-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, h8vgbH7WhTr+IoRI3oo+ttCx9jZazZXu/3k3AXjJ9YaVp6co/5Yt8ro1P28GCBMv rrDCUb/eZDJ6JPHdD7DeCQ== 0000310103-94-000050.txt : 19941209 0000310103-94-000050.hdr.sgml : 19941209 ACCESSION NUMBER: 0000310103-94-000050 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19941207 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONNECTICUT ENERGY CORP CENTRAL INDEX KEY: 0000310103 STANDARD INDUSTRIAL CLASSIFICATION: 4924 IRS NUMBER: 060869582 STATE OF INCORPORATION: CT FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08369 FILM NUMBER: 94563594 BUSINESS ADDRESS: STREET 1: 855 MAIN STREET CITY: BRIDGEPORT STATE: CT ZIP: 06604 BUSINESS PHONE: 2033828111 MAIL ADDRESS: STREET 1: 855 MAIN ST STREET 2: 855 MAIN ST CITY: BRIDGEPORT STATE: CT ZIP: 06604 10-K 1 FORM 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 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 1-8369 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) Registrant's telephone number, including area code (203) 579-1732 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock ($1 par value) New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: (Title of Class) None 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the voting stock held by non-affiliates of the registrant based on the closing price of such stock as of November 25, 1994: $169,800,891 Class Outstanding at November 25, 1994 - - ------------------------------ -------------------------------- Common Stock, $1 par value 8,707,738 An index of exhibits to this Annual Report on Form 10-K may be found on Page 17 hereof. 2 DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of Connecticut Energy Corporation's 1994 Annual Report to Shareholders are incorporated into Part II. 2. Portions of Connecticut Energy Corporation's Definitive Proxy Statement dated December 14, 1994 are incorporated into Part III. PART I ------ CONNECTICUT ENERGY CORPORATION ------------------------------ Item 1. Business - - ----------------- The Connecticut Energy Corporation ("Company") is a public utility holding company primarily engaged in the retail distribution of natural gas for residential, commercial and industrial uses through its wholly owned subsidiary, The Southern Connecticut Gas Company ("Southern"), a Connecticut public service company. Southern's predecessor companies, New Haven Gas Company and The Bridgeport Gas Company, were originally incorporated in Connecticut in 1847 and 1849, respectively. The Company is exempt from registration under the Public Utility Holding Company Act of 1935. Southern serves approximately 153,000 customers in Connecticut, primarily in 22 towns, including the urban communities of Bridgeport and New Haven, in an area along the southern Connecticut coast from Westport to Old Saybrook. Southern is also authorized to lay mains and sell gas in an additional ten towns in its service area, but does not currently provide any service to these towns. As of September 30, 1994, the Company, through its subsidiary, had 572 full-time employees all of whom were employees of Southern. A breakdown of Southern's revenues for the twelve months ended September 30, 1994 was 60.6% residential, 21.1% commercial, 8.9% industrial and 9.4% interruptible and other. Southern is the sole distributor of natural gas, other than bottled gas, in Southern's service area. Oil and electricity compete with gas in most industrial and commercial markets and for residential space and water heating. In general, Southern's firm rates currently are lower than electric rates for heating and, on average, are generally competitive with fuel oil. Southern's gas sales are affected by seasonal factors, and it experiences higher revenues during the winter months. Customers General. Southern provides two types of gas sales service to its on-system customers--firm and interruptible. Firm service is provided to residential, commercial and industrial customers who require a continuous gas supply throughout the year. Interruptible service is available to those commercial and industrial customers and multi-family residential dwellings that can switch between natural gas and an alternate fuel. Southern provides transportation service to certain commercial and industrial customers, on an interruptible basis. The gas transported is owned by those commercial and industrial customers. From 1990 through 1994, the average number of on-system customers served by Southern grew from approximately 151,100 to 152,600. Southern now serves Connecticut Light and Power Company's Devon generating station in accordance with a Special Contract for the Transportation of Gas ("Special Contract"). Additionally, Southern has the Connecticut Department of Public Utility Control's ("DPUC") approval to participate in the off-system sales market. If gas supply is available after meeting on-system loads, 3 Southern sells this supply to customers within Connecticut or in out-of-state markets. These sales are on an interruptible basis, and the customers to which these sales are made are not permanent customers of Southern. Firm Sales. In 1994, firm sales represented approximately 91% of operating revenues and approximately 66% of total gas throughput. Firm sales to industrial customers are likely to constitute a smaller percentage of Southern's future total sales due to the changing character of the local economy and continuing regulatory developments affecting the natural gas industry. See section entitled "Rates and Regulation". Southern concentrates on customer additions that are the most cost- effective to achieve. During the mid-1980s, when many residential family developments were being constructed, Southern extended mains to those developments, thereby adding groups of customers for heating as well as appliance loads at a relatively low capital cost per customer. Over the past three years, new construction has slowed dramatically, and Southern has focused on adding load along its existing mains, which generally requires a lower capital outlay. Less than 50% of the residences along Southern's mains heat with natural gas, and the conversion of these homes to natural gas heat has been a major factor in increased load growth during the current economic slowdown. Interruptible Sales, Transportation and Special Contract Services. Inter- ruptible sales and transportation services are priced flexibly and competitively versus the price of alternate fuels being paid by larger commercial and industrial customers. Southern's interruptible sales fluctuate depending primarily upon the relative prices of alternate fuels and natural gas as well as the availability of gas not needed to serve firm customers. In addition to interruptible sales, Southern transports, on an interruptible basis, gas for delivery to certain large commercial and industrial users. Because of recent regulatory developments, end-users can contract more easily than in the past for transportation service on interstate pipelines to transport natural gas supplies purchased from producers/suppliers, rather than purchase gas solely from the local distribution company. In Southern's service areas, gas is transported to the customers' premises through a combination of interstate pipeline transportation and Southern's distribution system. Interruptible transportation revenues are considerably less than revenues from gas sales because customers pay only a fee for the transportation service, whereas gas sales revenues include the cost of gas sold. Southern provides service to Connecticut Light and Power Company's Devon generating station in accordance with rates as specified in the Special Contract. Off-system sales are priced based upon the market situation versus the cost of the available supply. In 1994, interruptible sales, transportation and special contract services represented approximately 9% of operating revenues and approximately 31% of total gas throughput. Combined interruptible sales and transportation services have generally increased since 1988 because of (a) higher alternate fuel prices, (b) Southern's ability to negotiate its interruptible prices under flexible pricing arrangements, (c) changes in the regulatory environment which encouraged such sales and (d) customers' increased desire for cost containment. See section entitled "Rates and Regulation" for further discussion of Southern's flexible pricing and margin sharing mechanism for on-system interruptible service. To the extent Southern negotiates its monthly prices for interruptible services below its monthly standard offering price, lower margins may result. 4 Southern's average margins on transportation service are less than its average margins on firm sales and are usually equal to or slightly less than its average margins on interruptible sales. The Company does not believe that the loss of any single customer or a few customers would have a long-term, material adverse effect upon Southern's business. Marketing. Southern focuses its marketing efforts on three objectives: (1) to increase the number of residential households using natural gas for heating and hot water, (2) to improve system load factor by promoting additional interruptible sales and (3) to increase sales to commercial and industrial customers through the use of both traditional and off peak applications for natural gas. Marketing programs emphasize growth from within the existing distribution system and the addition of high load factor usage of natural gas such as water heating, air conditioning and electric power generation. In the residential heating market, 2,504 customers were added in 1994 compared to 1,865 in 1993 and 3,006 in 1992. New customer additions in 1994 increased by 34% from 1993. This was due to increased additions in the new housing construction market and other marketing programs designed to counter continued low oil prices and the slowly recovering Connecticut economy. Residential conversions to natural gas accounted for 61% of total new customer additions in 1994, compared to 80% in 1993 and 68% in 1992. Less than 50% of the single family homes along existing mains presently heat with natural gas. Southern's residential marketing efforts are focused primarily on this market segment. Residential marketing programs for this group included: (1) a conversion burner program; (2) a high-efficiency heating program; (3) a trade ally program and (4) service contracts for natural gas heating equipment. These programs use incentives to promote conversion to natural gas. Southern also utilizes an employee incentive program to promote conversions and an incentive program for heating customers to assist in increasing the number of conversions to natural gas heat. In the commercial and industrial sectors, emphasis is placed on adding both new firm and interruptible sales. During 1994 Southern added slightly more than 861,500 Mcf of new sales, up 14% from 1993 additions of approximately 754,000 Mcf. Firm sales accounted for approximately 75% of this total. Marketing programs for commercial and industrial customers include: (1) a program to promote the use of high efficiency space conditioning equipment; (2) an interruptible sales program offering customers the option of financing new equipment through Southern and (3) a conversion burner leasing program which provides customers with a low-cost opportunity to switch to natural gas. Sales to the cooling and cogeneration markets represent the potential for increasing off peak natural gas usage. Continuing advances in natural gas cooling technology along with environmental and operational advantages have made natural gas cooling more competitive with conventional cooling in large and small commercial buildings and in industrial process applications. During 1994, Southern added 1,173 tons of natural gas cooling. This represents almost 46,500 Mcf of new off peak load. Since 1991, Southern has added 8,475 tons of natural gas cooling. Southern's marketing programs for natural gas cooling and cogeneration utilize customized rebates to encourage customer conversions. Natural gas vehicles ("NGV") represent an emerging market opportunity to increase off peak natural gas usage. Recently passed Connecticut legislation should encourage increased use of natural gas for vehicles. Incentives provided in this legislation include a 50% Connecticut tax credit for installation of 5 natural gas fueling equipment and/or conversion equipment for vehicles. There is currently an exemption from Connecticut's motor fuels tax for qualifying fleets. This tax is presently 31 cents per gallon. The Company is aggressively pursuing the NGV market. Southern has entered into three agreements with customers to provide natural gas for motor vehicle use: Southern New England Telephone Company ("SNET") is fueling 11 natural gas vehicles at a SNET site near its New Haven corporate headquarters; the United States Postal Service have converted 62 of its postal vehicles at its East Haven office to natural gas and R.R. Donnelley & Sons Company will initially convert 4 of its heavy duty lift trucks to natural gas with the potential of adding 18 additional lift trucks. Gas Supply. Southern's current long-term supply sources include: (1) Canadian supplies purchased from Alberta Northeast Gas Limited ("Alberta Northeast") with transportation on Iroquois Gas Transmission System, L.P. ("Iroquois"); (2) transportation and storage services from Tennessee Gas Pipeline Company ("Tennessee") with direct purchase of supply from producers and marketers; (3) transportation and storage services from Texas Eastern Transmission Corporation ("Texas Eastern") with direct purchase of supply from producers and marketers; (4) transportation service from Algonquin Gas Transmission Company ("Algonquin") of natural gas purchased from producers and marketers; (5) transportation and storage service from CNG Transmission Corporation ("CNG Transmission"); (6) transportation service from Transcontinental Gas Pipeline Corporation ("Transco"); (7) storage and transportation service from National Fuel Gas Supply Corporation ("National Fuel") and (8) liquid and vapor supplies from Distrigas of Massachusetts Corporation ("Distrigas"). These arrangements result in gas deliveries into Southern's franchise territory through interconnections with three interstate pipelines -- Algonquin, Iroquois and Tennessee. In addition to Southern's long-term arrangements to acquire firm gas supplies, Southern purchases spot supplies and utilizes interruptible transportation services from interstate pipeline companies. Southern's supply, transportation and storage agreements require Southern to pay a fixed demand charge regardless of the amount of gas transported or stored. The Federal Energy Regulatory Commission ("FERC") regulates interstate pipeline companies in connection with the rates charged to Southern for transportation and storage of natural gas. The following table shows Southern's sources of gas supply for the periods indicated.
