydro-Quebec transmission
intertie facility linking New England and Quebec, Canada. Phase
II of this facility, in which UI has a 5.45% participating share,
has increased the capacity value of the intertie from 690
megawatts to a maximum of 2000 megawatts. A ten-year Firm Energy
Contract, which provides for the sale of 7 million megawatt-hours
per year by Hydro-Quebec to the New England participants in the
Phase II facility, became effective on July 1, 1991. The Company
is obligated to furnish a guarantee for its participating share
of the debt financing for the Phase II facility. Currently, the
Company's guarantee liability for this debt amounts to
approximately $9.7 million.
Reorganization Charge
During 1993, the Company undertook an in-depth organizational
review with the primary objective of improving customer service.
As a result of this review, the Company eliminated approximately
75 positions in a corporate reorganization.
In conjunction with this review and reorganization, the
Company offered a voluntary early retirement program to non-union
employees who were eligible to receive pension benefits. The
early retirement offer was accepted by 103 employees and the
Company incurred a one-time charge to 1993 earnings of
approximately $13.6 million ($7.8 million, after-tax).
All non-retiring employees affected by the corporate
reorganization have been placed in regular positions or assigned
to special projects.
Site Remediation Costs
The Company has estimated that the cost of environmental
remediation of its decommissioned Steel Point Station property in
Bridgeport will be approximately $10.3 million and has recorded a
liability for this cost. Following remediation, the Company
intends to sell the property for development for a value it
estimates will not exceed $6 million. In the Company's last rate
decision, the DPUC provided additional revenues to recover the
$4.3 million difference during the period 1993-1996, subject to
true-up in the Company's next retail rate proceeding, based on
actual remediation costs and the actual gain on the sale of the
property.
Property Taxes
On November 2, 1993, the Company received "updated" personal
property tax bills from the City of New Haven (the City) for the
tax year 1991-1992, aggregating $6.6 million, based on an audit
by the City's tax assessor. The Company anticipates receiving
additional bills of this sort for the tax years 1992-1993 and
1993-1994, the amounts of which cannot be predicted at this time.
The Company is contesting these tax bills vigorously and has
- 14 -<PAGE>
<PAGE>
THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
commenced a lawsuit in the Superior Court to enjoin the City from
any effort to collect these tax bills. On May 7, 1994, the
Company received a "Certificate of Correction....to correct a
clerical omission or mistake" from the City's tax assessor
relative to the assessed value of the Company's personal property
for the tax year 1994-1995, which certificate purports to
increase said assessed value by approximately 53% above the tax
assessor's valuation at February 28, 1994. The Company expects
to contest vigorously the assessed value of its personal property
by the City for the tax year 1994-1995. It is not possible at
this time to assess accurately the Company's liability in these
matters, if any.
(M) NUCLEAR FUEL DISPOSAL AND NUCLEAR PLANT DECOMMISSIONING
New Hampshire has enacted a law requiring the creation of a
government-managed fund to finance the decommissioning of nuclear
generating units in that state. The New Hampshire Nuclear
Decommissioning Financing Committee (NDFC) established $345
million (in 1993 dollars) as the decommissioning cost estimate
for Seabrook Unit 1. This estimate premises the prompt removal
and dismantling of the Unit at the end of its estimated 40-year
energy producing life. Monthly decommissioning payments are
being made to the state-managed decommissioning trust fund. UI's
share of the decommissioning payments made during the first
quarter of 1994 was $335,000. UI's share of the fund at
March 31, 1994 was approximately $4.1 million.
Connecticut has enacted a law requiring the operators of
nuclear generating units to file periodically with the DPUC their
plans for financing the decommissioning of the units in that
state. Current decommissioning cost estimates for Millstone Unit
3 and Connecticut Yankee are $421 million (in 1994 dollars) and
$324 million (in 1994 dollars), respectively. These estimates
premise the prompt removal and dismantling of each unit at the
end of its estimated 40-year energy producing life. Monthly
decommissioning payments, based on these cost estimates, are
being made to decommissioning trust funds managed by Northeast
Utilities. UI's share of the Millstone Unit 3 decommissioning
payments made during the first quarter of 1994 was $82,000. UI's
share of the fund at March 31, 1994 was approximately $2.0
million. For the Company's 9.5% equity ownership in Connecticut
Yankee, decommissioning costs of $316,000 were funded by UI
during the first quarter of 1994, and UI's share of the fund at
March 31, 1994 was $9.8 million.
