UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
---------------------
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 1-7727
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CONNECTICUT NATURAL GAS CORPORATION
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(Exact name of registrant as specified in its charter)
Connecticut 06-0383860
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
100 Columbus Boulevard, Hartford, Connecticut 06103
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(Address of principal executive offices) (Zip Code)
(203) 727-3000
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report).
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date (applicable only
to Corporate Issuers). Number of shares of common stock outstanding as of
the close of business on April 17, 1995: 9,931,279.
<PAGE>
FINANCIAL STATEMENTS
CONNECTICUT NATURAL GAS CORPORATION
The condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. Although the Company believes that
the disclosures are adequate to make the information presented not
misleading, it is suggested that these condensed financial statements be
read in conjunction with the financial statements and the notes thereto
included in the Company's latest annual report on Form 10-K. In the opinion
of the Company, all adjustments necessary to present fairly the consolidated
financial position of the Connecticut Natural Gas Corporation as of March
31, 1995 and 1994 and the results of its operations and its cash flows for
the three months, six months and twelve months ended March 31, 1995 and 1994
have been included. The results of operations for such interim periods are
not necessarily indicative of the results for the full year.
<PAGE>
<TABLE>
<CAPTION>
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED BALANCE SHEETS
(Thousands of Dollars)
March 31, Sept. 30, March 31,
ASSETS 1995 1994 1994
------ --------- --------- ---------
<S> <C> <C> <C>
Plant and Equipment:
Regulated energy $ 374,310 $ 365,638 $ 350,008
Nonregulated energy 63,205 62,728 61,907
Construction work in progress 2,854 2,762 1,262
--------- --------- ---------
440,369 431,128 413,177
Less-Allowance for depreciation 126,654 119,392 113,003
--------- --------- ---------
313,715 311,736 300,174
--------- --------- ---------
Investments, at equity 5,463 5,147 4,974
--------- --------- ---------
Current Assets:
Cash and cash equivalents 13,477 1,126 1,399
Accounts and notes receivable 50,352 28,393 67,961
Allowance for doubtful accounts (4,834) (4,017) (6,280)
Accrued utility revenue 11,504 3,714 12,576
Inventories 8,671 18,326 7,330
Prepaid expenses 3,450 10,107 2,488
Recoverable purchased gas costs - 3,769 -
--------- --------- ---------
82,620 61,418 85,474
--------- --------- ---------
Deferred Charges and Other Assets:
Unrecovered future taxes 49,997 46,759 53,181
Recoverable transition costs 5,634 6,925 14,903
Other assets 27,755 26,569 20,067
--------- --------- ---------
83,386 80,253 88,151
--------- --------- ---------
$ 485,184 $ 458,554 $ 478,773
========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED BALANCE SHEETS (Concluded)
(Thousands of Dollars)
March 31, Sept. 30, March 31,
CAPITALIZATION AND LIABILITIES 1995 1994 1994
------------------------------ --------- --------- ---------
<S> <C> <C> <C>
Capitalization:
Common Stock $ 31,045 $ 29,820 $ 29,820
Capital in excess of par value 74,018 66,657 66,816
Retained Earnings 54,891 43,264 54,368
--------- --------- ---------
159,954 139,741 151,004
Unearned compensation -
Restricted stock awards (400) (157) (593)
Treasury stock (103) (103) (103)
--------- --------- ---------
Common stock equity 159,451 139,481 150,308
Preferred stock, not subject to
mandatory redemption 906 909 940
Long-term debt 153,283 154,193 136,793
--------- --------- ---------
313,640 294,583 288,041
--------- --------- ---------
Notes Payable Under Revolving Credit
Agreements 1,000 - -
--------- --------- ---------
Current Liabilities:
Current portion of long-term debt 3,885 3,791 4,222
Notes payable and commercial paper - 18,500 16,600
Accounts payable and accrued expenses 40,663 37,906 35,068
Refundable purchased gas costs 12,369 - 15,859
Accrued liabilities 8,291 7,779 11,173
--------- --------- ---------
65,208 67,976 82,922
--------- --------- ---------
Deferred Credits:
