UNITED STATES 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 ended June 30, 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 No. 1-8369
CONNECTICUT ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Connecticut 06-0869582
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
855 Main Street
Bridgeport, Connecticut 06604
(Address of principal executive offices) (Zip Code)
(203) 579-1732
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check 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.
Class Outstanding at August 3, 1995
----- -----------------------------
Common Stock, $1 par value 8,833,305
<TABLE>
PART 1. FINANCIAL INFORMATION
CONNECTICUT ENERGY CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------ ----------------- -------------------
1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues..................... $ 39,755 $ 36,835 $ 208,562 $ 215,387 $ 234,048 $ 238,594
Purchased gas.......................... 20,692 16,704 103,967 114,659 116,178 126,056
--------- --------- --------- --------- --------- ---------
Gross margin........................... 19,063 20,131 104,595 100,728 117,870 112,538
Operating Expenses:
Operations........................... 11,177 11,741 39,091 38,066 51,234 47,617
Maintenance.......................... 872 954 2,868 3,174 3,729 4,005
Depreciation and depletion........... 3,551 3,269 10,500 9,746 13,785 12,766
Federal and state income taxes....... (1,125) (1,147) 10,786 9,041 7,147 6,131
Municipal, gross earnings and
other taxes........................ 3,385 3,535 13,087 14,120 15,281 16,693
--------- --------- --------- --------- --------- ---------
Total operating expenses............... 17,860 18,352 76,332 74,147 91,176 87,212
--------- --------- --------- --------- --------- ---------
Operating income....................... 1,203 1,779 28,263 26,581 26,694 25,326
Other deductions, net.................. 31 125 351 372 565 487
Interest Expense and Preferred Stock
Dividends:
Interest on long-term debt and
amortization of debt issue costs... 2,713 2,727 8,145 8,191 10,874 10,760
Other interest and preferred stock
dividends, net..................... 444 265 1,096 605 1,154 894
--------- --------- --------- --------- --------- ---------
Total interest expense and preferred
stock dividends...................... 3,157 2,992 9,241 8,796 12,028 11,654
--------- --------- --------- --------- --------- ---------
Net (Loss) Income...................... $ (1,985) $ (1,338) $ 18,671 $ 17,413 $ 14,101 $ 13,185
========= ========= ========= ========= ========= =========
Net (loss) income per share............ $ (0.23) $ (0.16) $ 2.13 $ 2.19 $ 1.62 $ 1.68
========= ========= ========= ========= ========= =========
Dividends paid per share............... $ 0.325 $ 0.325 $ 0.975 $ 0.965 $ 1.30 $ 1.285
--------- --------- --------- --------- --------- ---------
Weighted average number of common
shares outstanding during period..... 8,796,699 8,589,334 8,753,667 7,955,326 8,731,136 7,829,706
--------- --------- --------- --------- --------- ---------
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
June 30, Sept. 30, June 30,
1995 1994 1994
----------- ----------- -----------
(Unaudited) (Unaudited)
Assets
- ------
<S> <C> <C> <C>
Utility Plant:
Gross utility plant............................... $349,444 $331,953 $324,431
Less--accumulated depreciation.................... 104,489 97,458 97,529
-------- -------- --------
Net utility plant............................... 244,955 234,495 226,902
Nonutility property, net.......................... 2,492 2,492 2,586
-------- -------- --------
Net utility plant and other property................ 247,447 236,987 229,488
-------- -------- --------
Current Assets:
Cash and cash equivalents......................... 4,005 1,637 5,918
-------- -------- --------
Accounts receivable............................... 37,755 27,445 41,363
Less--allowance for doubtful accounts............. 4,057 3,747 4,645
-------- -------- --------
Net accounts receivable............................. 33,698 23,698 36,718
-------- -------- --------
Accrued utility revenues, net..................... 2,706 2,630 2,494
Unrecovered purchased gas costs................... --- 4,523 ---
Inventories....................................... 12,457 14,678 11,777
Prepaid expenses.................................. 2,337 1,847 1,974
-------- -------- --------
Total current assets................................ 55,203 49,013 58,881
-------- -------- --------
Deferred Charges:
Unamortized debt expenses......................... 6,144 6,317 6,379
Unrecovered deferred taxes........................ 37,024 35,398 33,313
Other............................................. 26,195 25,205 29,107
-------- -------- --------
Total deferred charges.............................. 69,363 66,920 68,799
-------- -------- --------
Total assets........................................ $372,013 $352,920 $357,168
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<CAPTION>
June 30, Sept. 30, June 30,
1995 1994 1994
----------- ----------- -----------
(Unaudited) (Unaudited)
Capitalization and Liabilities
- ------------------------------
<S> <C> <C> <C>
Common Shareholders' Equity:
Common Stock--par value $1 per share: authorized--20,000,000 shares, issued and
outstanding--8,828,347 shares; 8,700,266 shares; 8,654,850 shares.............. $ 8,828 $ 8,700 $ 8,655
Capital in excess of par value................................................... 87,622 85,265 84,352
Retained earnings................................................................ 41,884 31,754 39,143
Adjustment for minimum pension liability......................................... --- --- (108)
-------- -------- --------
Total common shareholders' equity.................................................. 138,334 125,719 132,042
-------- -------- --------
Preferred Stock:
The Southern Connecticut Gas Company Redeemable Preferred Stock: authorized--
200,000 shares, par value $100 per share 4.75% cumulative series, none issued
authorized--600,000 shares, par value $1 per share, none issued................ --- --- ---
Preference Stock:
The Southern Connecticut Gas Company: authorized--1,000,000 shares, par value
$1 per share, none issued
Connecticut Energy Corporation: authorized--1,000,000 shares, par value $1 per
share, none issued
Preferred stock expense............................................................ --- --- ---
-------- -------- --------
Total preferred stock.............................................................. --- --- ---
-------- -------- --------
Long-term debt..................................................................... 119,776 119,917 120,371
-------- -------- --------
Total capitalization............................................................... 258,110 245,636 252,413
-------- -------- --------
Current Liabilities:
Short-term borrowings........................................................... 11,800 18,800 6,700
Current maturities of long-term debt............................................ 594 594 594
Accounts payable................................................................ 10,061 10,886 8,589
Refunds due customers........................................................... 4 --- 3,387
Federal, state and deferred income taxes........................................ 7,008 3,565 10,006
Property and other accrued taxes................................................ 6,865 5,289 7,348
Interest payable................................................................ 2,246 3,315 2,264
Customer deposits............................................................... 1,902 1,901 1,951
Refundable purchased gas costs.................................................. 6,206 --- 1,850
Other accrued liabilities....................................................... 3,112 4,137 2,750
-------- -------- --------
Total current liabilities.......................................................... 49,798 48,487 45,439
-------- -------- --------
Deferred Credits:
Deferred income taxes and investment tax credits................................ 58,094 54,974 52,217
Other........................................................................... 6,011 3,823 7,099
-------- -------- --------
Total capitalization and liabilities............................................... $372,013 $352,920 $357,168
======== ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<CAPTION>
Nine Months Ended Twelve Months Ended
June 30, June 30,
------------------ -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net cash provided by operating activities: $37,091 $24,339 $32,561 $21,462
------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures................................ (21,234) (17,334) (30,549) (25,531)
Proceeds from sale of subsidiaries.................. --- --- 8 ---
Contributions in aid of construction................ 20 42 29 95
Payments for retirement of utility plant............ (262) (541) (500) (697)
Other............................................... (50) --- (50) ---
------- ------- ------- -------
Net cash used by investing activities................. (21,526) (17,833) (31,062) (26,133)
------- ------- ------- -------
Cash flows from financing activities:
Dividends paid on common stock...................... (8,541) (7,935) (11,360) (10,325)
Issuance of common stock............................ 2,485 22,711 3,443 23,708
Issuance of long-term debt.......................... --- --- --- 12,000
Repayments of long-term debt........................ (141) (140) (595) (594)
Early redemption of preferred stock................. --- (638) --- (638)
(Decrease) increase in short-term borrowings........ (7,000) (16,800) 5,100 (20,300)
------- ------- ------- -------
Net cash (used by) provided by financing activities... (13,197) (2,802) (3,412) 3,851
------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents.. 2,368 3,704 (1,913) (820)
Cash and cash equivalents at beginning of period...... 1,637 2,214 5,918 6,738
------- ------- ------- -------
Cash and cash equivalents at end of period............ $ 4,005 $ 5,918 $ 4,005 $ 5,918
======= ======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................ $ 9,815 $ 9,529 $ 11,618 $11,651
Income taxes........................................ $ 6,635 $ 2,065 $ 8,822 $ 2,065
See Notes to Consolidated Financial Statements.