- 15 -<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
MAJOR INFLUENCES ON FINANCIAL CONDITION
The Company's financial condition should continue to improve
as a result of the December 16, 1992 rate decision by the DPUC.
The DPUC decision granted levelized rate increases of 2.66%
($15.8 million) in 1993 and 2.66% (an additional $17.3 million)
in 1994.
However, the Company's financial condition will continue to be
dependent on the level of retail and wholesale sales. The two
primary factors that affect sales volume are economic conditions
and weather. The regional recession has restricted retail sales
growth and been largely responsible for a weak wholesale sales
market during the past two years. Sales increases due to
economic recovery would help to increase the Company's earnings.
Another major factor affecting the Company's financial
condition will be the Company's ability to control expenses. A
significant reduction in interest expense has been achieved since
1989, and additional savings of $9-$10 million are expected in
1994 due to debt refinancing. Since 1990, annual growth in total
operation and maintenance expense, excluding one-time items and
cogeneration capacity purchases, has averaged approximately 2.7%,
and the Company hopes to restrict future increases to less than
the rate of inflation.
- 16 -<PAGE>
<PAGE>
CAPITAL EXPENDITURE PROGRAM
The Company's 1994-1998 capital expenditure program, excluding
allowance for funds used during construction (AFUDC) and its
effect on certain capital related items, is presently budgeted as
follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 Total
---- ---- ---- ---- ---- -----
(000's)
<S> <C> <C> <C> <C> <C> <C>
Production $23,688 $19,428 $22,308 $ 4,824 $15,180 $ 85,428
Distribution 10,140 21,840 21,288 22,164 21,588 97,020
Transmission 12,096 16,980 10,800 6,336 11,376 57,588
Conservation and
Load Management 11,988 11,892 10,860 10,716 10,320 55,776
Nuclear Fuel 4,980 6,756 11,280 1,248 11,820 36,084
Other 10,532 7,981 6,096 6,036 4,020 34,665
------- -------- ------- ------- ------- --------
Total Expenditures $73,424 $ 84,877 $82,632 $51,324 $74,304 $366,561
======= ======== ======= ======= ======= ========
AFUDC (Pre-tax) $4,934 $3,431 $2,474 $1,940 $1,968
Capitalized Interest 4,151 2,890 2,084 1,638 1,669
Book Depreciation 57,053 62,438 66,425 69,382 72,288
Decommissioning (1) 2,741 2,794 2,851 1,841 1,909
Normalized Tax
Depreciation 33,086 36,392 38,708 40,194 41,368
Accelerated Tax
Depreciation 74,722 69,548 60,738 62,214 61,424
Amortization of Deferred
Return on Seabrook
Unit 1 Phase-In (2) 0 (12,635) (12,635) (12,635) (12,635)
Estimated Rate Base
(end of period) $1,218,137 $1,239,962 $1,254,603 $1,227,959 $1,203,104
<FN>
(1) Steel Point Station environmental remediation costs of $1,075,000 per year
are included each year through 1996.
(2) Deferred return will be amortized over the period 1995-1999.