Fiscal Year Ended September 30, --------------------------------------- 1994 1993 1992 1991 1990 (Millions of cubic feet) ---- ---- ---- ---- ---- Algonquin.............. 53 229 2,521 5,476 7,518 Tennessee.............. 24 --- 1,873 2,249 4,546 Texas Eastern.......... --- 372 1,539 1,649 --- Intercompany........... --- --- --- --- 111 Alberta Northeast...... 12,631 12,446 4,863 --- --- Other (including LNG and producers/marketers 18,586 15,731 15,491 12,942 10,974 ------ ------ ------ ------ ------ Total .............. 31,294 28,778 26,287 22,316 23,149 ------ ------ ------ ------ ------ Propane.................. --- 33 --- 2 113 Net Inventory Changes.... (388) (1,362) (1,345) --- (6) Transportation........... 3,396 1,653 4,859 5,999 4,688 ------ ------ ------ ------ ------ Total Throughput.... 34,302 29,102 29,801 28,317 27,944 ====== ====== ====== ====== ======
6 Domestic Supply. Prior to 1992, Southern purchased sales service from Tennessee, Texas Eastern and Algonquin, combined with a small amount of storage service with Penn-York Energy Corporation, as well as a storage service through Algonquin delivered on a "best efforts" basis. With the implementation of FERC Order No. 636, Southern has converted these supply arrangements from a fully bundled sale and storage service provided by interstate pipelines to unbundled storage and transportation services. On July 1, 1992, Southern converted its long-term sales contract with Tennessee to firm transportation and firm storage services. Under the transportation contract, Southern has 13,336,000 Mcf of pipeline capacity available on an annual basis. Southern's storage contract with Tennessee provided winter storage of 1,174,000 Mcf annually. Due to FERC Order No. 636, the storage contract was unbundled into a storage contract and a transportation contract both effective September 1, 1992. These contracts expire in the year 2000. Another contract with Tennessee provides 516,000 Mcf of firm transportation annually. Southern has firm storage service from National Fuel. The gas which is stored is later delivered under a firm transportation agreement with Tennessee and provides 150,000 Mcf of winter season supply. The storage and transportation contracts extend through 1995. On June 1, 1993, Texas Eastern's former sales service was converted to a firm transportation service. This service provides for 5,972,000 Mcf of pipeline capacity on an annual basis. Additionally, Texas Eastern provides 1,383,000 Mcf of storage service and 12,108,000 Mcf of transportation service on an annual basis formerly provided as sales service through Algonquin. The majority of the storage gas was purchased in place in fiscal 1993. These contracts expire in the year 2012. Southern has a storage service contract with CNG Transmission under which Southern has 100 days of storage service available, or 648,000 Mcf annually. The storage gas is transported by Texas Eastern and Algonquin under firm transportation contracts. The remaining contract term is 18 years. Under other contracts, CNG Transmission provides 773,000 Mcf of annual firm storage service and 1,028,000 Mcf of annual transportation service. This gas is stored by CNG Transmission and is delivered to Southern under transportation contracts with Texas Eastern and Algonquin. Algonquin now furnishes only transportation services to Southern. The deliveries which Algonquin makes to Southern are gas supplies transported by other pipelines interconnected to Algonquin. The increased natural gas storage capabilities acquired through the restructuring process have impacted Southern's operations. Southern's storage capacity is used to enhance security of supply and reduce dependence on the production of liquefied natural gas ("LNG") and propane. Additionally, much of the transportation and storage service through Texas Eastern and Algonquin and a nominal amount of transportation service from Tennessee is "no notice" transportation, which allows Southern to meet sudden and dramatic shifts in demand and assures reliability to meet customer requirements. Southern also has multiple purchase agreements with producers and marketers for firm supply behind its storage and transportation agreements. These agreements range from 365 day availability of supply to 90 day peaking supply, with terms ranging from one year to seven years. Southern pays a monthly reservation charge, but has no monthly purchase obligation under these agreements. Commodity prices are tied to pricing indices showing current prices by supply areas. Canadian Supply. In January 1992, Southern began receiving Canadian supply under its long-term contracts with Alberta Northeast with firm transportation on Iroquois. These firm supply contracts with Alberta Northeast provide Southern with 12,775,000 Mcf of firm Canadian supply annually. These services were largely unaffected by FERC Order No. 636, although Iroquois became an open 7 access transporter effective September 1, 1993. Supply agreements with Alberta Northeast have remaining terms of 9 to 13 years, and the transportation agreement with Iroquois has a remaining term of 17 years. Supplemental Supply. Southern has an agreement with Distrigas to purchase on a firm basis 328,000 Mcf annually, effective November 1992. This contract continues for eight years and includes provisions for either vapor or liquid delivery, with an option to increase the maximum daily delivery over the term of the contract. Additionally, Southern has an interruptible purchase contract with Distrigas. Southern uses gas from its LNG and propane facilities to meet peak winter demand requirements, including the demands of a design year -- a year as cold as the coldest in the past 30 years. Southern has additional offsite propane storage and has contracts with Distrigas to obtain supplies to refill its LNG storage tank. FERC Order No. 636. FERC Order No. 636 compliance filings have been approved for Algonquin and Texas Eastern, effective June 1, 1993, and for Tennessee and Iroquois, effective September 1, 1993. Transition costs, i.e. those costs incurred by pipelines as a result of implementing Order No. 636, are being allowed by FERC to be recovered by the pipelines from their customers. Four types of transition costs have been defined in the order: (1) unrecovered gas costs remaining in the purchased gas adjustment account; (2) gas supply realignment ("GSR") costs; (3) stranded costs and (4) new facilities costs. Southern has incurred approximately $8,815,000 in transition costs as of September 30, 1994. Of this total, $4,468,000 represent unrecovered gas costs and $4,347,000 represent GSR costs and stranded investment costs. Hearings were conducted by the DPUC in May 1994; and 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 addressed, among other things, the mechanism for the recovery of deferred transition costs. Under this mechanism, the DPUC has allowed the recovery of the unrecovered gas cost balances from the suspension of flow-through of purchased gas cost credits attributable to the twelve month period ended August 31, 1993 and all future years ending August 31 as well as refunds received after October 1, 1993 from interstate pipelines. Additionally, any subsequent refunds from interstate pipelines, as well as any credits received by Southern for release of its capacity on interstate pipelines, shall be used to offset Southern's payments of unrecovered gas costs until fully recovered. As of September 30, 1994, Southern has recovered approximately $4,468,000 in unrecovered gas costs through a combination of these recovery mechanisms. GSR costs as well as stranded investment costs are to be recovered by Southern as follows: (1) retention of 50% of margins derived through off-system sales; (2) retention of 50% of all interruptible margins earned above Southern's target level; (3) retention of pipeline refunds or deferred gas costs credits for the 1992/93 period and all subsequent annual deferred gas cost periods that are in excess of the estimated unrecovered gas cost portion of transition costs; (4) retention of any capacity release credits received from pipelines in excess of those needed for unrecovered purchased gas costs and (5) if needed, a per unit surcharge applied to firm customers' bills, which will be evaluated in subsequent annual deferred gas cost proceedings. There is no hierarchy in the use of the first four recovery measures, and any and all could be utilized as available. All subsequent annual deferred gas cost credits will be applied on an annual basis. All other transition cost credits will be immediately applied on a monthly basis to offset transition costs which have been or will be subsequently billed. As of September 30, 1994, Southern has recovered approximately $3,020,000 in GSR costs as well as stranded investment costs through a combination of these recovery mechanisms. Straight-fixed-variable ("SFV") rates are now in effect on the pipelines serving Southern as a result of FERC Order No. 636 and have replaced modified- fixed-variable ("MFV") rates. Pipeline demand charges have increased under SFV rate design due to shifting certain revenue requirements to the fixed portion of pipeline rates. Pipeline usage charges, on the other hand, have decreased correspondingly due to the same cost shifting out of the variable portion of the 8 rate. The change in gas costs due to SFV rates, specifically, the adjustment between pipeline demand and usage charges, has been incorporated in Southern's new base cost of gas approved by the DPUC. Capacity release programs are available on all pipelines serving Southern. These programs permit Southern to release firm transportation capacity, including underground storage, to "replacement shippers" on a basis which is either prearranged or subject to bidding. All releases must be posted on the electronic bulletin board of the pipeline on which the capacity is being released. Bidding occurs on the posted releases except for prearranged transportation arrangements of 29 days or less. Southern has been an active participant in capacity release since June 1, 1993. Capacity release results in direct reductions to gas cost since pipeline demand charges recouped from a replacement shipper flow back on the pipeline's monthly bill as a credit to Southern. Rates and Regulation Connecticut Regulation. Southern is subject to the jurisdiction of the DPUC as to accounting, rates, charges, operating matters and the issuance of securities, both equity and debt, other than borrowings maturing in twelve months or less. Southern's firm sales rates change monthly pursuant to a DPUC approved Purchased Gas Adjustment clause ("PGA"), under which purchased gas costs above or below a specified base cost are charged or credited to customers. In setting authorized rates for Southern, the DPUC allows prospective adjustments to a historical test year. Forward-looking adjustments to the mid- point of the rate year (the first year that rates will be in effect) for rate base, revenues, expenses and capital structure are allowed. The DPUC has found that these refinements provide for better synchronization of the ratemaking components. Costs used by the DPUC in determining Southern's rates may not be the same as actual costs incurred by Southern during the period rates are in effect. The sales used in establishing rates are based on "normal" weather patterns. Actual rates of return realized may not necessarily equal the authorized rates of return. On April 23, 1993, Southern filed an application with the DPUC for an increase in rates designed to produce additional revenues of approximately $27,900,000 or 13.67% over test year revenues. Southern's base rates had not been increased since April 1990. On December 1, 1993, the DPUC issued a final Decision on Southern's latest rate request. This Decision incorporated the Partial Settlement of Certain Issues ("Partial Settlement") which was previously approved by the DPUC in September 1993 and resolved most of the significant financial aspects of Southern's original rate request, including an increase in base rates of $13,400,000 based upon Southern's sales forecast as originally filed, an allowed return on equity of 11.45% and the implementation of a weather normalization adjustment clause. In addition, Southern was permitted to recover previously deferred costs over amortization periods from three to five years associated with shortfalls in energy assistance, the certified hardship arrearage forgiveness program, environmental remediation expenditures, economic development programs and undepreciated gas holder costs. The Partial Settlement also provides for current recovery of postretirement health care expenses accrued under Statement of Financial Accounting Standards No. 106 and the establishment of a target margin, net of gross receipts tax, of $4,000,000 for on-system sales and transportation to Southern's interruptible customers with excess margins shared between firm customers and shareholders on an 80%/20% split. As part of this Partial Settlement, Southern agreed that, except for certain adverse events, it would not file a general application to increase rates which would become effective on or before November 30, 1995. Federal Regulation. Southern is affected by various federal regulations, including regulations which (1) provide for emergency authority and curtailment allocations under the Natural Gas Policy Act of 1978 when pipeline supplies are limited and (2) establish certain retail policies for natural gas utilities 9 under the Public Utility Regulatory Policies Act of 1978. Southern is also subject to the Natural Gas Pipeline Safety Act of 1968 with respect to the construction, operation and maintenance of its mains, services and LNG facilities as well as other federal regulations pertaining to safety standards concerning such facilities. Currently, these federal regulations have a minimal direct effect on Southern's day-to-day operations. Southern is also subject to various federal, state and local regulation with respect to environmental matters (including hazardous waste regulation) and local zoning and other regulations. To date, such regulations have not materially impacted Southern's capital expenditures, earnings or operations. Regulations promulgated under the Clean Air Act Amendments of 1990 and the Energy Policy Act of 1992, which require reduced pollution levels and certain energy efficiency standards, have begun to affect Southern. Among other things, the Clean Air Act Amendments (1) impose stringent emissions standards for all vehicles beginning in 1994; (2) mandate the gradual phase-in of alternative fuel vehicles for fleets of more than 10 vehicles beginning in 1998; and (3) require power plants to phase in significant emission reductions of sulfur dioxide and nitrogen oxide by the year 2000. Similarly, the Energy Policy Act of 1992 (1) requires that federal vehicles begin phasing-in the use of alternative fuels as early as 1993; (2) offers tax incentives to private parties who use or facilitate the use of alternative fuel vehicles and (3) requires a lessening reliance on foreign fuels. Over time, it is expected that these regulations will lead to an increasing demand for natural gas. Southern already has begun to participate in the expanded markets for natural gas that are emerging due to these regulatory mandates. Since 1986, FERC has effected major changes in the regulations governing the natural gas industry, especially FERC Order No. 636. Although the Company is not subject to FERC jurisdiction, FERC's actions increase competition in the natural gas industry by requiring interstate pipeline companies to provide gas transportation to others on a non-discriminatory basis. This increased competition may assist Southern, at least in the short-term, by replacing some higher cost gas supplies with less costly supplies. For a discussion of the impact of FERC Order No. 636, see page 7. Environmental Matters. 