Deferred income taxes 44,099 36,916 37,591
Unfunded deferred income taxes 49,997 46,759 55,339
Investment tax credits 3,533 3,644 3,754
Refundable taxes 3,367 3,275 3,943
Accrued transition costs 634 1,925 4,236
Other 3,706 3,476 2,947
--------- --------- ---------
105,336 95,995 107,810
--------- --------- ---------
$ 485,184 $ 458,554 $ 478,773
========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars except for per share data)
Three Months Ended
March 31,
-----------------------------
1995 1994
---------- ----------
<S> <C> <C>
Operating Revenues $ 105,540 $ 122,565
Less: Cost of Energy 56,573 66,126
State Gross Receipts Tax 4,215 5,454
---------- ----------
Operating Margin 44,752 50,985
---------- ----------
Other Operating Expenses:
Operations & maintenance expenses 13,986 15,051
Depreciation 4,287 4,002
Income taxes 7,902 11,626
Other taxes 1,919 2,050
---------- ----------
28,094 32,729
---------- ----------
Operating Income 16,658 18,256
---------- ----------
Other Income (Deductions):
Allowance for equity funds used
during construction 33 17
Equity in partnership earnings 159 226
Other deductions (255) (517)
Income Taxes (115) 133
---------- ----------
(178) (141)
---------- ----------
Interest and Debt Expense 3,556 3,079
---------- ----------
Net Income 12,924 15,036
Less-Dividends on Preferred Stock 16 16
---------- ----------
Net Income Applicable to Common Stock $ 12,908 $ 15,020
========== ==========
Income Per Average Share of
Common Stock $ 1.30 $ 1.57
========== ==========
Dividends Per Share of Common Stock $ 0.37 $ 0.37
========== ==========
Average Common Shares Outstanding
During the Period 9,931,278 9,539,078
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars except for per share data)
Six Months Ended
March 31,
-----------------------------
1995 1994
---------- ----------
<S> <C> <C>
Operating Revenues $ 182,071 $ 202,705
Less: Cost of Energy 98,456 110,862
State Gross Receipts Tax 7,440 8,475
---------- ----------
Operating Margin 76,175 83,368
---------- ----------
Operating Expenses:
Operations & maintenance expenses 25,849 27,642
Depreciation 8,501 7,365
Income taxes 12,082 16,335
Other taxes 3,708 3,850
---------- ----------
50,140 55,192
---------- ----------
Operating Income 26,035 28,176
---------- ----------
Other Income (Deductions):
Allowance for equity funds used
during construction 63 31
Equity in partnership earnings 534 452
Other deductions (508) (904)
Income Taxes (133) 188
---------- ----------
(44) (233)
---------- ----------
Interest and Debt Expense 6,983 6,227
---------- ----------
Net Income 19,008 21,716
Less-Dividends on Preferred Stock 31 33
---------- ----------
Net Income Applicable to Common Stock $ 18,977 $ 21,683
========== ==========
Income Per Average Share of
Common Stock $ 1.91 $ 2.27
========== ==========
Dividends Per Share of Common Stock $ 0.74 $ 0.74
========== ==========
Average Common Shares Outstanding
During the Period 9,922,658 9,540,315
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONNECTICUT NATURAL GAS CORPORATION "UNAUDITED"
CONSOLIDATED STATEMENTS OF INCOME
(Thousands of dollars except for per share data)
Twelve Months Ended
March 31,
-----------------------------
1995 1994
---------- ----------
<S> <C> <C>
Operating Revenues $ 270,028 $ 285,094
Less: Cost of Energy 143,906 155,082
State Gross Receipts Tax 10,828 11,714
---------- ----------
Operating Margin 115,294 118,298
---------- ----------
Operating Expenses:
Operations & maintenance expenses 53,486 52,781
Depreciation 16,643 13,713
Income taxes 9,100 13,981
Other taxes 7,294 7,114
---------- ----------
86,523 87,589
---------- ----------
Operating Income 28,771 30,709
---------- ----------
Other Income (Deductions):
Allowance for equity funds used
during construction 53 576
Equity in partnership earnings 950 1,136
Other income (deductions) (611) (1,197)
Income Taxes (434) (255)
---------- ----------
(42) 260
---------- ----------
Interest and Debt Expense 13,734 11,894
---------- ----------
Net Income 14,995 19,075
Less-Dividends on Preferred Stock 64 66
---------- ----------
Net Income Applicable to Common Stock $ 14,931 $ 19,009
========== ==========
Income Per Average Share of
Common Stock $ 1.53 $ 1.99
========== ==========
Dividends Per Share of Common Stock $ 1.48 $ 1.48
========== ==========