</TABLE>
- 17 -<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1994, the Company had $21.1 million of cash and
temporary cash investments, a decrease of $27.1 million from the
balance at December 31, 1993. The components of this decrease,
which are detailed in the Consolidated Statement of Cash Flows,
are summarized as follows:
<TABLE>
<CAPTION>
(Millions)
----------
<S> <C>
Balance, December 31, 1993 $ 48.2
--------
Net cash provided by operating activities 13.8
Net cash provided by (used in) financing
activities:
- Financing activities, excluding dividend payments (18.4)
- Dividend payments (10.4)
Cash invested in plant, including nuclear fuel (12.1)
--------
Net Decrease (27.1)
--------
Balance, March 31, 1994 $ 21.1
========
</TABLE>
The Company's capital requirements are presently projected as
follows:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(000's)
<S> <C> <C> <C> <C> <C>
Capital Expenditure Program $ 73,424 $ 84,877 $82,632 $ 51,324 $ 74,304
Long-term Debt Maturities 53,000 97,000 - 50,000 100,000
Mandatory Redemptions/
Repayments 60,333 66,134 12,770 15,171 15,562
Optional Redemptions 15,150 - - - -
-------- -------- ------- -------- --------
Total Capital Requirements $201,907 $248,011 $95,402 $116,495 $189,866
======== ======== ======= ======== ========
</TABLE>
The Company presently estimates that its cash on hand and
temporary cash investments at the beginning of 1994, totaling
$48.2 million, and its projected net cash provided by operations,
less dividends, of $102.2 million will be sufficient to fund the
Company's entire capital expenditure program of $73.4 million and
$77.0 million of the $128.5 million necessary to satisfy the 1994
requirements for maturing long-term debt and mandatory and
optional redemptions and repayments. The Company presently
estimates that its projected net cash provided by operations for
1995, less dividends, of $106.7 million will be sufficient to
fund the Company's entire capital expenditure program of $84.9
million and $21.8 million of the $163.1 million necessary to
satisfy the 1995 requirements for maturing long-term debt and
mandatory redemptions and repayments. The Company presently
estimates that its projected net cash provided by operations for
1996 through 1998, less dividends of about $280 million, will be
sufficient to fund the entire capital expenditure program of
about $210 million and about $70 million of the $193.5 million
necessary to satisfy the Company's 1996 through 1998 requirements
for maturing long-term debt and mandatory redemptions and
repayments. All of the Company's capital requirements that
exceed available net cash will have to be provided by external
financing; and the Company has no commitment to provide such
financing from any source of funds. The Company expects to be
able to satisfy its external financing needs by issuing common
stock and additional short-term and long-term debt, although the
continued
- 18 -<PAGE>
availability of these methods of financing will be dependent on
many factors, including conditions in the securities markets,
economic conditions, and the level of the Company's income and
cash flow.
The Company has a revolving credit agreement with a group of
banks, which currently extends to January 19, 1995. The
borrowing limit of this facility is $75 million. This facility
permits the Company to borrow funds at a fluctuating interest
rate determined by the prime lending market in New York, and also
permits the Company to borrow money for fixed periods of time
specified by the Company at fixed interest rates determined by
the Eurodollar interbank market in London, by the certificate of
deposit market in New York, or by bidding, at the Company's
option. If a material adverse change in the business,
operations, affairs, assets or condition, financial or otherwise,
or prospects of the Company and its subsidiaries, on a
consolidated basis, should occur, the banks may decline to lend
additional money to the Company under this revolving credit
agreement, although borrowings outstanding at the time of such an
occurrence would not then become due and payable. As of
March 31, 1994, the Company had $42.5 million in short-term
borrowings outstanding under this facility.
The Company has a Fossil Fuel Supply Agreement with a
financial institution providing for financing up to $37.5 million
in fossil fuel purchases. Under this agreement, the financing
entity acquires and stores natural gas, coal and fuel oil for
sale to the Company, and the Company purchases these fossil fuels
from the financing entity at a price for each type of fuel that
reimburses the financing entity for the direct costs it has
incurred in purchasing and storing the fuel, plus a charge for
maintaining an inventory of the fuel determined by reference to
the fluctuating interest rate on thirty-day dealer-placed
commercial paper in New York. The Company is obligated to insure
the fuel inventories and to indemnify the financing entity
against all liability, taxes and other expenses incurred as a
result of its ownership, storage and sale of fossil fuel to the
Company. This agreement, currently extends to May 1995. At
March 31, 1994, approximately $15.7 million of fossil fuel
purchases were being financed under this agreement.
UI has four wholly-owned subsidiaries. Bridgeport Electric
Company, a single-purpose corporation, owns and leases to UI a
generating unit at Bridgeport Harbor Station. Research Center,
Inc. has been formed to participate in the development of one or
more regulated power production ventures, including possible
participation in arrangements for the future development of
independent power production and cogeneration facilities. United
Energy International, Inc. has been formed to facilitate
participation in a proposed joint venture relating to power
production plants abroad. United Resources, Inc. (URI) serves as
the parent corporation for UI's unregulated businesses, each of
which is incorporated separately to participate in business
ventures that will complement and enhance UI's electric utility
business and serve the interests of the Company and its
shareholders and customers.
Four wholly-owned subsidiaries of URI have been incorporated.