</TABLE>
CONNECTICUT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The unaudited consolidated financial statements presented
herein should be read in conjunction with the consolidated
financial statements of Connecticut Energy Corporation ("Company")
for the fiscal year ended September 30, 1994 as presented in the
Annual Report on Form 10-K . In the opinion of management, the
accompanying financial information reflects all adjustments which
are necessary to provide a fair presentation of the interim periods
shown. All such adjustments are of a normal recurring nature.
2. Due to the seasonal nature of gas sales for space heating
purposes by the Company's principal subsidiary, The Southern
Connecticut Gas Company ("Southern"), the results of operations for
the nine months ended June 30, 1995 are not indicative of the
results to be expected for the fiscal year ended September 30,
1995.
3. Included in other deferred charges are amounts related to
the deferral of certain hardship heating customer accounts
receivable arrearages totalling $10,431,000, $10,211,000 and
$9,949,000 at June 30, 1995, September 30, 1994 and June 30, 1994,
respectively; the deferral of certain shortfalls in energy
assistance funding related to the 1991/92 and 1992/93 heating
seasons amounting to $2,184,000, $2,742,000 and $2,790,000 at June
30, 1995, September 30, 1994 and June 30, 1994, respectively;
prepaid pension contributions of $7,599,000, $6,355,000 and
$6,355,000 at June 30, 1995, September 30, 1994, and June 30, 1994,
respectively; and an intangible pension asset of $101,000, $101,000
and $3,652,000 at June 30, 1995, September 30, 1994 and June 30,
1994, respectively.
4. Included in other deferred credits are amounts related to
a minimum pension liability totalling $101,000, $101,000 and
$3,816,000 at June 30, 1995, September 30, 1994 and June 30, 1994,
respectively.
5. Southern has identified coal tar residue at three sites
in Connecticut. This residue results from historic coal
gasification operations conducted at those sites by Southern's
predecessors from the late 1800s through the first part of this
century. Many gas distribution companies throughout the country
carried on such gas manufacturing operations during the same
period. See section entitled "Environmental Matters" on page 17
for further detail.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Income
- ----------
Connecticut Energy Corporation's ("Company") consolidated net
income for the three, nine and twelve months ended June 30, 1995 and
1994 is detailed below:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------ ----------------- -------------------
(in thousands, except 1995 1994 1995 1994 1995 1994
per share) ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Net (Loss) Income $(1,985) $(1,338) $18,671 $17,413 $14,101 $13,185
======= ======= ======= ======= ======= =======
Net (Loss) Income Per Share $ (0.23) $ (0.16) $ 2.13 $ 2.19 $ 1.62 $ 1.68
======= ======= ======= ======= ======= =======
Weighted Average
Shares Outstanding 8,797 8,589 8,754 7,955 8,731 7,830
------- ------- ------- ------- ------- -------
</TABLE>
The higher net loss for the three months ended June 30, 1995 is
primarily attributable to lower margins on firm sales by the Company's
principal subsidiary, The Southern Connecticut Gas Company ("Southern"),
due to slightly lower usage per customer. Partially offsetting this
decrease in firm margins were lower operating expenses primarily for
labor due to less overtime payments, pensions, group health insurance
and other general and administrative expenses.
Factors affecting the increase to net income for the nine month
period ended June 30, 1995 were additional interruptible margins earned
and retained by Southern, because of Southern's ability to serve
interruptible customers throughout the winter due to the combination of
warmer than normal weather and competitive natural gas prices; a 6.6%
rate increase implemented by Southern on December 9, 1993; and the
continued conversion of residential non-heating customers to heating
customers. Lower operating expenses primarily in the areas of labor due
to less overtime payments because of the warmer weather, a lower gross
revenue tax due to lower revenues and lower property taxes were offset
by higher expenses for uncollectibles, leases, employee benefit costs
due to the adoption of Statement of Financial Accounting Standards No.