Average Common Shares Outstanding
During the Period 9,730,343 9,541,288
========== ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Three Months Ended
March 31,
----------------------
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operations $ 40,182 $ 36,410
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (5,771) (4,887)
Other investing activities (1,178) (1,520)
-------- --------
Net cash used in investing activities (6,949) (6,407)
-------- --------
Cash Flows from Financing Activities:
Dividends paid (3,690) (3,546)
Issuance of common stock 112 78
Other stock activity, net (3) (3)
Principal retired on long-term debt (320) (4,410)
Short-term debt (17,000) (21,391)
-------- --------
Net cash used by
financing activities (20,901) (29,272)
-------- --------
Increase in Cash and
Cash Equivalents 12,332 731
Cash and Cash Equivalents at
Beginning of Period 1,145 668
-------- --------
Cash and Cash Equivalents at
End of Period $ 13,477 $ 1,399
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Thousands of Dollars)
Three Months Ended
March 31,
----------------------
1995 1994
---- ----
<S> <C> <C>
Schedule Reconciling Earnings to
Cash Flows from Operations:
Income $ 12,924 $ 15,036
-------- --------
Adjustments to reconcile income
to net cash:
Depreciation and amortization 4,126 4,108
Deferred income taxes, net 6,643 8,381
Undistributed affiliate earnings (159) (226)
Change in assets and liabilities:
Accounts receivable (12,124) (21,864)
Accrued utility revenue 5,634 4,252
Inventories 9,162 11,439
Unrecovered/(refundable)
purchased gas costs 12,279 14,456
Prepaid expenses (813) (593)
Accounts payable and accrued expenses 2,514 4,304
Other assets/liabilities (4) (2,883)
-------- --------
Total adjustments 27,258 21,374
-------- --------
Cash flows from operations $ 40,182 $ 36,410
======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (net of amount capitalized) $ 1,679 $ 1,153
======== ========
Income taxes $ 1,318 $ (2,496)
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Six Months Ended
March 31,
----------------------
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operations $ 41,301 $ 21,115
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (9,927) (8,893)
Other investing activities (1,910) (5,113)
-------- --------
Net cash used in investing activities (11,837) (14,006)
-------- --------
Cash Flows from Financing Activities:
Dividends paid (7,380) (7,092)
Issuance of common stock 8,586 73
Other stock activity, net (3) (715)
Principal retired on long-term debt (816) (1,622)
Short-term debt (17,500) 2,100
-------- --------
Net cash used by
financing activities (17,113) (7,256)
-------- --------
Increase/(Decrease) in Cash and
Cash Equivalents 12,351 (147)
Cash and Cash Equivalents at
Beginning of Period 1,126 1,546
-------- --------
Cash and Cash Equivalents at
End of Period $ 13,477 $ 1,399
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Thousands of Dollars)
Six Months Ended
March 31,
----------------------
1995 1994
---- ----
<S> <C> <C>
Schedule Reconciling Earnings to
Cash Flows from Operations:
Income $ 19,008 $ 21,716
-------- --------
Adjustments to reconcile income
to net cash:
Depreciation and amortization 8,478 7,579
Deferred income taxes, net 7,164 12,149
Undistributed affiliate earnings (534) (452)
Cash distributions received from
investments 168 -
Change in assets and liabilities:
Accounts receivable (21,142) (34,770)
Accrued utility revenue (7,790) (7,944)
Inventories 9,655 13,083
Unrecovered/(refundable)
purchased gas costs 16,138 12,101
Prepaid expenses 6,657 891
Accounts payable and accrued expenses 3,269 (371)
Other assets/liabilities 230 (2,867)
-------- --------
Total adjustments 22,293 (601)
-------- --------
Cash flows from operations $ 41,301 $ 21,115
======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (net of amount capitalized) $ 5,754 $ 4,825
======== ========
Income taxes $ 2,246 $ 2,706
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands of Dollars)
Twelve Months Ended
March 31,
----------------------
1995 1994
---- ----
<S> <C> <C>
Cash Flows from Operations $ 45,052 $ 32,732
-------- --------
Cash Flows from Investing Activities:
Capital expenditures (28,893) (25,292)
Other investing activities 1,313 (16,711)
-------- --------
Net cash used in investing activities (27,580) (42,003)