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. The coal tar discovered at Southern's three sites 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 on the three 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 and type of remedial action, if any, as well as the time period over which such action would take place, 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. Such future analytical and cleanup costs could possibly be significant. Based upon the provisions of the Partial Settlement, management believes that Southern will properly be able to recover the costs of investigation and remediation, if any, through its customer rates. The method, timing and extent of any recovery remain uncertain, but management currently does not expect that the incurrence of such costs will have a material adverse effect on the Company's financial condition or results of operations. 10 Item 2. Properties - - ------------------- The Company's materially important physical plant and properties consist primarily of Southern's gas distribution facilities. Southern had 2,057 miles of main and 118,814 service units as of September 30, 1994. It leases office space in Bridgeport, New Haven and Madison, owns properties in Bridgeport and New Haven that were formerly service centers and owns propane air facilities in New Haven and Trumbull. In 1972, Southern entered into a long-term lease of the LNG plant in Milford, Connecticut. The initial lease period is for 25 years. In 1992, Southern entered into an operating lease which consolidated administrative functions at one location in Bridgeport, Connecticut. The lease term is for 20 years. In March 1993, Southern entered into an operating lease for the purpose of consolidating its operating centers at one location in Orange, Connecticut. The consolidation occurred during the second quarter of fiscal 1994, and the lease term is for 20 years. Substantially all of Southern's utility properties and plant are subject to the lien of the indenture and supplemental indentures securing its first mortgage bonds. It is management's opinion that the materially important physical plant and properties as described herein is suitable and adequate for the purpose of delivering gas for customer use. Item 3. Legal Proceedings - - -------------------------- In September 1993, Southern received notification of the results of audits by the City of New Haven pursuant to Connecticut's omitted property statute. The City of New Haven claimed that Southern owed approximately $2,600,000 in additional personal property taxes related to years 1990 through 1992; however, Southern was not aware of any audit finding of significant omitted personal property. Instead, the City of New Haven's claim was based on the assessor's retroactive reassessment of Southern's personal property. Southern initiated legal actions against the City of New Haven which alleged that, among other things, the City of New Haven had no statutory authority to issue tax bills based upon retroactive reassessments of previously declared property on which taxes were paid and that the City of New Haven's contingent fee agreement with the firm which audited Southern's records was illegal. Southern also instituted legal actions challenging the City of New Haven's assessment of Southern's personal property for the 1993 Grand List. On June 29, 1994, Southern and the City of New Haven entered into a Stipulation and Agreement ("Agreement") in settlement of these court actions. The Agreement provided for a $200,000 payment related to the tax years 1990 through 1992 without conceding liability on any of the issues involved; and a resolution of the disputed 1993 personal property assessment, which resulted in a reduction of the original 1993 assessment of approximately $1,500,000 to a new assessment of approximately $800,000. Item 4. Submission of Matters to a Vote of Security Holders - - ------------------------------------------------------------ None 11 PART II ------- Item 5. Market for Common Stock and Related Stockholder Matters - - ---------------------------------------------------------------- Common Stock Data - - ----------------- The Company's common stock is listed for trading on the New York Stock Exchange. The Company's common stock symbol is CNE. The following table shows the high and low price range of the Company's common stock and quarterly dividends paid. Market Price and Dividend Data - - ------------------------------ 1994 - - ---- (Quarter Ended) High Low Dividend - - --------------- ---- --- -------- December 31, 1993 $26 $23 $.32 March 31, 1994 25 20 .32 June 30, 1994 22 1/2 20 1/4 .325 September 30, 1994 22 1/4 20 1/4 .325 1993 - - ---- (Quarter Ended) High Low Dividend - - --------------- ---- --- -------- December 31, 1992 $23 1/2 $20 $.32 March 31, 1993 25 22 1/2 .32 June 30, 1993 26 1/2 24 .32 September 30, 1993 26 24 .32 As of September 1994, the Company and its predecessors have paid 339 consecutive quarterly cash dividends. Cash dividends have been paid since 1850, and the Company currently expects that dividends will continue to be paid in the future. The major source of funds for payment of the Company's dividends is the dividends received on the shares of Southern's common stock owned by the Company. Southern's indenture relating to long-term debt, and its Amended and Restated Certificate of Incorporation contain restrictions as to the declaration or payment of cash dividends on, or the reacquisition of, capital stock. Under the most restrictive of such provisions, $19,209,000 of retained earnings at September 30, 1994 were available for such purposes. The approximate number of shareholders of record of the Company's common stock as of November 25, 1994 was 12,074. Item 6. Selected Financial Data - - -------------------------------- The presentation under "Eleven Year Financial Summary" for the five years in the period ended September 30, 1994 on pages 40 and 41 of Connecticut Energy Corporation's 1994 Annual Report to Shareholders is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition - - -------------------------------------------------------------------- and Results of Operations - - ------------------------- The "Management's Discussion and Analysis" on pages 17 to 23 of Connecticut Energy Corporation's 1994 Annual Report to Shareholders is incorporated herein by reference. 12 Item 8. Financial Statements and Supplementary Data - - ---------------------------------------------------- The Consolidated Statements of Income, Consolidated Balance Sheets, Consolidated Statements of Cash Flows, Consolidated Statements of Changes in Common Shareholders' Equity, Notes to Consolidated Financial Statements on pages 24 to 38 and the Report of Independent Accountants as set forth on page 39 of Connecticut Energy Corporation's 1994 Annual Report to Shareholders are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and - - ------------------------------------------------------------------------ Financial Disclosure - - -------------------- None 13 PART III -------- Item 10. Directors and Executive Officers of the Registrant - - ------------------------------------------------------------ Information required in this item regarding directors is contained in the Company's definitive Proxy Statement at pages 2 to 4 which will be mailed to shareholders on or about December 14, 1994, which is incorporated by reference herein. A list of executive officers of the registrant and Southern follows: Executive Officers of Connecticut Energy Corporation ---------------------------------------------------- and --- The Southern Connecticut Gas Company ------------------------------------ Position and Business Experience for the Name and Age Past 5 Years - - ------------ ---------------------------------------- J. R. Crespo, 52 Chairman of the Board, President and Chief Executive Officer of the Company and Southern (1990), President and Chief Executive Officer of the Company and Southern (1989). Prior to joining the Company in 1989, he was Managing Partner of the Utility Regulatory and Advisory Services practice of Coopers & Lybrand, New York. Vincent L. Ammann, Jr., 35 Vice President and Chief Accounting Officer of the Company and Group Vice President, Corporate Planning and Administration of Southern (1994), Vice President and Chief Accounting Officer of the Company and Southern (1991), Controller of Southern (1990). Prior to joining Southern in 1990, he was Senior Manager, National Public Utility Services Group of Deloitte and Touche (1988) and Audit Manager, Deloitte, Haskins and Sells (1986). Carol A. Forest, 46 Vice President, Finance, Chief Financial Officer and Treasurer of the Company and Southern (1991), Vice President, Finance and Chief Financial Officer of the Company (1985) and Southern (1984). Michael H. Pinto, 67 Vice President, Government Affairs of the Company (1991), Director, Governmental Relations of Southern (1990), Director, Economic Development of Southern (1985). J. Richard Tiano, 50 Vice President, General Counsel and Secretary of the Company and Southern (1988). Prior to joining the Company and Southern in 1988, he was a partner in the law firm of Wickwire, Gavin, P.C., Washington, D.C. 14 Thomas A. Trotta, 57 Senior Vice President and Chief Operating Officer of Southern (1992), Senior Vice President, Operations of Southern (1991), Vice President, Sales and Customer Services of Southern, (1989), Assistant Vice President, Operations of Southern (1989). Samuel R. Clammer, 57* Vice President, Engineering and Gas Supply of Southern (1992), Senior Vice President, Engineering, Planning and Gas Control of Southern (1989), Vice President, Planning of Southern (1989). Prior to joining Southern, he was a consultant with Brown, Williams, Quinn and Chinn (1988). Frank L. Esposito, 62 Vice President, Human Resources and Corporate Services of Southern (1992), Vice President Human Resources of Southern (1991), Director, Human Resources of Southern (1982). James P. Healy, 52 Vice President, Information Technology of Southern (1992), Senior Vice President, Corporate Development of Southern (1986). Ernest W. Karkut, 52 Vice President, Purchasing and Plant Services of Southern (1994), Vice President, Customer Support Services of Southern (1992), Assistant Vice President, Customer Support Services of Southern (1991), Assistant Vice President, Financial Planning and Treasurer of Southern (1991), Assistant Vice President, Financial Planning of Southern (1989), Director, Financial Planning of Southern (1989). Peter D. Loomis, 46 Vice President, Distribution and Customer Service of Southern (1992), Group Director, Customer Services (1991), Director, Consumer Service (1989). Larry S. McGaughy, 47 Vice President, Marketing and Corporate Engineering of Southern (1994), Vice President, Marketing and Gas Control of Southern (1991), Vice President, Corporate Planning and Marketing of Southern (1990). Group Director, Sales and Marketing of Southern (1990). Prior to joining Southern in 1990, he was the Director, Marketing and Energy Services at Tampa Electric (1986). 15 Phyllis A. O'Brien, 49 Vice President, Accounting and Regulatory Services of Southern (1994), Vice President, Corporate and Regulatory Planning of Southern (1993), Group Director, Corporate Regulatory and Supply Planning of Southern (1991), Group Director, Planning, Rates and Regulatory Affairs of Southern (1991), Director, Planning, Rates and Regulatory Affairs of Southern (1990), Director, Rate Planning and Regulatory Affairs of Southern (1989). *Retired effective June 1, 1994. Item 11. Executive Compensation - - -------------------------------- Information required in this Item is contained in the Company's definitive Proxy Statement on pages 6 to 11 which will be mailed to shareholders on or about December 14, 1994, which is incorporated by reference herein. Item 12. Security Ownership of Certain Beneficial Owners and Management - - ------------------------------------------------------------------------ Information required in this Item is contained in the Company's definitive Proxy Statement on page 4 which will be mailed to shareholders on or about December 14, 1994, which is incorporated by reference herein. Item 13. Certain Relationships and Related Transactions - - -------------------------------------------------------- Information required in this Item is contained in the Company's definitive Proxy Statement on pages 5 and 10 which will be mailed to shareholders on or about December 14, 1994, which is incorporated by reference herein. 