106 ("SFAS 106"), depreciation, interest and taxes due to higher pre-tax
income and a higher effective tax rate.
Margins for the twelve months ended June 30, 1995 were positively
affected by the rate increase implemented by Southern, retention of
increased margins on interruptible services and the conversion of
residential non-heating customers to heating customers. Partially
offsetting these increases were higher operating expenses associated
with uncollectibles, leases, employee benefit costs principally due to
the adoption of SFAS 106 and depreciation expense.
Total Sales and Transportation Volumes
- --------------------------------------
Southern's total volumes of gas sold and transported for the three
months ended June 30, 1995 was 10,569 MMcf, which represented an
increase of approximately 141% as compared to the corresponding 1994
period. This increase was primarily attributable to sales to
interruptible customers and volumes of gas transported in accordance
with a special contract entered into in July of 1994 with The
Connecticut Light and Power Company ("CL&P") for its Devon generating
station ("Devon Station").
For the nine and twelve months ended June 30, 1995, Southern's
total volumes of gas sold and transported of approximately 40,382 MMcf
and 47,568 MMcf were approximately 55% and 61% higher, respectively, as
compared to the corresponding 1994 periods principally due to higher
interruptible volumes and higher transportation volumes to CL&P's Devon
Station. Sales for the 1995 periods were also positively affected by
Southern's ability to sell gas off-system in accordance with the
Department of Public Utility Control's ("DPUC") decision regarding the
implementation of Federal Energy Regulatory Commission ("FERC") Order
No. 636.
Firm Sales Volumes
- ------------------
Firm sales volumes for the nine and twelve months ended June 30,
1995 decreased 2,564 MMcf and 2,658 MMcf, or approximately 12%, as
compared to the corresponding 1994 periods. These decreases were
principally due to weather that was approximately 14% and 15% warmer
than the corresponding 1994 periods.
Interruptible Sales and Transportation Volumes
- ----------------------------------------------
The chart below depicts total volumes of gas both sold to and
transported for interruptible customers, off-system sales volumes and
transportation volumes under the special contract with CL&P as well as
gross margins earned and retained due to the margin sharing mechanism on
these services:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
------------------ ----------------- -------------------
(in thousands) 1995 1994 1995 1994 1995 1994
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross margin earned $3,267 $1,437 $10,333 $4,712 $13,042 $6,231
====== ====== ======= ====== ======= ======
Gross margin retained $1,629 $1,383 $ 6,448 $3,530 $ 8,264 $4,976
====== ====== ======= ====== ======= ======
Volumes sold and
transported (MMcf) 7,502 1,499 22,048 5,151 27,406 6,767
------ ------ ------- ------ ------- ------
</TABLE>
Margins earned on volumes delivered to interruptible customers
vary depending upon the relationship of the market price for
alternate fuels to the cost of natural gas and related
transportation. Additionally, margins earned, net of gross earnings
tax, from interruptible service in excess of an annual target are
allocated through a margin sharing mechanism between firm customers
and Southern.
Margins earned and retained by Southern were higher for the
three and nine months ended June 30, 1995 as compared to the
corresponding 1994 periods principally due to higher levels of
interruptible sales and Southern's ability to sell and transport gas
off-system pursuant to the DPUC'S decision regarding the
implementation of FERC Order No. 636.
The increase in margins earned and retained for the twelve
months ended June 30, 1995 when compared to the corresponding 1994
period is principally attributable to the increased level of
interruptible services experienced during the period, the change in
the margin sharing year, an increase in the target margin level from
$2,000,000 to $4,000,000 in accordance with the DPUC's decision in
Southern's latest rate case and Southern's ability to sell and
transport gas on an off-system basis.
Gross Margin
- ------------
The Company's gross margin decreased by approximately 5% for
the three months ended June 30, 1995 as compared to the
corresponding 1994 period due to lower firm margins stemming from a
slightly lower usage per customer. Partially offsetting this decline
were higher margins earned and retained from interruptible services.