-------- --------
Cash Flows from Financing Activities:
Dividends paid (14,472) (14,187)
Issuance of common stock 8,576 390
Other stock activity, net (51) (721)
Issuance of long-term debt 20,000 35,100
Principal retired on long-term debt (3,847) (18,655)
Short-term debt (15,600) 7,100
-------- --------
Net cash provided/(used) by
financing activities (5,394) 9,027
-------- --------
Increase/(Decrease) in Cash and
Cash Equivalents 12,078 (244)
Cash and Cash Equivalents at
Beginning of Period 1,399 1,643
-------- --------
Cash and Cash Equivalents at
End of Period $ 13,477 $ 1,399
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Concluded)
(Thousands of Dollars)
Twelve Months Ended
March 31,
----------------------
1995 1994
---- ----
<S> <C> <C>
Schedule Reconciling Earnings to
Cash Flows from Operations:
Income $ 14,995 $ 19,075
-------- --------
Adjustments to reconcile income
to net cash:
Depreciation and amortization 17,132 14,116
Deferred income taxes, net 3,553 5,006
Undistributed affiliate earnings (950) (1,136)
Cash distributions received from
investments 408 1,154
Change in assets and liabilities:
Accounts receivable 11,163 (2,792)
Accrued utility revenue 1,072 (1,588)
Inventories (1,341) (2,738)
Unrecovered/(refundable)
purchased gas costs (3,490) 2,118
Prepaid expenses (962) (1,312)
Accounts payable and accrued expenses 2,713 3,704
Other assets/liabilities 759 (2,875)
-------- --------
Total adjustments 30,057 13,657
-------- --------
Cash flows from operations $ 45,052 $ 32,732
======== ========
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for:
Interest (net of amount capitalized) $ 11,068 $ 9,509
======== ========
Income taxes $ 9,513 $ 7,888
======== ========
</TABLE>
<PAGE>
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 1995
(Thousands of Dollars)
(1) Accounting for the Effects of Regulation
The Company's natural gas distribution business is subject to
regulation by the Connecticut Department of Public Utility Control
(DPUC). The Company prepares its financial statements in accordance
with the provisions of Statement of Financial Accounting Standards No.
71, "Accounting for the Effects of Certain Types of Regulation" (SFAS
No. 71). SFAS No. 71 requires a cost-based, rate-regulated enterprise
such as the Company to reflect the impact of regulatory decisions in
its financial statements. In certain circumstances, SFAS No. 71
requires that certain costs and/or obligations 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.
In the application of SFAS No. 71, the Company follows accounting
policies that reflect the impact of the rate treatment of certain
events or transactions that are permitted to differ from generally
accepted accounting principles. The most significant of these policies
include the recording of an unfunded deferred income tax liability,
with a corresponding unrecovered receivable, for temporary differences
previously flowed through to ratepayers, regulated assets pending
future recovery, regulated assets recovered over time as directed by
the DPUC and the method of depreciation utilized for certain property.
The DPUC permits recovery of depreciation on the Company's Operating
and Administrative Center under a DPUC-approved 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 statement of operations.
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. 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 activities in accordance with SFAS No. 71, based on each regulatory
action and the criteria set forth in SFAS No. 71.
(2) Steam Supply
During fiscal 1994, the nonregulated operations's primary steam
supplier indicated a desire to negotiate a termination of its long-term
steam supply contract with The Hartford Steam Company, a wholly-owned
subsidiary of Energy Networks, Inc., a wholly-owned nonregulated
subsidiary of the Company. During 1994, management entered into
discussions with this supplier, and these discussions are still in
progress at this time. Management does not believe that the resolution
of this matter will have any material adverse effect on either the
Company's financial condition or its ability to maintain an adequate
steam supply for its nonregulated operations.
(3) Reclassifications
Certain prior year amounts have been reclassified to conform with
current year classifications.