16 PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K - - ------------------------------------------------------------------------- (a) List of documents filed as part of this Report: 1. Financial Statements -------------------- Among the responses to this Item 14 (a) are the following financial statements which are incorporated herein by reference in Item 8 above: (i) Consolidated Balance Sheets for the years ended September 30, 1994 and 1993. (ii) Consolidated Statements of Income for the years ended September 30, 1994, 1993 and 1992. (iii) Consolidated Statements of Changes in Common Shareholders' Equity for the years ended September 30, 1994, 1993 and 1992. (iv) Consolidated Statements of Cash Flows for the years ended September 30, 1994, 1993, and 1992. (v) Notes to Consolidated Financial Statements (vi) Report of Independent Accountants 2. Financial Statements and Supplementary Data required by Item 8 -------------------------------------------------------------- (A) Schedule Description Page -------- ----------- ---- Report of Independent Accountants on Financial Statement Schedules 21 V. Property, Plant and Equipment 22 VI. Accumulated Depreciation and Depletion of Property, Plant and Equipment 23 VIII. Valuation and Qualifying Accounts 24 All other schedules are omitted because they are not required, are inapplicable, or the information is otherwise shown in the financial statements or notes thereto. 3. Exhibits Required by Item 601 of Securities and Exchange Commission ------------------------------------------------------------------- Regulation S-K -------------- (A) The following such exhibits are filed as a separate section of this report. 17 Exhibits -------- (3) Certificate of Incorporation and By-Laws ---------------------------------------- The Amended and Restated Certificate of Incorporation of Connecticut Energy Corporation is incorporated herein by reference to Item 6 of the Company's Form 10-Q filed for the quarter ended March 31, 1991 at pages 14 through 22. The Amended and Restated By-Laws of Connecticut Energy Corporation are incorporated herein by reference to Item 6 of the Company's Form 10-Q filed for the quarter ended June 30, 1993 at pages 21 through 32. The Amended and Restated Certificate of Incorporation of The Southern Connecticut Gas Company is incorporated herein by reference to Item 6 of Form 10-Q filed for the quarter ended June 30, 1990 at pages 40 through 51. The Amended and Restated By-Laws of The Southern Connecticut Gas Company are incorporated herein by reference to Item 6 of the Company's Form 10-Q filed for the quarter ended December 31, 1990 at pages 82 through 90. (4) Instruments Defining Rights of Security Holders, Including Indentures --------------------------------------------------------------------- (i) Indenture between The Bridgeport Gas Light Company and The Bridgeport City Trust Company, as Trustee, dated as of March 1, 1948. Incorporated herein by reference in Exhibit 4(b) (1) to Registration Statement 2-10566. (ii) In addition to the Indenture referred to in 4 (i) hereof, there have been twenty-six indentures supplemental thereto and a Financing Agreement among The Southern Connecticut Gas Company, Industrial Leasing Trust No. 3, Industrial Leasing Corporation, The Travelers Insurance Company and The Connecticut Bank and Trust Company, Trustee dated as of April 1, 1972, copies of all of which the Company agrees to furnish to the Commission upon request. (10) Material Contracts ------------------ (i) Gas Purchase and Sales Agreement between The Southern Connecticut Gas Company and Tenngasco Corporation, Tenngasco Exchange Corporation, Tenngasco Marketing Corporation, Tenneco Oil Company, Houston Oil and Minerals Corporation, Tinco, Ltd., Tenneco Exploration, Ltd. and Tenneco Exploration II, Ltd., dated as of April 11, 1985, incorporated by reference to Form 10-K for the fiscal year ended December 31, 1986 at pages 42 to 72. (ii) Storage Service Agreement between Penn-York Energy Corporation and The Southern Connecticut Gas Company, dated as of January 1, 1988, incorporated by reference to Form 10-K for the fiscal year ended December 31, 1987 at pages 166 to 171. (iii) Interruptible Gas Transportation Contract and Amendment No. 1, thereto, among Tenngasco Corporation, The Southern Connecticut Gas Company and The United Illuminating Co., dated as of May 14, 1987 and August 1, 1989, respectively, incorporated by reference to Form 10-K for the fiscal year ended December 31, 1989 at pages 238 to 258. (iv) Amendment No. 2 to Interruptible Gas Transportation Contract among Tenngasco Corporation, The Southern Connecticut Gas Company and The United Illuminating Company dated as of November 1, 1990, incorporated by reference to Form 10-K for the transition period from January 1, 1990, to September 30, 1990, at pages 90 to 91. 18 (v) Gas Transportation Contract between Iroquois Gas Transmission System, L.P. and The Southern Connecticut Gas Company, dated February 7, 1991, incorporated by reference in Exhibit 10.32 to Connecticut Energy Corporation's Registration Statement No. 33-40232. (vi) Gas Sales Agreement No. 1 by and between Alberta Northeast Gas Limited and The Southern Connecticut Gas Company, dated February 7, 1991, incorporated by reference in Exhibit 10.33 to Connecticut Energy Corporation's Registration Statement No. 33-40232. (vii) Gas Sales Agreement No. 2 by and between Alberta Northeast Gas Unlimited and The Southern Connecticut Gas Company, dated February 7, 1991, incorporated by reference in Exhibit 10.34 to Connecticut Energy Corporation's Registration Statement No. 33-40232. (viii) Gas Sales Agreement by and between Alberta Northeast Gas Limited and The Southern Connecticut Gas Company, dated February 7, 1991, incorporated by reference in Exhibit 10.35 to Connecticut Energy Corporation's Registration Statement No. 33-40232. (ix) Gas Sales Agreement by and between Alberta Northeast Gas Limited and The Southern Connecticut Gas Company, dated February 7, 1991, incorporated by reference in Exhibit 10.36 to Connecticut Energy Corporation's Registration Statement No. 33-40232. (x) Gas Sales Agreement by and between Alberta Northeast Gas Limited and The Southern Connecticut Gas Company, dated February 7, 1991, incorporated by reference in Exhibit 10.37 to Connecticut Energy Corporation's Registration Statement No. 33-40232. (xi) Storage Service Transportation Contract between Tennessee Gas Pipeline Company and The Southern Connecticut Gas Company, dated November 1, 1990, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1992 at pages 182 to 190. (xii) Storage Service Agreement between CNG Transmission Corporation and The Southern Connecticut Gas Company, dated October 1, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 130 to 137. (xiii) Gas Storage Contract between Tennessee Gas Pipeline Company and The Southern Connecticut Gas Company, dated September 1, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 138 to 142. (xiv) Gas Transportation Agreement between Tennessee Gas Pipeline Company and The Southern Connecticut Gas Company, dated August 19, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 143 to 151. (xv) Gas Transportation Agreement between Tennessee Gas Pipeline Company and The Southern Connecticut Gas Company, dated August 19, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 152 to 159. (xvi) Service Agreement between Texas Eastern Transmission Corporation and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 160 to 170. 19 (xvii) Service Agreement between Texas Eastern Transmission Corporation and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 171 to 180. (xviii) Service Agreement between Texas Eastern Transmission Corporation and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 181 to 192. (xix) Service Agreement between Texas Eastern Transmission Corporation and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 193 to 204. (xx) Service Agreement between Texas Eastern Transmission Corporation and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 214 to 220. (xxi) Service Agreement between Algonquin Gas Transmission Company and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 221 to 227. (xxii) Service Agreement between Algonquin Gas Transmission Company and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 228 to 235. (xxiii) Service Agreement between Algonquin Gas Transmission Company and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 236 to 243. (xxiv) Service Agreement between Algonquin Gas Transmission Company and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 244 to 251. (xxv) Service Agreement between Algonquin Gas Transmission Company and The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 252 to 257. (xxvi) Service Agreement between Algonquin Gas Transmission Company and The Southern Connecticut Gas Company, dated October 1, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 258 to 277. 20 Executive Compensation Plans and Arrangements --------------------------------------------- (xxvii) Employment Agreement between The Southern Connecticut Gas Company and J. R. Crespo, dated as of March 24, 1992, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1992 at pages 213 to 229. (xxviii) Amended and Restated Deferred Compensation Agreement between The Southern Connecticut Gas Company and J. R. Crespo, dated as of October 21, 1993, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at pages 278 to 288. (xxix) The Southern Connecticut Gas Company, Board of Directors Retirement Plan, effective October 1, 1992, is filed herewith at pages 27 to 30. (xxx) The Southern Connecticut Gas Company, Management Compensation Plan, effective October 1, 1992, incorporated by reference to Form 10-K for the fiscal year ended September 30, 1992 at pages 251 to 253. (xxxi) Agreements between The Southern Connecticut Gas Company and Philip R. Marsilius and Henry Chauncey, Jr. relating to deferred compensation as directors, dated as of December 27, 1988 and December 31, 1988, incorporated by reference to Form 10-K for the fiscal year ended December 31, 1988 at pages 58 to 62 and pages 63 to 67. (xxxii) Supplemental Retirement Benefits Plan effective October 1, 1993, incorporated by reference to Form 10-Q for the quarter ended December 31, 1993 at pages 25 to 28. (13) Annual Report to Security Holders --------------------------------- Connecticut Energy Corporation's 1994 Annual Report to Shareholders is filed herewith at pages 31 to 82. (21) Subsidiaries of the Registrant ------------------------------ A list of Connecticut Energy Corporation's subsidiaries is incorporated by reference to Form 10-K for the fiscal year ended September 30, 1993 at page 335. (27) Financial Data Schedule ----------------------- Financial Data Schedule UT is filed herewith at page 83. (b) No reports on Form 8-K were filed during the last quarter of 1994. 21 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES ------------------------------------------------------------------ To the Board of Directors and Shareholders of Connecticut Energy Corporation: Our report on the consolidated financial statements of Connecticut Energy Corporation has been incorporated by reference in this Form 10-K from page 39 of the 1994 Annual Report to Shareholders of Connecticut Energy Corporation. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in Item 14(a)2 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. S/ Coopers & Lybrand, L.L.P. New Haven, Connecticut November 1, 1994 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-3 (No. 33-47684-3) and Form S-8 (No. 33-39245 and 33-51763) of Connecticut Energy Corporation of our report dated November 1, 1994, on our audits of the consolidated financial statements of Connecticut Energy Corporation as of September 30, 1994 and 1993, and for the years ended September 30, 1994, 1993 and 1992, appearing on page 39 of the 1994 Annual Report to Shareholders of Connecticut Energy Corporation which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report on the financial statement schedules, which appears above. S/ Coopers & Lybrand, L.L.P. New Haven, Connecticut December 6, 1994 22 SCHEDULE V PROPERTY PLANT AND EQUIPMENT FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 and 1992 (000's)
Balance Additions Sales and Balance September 30, 1993 at Cost Retirements Other September 30, 1994 ------------------ --------- ----------- ----- ------------------ GAS PLANT: Intangibles 141 --- --- --- 141 Production 3,314 36 100 (389) 2,861 Storage 6,086 224 --- --- 6,310 Distribution 278,847 23,763 1,718 (2,166) 298,726 General 22,703 4,450 3,017 (2,257) 21,879 Construction Work in Progress 2,860 (824) --- --- 2,036 ------- ------ ----- ----- ------- Gross Utility Plant 313,951 27,649 4,835 (4,812) 331,953 Other Non-utility Property 97 --- --- 3,319(B) 3,416 Leasehold Costs --- --- --- --- --- Intangible Drilling Costs --- --- --- --- --- Lease and Well Equipment --- --- --- --- --- ------- ------ ----- ----- ------- Total Property, Plant and Equipment 314,048 27,649 4,835 (1,493) 335,369 ======= ====== ===== ===== ======= (B) Transfer of gross book value of former operating centers from utility property to non-utility property.