The Company's gross margin increased by approximately 4% and
5%, respectively, for the nine and twelve months ended June 30, 1995
as compared to the corresponding periods ended June 30, 1994 as a
result of higher firm and interruptible margins. Additionally, gross
margin for the nine and twelve months ended June 30, 1995 was
positively affected by the collection of approximately $6,869,000
and $6,811,000, respectively, from firm customers through the
operation of the Weather Normalization Adjustment Clause ("WNA")
implemented in December of 1993. The WNA collections helped offset
the effects of lower firm sales volumes resulting from weather that
was approximately 10% and 11% warmer than normal for the nine and
twelve months ended June 30, 1995, respectively. Gross margins for
the comparative 1994 periods were negatively impacted by the return
to customers of approximately $2,800,000 through the operation of
the WNA.
Southern's firm rates include a purchased gas adjustment clause
("PGA") which allows Southern to pass through to its customers,
through periodic adjustments to amounts billed, increased or
decreased costs incurred for purchased gas as compared to base rate
levels without affecting gross margin. For the three and nine
months ended June 30, 1995, adjustments related to Southern's PGA
decreased revenues and gas costs by approximately $973,000 and
$3,576,000, respectively, as compared to a PGA adjustment for the
nine months ended June 30, 1994 which increased revenues and gas
costs by approximately $6,979,000.
Operations Expense
- ------------------
Operations expense for the three months ended June 30, 1995
decreased approximately 5% as compared to the corresponding 1994
period. This decrease was principally due to lower costs for labor,
conservation, pensions, employee health insurance and other general
and administrative expenses, but was partially offset by a higher
expense for uncollectible accounts.
For the nine months ended June 30, 1995, operations expense
increased approximately 3% as compared to the corresponding 1994
period. This increase was principally due to higher costs related
to uncollectible accounts, leases and the adoption and recovery of
postretirement health care expenses, but was partially offset by
lower expenses for labor, conservation and employee health
insurance.
Operations expense for the twelve months ended June 30, 1995
increased approximately 8% as compared to the corresponding 1994
period. More than 85% of the increase was attributable to a higher
expense for uncollectible accounts. Other increases were lease
payments and postretirement health care costs. Partially offsetting
these increases were decreases in costs related to labor,
conservation, employee health insurance and other general and
administrative expenses.
In December 1992, the DPUC allowed Southern to defer certain
shortfalls in energy assistance funding from various state and
federal agencies related to the 1991/92 and 1992/93 heating seasons.
The DPUC's action positively impacted Southern's provision for
uncollectible accounts for the fiscal year ended September 30, 1993.
Southern has been allowed to recover these costs as well as deferred
costs associated with Southern's certified hardship forgiveness
program beginning January 1, 1994 in accordance with the DPUC's
latest rate decision. Accordingly, included in operations expense
for the three, nine and twelve months ended June 30, 1995, were
approximately $640,000, $2,687,000 and $2,920,000, respectively,
relating to these amortizations as compared to $747,000, $1,494,000
and $1,494,000 for the corresponding 1994 periods.
Maintenance Expense
- -------------------
Maintenance expense for the three, nine and twelve months ended
June 30, 1995 decreased approximately 9%, 10% and 7%, respectively,
as compared to the same 1994 periods. These decreases were
primarily attributable to lower labor and material costs associated
with Southern's mains due to a lower level of maintenance activity
resulting from warmer than normal weather experienced in the 1995
periods.
Depreciation and Depletion
- --------------------------
Depreciation expense for the three, nine and twelve months
ended June 30, 1995 increased approximately 9%, 8% and 8%,
respectively, as compared to the corresponding 1994 periods
primarily due to additions to plant in service by Southern.
Federal and State Income Taxes
- ------------------------------
The total provision for federal and state income taxes for the
nine and twelve months ended June 30, 1995 increased approximately
19% and 17%, respectively, as compared to the corresponding 1994
periods. These increases were primarily due to higher pre-tax
income, coupled with a higher effective tax rate for the 1995
periods. Results for the twelve months ended June 30, 1995 were
also impacted by the flow-through tax effect of the amortization of
previously deferred costs. Partially offsetting these increases in
the tax provision for the nine and twelve months ended June 30, 1995
were benefits related to the prepayment of approximately $6,500,000
in transition costs, the current deductibility of conservation
expenses and certain postretirement health care and pension costs.