<PAGE>
"UNAUDITED"
CONNECTICUT NATURAL GAS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
MARCH 31, 1995
(Thousands of Dollars Except Per Share Amounts)
RESULTS OF OPERATIONS
The Company recorded lower fiscal 1995 earnings for all periods ending March
31, 1995 as compared to 1994, just as was experienced in the first quarter
of this fiscal year. Second quarter, 1995 earnings per share were $1.30,
compared to $1.57 for the first three months of fiscal 1994. The Company
earned $1.91 per share in the six months ended March 31, 1995 as compared to
$2.27 per share earned in the first six months of fiscal 1994. Twelve
months ended March earnings were $1.53 in fiscal 1995 and $1.99 in 1994.
Warmer winter weather is the primary reason for lower earnings in all
periods. Higher interest costs are an additional significant reason for
lower earnings between the comparable twelve months ended results. Several
other factors, discussed below, also impacted earnings for all comparable
periods ending March 31, 1995.
Operating Margin
Gas operating margin is equal to gas revenues less the cost of gas and
Connecticut gross revenues tax. The following table presents the changes in
revenues, gas operating margin and gas throughput for all periods presented
in the statements of income:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
1995 1994 1995 1994 1995 1994
-------- -------- -------- -------- -------- --------
Gas Revenues $100,212 $116,344 $172,038 $191,745 $248,045 $262,105
======== ======== ======== ======== ======== ========
Gas Operating Margin $ 41,218 $ 47,024 $ 69,567 $ 77,276 $101,394 $103,911
======== ======== ======== ======== ======== ========
Gas Throughput (mmcf)
Firm Sales 9,811 11,909 16,200 19,300 21,160 24,412
Interruptible Sales 2,759 2,579 5,285 5,145 8,604 8,454
Off-System Sales 2,195 115 4,925 2,717 11,351 8,504
Transportation
Services 2,011 1,770 3,964 3,742 7,548 7,837
------ ------ ------ ------ ------ ------
Total System
Throughput 16,776 16,373 30,374 30,904 48,663 49,207
====== ====== ====== ====== ====== ======
</TABLE>
Operating margin was lower in the three, six and twelve months ended March
31, 1995 as compared to 1994. This was primarily because of warmer weather
experienced in the Company's service area during the annual peak heating
season, resulting in lower gas volumes sold to firm customers. Lower sales
more than offset the beneficial impacts to operating margin from higher firm
gas rates effective December, 1993 as a result of a rate decision received
from the Connecticut Department of Public Utility Control (DPUC), higher
interruptible margins resulting from lower gas costs, the billing of late
payment fees, as allowed in the December rate decision, and an increase in
the number of customers. Interruptible margins earned in fiscal 1995
exceeded the DPUC prescribed target level related to sharing mechanisms,
making a portion of them subject to refund to firm customers.
<PAGE>
Income Taxes
Lower income taxes reflect lower taxable income and increased income tax
benefits from allowed deductions of current and certain prior incurred cost
of removal expenses associated with retirements of plant and equipment, as
approved by the Internal Revenue Service in October, 1994. A benefit to
earnings from this item of $.07, $.12 and $.12 per share was recorded in the
three, six and twelve months ended March 31, 1995, respectively.
Operations and Maintenance Expenses
Operating and maintenance expenses are lower in fiscal 1995 between the
comparable second quarter and six months periods. Lower uncollectibles
expense recorded in the three and six months ended March 31, 1995 is
primarily the result of lower customer receivables recorded because of the
warmer weather. Environmental cleanup costs, conservation program expenses
and several other expense items are less in fiscal 1995 because of the
absence of certain previously deferred expenses recognized in the first
quarter of fiscal 1994. Costs related to computer rentals and maintenance
are lower because of renegotiated agreements. Total labor costs are lower
in fiscal 1995, reflecting the impact of an overall ten percent reduction in
the nonunion workforce accomplished during the fourth quarter of fiscal 1994
through a voluntary early retirement program (VERO) and attrition. This
more than offset the impact of higher employee benefits and pensions
expenses and higher union wages resulting from newly negotiated labor
contracts.
Operations and maintenance expenses are higher in the twelve months ended
March, 1995 compared to 1994. Increases occurred in employee benefits,
pension costs and outside purchased services, reflecting higher levels of
expenses allowed by the DPUC in the December, 1993 rate decision. Higher
employee benefits during the twelve months ended December, 1994 also
included the one-time fourth quarter fiscal 1994 costs related to the VERO.