Souwestcon Properties, Inc. is participating as a 25% partner in
the ownership of a medical hotel building in New Haven. A second
wholly-owned subsidiary of URI is Thermal Energies, Inc., which
is participating in the development of district heating and
cooling water facilities in the downtown New Haven area,
including the energy center for a new office tower and
participation as a 37% partner in the energy center for a new
city hall and office tower complex. A third URI subsidiary,
Precision Power, Inc., provides power-related equipment and
services to the owners of commercial buildings and industrial
facilities. A fourth URI subsidiary, American Payment Systems,
Inc., manages agents and equipment for electronic data processing
of bill payments made by customers of utilities, including UI, at
neighborhood businesses. In addition to these subsidiaries, URI
also has an 82% ownership interest in Ventana Corporation, which
offers energy conservation engineering and project management
services to governmental and private institutions.
The Board of Directors of the Company has authorized the
investment of a maximum of $13.5 million, in the aggregate, of
the Company's assets in all of URI's ventures, UEI and RCI, and,
at March 31, 1994, approximately $11.5 million had been so
invested.
-19 -<PAGE>
<PAGE>
RESULTS OF OPERATIONS
First Quarter 1994 vs. First Quarter 1993
- - -----------------------------------------
Earnings for the first quarter of 1994 were $10.9 million, or
$.77 per share, down $0.6 million, or $.05 per share, from the
first quarter of 1993. Absent a one-time charge of $1.3 million,
or $.09 per share, to implement Statement of Financial Accounting
Standards (SFAS) No. 112, taken in the first quarter of 1994,
earnings per share from operations were up 4.9% to $.86 per
share.
Retail operating revenues were up about $5.9 million in the
first quarter of 1994 over the prior year. Retail revenues
increased $2.7 million due to rate changes granted by the
Department of Public Utility Control (DPUC) effective January 1,
1994 ($13 million expected for the full year) and a net $0.2
million due to pass-through charges for certain expense changes,
mostly fuel. Also as a result of the rate decision, an increase
in the amortization of deferred revenues for sales adjustments
reduced retail revenues by $1.4 million ($5.4 million reduction
expected for the year).
A retail sales increase of 3.2% over the prior year added $4.4
million to retail operating revenues. About 2.1% of the 1994
retail sales growth was attributable to colder weather. However,
the 1.1% "real" growth marked the third consecutive quarter of
retail sales increases attributable to increased economic
activity.
The retail sales increase during the first quarter of 1994
added about $3.4 million to sales margin (revenue minus fuel
expense and revenue-based taxes) compared to the first quarter of
1993. However, if normal weather had been experienced in the
1994 period, sales margin would have increased by only about $1.0
million.
Wholesale capacity revenues increased by $0.4 million during
the first quarter of 1994 compared to 1993. Wholesale energy
revenues (directly offset by fuel expense and not a contributor
to sales margin) decreased as a result of lower demand by other
New England utilities.
Operating expense for operations and maintenance, including
purchased capacity charges, increased by $2.9 million, or 5.5%,
in the first quarter of 1994 compared to 1993. Purchased
capacity charges increased $1.4 million due to an unscheduled
outage at the Connecticut Yankee nuclear plant and increased
generation by a cogeneration facility. Other operating expense
for operations and maintenance expense increased by a combined
$1.5 million, due primarily to an increase of $1.8 million in
operating and repair costs at the Seabrook nuclear plant, which
also experienced an unscheduled outage in the first quarter of
1994, and slightly higher transmission and general expenses.
These were partly offset by lower operating costs at the
Company's fossil fuel generating plants during the 1994 quarter.
The unscheduled outages at both nuclear plants ended in the first
quarter of 1994 and, in the case of Connecticut Yankee, will
shift seven weeks of scheduled refueling outage (about $2 million
of expense) from the end of 1994 to the first quarter of 1995.
Employment costs held even during the first quarter of 1994
compared to 1993, as savings from the Company's 1993
reorganization and early retirement program have not yet been
fully realized.
Other operating expenses declined slightly in the first
quarter of 1994 from the first quarter of 1993. Operating income
taxes declined overall, although pre-tax operating book income
increased and tax rates were higher, due to additional tax
benefits gained from adding the fifth and final Seabrook phase-in
increment to rate base. This phase-in to rate base has the
effect of associating more of the interest tax deduction with
operating income (shifted from "other income"). Depreciation
expense increased about as projected, and property taxes declined
due to lower municipal tax rates resulting from phase-ins of
residential property tax increases.