Municipal, Gross Earnings and Other Taxes
- -----------------------------------------
Municipal, gross earnings and other taxes decreased
approximately 4% for the three months ended June 30, 1995 as
compared to the corresponding 1994 period. This decrease was
primarily due to a lower provision for property taxes and was
partially offset by a higher gross revenue tax due to higher
revenues for the 1995 period.
Municipal, gross earnings and other taxes decreased
approximately 7% and 8% for the nine and twelve months ended June
30, 1995, respectively, as compared to the corresponding 1994
periods. These decreases were primarily due to lower gross revenue
taxes, lower sales and use taxes and lower provisions for property
taxes.
Interest Expense and Preferred Stock Dividends
- ----------------------------------------------
Total interest expense and preferred stock dividends increased
approximately 6% for the three months ended June 30, 1995 as
compared to the corresponding 1994 period. This increase was
primarily due to higher short-term interest costs due to higher
average borrowings during the 1995 period and a higher interest
expense related to deferred gas costs and revenue sharing balances.
Partially offsetting the increased short-term costs was the absence
of any interest costs related to refunds from interstate pipeline
suppliers.
Total interest expense and preferred stock dividends increased
approximately 5% for the nine months ended June 30, 1995 as compared
to the corresponding 1994 period. This increase was primarily due
to higher short-term interest costs due to higher average interest
rates and a higher interest expense related to deferred gas costs
and revenue sharing balances. Partially offsetting the increased
short-term interest costs for this period was the absence of any
interest costs related to refunds from interstate pipeline
suppliers.
Total interest expense and preferred stock dividends increased
approximately 3% for the twelve months ended June 30, 1995 as
compared to the corresponding 1994 period primarily due to higher
average short-term interest rates, higher interest related to
deferred gas costs and higher long-term debt expense related to the
issuance of Series Y First Mortgage Bonds in September 1993. This
increase was partially offset by lower interest costs related to
interstate pipeline refunds.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
- --------------------
The seasonal nature of Southern's business creates large short-
term cash demands primarily to finance gas purchases, customer
accounts receivable and certain tax payments. To provide these
funds, as well as funds for its capital expenditure program and
other corporate purposes, Southern has committed lines of credit
with a number of banks totalling $32,000,000 and uncommitted lines
of credit with two of its banks totalling $14,000,000, in addition
to a revolving credit line agreement for up to $20,000,000 with one
of its banks. This latter agreement has a revolving credit feature
through December 21, 1996, followed by a term loan period through
December 21, 2000. Effective July 1, 1995, the Company obtained a
committed line of credit with one of its banks totalling $5,000,000.
Because of the availability of short-term credit and the ability to
issue long-term debt and additional equity, management believes it
has adequate financial flexibility to meet its anticipated cash
needs.
Operating cash flows for the nine months ended June 30, 1995
were positively affected by higher net income, the receipt of
approximately $8,678,000 in interstate pipeline refunds used to
offset previously deferred transition costs and a higher refundable
purchased gas cost balance. Operating cash flows for the nine
months ended June 30, 1995 as compared to the nine months ended June
30, 1994 were positively affected by lower accounts receivable and
higher refundable purchased gas cost balances.
Operating cash flows for the twelve months ended June 30, 1995
were positively affected by higher net income and the receipt of
approximately $12,726,000 in interstate pipeline refunds used to
offset previously deferred transition costs. Operating cash flows
for the twelve months ended June 30, 1995 as compared to the twelve
months ended June 30, 1994 were positively affected by a higher
refundable purchased gas cost balance as well as a lower accounts
receivable balance.
Investing Activities
- --------------------
Capital expenditures approximated $21,214,000 and $17,292,000
for the nine months ended June 30, 1995 and 1994, respectively, and
$30,520,000 and $25,436,000 for the twelve months ended June 30,
1995 and 1994, respectively. On an annual basis, Southern relies
upon cash flows from operating activities to fund a portion of these
expenditures, with the remainder funded by short-term borrowings
and, at some later date, long-term debt and capital stock
financings.
FERC Order No. 636 Transition Costs
- -----------------------------------
As a result of FERC Order No. 636, costs are being incurred by
Southern's interstate pipeline suppliers to convert existing
"bundled" sales services to "unbundled" transportation and storage
services. These transition costs include: (1) unrecovered gas
costs, (2) gas supply realignment costs, (3) stranded investment
costs and (4) new facilities costs.