These increases are somewhat offset by reductions in uncollectibles
expenses, computer rentals and maintenance costs, payroll expenses,
conservation costs and environmental expenses.
Other Income (Deductions)
In fiscal 1995, higher interest and dividend income from investments of
temporary cash balances and less promotional advertising expenses are offset
by lower income from merchandise sales and higher other costs. The net
effect is less other income between the three months ended March 31, 1995
and 1994 but more other income between the comparable fiscal year to date
periods.
These factors also impact twelve months ended results. However, other
income declined from fiscal 1994 to fiscal 1995 between the comparable
twelve months ended periods primarily because of a substantially lower
allowance for equity funds used during construction, reflecting the fiscal
1994 completion of a customer information system. Interest income related
to Federal Energy Regulatory Commission (FERC) Order No. 636 Transition
Costs, recorded in the last quarter of fiscal 1994, also offset some of this
decline.
Interest and Debt Expense
The Company recorded additional long-term debt interest in the three and six
months ended March, 1995 as compared to 1994, recognizing the effect of
additional issues of medium term notes from the last quarter of fiscal 1994.
This was offset somewhat by lower short-term debt interest costs as a
<PAGE>
result of lower average outstanding borrowings. Several factors reduced the
need for short-term borrowings during this time, including lower working
capital requirements due to the warmer weather, refunds received from gas
pipeline companies and retained by the Company to offset future FERC Order
636 transition costs and the proceeds from fourth quarter,1994 issues of
medium term notes and first quarter, 1995 issues of Common Stock.
The increase in interest expense between the twelve months ended March, 1995
and 1994 is the result of the lower fiscal 1995 allowance for borrowed funds
used during construction and the interest related to fiscal 1994 issues of
medium term notes.
Earnings from Nonregulated Operations
The contribution to earnings from nonregulated operations was $.08, $.15 and
$.34 per share for the three, six and twelve months ended March 31, 1995,
compared to $.10, $.15 and $.34 per share for the three, six and twelve
months ended March 31, 1994, respectively. Higher chilled water sales and
lower steam sales recorded during the first six months of fiscal 1995
reflect the impact of the warmer weather experienced in the service area.
Lower steam sales also reflect reduced customer load. However, during the
warmer fiscal 1995, District Heating and Cooling (DHC) recorded higher hot
water sales because of additional customer load. All periods reflect the
benefits of lower fuel costs for the production of steam.
MATERIAL CHANGES IN FINANCIAL CONDITION
Cash flows from operations funded both investing and financing activities
during all periods in fiscal 1995 and a significantly higher level of cash
and cash equivalents is on the balance sheet at March 31, 1995. The
proceeds from the October, 1994 issue of Common Stock were used by the
regulated operations to reduce short-term debt and for working capital in
fiscal 1995. These needs would otherwise have been met by cash from
operations or by additional short-term financing. The warmer winter weather
in fiscal 1995 reduced purchased gas requirements, sales and the
corresponding accounts receivable, easing this seasonal need for cash. The
Company has received refunds from gas pipelines during the first six months
of fiscal 1995. A portion of these have been retained by the Company to
offset FERC 636 transition costs, as allowed by the DPUC. The remainder
will be returned to customers as reductions to their bills in the following
months through purchased gas adjustment provisions.
Cash flows from operations were also sufficient to fund both investing and
financing activities during the three and six months ended March, 1994. In
fiscal 1994 this was attributable to higher operating margins, the timing
and receipt of cash payments from customers and the amount and timing of
payments of invoices for volumes of gas purchased to serve customers. In
the twelve months ended March, 1994 cash flows from operations together with
financing activities funded construction and other investing activities.
<PAGE>
Effects of Regulation
The Company's natural gas distribution business is subject to regulation by
the Connecticut Department of Public Utility Control (DPUC). The Company
prepares its financial statements in accordance with the provisions of
Statement of Financial Accounting Standards No. 71, "Accounting for the
Effects of Certain Types of Regulation" (SFAS No. 71). SFAS No. 71 requires
a cost-based, rate-regulated enterprise such as the Company to reflect the
impact of regulatory decisions in its financial statements. In certain
circumstances, SFAS No. 71 requires that certain costs and/or obligations 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.