Balance Additions Sales and Balance September 30, 1992 at Cost Retirements Other September 30, 1993 ------------------ --------- ----------- ----- ------------------ GAS PLANT: Intangibles 141 --- --- --- 141 Production 3,241 21 --- 52 3,314 Storage 6,128 10 --- (52) 6,086 Distribution 259,464 20,833 1,941 491 278,847 General 22,530 3,668 1,588 (1,907)(A) 22,703 Construction Work in Progress 2,183 677 --- --- 2,860 ------- ------ ----- ----- ------- Gross Utility Plant 293,687 25,209 3,529 (1,416) 313,951 Other Non-utility Property 163 --- --- (66) 97 Leasehold Costs 1,104 --- 1,104 --- --- Intangible Drilling Costs 4,090 --- 4,090 --- --- Lease and Well Equipment 3,896 --- 3,896 --- --- ------- ------ ------ ----- ------- Total Property, Plant and Equipment 302,940 25,209 12,619 (1,482) 314,048 ======= ====== ====== ===== ======= (A) Includes the removal of original cost related to the transfer of title to the headquarters property.
Balance Additions Sales and Balance September 30, 1991 at Cost Retirements Other September 30, 1992 ------------------ --------- ----------- ----- ------------------ GAS PLANT: Intangibles 141 --- --- --- 141 Production 3,240 --- --- 1 3,241 Storage 6,012 166 --- (50) 6,128 Distribution 242,660 18,734 1,896 (34) 259,464 General 21,579 1,769 793 (25) 22,530 Construction Work in Progress 230 1,953 --- --- 2,183 ------- ------ ----- --- ------- Gross Utility Plant 273,862 22,622 2,689 (108) 293,687 Other Non-utility Property 163 --- --- --- 163 Leasehold Costs 1,104 --- --- --- 1,104 Intangible Drilling Costs 4,090 --- --- --- 4,090 Lease and Well Equipment 3,896 --- --- --- 3,896 ------- ------ ----- --- ------- Total Property, Plant and Equipment 283,115 22,622 2,689 (108) 302,940 ======= ====== ===== === =======
23 SCHEDULE VI
ACCUMULATED DEPRECIATION AND DEPLETION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 and 1992 (000's) Balance Charged to Cost of Removal Balance September 30, 1993 Operations Other Retirements Less Salvage September 30, 1994 ------------------ ---------- ----- ----------- --------------- ------------------ GAS PLANT: Production 2,069 82 (403) 100 --- 1,648 Storage 915 249 --- --- --- 1,164 Distribution 79,033 11,373 (965) 1,710 1,228 86,503 General 10,134 1,831 (908) 3,026 (112) 8,143 ------ ------ ----- ----- ----- ------ Total Gas Plant 92,151 13,535 (2,276) 4,836 1,116 97,458 Other Non-Utility Property 88 --- 836 --- --- 924 Leasehold Costs --- --- --- --- --- --- Intangible Drilling Costs --- --- --- --- --- --- Lease and Well Equipment --- --- --- --- --- --- ------ ------ ----- ----- ----- ------ Total 92,239 13,535 (1,440) 4,836 1,116 98,382 ====== ====== ===== ===== ===== ======
Balance Charged to Cost of Removal Balance September 30, 1992 Operations Other Retirements Less Salvage September 30, 1993 ------------------ ---------- ----- ----------- --------------- ------------------ GAS PLANT: Production 1,974 95 --- --- --- 2,069 Storage 673 242 --- --- --- 915 Distribution 71,040 10,589 9 1,928 677 79,033 General 9,946 1,091 601 1,601 (97) 10,134 ------ ------ --- ----- --- ------ Total Gas Plant 83,633 12,017 610 3,529 580 92,151 Other Non-Utility Property 235 --- (147) --- --- 88 Leasehold Costs 1,011 --- (1,011) --- --- --- Intangible Drilling Costs 3,781 --- (3,781) --- --- --- Lease and Well Equipment 3,802 8 (3,810) --- --- --- ------ ------ ----- ----- --- ------ Total 92,462 12,025 (8,139) 3,529 580 92,239 ====== ====== ===== ===== === ======
Balance Charged to Cost of Removal Balance September 30, 1991 Operations Other Retirements Less Salvage September 30, 1992 ------------------ ---------- ----- ----------- --------------- ------------------ GAS PLANT: Production 1,881 93 --- --- --- 1,974 Storage 429 244 --- --- --- 673 Distribution 63,829 9,957 (169) 1,864 713 71,040 General 9,028 944 612 825 (187) 9,946 ------ ------ --- ----- --- ------ Total Gas Plant 75,167 11,238 443 2,689 526 83,633 Other Non-Utility Property --- --- 235 --- --- 235 Leasehold Costs 1,005 6 --- --- --- 1,011 Intangible Drilling Costs 3,761 20 --- --- --- 3,781 Lease and Well Equipment 3,782 20 --- --- --- 3,802 ------ ------ --- ----- --- ------ Total 83,715 11,284 678 2,689 526 92,462 ====== ====== === ===== === ======
24
CONNECTICUT ENERGY CORPORATION ------------------------------ SCHEDULE VIII - VALUATION AND QUALIFYING ---------------------------------------- ACCOUNTS -------- YEARS ENDED SEPTEMBER 30, 1994, 1993 and 1992 --------------------------------------------- (000's) Col. A Col. B Col. C Col. D Col. E - - ------ ------ ------ ------ ------ Additions --------- Balance at Charged to Charged to Balance Beginning Costs and Other at End of Description of Period Expenses Accounts Deductions Period - - ----------- ---------- ---------- ---------- ---------- --------- Allowance for Doubtful Accounts 1994 (1) $ 4,251 $ 6,962 $ 1,482 (2) $ 8,948 (3) $ 3,747 1993 (1) $ 4,074 $ 4,324 $ 4,627 (4) $ 8,774 (3) $ 4,251 1992 (1) $ 3,170 $ 7,043 $ 1,120 (2) $ 7,259 (3) $ 4,074
Notes: - - ------ (1) Reserve deducted in the Balance Sheet from the asset to which it applies (2) Recoveries on accounts previously charged off (3) Accounts charged off as uncollectible (4) Recoveries on accounts previously charged off and deferral of energy assistance shortfalls 25 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) CONNECTICUT ENERGY CORPORATION S/ J. R. Crespo - - -------------------------------------------------- J. R. Crespo, Director, Chairman of the Board, President and Chief Executive Officer Dated: November 29, 1994 26 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. S/ Henry Chauncey, Jr. S/ Samuel M. Sugden - - ----------------------------------- --------------------------------- Henry Chauncey, Jr., Director Samuel M. Sugden, Director Dated: November 29, 1994 Dated: November 29, 1994 S/ James P. Comer S/ Christopher D. Turner - - ---------------------------------- --------------------------------- James P. Comer, M.D., Director Christopher D. Turner, Director Dated: November 22, 1994 Dated: November 29, 1994 S/ J. R. Crespo S/ Helen B. Wasserman - - ---------------------------------- --------------------------------- J. R. Crespo, Director, Chairman Helen B. Wasserman, Director of the Board, President and Dated: November 29, 1994 Chief Executive Officer Dated: November 29, 1994 S/ Richard F. Freeman S/ Vincent L. Ammann, Jr. - - ---------------------------------- --------------------------------- Richard F. Freeman, Director Vincent L. Ammann, Jr. Dated: November 29, 1994 Vice President and Chief Accounting Officer, (Principal Accounting Officer) Dated: November 29, 1994 S/ Richard M. Hoyt S/ Carol A. Forest - - ---------------------------------- --------------------------------- Richard M. Hoyt, Director Carol A. Forest, Vice President, Dated: November 29, 1994 Finance, and Treasurer, (Principal Financial Officer) Dated: November 29, 1994 S/ Paul H. Johnson S/ J. Richard Tiano - - ---------------------------------- --------------------------------- Paul H. Johnson, Director J. Richard Tiano, Vice President, Dated: November 29, 1994 General Counsel and Secretary Dated: November 29, 1994 S/ Newman M. Marsilius, III - - ---------------------------------- Newman M. Marsilius, III, Director Dated: November 29, 1994 EX-10 2 MATERIAL CONTRACT EXHIBIT 27 THE SOUTHERN CONNECTICUT GAS COMPANY BOARD OF DIRECTORS RETIREMENT PLAN The retirement plan set forth herein is known as The Southern Connecticut Gas Company Board of Directors Retirement Plan (the "Plan"). The Plan shall be effective October 1, 1992 and shall continue in effect until amended, superseded or terminated by a resolution of the Board of Directors of The Southern Connecticut Gas Company. 1. Definitions: The following terms when used in this Plan with initial capital letters shall have the meanings assigned to them below: (a) "Annual Retainer" means the annual retainer payable to members of the Board of Directors during the fiscal year in which the Eligible Director attains the age of sixty- five (65). (b) "Change in Control" of the Company shall be deemed to have occurred if: (i) Any Person is or becomes an Acquiring Person; (ii) Less than 2/3 of the total membership of the Board of Directors of the Company shall be Continuing Directors; or (iii) The shareholders of the Company shall approve a merger or consolidation of the Company or a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Corporation's assets. In connection with this definition of "Change in Control", the capitalized terms in the definition are defined as follows: (a) "Acquiring Person" means any Person who is or becomes a "beneficial owner" as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") of securities of the Company; (b) "Affiliate" and "Associate" shall have the meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act; (c) "Continuing Director" means any member of the Board of Directors of the Company who was a member of the Board on October 1, 1992 and any successor of that Continuing Director while such successor is a member of the Board of Directors of the Company and who is not an Acquiring Person or an Affiliate or Associate of any Acquiring 28 Person and who is elected to succeed the Continuing Director by a majority of the Continuing Directors; and (d) "Person" shall have the meaning assigned to it in Section 13(d) and 14(d) of the Exchange Act. (c) "Code" means the Internal Revenue Code of 1954, as amended. All references to any section of the Code shall be deemed to refer not only to such section but also to any amendment thereof and any successor statutory provision. (d) "Company" means The Southern Connecticut Gas Company and any person, firm or corporation which may succeed to the business of the Company by merger, consolidation or otherwise and which, by appropriate action, shall adopt the Plan. (e) "Effective Date" means October 1, 1992. (f) "Eligible Director" means a member of the Board of Directors of the Company eligible to receive payments in accordance with the terms of the Plan. (g) "Plan" means The Southern Connecticut Gas Company Board of Directors Retirement Plan and as it may hereafter be amended. (h) "Plan Year" means the Fiscal Year October 1 - September 30. (i) "Retirement Date" means the date on which the Eligible Director retires from the Board of Directors of the Company but shall not be earlier than the date on which the Eligible Director attains the age of sixty-five (65). 2. Eligibility: If an individual, duly elected to the Board of Directors of the Company, receives a retainer as a Director for five (5) years and is sitting as a Director at Retirement Date, such individual shall be an Eligible Director entitled to receive payments in accordance with the terms of this Plan. 3. Payments: An Eligible Director shall receive an annual payment, payable in monthly installments commencing on the first day of the month following the Retirement Date, of an amount equal to the Annual Retainer payable to Directors during the Fiscal Year in which the Eligible Director attains the age sixty-five (65) and is sitting as a Director of the Company at Retirement Date. Such payments shall continue for a period of ten (10) years or the life of the Eligible Director, whichever is shorter. If a Director dies before payments under this Plan are to be made, the Director's estate shall have no claim on any amounts accrued for such Director. 29 4. Accrual of Payments, Funding and Trust Accounts: Commencing October 1, 1992 the Company shall accrue on a monthly basis the total amount of the monthly payments to be paid to Eligible Directors calculated on the net present value due and owing to each Eligible Director after the Director reaches the Retirement Date. Such amounts shall be a credit to a special account on the Company's books designated "Directors' Retirement Account". The Company shall not be required to fund or otherwise segregate assets for the payments to Eligible Directors. Notwithstanding the foregoing, the Company shall establish a trust fund (or amend an existing trust fund) (the "Trust"). The Company shall contribute an amount that it determines to be sufficient to actuarially fund the Eligible Directors' monthly payments under this Plan. The Company shall review such funding levels once a year as of January 1 and, if needed to maintain the funding on a sound actuarial basis, increase or decrease the level of funding. The Trust shall be a "rabbi trust" and shall be embodied in a trust agreement with an institutional trustee (the "Trustee"). Payments to Eligible Directors shall be paid from the funds in the "rabbi trust" by the Trustee to the extent not paid by the Company. The Trustee shall establish an account (an "Account") for this Plan to which shall be credited annually the Company's total contribution to be made pursuant to this Section 4. The account shall be credited with interest as earned, including realized an unrealized investment gains and losses. The establishment of the Account is solely for accounting and funding purposes and shall not otherwise restrict the use of the funds in the Trust. 5. Directors' Contributions: This Plan is a non-contribution retirement plan. 6. Qualification of Plan: This Plan is a non-qualified plan as defined in Sections 401(a) and 501(a) of the Code. 7. Restrictions on Transfers: No Eligible Director shall assign, transfer or pledge any right or claim which such Eligible Director may have under this Plan. 8. Successors to Company: No merger or acquisition of the Company or any Change in Control of the Company shall cause this Plan to be amended, superseded or terminated. Such amendment, supersedure or termination shall occur only with the approval of the Board of Directors at a meeting of the Board of Directors held in accordance with the By-Laws of the Company. 30 9. Accounting: The Company, at no cost to Eligible Directors, shall annually, or at other times deemed appropriate by the Company's management, retain the services of counsel, independent accountants and actuaries to assure that the accounting accruals are consistent with the terms of this Plan and applicable laws. To the extent permitted by law, the Company shall be entitled to rely upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, counsel or other person(s) employed or engaged for such purposes. 