Other income and (deductions) decreased $3.4 million in the
first quarter of 1994 from the first quarter of 1993, due
principally to the elimination of the deferred returns (after-tax
and not representing current cash income) related to the portion
of the cost of Seabrook Unit 1 that had not been phased into the
Company's rate base in 1993 and the elimination of the income tax
benefits associated with the interest costs of carrying that
portion of the unit's cost. The revenues to support the
increased rate base in 1994, and the income tax benefits of the
associated cost of debt, are reflected in operating revenues and
expenses in the 1994 quarter.
- 20 -<PAGE>
<PAGE>
Interest costs declined, as expected, by $2.6 million for the
first quarter of 1994 from the first quarter of 1993, due to debt
refinancings.
OUTLOOK
The Company's financial condition should continue to improve
as a result of the December 16, 1992 retail rate decision by the
DPUC. The DPUC decision granted levelized rate increases of
2.66% ($15.8 million) in 1993 and 2.66% (an additional $17.3
million) in 1994. However, the Company did not realize the full
anticipated benefit of the 1993 rate increase, realizing about $4
million less than granted due to differences between the sales
realized in individual rate classes and the sales projections
used for rate case purposes. The differences arose principally
from rate class shifting by customers and differential growth in
sales among rate classes. A similar shortfall may develop in
1994.
The Company's financial condition will continue to be
dependent on the level of retail and wholesale sales. The two
primary factors that affect sales volume are economic conditions
and weather. The regional recession has restricted retail sales
growth and been largely responsible for a weak wholesale sales
market during the past two years. Sales increases due to
economic recovery would help to increase the Company's earnings.
A 1% increase in sales would add about $6 million in revenue and
about $5 million in sales margin (revenue minus fuel expense and
revenue-based taxes). Wholesale capacity sales are expected to
be approximately $6 million in 1994.
Another major factor affecting the Company's financial
condition will be the Company's ability to control expenses.
Fuel expense, excluding wholesale fuel expense, is expected to
decline by approximately $2.3 million in 1994 from the 1993
level, reflecting significantly lower nuclear fuel prices. Also,
significant reductions in interest expense have been achieved
since 1989, and additional savings of $9-$10 million are expected
in 1994 due to debt refinancing. For 1994, operation and
maintenance expenses are expected to increase from normal
inflationary pressures, but these increases should be
substantially offset by savings from the phase-in of the
Company's corporate structure reorganization. Since 1990, annual
growth in total operation and maintenance expense, excluding
one-time items and cogeneration capacity purchases, has averaged
approximately 2.7%, and the Company hopes to restrict future
increases to less than the rate of inflation.
The final portion of the cost of Seabrook Unit 1 has been
added to rate base (and retail revenues) for 1994. This will
eliminate deferred revenues of $7.4 million (after-tax) booked in
1993 for the cost of the Seabrook plant excluded from rate base.
Compared to 1993, the Company expects 1994 quarterly earnings
to shift somewhat to the third and fourth quarters from the first
and second quarters. There will be a major refueling outage at
the Seabrook nuclear plant in the second quarter of 1994, while
the major nuclear outage in 1993 occurred in the second and third
quarters. Overhauls for fossil plants are minor in 1994 compared
to a major overhaul in the fourth quarter of 1993. Additionally,
the rate increase granted by the DPUC effective January 1, 1994
continues the shift that has been occurring in recent years to
summer seasonal pricing. Higher than expected sales in the first
quarter of 1994 caused first quarter earnings for 1994 to exceed
first quarter earnings for 1993.
Although the Company believes that its financing outlook and
plans are unlikely to be adversely affected by further
developments with respect to the licensing and operation of
Seabrook Unit 1, the Company's financial status and financing
capability will continue to be sensitive to any such developments
and to many other factors, including conditions in the securities
markets, economic conditions, the level of the Company's income
and cash flow, and legislative and regulatory developments,
including the cost of compliance with increasingly stringent
environmental legislation and regulations and competition within
the electric utility industry.