In the application of SFAS No. 71, the Company follows accounting policies
that reflect the impact of the rate treatment of certain events or
t ransactions that are permitted to differ from generally accepted accounting
principles. The most significant of these policies include the recording of
an unfunded deferred income tax liability, with a corresponding unrecovered
receivable, for temporary differences previously flowed through to
ratepayers, regulated assets pending future recovery, regulated assets
recovered over time as directed by the DPUC and the method of depreciation
utilized for certain property. The DPUC permits recovery of depreciation on
the Company's Operating and Administrative Center under a DPUC-approved
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 statement of operations.
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. 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 activities in accordance
with SFAS No. 71, based on each regulatory action and the criteria set forth
in SFAS No. 71.
Regulatory Matters
In April, 1995 the Company filed a notice of intent to seek a potential rate
increase of 12.8%, or approximately $33,500, with the DPUC. The Company has
also requested the recovery of certain costs which are currently deferred,
pending the outcome of these proceedings, as directed by the DPUC in its
December, 1993 rate decision. These items include energy assistance costs,
postretirement benefits other than pensions, economic development expenses
and conservation program costs above levels allowed in current rates.
Although management cannot predict the outcome of these proceedings, a
decision could be received as early as September, 1995, and potential new
rates in effect during the first quarter of fiscal 1996.
Steam Supply
During fiscal 1994, the nonregulated operations's primary steam supplier
indicated a desire to negotiate a termination of its long-term steam supply
contract with The Hartford Steam Company, a wholly-owned subsidiary of
Energy Networks, Inc. (ENI), a wholly-owned nonregulated subsidiary of the
Company. Management entered into discussions with this supplier, and these
discussions are still in progress at this time. Management does not believe
<PAGE>
that the resolution of this matter will have any material adverse effect on
either the Company's financial condition or its ability to maintain an
adequate steam supply for its nonregulated operations.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
-----------------------------------------
(a) Exhibits
27 Financial Data Schedule
99 (i) Exhibit Index
(b) No reports on Form 8-K were filed during the quarter ending March 31,
1995.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONNECTICUT NATURAL GAS CORPORATION
Date 04/28/95 By: S/ Andrew H. Johnson
-------------------- -----------------------------------
(Andrew H. Johnson)
Treasurer and Chief Accounting Officer
(On behalf of the registrant and as
Chief Accounting Officer)
<PAGE>
Exhibit 99(i)
CONNECTICUT NATURAL GAS CORPORATION
Quarterly Report on Form 10-Q
Exhibit Index
<TABLE>
<CAPTION>
Quarter Ended March 31, 1995
<C> <S> <C>
Document
Item Description Description
------------ ----------- ------------
99(i) Exhibit Index Ex-99.1
27 Financial Data Schedule Ex-27
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS
SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE
SHEETS, STATEMENTS OF
INCOME, STATEMENTS OF
CASHFLOWS AND STATEMENTS OF
CAPITALIZATION AND IS
QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1994
<PERIOD-START> OCT-01-1994
<PERIOD-END> MAR-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 266,653
<OTHER-PROPERTY-AND-INVEST> 52,525
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<TOTAL-DEFERRED-CHARGES> 83,386
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<TOTAL-ASSETS> 485,184
<COMMON> 30,542
<CAPITAL-SURPLUS-PAID-IN> 74,018
<RETAINED-EARNINGS> 54,891
<TOTAL-COMMON-STOCKHOLDERS-EQ> 159,451
0
906
<LONG-TERM-DEBT-NET> 153,283
<SHORT-TERM-NOTES> 1,000
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<GROSS-OPERATING-REVENUE> 182,071
<INCOME-TAX-EXPENSE> 12,215
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<TOTAL-OPERATING-EXPENSES> 156,036
<OPERATING-INCOME-LOSS> 26,035
<OTHER-INCOME-NET> (44)
<INCOME-BEFORE-INTEREST-EXPEN> 25,991
<TOTAL-INTEREST-EXPENSE> 6,983
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31
<EARNINGS-AVAILABLE-FOR-COMM> 18,977
<COMMON-STOCK-DIVIDENDS> 7,349
<TOTAL-INTEREST-ON-BONDS> 1,704
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<PAGE>
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