10. Expenses of Administration. All expenses that shall arise in connection with the administration of the Plan including, but not limited to, the compensation of any actuary, accountant, counsel, other experts or other person who shall be appointed by the Company in connection with the administration thereof, shall be paid by the Company. 11. Amendment: The Company reserves the right to amend, modify, suspend or terminate the Plan by action of its Board of Directors, provided, however, no such action shall operate to recapture for the Company any payments previously made to an Eligible Director under the Plan, nor except to the extent necessary to meet the requirements of the Code or any other governmental authority, to deprive an Eligible Director of any benefit due such Eligible Director under the Plan. 12. Notices: Any notices required or permitted to be given under this Plan shall be in writing and shall be deemed to have been given when delivered, or when mailed, if mailed by registered or certified mail, return receipt requested to the respective addresses of the Company and Eligible Director or to such other address as any party hereto shall designate to the other party in writing. 13. Severability: The provisions of the Plan are severable. The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision. 14. Governing Law: This Plan shall be governed by and interpreted in accordance with the substantive of laws of the State of Connecticut, except as any such laws may be preempted by federal law. EX-13 3 1994 ANNUAL REPORT [LOGO] Connecticut Energy Corporation 1994 Annual Report Business is both an Art and a Discipline... Providing security in a constantly changing environment involves planning and profound commitment. To craft the optimum business structure requires mastery in knowledge and a focused strategy. These qualities form the foundation of Connecticut Energy Corporation. Service Area Franchise Area Connecticut Rhode Island New York Long Island IN TOWNS CURRENTLY SERVED Square miles 488 Population 775,547* Number of households 318,533+ Miles of gas main in service 2,057 IN CONNECTICUT Square miles 4,872 Population 3,287,116* Number of households 1,343,524+ +Connecticut Dept. of Housing *Based on 1990 U.S. Census Figures. BUSINESS PROFILE Connecticut Energy Corporation is a holding company primarily engaged in the retail distribution of natural gas for residential, commercial and industrial uses through its wholly owned subsidiary, The Southern Connecticut Gas Company (Southern). Southern delivers natural gas to approximately 153,000 customers in 22 Connecticut communities. DIVIDENDS Connecticut Energy Corporation through its predecessor companies has paid cash dividends on its common stock since 1850, the longest consecutive dividend payment record of any utility or nonfinancial company listed on the New York Stock Exchange. In September 1994, the Company paid its 339th consecutive quarterly dividend. The dividend has increased in 14 of the last 15 years. STOCK LISTING INFORMATION Connecticut Energy's common stock is listed on the New York Stock Exchange under the ticker symbol "CNE". Quotes may be obtained in daily newspapers where it is listed under "ConnEn" in the New York Stock Exchange composite table. In October 1994, Connecticut Energy was selected for inclusion in the newly formed Standard & Poor's SmallCap 600 index. Investment and Shareholder information is on pages 45 and 46. HIGHLIGHTS
Years ended September 30, 1994 1993 % Change - - ----------------------------------------------------------------------------- Financial (dollars in thousands) - - ----------------------------------------------------------------------------- Operating revenues $240,873 $212,762 13.2 Gross margin 114,003 99,717 14.3 Net income 12,843 11,053 16.2 Total assets 352,920 299,795 17.7 Common shareholders' equity 125,719 99,853 25.9 Long-term debt 119,917 120,511 (0.5) Total capitalization 245,636 221,002 11.1 Return on average common equity (%) 10.84 10.87 (0.3) - - ----------------------------------------------------------------------------- Per Share - - ----------------------------------------------------------------------------- Net income $ 1.58 $ 1.50 5.3 Dividends paid 1.29 1.28 0.8 Market value at year end 21.63 24.88 (13.1) Book value at year end 14.45 13.33 8.4 - - ----------------------------------------------------------------------------- Other - - ----------------------------------------------------------------------------- Weighted average common shares outstanding 8,134,021 7,377,419 10.3 Shares outstanding at year end 8,700,266 7,488,467 16.2 Shareholders of record 12,094 11,094 9.0 Shareholders in dividend reinvestment plan 6,621 6,049 9.5 Institutional ownership (shares) 1,842,000 1,375,000 34.0 Number of employees at year end 572 599 (4.5) - - -----------------------------------------------------------------------------
STOCK PRICE CHART High Low Close '89 18 7/8 14 18 '90 18 14 1/2 16 5/8 '91 19 3/8 14 1/4 19 '92 24 3/4 18 5/8 22 1/4 '93 26 1/2 20 1/8 24 7/8 '94 26 20 21 5/8 TOTAL RETURN Ten Year Compound Return on $1,000 There is no assurance that similar rates of return will be experienced by the Company's shareholders in the future. CHART 9/84 1,000.000 9/85 1,262.280 9/86 1,718.575 9/87 1,754.109 9/88 1,835.401 9/89 2,489.751 9/90 2,475.384 9/91 3,042.622 9/92 3,777.323 9/93 4,447.971 9/94 4,100.064 THREE TO OUR SHAREHOLDERS PHOTO Fiscal 1994 was a landmark year for the natural gas industry, marking the culmination of a prolonged journey through the regulatory restructuring process. It was also a landmark year for our Company. Five years ago we made a commitment to maintain steady and consistent growth in earnings in spite of external variables. It gives me great pleasure to report that Connecticut Energy Corporation achieved record earnings this year, which marks the fifth consecutive year in which we have achieved our objective. Net income was a record $12,843,000, or $1.58 per share of common stock, an increase of 5.3 percent over 1993. We have achieved our goal of continued improvement in earnings and financial stability by transforming the knowledge we have acquired from seasons past into measurable actions which are clearly focused upon today and tomorrow. Rate Settlement Approved As a result of our timely and constructive regulatory initiatives, our subsidiary, The Southern Connecticut Gas Company, negotiated a rate case settlement that was approved and implemented in December 1993. The settlement increased base rates by 6.6 percent, contributing significantly to the growth in revenues and earnings in fiscal 1994. An important component of the rate settlement was the implementation of a Weather Normalization Adjustment (WNA) - - -- which will enhance earnings stability over the long term. As a result of the WNA, we can be more aggressive in pursuing future growth opportunities in nonfirm markets. Consolidation Complete During February we completed the consolidation and relocation of our operating departments into one central facility. Upon consolidation, our two autonomous union locals merged to form one new local. We continue to look at every aspect of our business for ways in which to further improve productivity and enhance our level of customer service. It is these efforts, rather than frequent rate relief, that will keep our services and rates competitive and enable us to grow. Record Throughput The Federal Energy Regulatory Commission's (FERC) restructuring rule, Order No. 636, became fully effective in November 1993. The first winter's operation under Order No. 636 presented unique challenges for gas supply planning and tested the reliability of delivery during sustained record-breaking cold weather. The portfolio of supply, transportation and storage contracts which we had negotiated was more than adequate to serve our customers. Firm sales reached an all time high of 22.7 billion cubic feet (Bcf), and sales and transportation service to interruptible customers also broke previous records at 10.5 Bcf. For the first time, we were able to capitalize on new market opportunities by selling and transporting our gas to customers outside of our distribution system. Off-system throughput totalled 3.3 Bcf, or approximately 10 percent of total throughput. Clearly, the ability to provide gas service outside of our distribution system presents tremendous future growth potential in a restructured operating environment. Expansion in Traditional Markets Our residential heating market is the cornerstone of our profitability today and will be a significant source of growth for many years in the future. During fiscal 1994 we added over 2,500 new heating customers to our residential market. We also realized significant growth in new commercial and industrial load additions. Another traditional market opportunity is currently unfolding in the electric to gas conversion area, which is a market where gas now has an overwhelming competitive price advantage. We have set a target to increase our heating saturation along main from approximately 40 percent to 60 percent by the year 2000, and we intend to accomplish this objective by increasing the utilization of our existing distribution system. Emerging Markets A number of long-term growth opportunities have begun to emerge in nontraditional areas such as the natural gas vehicle (NGV) market and the electric generation market. We have installed natural gas filling stations at the corporate headquarters of a local telephone company and have contracted to install a station at one of the FOUR post office branches in our service territory. As we see Clean Air Act compliance regulations begin to take effect, the combination of state and federal tax credits will provide an added incentive for the conversion of vehicles to use natural gas. After extensive negotiations, we signed a contract with a major electric utility to convert two of its oil fired electric generating units to also burn gas. In July, the generating plant began using gas, contributing 3.2 Bcf to 1994 throughput in less than three months. Increasing Competition Implementation of FERC Order No. 636 marked the culmination of a move towards open market competition for the natural gas industry. At the state level, the Connecticut Department of Public Utility Control (DPUC) also evaluated the impact of restructuring on local gas distribution companies, and it found that "unbundling" the services of local distribution companies is the next logical step towards a truly competitive natural gas industry. The DPUC also addressed the importance of evaluating government imposed costs, such as the gross receipts tax and hardship uncollectible expense, which are currently being borne disproportionately by Connecticut's utilities. Our Company has realized significant margins from nonfirm business this year, and we expect to pursue these markets with even greater intensity in the future. Our direct access to all three pipelines serving our region, combined with our LNG liquefaction and storage facility, provides another means of managing gas supply as well as generating additional profits. Our restructured operating environment brings with it a level of competition which in the past had been unprecedented for gas utilities. We see a more competitive marketplace as a positive development, and we have eagerly positioned ourselves to capitalize on its inherent opportunities. Adapting to Change We have been diligent in our commitment to control operations and capital costs as we position the Company to operate in a more competitive business environment. Our employees have been quick to adapt to numerous changes in the industry and within the Company. We are working smarter, more efficiently and with more focus on customer service than we were five years ago, and I compliment all of our employees for their high level of cooperation and commitment. I would also like to take the opportunity to thank Samuel R. Clammer, Vice President, Engineering and Gas Supply, for sharing his expertise in supply management before retiring this year. Performance for Our Shareholders Providing an attractive total return to our shareholders over the long term continues to be our primary corporate objective. This year we again increased your dividend, as we have in 14 of the last 15 years. We have also been successful in gradually reducing our dividend payout ratio, which further adds to Connecticut Energy's financial stability. Over the past year we have seen the price of gas distribution stocks decline primarily as a result of rising interest rates. However, we have continued to produce consistent attractive total returns for our shareholders over the long term. Our five year average annualized total return was 9.4 percent, which exceeded the 8.7 percent return for the S&P 500 index. The 10 year total return was 14.2 percent compared to 13.7 percent for the S&P 500 index. Setting the Agenda for the Future From the 1990 Amendments to the Clean Air Act and the passage of the National Energy Policy Act in 1992 ... to the 1993 FERC restructuring rule that revolutionized the way gas distribution companies purchase and transport gas ... to state and federal tax incentives for natural gas vehicle conversions ... the natural gas industry today bears as much resemblance to our industry of five years ago as a finely tuned Stradivarius does to the block of wood from which it was so skillfully crafted. A master craftsman constructing an instrument draws upon the skill and the mastery gained over years of experience. Creating the instrument with precision and exacting standards, but using new and untested materials, can create challenges not previously encountered. Connecticut Energy is facing similar challenges in new markets it has never before entered. Our industry has changed dramatically, but our blueprint -- for providing the highest level of customer service, keeping rates competitive and increasing our earnings -- has remained the same. Through our work with customers and contractors, legislators and regulators, we are pleased to see an expanded awareness for the benefits natural gas can provide as both an efficient and environmentally friendly energy source. Now is the time for us to seize this awareness and capitalize on the expanded markets before us. By using a disciplined approach in all that we undertake, we are mastering the art of competition -- crafting the optimum business structure to succeed in the marketplace of the future. S/ J.R. Crespo J.R. Crespo Chairman, President and Chief Executive Officer Glossary located on page 44. FIVE Dramatic Changes in Recent History