As of June 30, 1995, Southern has paid approximately
$16,345,000 in transition costs which represents Southern's total
expected obligation for transition costs. Of the amount paid,
$4,461,000 represents unrecovered gas costs and $11,884,000
represents gas supply realignment costs and stranded investment
costs. On July 8, 1994, the DPUC issued a Decision regarding
implementation of FERC Order No. 636 by the Connecticut local gas
distribution companies. The DPUC prescribed, among other things,
various mechanisms for the recovery of deferred transition costs.
As of June 30, 1995, Southern has recovered substantially all of its
deferred transition costs through the use of the recovery mechanisms
allowed by the DPUC.
Environmental Matters
- ---------------------
Southern has identified coal tar residue at three sites in
Connecticut resulting from coal gasification operations conducted at
those sites by Southern's predecessors from the late 1800s through
the first part of this century. Many gas distribution companies
throughout the country carried on such gas manufacturing operations
during the same period. The coal tar residue is not designated a
hazardous material by any federal or Connecticut agency, but some
of its constituents are classified as hazardous.
On April 27, 1992, Southern notified the Connecticut Department
of Environmental Protection ("DEP") and the United States
Environmental Protection Agency of the presence of coal tar residue
at the sites. On November 9, 1994, the DEP informed Southern
that it had performed a preliminary review of the information
provided to it by Southern and had determined that, based on current
priorities and limited staff resources, a comprehensive review of
site conditions and subsequent participation by the DEP "are not
possible at this time". Until the DEP conducts a comprehensive
review, no discussions with it addressing the extent, timing and
type of remedial action, if any, can occur.
Given the DEP's response, management cannot at this time
predict the costs of any future site analysis and remediation, if
any, nor can it estimate when any such costs, if any, would be
incurred. While such future analytical and cleanup costs could
possibly be significant, management believes, based upon the
provisions of the Partial Settlement in Southern's last rate order,
that Southern will be able to recover these costs through its
customer rates. Although the method, timing and extent of any
recovery remain uncertain, management currently does not expect that
the incurrence of such costs will materially adversely impact the
Company's financial condition or results of operations.
PART 2. OTHER INFORMATION
Items 1, 2, 3, 4 and 5 are inapplicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule
Submitted only in electronic format to the
Securities and Exchange Commission.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during
the quarter.
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.
CONNECTICUT ENERGY CORPORATION
(Registrant)
DATE: August 11, 1995 /s/ Vincent L. Ammann, Jr.
-------------------------------
by: Vincent L. Ammann, Jr.
Vice President and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 244,955
<OTHER-PROPERTY-AND-INVEST> 2,492
<TOTAL-CURRENT-ASSETS> 55,203
<TOTAL-DEFERRED-CHARGES> 69,363
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 372,013
<COMMON> 8,828
<CAPITAL-SURPLUS-PAID-IN> 87,622
<RETAINED-EARNINGS> 41,884
<TOTAL-COMMON-STOCKHOLDERS-EQ> 138,334
0
0
<LONG-TERM-DEBT-NET> 119,776
<SHORT-TERM-NOTES> 6,800
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 5,000
<LONG-TERM-DEBT-CURRENT-PORT> 594
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 101,509
<TOT-CAPITALIZATION-AND-LIAB> 372,013
<GROSS-OPERATING-REVENUE> 208,562
<INCOME-TAX-EXPENSE> 10,786
<OTHER-OPERATING-EXPENSES> 169,513
<TOTAL-OPERATING-EXPENSES> 180,299
<OPERATING-INCOME-LOSS> 28,263
<OTHER-INCOME-NET> (351)
<INCOME-BEFORE-INTEREST-EXPEN> 27,912
<TOTAL-INTEREST-EXPENSE> 9,241
<NET-INCOME> 18,671
0
<EARNINGS-AVAILABLE-FOR-COMM> 18,671
<COMMON-STOCK-DIVIDENDS> 8,541
<TOTAL-INTEREST-ON-BONDS> 8,145
<CASH-FLOW-OPERATIONS> 37,091
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 0
</TABLE>