- 21 -<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On November 2, 1993, the Company received "updated" personal
property tax bills from the City of New Haven (the City) for the
tax year 1990, aggregating $6.6 million, based on an audit by the
City's tax assessor. The Company anticipates receiving
additional bills of this sort for the tax years 1991-1992,
1992-1993 and 1993-1994, the amounts of which cannot be predicted
at this time. The Company is contesting these tax bills
vigorously and has commenced a lawsuit in the Superior Court to
enjoin the City from any effort to collect these tax bills. It
is not possible at this time to assess accurately the Company's
liability, if any.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
Exhibit
Table Item Exhibit
Number Number Description
- - ---------- ------- -----------
(10) 10.20 Copy of The United Illuminating Company Dividend
Equivalent Program.
(b) Reports on Form 8-K.
None
- 22 -<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
THE UNITED ILLUMINATING COMPANY
Date May 13, 1994 Signature /s/Robert L. Fiscus
----------------------- ------------------------------
Robert L. Fiscus
President and
Chief Financial Officer
- 23 -<PAGE>
<PAGE>
EXHIBIT INDEX
(a) Exhibits
Exhibit
Table Item Exhibit
Number Number Description Page No.
- - ---------- ------- ----------- --------
(10) 10.20 Copy of The United Illuminating Company
Dividend Equivalent Program
<PAGE>
<PAGE>
<PAGE>
Exhibit 10.20
THE UNITED ILLUMINATING COMPANY
DIVIDEND EQUIVALENT PROGRAM
---------------------------
(as adopted November 22, 1993)
I. PURPOSE
-------
The purpose of The United Illuminating Company Dividend
Equivalent Program is (i) to promote the long-term success of
The United Illuminating Company by providing financial
incentives to company officers who are in a position to make
significant contributions toward that success, (ii) to link
the interests of these officers to the interests of the
shareholders, and (iii) to encourage these officers to
maintain proprietary interests in the Company and achieve
extraordinary job performance levels.
II. DEFINITIONS
-----------
When used herein, each of the following terms shall have the
corresponding meaning set forth below unless a different
meaning is plainly required by the context in which a term is
used:
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Chief Executive Officer" shall mean the chief executive
officer of the Company.
(c) "Total Shareholder Return" shall mean a value determined
pursuant to the formula prescribed in Section V(c)
hereof.
(d) "Company" shall mean The United Illuminating Company
and/or any subsidiaries adopting the Program with
approval of the Board.
(e) "Dividend Equivalent Unit" shall mean an amount equal to
the cash value of the sum of all dividends per share of
Common Stock paid by the Company during the performance
Period.
(f) "Effective Date" shall mean January 1, 1994; the date as
of which the first Performance Period will commence and
Dividend Equivalent Units may be assigned to Participants
and the Program will become operational.
<PAGE>
<PAGE>
(g) "Officers" or "Company Officers" shall mean those
officers of the Company who are identified by the Board
as being in a position to make significant contributions
to the growth and long-term success of the Company.
(h) "Participant" shall mean an Officer who is selected by
the Board for participation in the Program for a specific
Performance Period pursuant to Section V(b) hereof.
(i) "Peer Group" shall mean those comparable investor-owned
electric utility companies that are selected as members
of a comparison group for a Performance Period pursuant
to Section V(b) hereof.
(j) "Performance Period" shall mean a three-year period over
which the Company's Total Shareholder Return will be
measured and the Participants' Dividend Equivalent Units
may be earned. To introduce the Program, however, an
initial two-year "Performance Period" will commence on
the Effective Date concurrently with the first normal
three-year "Performance Period." A new three-year
"Performance Period" will commence on January 1, 1995 and
every year thereafter to and including the Termination
Date. Performance Periods will overlap.
(k) "Dividend Equivalent Units Earned Percentages" shall mean
the percentages applicable to potential percentile
rankings of the Company among the Peer Group for a
Performance Period, for purposes of calculating Dividend
Equivalent Unit payments, determined pursuant to Section
V(c) hereof.
(l) "Program" shall mean The United Illuminating Company
Dividend Equivalent Program.
(m) "Termination Date" shall mean January 1, 2003; the date
as of which the last Performance Period will commence,
the last Dividend Equivalent Units may be assigned to
Participants and the Program terminates with respect to
the further assignment of Dividend Equivalent Units.