Looking back over the regulatory and legislative changes affecting the natural gas industry in the last decade provides a brief sketch of how dramatically our Company's operating environment has changed. Just last winter, the 1993 Federal Energy Regulatory Commission's (FERC) restructuring rule, Order No. 636, became fully effective. This order revolutionized the way gas utilities purchase and transport gas. Distribution companies such as ours took full responsibility for the direct purchase of natural gas and for its storage and transportation to their gate stations. This restructuring rule was the culmination of over a decade of federal deregulation of our industry. Our careful planning for the restructured operating environment showed positive results last year. In one of the coldest winters ever experienced in the northeast, we broke our previous peak-day sendout record eight times during January and February 1994, set a new peak-day record which was 12 percent higher than the previous peak-day sendout, and set a new monthly record sendout as well. In spite of the extreme cold, we were able to assure reliable delivery to meet firm customer requirements, and we had a portfolio of supplies that was more than adequate. Clearly our foresight and planning were visible. Locally, Connecticut regulators also adopted some bold changes this year. For example, the Department of Public Utility Control (DPUC) recognized the emergence of strong competition Insightful planning is essential for preparing the proper strategy. Our broad based experience in the gas industry allows us to be proactive in the marketplace -- setting the agenda for change rather than responding to circumstance. This emphasis on long-term planning continues to be a primary focus of management. TOTAL THROUGHPUT Billion Cubic Feet (Bcf) CHART 1989 1990 1991 1992 1993 1994 Firm Sales 21.183 20.704 19.012 21.292 22.094 22.727 Interpt. Sales 2.364 1.98 2.785 3.133 4.643 6.968 Transportation 3.946 4.688 5.999 4.859 1.653 0.219 Off System 3.322 SIX PHOTO in the energy markets, and it intends to have "unbundled" services in place for distribution companies in Connecticut no later than November 1, 1995. This change will eliminate some of the constraints in our large customer market and allow us to compete with other energy suppliers on a more level playing field. The DPUC also supported our request for a Weather Normalization Adjustment -- the first for a New England gas distribution company -- in our rates. This adjustment mitigates the effects on firm revenue of extreme weather (temperatures varying from a 30 year average). It also provides the Company and its customers a more stable budget within which to operate. Federal legislation in the form of the Clean Air Act Amendments of 1990 and the Energy Policy Act of 1992 cleared a path of opportunities through both their regulations and incentives. The Clean Air Act Amendments impose stringent emissions standards on vehicles and power plants, mandate the use of alternative fuels for fleet vehicles and eliminate the production by 1995 of chlorofluorocarbons (CFCs) used heavily as a refrigerant for electric air conditioning. The Energy Policy Act also promotes energy efficiency, reduces dependence on foreign fuels -- which significantly affects the energy mix of Connecticut -- and mandates a more rapid implementation of fleet vehicle conversions to alternative fuels. The incentives provided by these Acts in the form of tax credits help customers overcome some of the economic hurdles of compliance, making natural gas an attractive alternative indeed. Our Company encouraged the Connecticut legislature to pass two key bills in 1994 to improve the competitiveness of natural gas as a vehicular fuel for fleets. The first bill eliminates the 31 cents per gallon road use tax on natural gas until 1999. It also distinguishes Connecticut SEVEN as only the second state in the nation to provide a 50 percent tax credit for investment in alternative fuel stations and conversion equipment. The second bill, which our Company introduced, eliminates the five percent gross receipts tax on natural gas as a vehicular fuel. These groundbreaking legislative and regulatory changes would have had a diminished effect on our markets, however, without the ample supplies we enjoyed this past winter and the capacity of three pipelines to which we are directly connected. In the past five years we have worked with legislators and regulators, directly and in cooperative efforts with such groups as the American Gas Association and the New England Gas Association. We have been at the forefront in setting the agenda for change, rather than just responding to circumstances, and the results have been positive. What follows is a review of our current market opportunities and our strategies for operating successfully in the increasingly competitive environment of the future. Achieving excellence in all areas of business is the result of profound commitment. This commitment is manifested through knowledgeable personnel, attentive customer service, state of the art technology and well managed supply. We believe our responsibility is a public trust and remain committed to honoring that trust. Markets: Current and Emerging The foundation of our Company's profitability today is our firm customer market, which contributes over 90 percent of our gross margins. We continue to offer incentives to potential customers along our existing distribution system to switch to natural gas heating. We were successful in adding over 2,500 new residential heating customers in 1994, and we will persist in developing this attractive source of profitable growth. Although we are beginning to see signs of improvement in the economic climate in our service territory, the competitive forces we had anticipated affecting our business are strong and real. We realize customer growth is a cultivation EIGHT PHOTO process, and we continue to lay a foundation for that process so our customer base will grow as the economy does. We have paid particular attention to maintaining our high level of customer satisfaction, and we know that word of mouth advertising from satisfied customers is a very important tool for our future growth. We have also developed a network of 130 contractors who, in addition to being updated by us on the latest technology and equipment available, can also receive incentives for identifying new potential customers. Certainly, our role in educating consumers about changes in regulations and technology cannot be overlooked. We recently co-sponsored a full-day seminar on compliance with the Clean Air Act, which attracted 150 industrial customers and industry marketing representatives. In addition to positioning natural gas as the solution to environmental regulations, the program also provided our customers with assistance in completing Department of Environmental Protection filing requirements. Feedback on the seminar from our existing and potential industrial customers was excellent. Updating consumers as well as engineers and contractors on significant technological changes is also important. For example, at a local business expo we introduced to our service area MARGIN SOURCE BY CUSTOMER GROUP (dollars in millions) CHART '89 '90 '91 '92 '93 '94 Residential 58.31 57.913 57.153 62.449 63.391 71.643 Comm./Indust. Firm 20.13 20.481 20.937 22.740 23.376 26.003 Nonfirm 3.121 3.383 5.302 3.666 2.427 4.258 NINE PHOTO the Triathlon gas combination heating and cooling system, with a programmable electronic thermostat. This breakthrough technology, which has been tested for the last few years and has just come to market, has commanded attention because it has the potential to considerably reduce the operating expenses of large homes or businesses. In our firm commercial and industrial markets we have added both heating and cooling load this year. We know customers must have a compelling reason to commit capital dollars in a tight economy. For the New Haven school system, it was operationally cost effective to switch 28 schools to heat with natural gas this year. In addition, they were relieved of the potential liability of leakage from the oil tanks at one or more of those schools. More large customers are looking at the economics of installing one of several engine-driven, absorption or desiccant dehumidification cooling applications now available. The increased production of natural gas cooling equipment is bringing initial costs down, and the longer service life of the equipment, as well as lower operating costs, have made natural gas cooling very economical for many of our hospital, office, supermarket and manufacturing customers. We have added interruptible business this year from larger customers who may have used only one fuel previously, and from new businesses which are replacing oil with natural gas as their alternative. For the first time this year, we also had a few of our larger firm customers, which already had dual-fuel capacity, switch to interruptible service. Although we do not have many customers with that capability, our ability to unbundle services in the future will allow us to offer more new services to meet specific customer needs and stay competitive. TEN TODAY'S PLAN FOR TOMORROW'S MARKETS Natural Gas Vehicles (NGVs) We have been very pleased with the success achieved in the natural gas vehicle market this year, and we see this market gradually gaining momentum through the turn of the century. Fleet cars typically use the same volume of natural gas as a home heating customer, and NGV vans and trucks average up to ten times that volume. The federal regulations and incentives already mentioned provide a catalyst for fleet-owning companies to consider the natural gas alternative. The two pieces of Connecticut legislation which were passed this spring provide an additional economic stimulus. With the U. S. Postal Service converting 62 mail trucks in East Haven this year, our customers can see a local example of a practical application. Connecticut, along with the other New England states, has been designated as a serious non-attainment area for specified air pollutants. Because of this, we face more stringent standards for vehicle emissions. The New England Gas Association, of which we are a member and which is headed by our Chairman, co-sponsored an NGV Expo with the Department of Energy in September. Two hundred people attended, and for most, this was their first exposure to NGVs. Many were surprised to learn that Chrysler Corporation has been selling natural gas powered minivans and that Ford, General Motors and American Honda are now entering this market. True mastery is the process of evolution in knowledge. Understanding gained from seasons past becomes the action of today. It is only through intense, mature effort over time that mastery is attained. For almost a century and a half, we have cultivated this awareness. ELEVEN Electric Generation The completion of the lateral connection and regulator station for Connecticut Light and Power Company's (CL&P) Devon electric generating station this summer gave our Company the ability to transport natural gas to a second of three electric generating plants in our service area. For the first three months after the July completion, CL&P estimated that the burning of natural gas had reduced its sulfur dioxide emissions by 1,500 tons and had saved its customers about $1.5 million in fuel costs. Providing service to electric generators resulted in a significant increase in throughput this year, contributing 10 percent of total volumes. Offering Flexible Services The strong firm customer market we have built provides us with the foundation of our revenue stream. As we have foreseen changes in the industry, the market and the economy, we have continued to pursue additional markets which demand flexibility in the services customers need. In coming years, we envision that an increasing proportion of our gross margin will come from nonfirm customers, and we are planning for that eventuality now. Our Company is the only New England distribution company with direct access to three pipelines, and we can store gas supplies for later use. Our ability in the near future to offer a "balancing" service -- balancing the difference between volumes contracted for and volumes actually used on a daily basis -- will give us a further competitive advantage. PHOTO TWELVE The addition of both firm and nonfirm customers in 1994 contributed to our breaking all prior volumetric records. Firm sales were 22.7 billion cubic feet (Bcf); interruptible sales and transportation service reached 10.5 Bcf. Through-put totaled 33.2 Bcf, which was 13 percent higher than our previous record of 29.3 Bcf in 1992. Financial Discipline: A Company Prepared for the Future One of our most satisfying achievements in 1994 was our ability to, once again, show growth in earnings per share. In spite of the slowly recovering economy and low oil prices, Connecticut Energy's net income reached a record level of $12,843,000, or $1.58 per share, an increase of five percent over last year's earnings per share. Although the weather was 5 percent colder than normal since January, our firm customers benefitted by having their bills lowered with credits totalling $2,766,000 through the operation of the Weather Normalization Adjustment. Even with this reduction to gross margin, we were still able to produce record earnings. The growth in 1994 earnings per share enabled us to meet another important objective: to continue to reduce our dividend payout ratio. We succeeded in dropping our payout ratio to 82 percent and we did so while showing modest growth in dividends per share paid to our shareholders. True knowledge is skill in action. By applying focused attention in all that we undertake, success is achieved. We respect the understanding that hard work and discipline are at the root of that success. Attention to detail is the means as well as the goal. DIVIDEND PAYOUT (dollars per share) CHART '89 '90 '91 '92 '93 '94 Earnings $1.28 $1.33 $1.38 $1.43 $1.50 $1.58 Dividends $1.20 $1.23 $1.24 $1.265 $1.28 $1.29 THIRTEEN PHOTO We have made a commitment to achieve steady and consistent growth in earnings each year in spite of external variables, and we are pleased that 1994 marks the fifth consecutive year in which we accomplished that goal. Without the solid financial foundation we have built through adhering to long-term objectives, however, we would not