III. ADMINISTRATION OF THE PROGRAM
-----------------------------
The Program shall be administered by the Board. The Board may
adopt rules and practices for carrying out the Program and may
take such action in the administration of the Program not
inconsistent with the terms hereof as it shall deem
appropriate. Such rules and practices shall be considered as
incorporated into this Program by reference. All questions of
interpretation and construction of the Program, and of the
existence and extent of any rights arising by reason of the
Program, and of the intent and meaning of the provisions of
any instrument or document used in connection with the
Program, shall be determined by
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<PAGE>
the Board. The Board shall determine (i) the eligibility
requirements and the identity of the Participants, if any, for
each Performance Period; (ii) the Dividend Equivalent Units
granted to each Participant for each Performance Period; (iii)
the Peer Group for each Performance Period; (iv) the Dividend
Equivalent Units Earned Percentages for each Performance
Period; and (v) such other matters as may be necessary or
appropriate in connection with the administration of the
Program consistent and in accordance with the provisions
hereof. The Board may delegate some or all of its authority
with respect to the Program to a Committee appointed by the
Board. No member of the Board or Committee who is a
Participant in the Program shall vote on, act upon or decide
any matter relating to such member or such member's rights or
benefits under the Program.
IV. SELECTION OF PARTICIPANTS
-------------------------
At or prior to the commencement of each Performance Period,
after having received the recommendations of the Chief
Executive Officer, the Board may select Company Officers to be
Participants in the Program for the Performance Period. No
person shall at any time have a right to be selected as a
Participant for any Performance Period nor, having been
selected as a Participant for one Performance Period, shall
have the right to be selected as a Participant for any other
Performance Period. The fact that a person is selected as a
Participant for any Performance Period shall not mean that
such person will necessarily be granted Dividend Equivalent
Units for that Performance Period.
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<PAGE>
V. DETERMINATION OF PARTICIPANTS' EARNED DIVIDEND EQUIVALENT
---------------------------------------------------------
UNITS
-----
(a) At or prior to the commencement of each Performance
Period for which the Board selects one or more
Participants, each such Participant will be credited with
the number of Dividend Equivalent Units determined by the
Board.
(b) At or prior to the commencement of each Performance
Period for which the Board selects one or more
Participants, the Board shall select a Peer Group of
comparable investor-owned electric utility companies.
When selecting the membership of a Peer Group for a
Performance Period, the Board shall not be bound by any
decisions regarding the composition of any Peer Group
selected for a prior or overlapping Performance Period.
(c) As soon as practicable after the end of each Performance
Period, the number of Dividend Equivalent Units earned by
each Participant in the Program for such Performance
Period shall be determined by ranking the Company's Total
Shareholder Return among the Total Shareholder Returns of
the Peer Group for that Performance Period. The Total
Shareholder Return of a company shall be measured by the
following formula (with appropriate adjustment for
changes in capital structure due to stock dividends,
stock splits, recapitalization, mergers, or other events
having a significant distorting effect):
1) subtracting the closing Market Price of a share of
such company's Common Stock on the last trading day
prior to the beginning of the Performance Period
from the closing Market Price of such company's
Common Stock on the last trading day of the
Performance Period;
2) adding to the result obtained in step (1) the cash
value of the sum of all dividends paid by such
company with respect to its Common Stock during the
Performance Period; and
3) dividing the result obtained in step (2) by the
closing Market Price of a share of such company's
Common Stock on the last trading day prior to the
beginning of the Performance Period.
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<PAGE>
Using the percentile ranking of the Company's Total
Shareholder Return among the Total Shareholder Returns of
the Peer Group, each Participant in the Program for the
Performance Period will be determined to have earned a
number of Dividend Equivalent Units equal to the whole
number nearest to the product of such Participant's
Dividend Equivalent Units granted at the beginning of the
Performance Period multiplied by the applicable Dividend
Equivalent Units Earned Percentage for that Performance
Period. The Dividend Equivalent Units Earned Percentages
for the Performance Periods beginning January 1, 1994
(and for subsequent Performance Periods if the Board takes
no action to change the percentages) are as follows:
<TABLE>
<CAPTION>
Percentile Rank of
Company among Peer Dividend Equivalent Units
Group Companies Earned Percentages*
------------------ -------------------------
<S> <C>
30th percentile or lower 0%
60th percentile 100%
90th percentile or higher 200%
*Percentages earned at percentiles between the
percentiles specified herein shall be calculated by
interpolating on a straight-line basis between the
percentiles specified herein.
</TABLE>
The Board may change the Dividend Equivalent Units Earned
Percentages scale, including the percentile at which no
units are earned, for any Performance Period beginning
after the date of such change.
(d) Notwithstanding the foregoing, no Dividend Equivalent
Units shall be earned for a Performance Period unless the
Company achieves a Total Shareholder Return at least
equal to the average Ask Yield quoted, on the first
trading day of the
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<PAGE>
Performance Period, for all United States Treasury Notes
maturing during the month of January following the end of
the Performance Period.
(e) In the event of any change in the outstanding shares of
Common Stock by reason of stock dividend or stock split,
recapitalization, merger, consolidation, combination or
exchange of shares, stock issue, or other similar change,
the Board may make such adjustments as it deems equitable
in the number of Dividend Equivalent Units assigned at
such time to the Participants in any one or more of the
Performance Periods then in progress.
VI. PAYMENT OF DIVIDEND EQUIVALENT UNITS
------------------------------------
(a) On the first business day of March immediately after the
end of a Performance Period (or as soon thereafter as
practicable), earned Dividend Equivalent Units shall be
paid by the Company to Participants for the Performance
Period, in cash. The Board may order deferred payments
in its discretion. Furthermore, the Company may deduct
from any payment the amount of taxes, if any, which the
Company is required to withhold with respect to the
Dividend Equivalent Units.
(b) Any Participant may elect to defer receipt of any portion
of his or her earned Dividend Equivalent Units payment
under the Company's Officers' Deferred Compensation Plan.
Any such deferral election must be made before the
applicable Performance Period begins.
(c) If a Participant's employment is terminated due to death,
total disability, or retirement prior to the end of a
Performance Period, the Participant or his or her estate
shall be entitled to payment of a prorata share of the
earned Dividend Equivalent Units that would have been
earned by such Participant if employment
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<PAGE>
had continued to the end of the Performance Period.
Proration of an earned Dividend Equivalent Unit payment
in such an event shall be calculated by multiplying the
earned Dividend Equivalent Unit payment by a fraction,
the numerator of which will be the number of calendar
months that have been completed during the Performance
Period prior to the termination of the Participant's
employment and the denominator of which will be the total
number of calendar months in the Performance Period. If
a Participant's employment terminates prior to the end of
a Performance Period for any reason other than those
described above, or if a Participant at any time after
his or her retirement, engages in any occupation or
business that, in the opinion of the Board, is a
competitor of the Company or any of its Subsidiaries, the
Participant's entitlement to earn Dividend Equivalent
Units for that Performance Period will be forfeited,
unless the Board determines otherwise.
VII. MISCELLANEOUS
-------------
(a) Assignments and Transfers.
The rights and interests of a Participant under the
Program may not be assigned, encumbered, or transferred;
provided however, that in the event of the Participant's
death, any award payable hereunder shall be paid to the
executor or administrator of the Participant's estate.
(b) Program Creates No Employment Rights.
Neither the establishment of the Program nor any action
taken thereunder shall be construed as creating a
contract of employment, or as a term or provision of any
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<PAGE>
such contract, or as giving any employee any right to be
retained in the employ of the Company.
(c) Nature of Participant's Interest.
Any amounts payable to a Participant under the Program
shall constitute solely a general, unsecured liability of
the Company, payable exclusively out of the Company's
general assets; and in no event shall the Company be
obligated to segregate any funds or assets to secure the
payment of any such amount. No action pursuant to the
Program shall confer upon any Participant any right,
title, or interest in any assets of the Company.
(d) Amendment, Suspension or Termination of the Program.
The Board may amend, suspend or terminate the Program
prospectively at any time.
(e) Change of Circumstances.
In the event of a corporate change of control,
reorganization, merger or other event making it difficult
or impractical to continue the Program, the Board may (1)
revoke the grant of outstanding Dividend Equivalent
Units, (2) accelerate the earning of Dividend Equivalent
Units, or (3) take such other action as it may deem
appropriate.
(f) Applicable Law.
The interpretation of the provisions hereof and the
administration of the Program shall be governed by the
laws of Connecticut.
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