have the footing nor the flexibility to pursue the new markets ahead of us. Our strategic process has included affecting internal changes when needed and modifying external variables when possible. Making Internal Changes After considerable and precise planning, our Company completed the consolidation of our two operating centers and meter shop this year into one centrally located facility. This followed the consolidation last year of three administrative office locations into one headquarters building. These moves achieved efficiencies not previously possible, most notably in staffing flexibility, dispatching crews, maintaining service vehicles, and managing materials and supplies. The consolidation has also allowed us to reorganize some operating departments, which has increased employee efficiency and customer service capabilities. Concurrently, we have been able to reduce the number of employees, mostly through attrition, from 599 a year ago to 572 at the end of fiscal 1994. The decision to go forward with these consolidations was thoroughly reviewed for cost effectiveness. We have been diligent in holding down our operations and maintenance costs when possible. We are very pleased that our operations and maintenance expenses as a percentage of gross margin have stayed below 48 percent, and we anticipate maintaining that level in the coming year. FOURTEEN Affecting External Change There are many variables which directly affect us and over which we have little control. Working creatively to modify external circumstances, however, has brought positive results. We have no control over the weather. Yet by requesting and receiving a Weather Normalization Adjustment in our rates, we have added a significant level of stability to our revenues to counter the dramatic impact which unusually warm temperatures had on our revenues and earnings in previous years. Our landmark rate settlement last year marked the first time we were able to negotiate a stipulated agreement, thus avoiding the time and cost of a full rate case. We have made concerted efforts on many fronts to work with our regulators and legislators, and we have cooperatively affected change. Achieving Financial Flexibility and Stability We continued to take steps in 1994 to enhance our financial flexibility and strengthen our capital structure. In March, we successfully completed the sale of one million new shares of Connecticut Energy common stock. The issue realized net proceeds of $19.4 million and reflects the lowest cost of common equity capital we have ever issued in a public offering. It was an accomplishment for our Company to have been able to complete this transaction during a period of significant market volatility. Our capital structure was also strengthened by continued response to the Customer Stock Purchase Plan (CSPP) component of our Dividend Reinvestment and Stock Purchase Plan. This plan provides us with the ability to raise common equity in the least costly manner and to continue adding common equity gradually over time. Response from our customers continues to be excellent. Since the inception of the CSPP, over 2,000 customers have become shareholders, investing approximately $4 million in our Company. As a result of our common equity infusions, we reached another long-awaited target in April when we were able to pay off all short-term debt for a period of time. The last time our short-term debt balance was reduced to zero had been in September 1988. Success can be measured by the recognition that our efforts met our goals. The value we provide to our shareholders and customers each year sets incremental benchmarks upon which to judge our long-term vision. OPERATIONS AND MAINTENANCE EXPENSES AS A PERCENT OF MARGIN (dollars in millions) CHART '89 '90 '91 '92 '93 '94 O & M Expenses $89 $90 $92 $99 $100 $114 FIFTEEN PHOTO We also redeemed Southern's last outstanding publicly issued preferred stock. Given the low face value of the amount outstanding, the relatively high rate of the nontax deductible dividends, additional debt issuance restrictions, and the administrative burden of maintaining these outstanding voting shares, we redeemed all 6,500 outstanding shares in December 1993. The changes in our industry and our Company have converged to provide a stable foundation from which the pursuit of new markets is possible. The high percentage of margin derived from our firm customer base reflects a more stable business position than some other distribution companies, and the added Weather Normalization Adjustment can contribute to greater revenue stability. According to Standard & Poor's, our distribution business has once again had its A- long-term debt rating and "stable" outlook affirmed. Our track record of cost containment, our lowered payout ratio, and our improved equity ratio as a result of the stock offering this year, were also cited as positive features in our stable financial outlook. Long-Term Total Return The market in 1994 was a difficult one for income stocks in general and gas distribution stocks in particular. The impact of rapidly rising interest rates, coupled with the heightened competitive risks perceived by investors, caused downward pressure which impacted 1994 total returns. However, over the past five and ten years we provided our shareholders with average annual total returns of 9.4 percent and 14.2 percent, respectively. For those same periods, the S&P 500 index returns were 8.7 percent and 13.7 percent, respectively. Once again, we have clearly achieved our primary corporate objective: to provide our shareholders with above average long-term total returns on their investment in Connecticut Energy. A Whole New Industry The primary focus of our actions over the past year has been the strategic preparation of every aspect of our Company to capitalize on the opportunities which the rapidly changing business, regulatory, legislative and technological environments have placed before us. Our goal is to offer the most competitive and broadest array of energy services to our customers. We expect this focus, combined with our resolve to hold down costs and enhance customer satisfaction, will continue to increase shareholder value. Providing financial security, stability and growth in a constantly changing environment involves insight and commitment -- qualities that set apart successful organizations. Our broad based experience in the natural gas industry has allowed us to be proactive in the marketplace, setting the agenda for change rather than responding to circumstances. The skills we have mastered are not unlike the creativity required of the person who envisions and crafts a violin ... or the proficiency of the virtuoso who makes the instrument come to life in a performance. By applying focused attention in all that we undertake, we are creating the optimum business structure to perform in the more competitive marketplace of the future. Kyung Yu, Concertmaster, New Haven Symphony Orchestra and Assistant Professor, Yale School of Music. The Company is a proud sponsor of the Orchestra. SIXTEEN MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS Net Income Connecticut Energy Corporation's ("Company") consolidated net income for the fiscal years ended September 30 is detailed below:
(in thousands, except per share) 1994 1993 1992 - - ------------------------------------------------------------------------------ Net Income $12,843 $11,053 $10,227 ============================================================================== Net income per share $1.58 $1.50 $1.43 ============================================================================== Weighted average shares outstanding 8,134 7,377 7,136 - - ------------------------------------------------------------------------------
Net income for 1994 was a record for the Company and increased approximately 16% when compared with 1993. Factors affecting the improved results for 1994 were the implementation of a 6.6% rate increase on December 9, 1993 by the Company's wholly owned subsidiary, The Southern Connecticut Gas Company ("Southern"), the ability to retain additional interruptible margins earned due to the changes in the annual margin sharing period and target made by the Connecticut Department of Public Utility Control ("DPUC") in the recent rate decision for Southern and the continued conversion of existing nonheating customers to heating customers. Partially offsetting these increases were higher operations expenses in the areas of uncollectibles, wages (including some overtime costs due to the colder winter weather), employee benefits, depreciation, rent and increased taxes due to higher pre-tax income and higher revenues. Results for 1994 were also affected by higher interest costs due to Southern's issuance of $15,000,000 and $12,000,000 in additional long-term debt in December 1992 and September 1993, respectively. The increases in interest costs on long-term debt for 1994 were offset by lower other interest costs. Net income in 1993 increased approximately 8% when compared with 1992. Gross margin, a key statistic in the gas distribution business, increased by approximately $869,000 in 1993 when compared with 1992, primarily due to increased sales to firm customers because of colder weather and the conversion of nonheating customers to heating customers. Net income in 1993 was positively impacted by a lower provision for uncollectible accounts due to a favorable DPUC Decision regarding the deferral of certain shortfalls in energy assistance funding from state and federal agencies relating to the 1991/92 and 1992/93 heating seasons, as well as a low effective tax rate relating to certain flow-through tax benefits for deferred uncollectible expenses and deferred gas costs. Operating Revenues Operating revenues are derived principally from the distribution of natural gas to firm and interruptible customers by Southern. Southern's firm class of customers have priority of service with no interruptions. Interruptible customers are generally large industrial or commercial customers which have the capability of utilizing an alternate fuel; their service can be interrupted by Southern (if necessary) to service firm customers. Operating revenues were approximately 13% higher in 1994 when compared with 1993. This increase can be attributed to the impact of a 6.6% increase in Southern's rates implemented on December 9, 1993, higher collections through the operation of Southern's Purchased Gas Adjustment Clause ("PGA") and the addition of more heating customers through conversion of existing nonheating customers. In Southern's most recent rate proceeding, the DPUC approved the implementation of a Weather Normalization Adjustment ("WNA") under which the non-gas portion of Southern's firm rates is charged or credited monthly to reflect deviations from normal weather. The implementation of the WNA occurred in January of 1994. Since the weather during the period in which the WNA operated was approximately 5% colder than normal, Southern returned approximately $2,766,000 to firm customers. Operating revenues were approximately 5% higher in 1993 when compared with 1992. This increase in operating revenues was attributed to slightly colder weather than in 1992, which resulted in the increased use of gas by Southern's firm customers, higher collections from customers through the operation of the PGA and continued conversions of nonheating customers to heating customers. Connecticut Energy Corporation SEVENTEEN Total Sales and Transportation Volumes Southern's total volume of gas sold and transported reached a record level of 33,236 MMcf in 1994, which was a 17% increase over 1993, and was 13% higher than the record set in 1992. The 1994 level was higher principally due to increased firm and interruptible sales, as well as transportation volumes in accordance with a special contract for Connecticut Light and Power Company's Devon generating station which began in July 1994. Throughput in 1993 was approximately 3% lower than the previous record level set in 1992, principally due to lower volumes of third party gas transported to end users. Firm Sales Volumes Firm sales volumes were approximately 3% higher in 1994 when compared with 1993. This increase was primarily attributable to weather being approximately 5% colder than 1993 and the continued conversion of nonheating customers to heating customers. Firm sales volumes were approximately 4% higher in 1993 when compared with 1992 principally due to weather that was approximately 2% colder than 1992 and the continued conversion of nonheating customers to heating customers. Interruptible Sales and Transportation Volumes The chart below depicts volumes of gas both sold to and transported for interruptible customers, off-system sales and transportation volumes under special contract by Southern, as well as gross margins earned and retained due to the margin sharing mechanisms on these sales:
(in thousands) 1994 1993 1992 - - ---------------------------------------------------------------------------- Gross margin earned $7,421 $5,560 $4,853 ============================================================================ Gross margin retained $5,346 $3,272 $4,311 ============================================================================ Volumes sold and transported (MMcf) 10,509 6,296 7,992 - - ----------------------------------------------------------------------------
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 1994 as compared with 1993. The increase in margins retained for 1994 is principally attributable to the change in the margin sharing year and 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. Although volumes delivered in 1993 were lower than in 1992, total margins earned in 1993 were greater than 1992. Margins retained by Southern in 1993, however, were lower than 1992 because the DPUC allowed Southern to suspend the margin sharing mechanism during 1992. Purchased Gas Expense Purchased gas expense increased during 1994 when compared to 1993 primarily due to increased gas costs through operation of the PGA, a higher base cost of gas and higher firm sales volumes. In addition, gas costs were higher in 1994 due to the suspension of the flow-through of approximately $2,468,000 in gas cost credits and $4,048,000 in interstate pipeline refunds to Southern's customers relating to the recovery of previously deferred transition costs. In accordance with the Federal Energy Regulatory Commission's ("FERC") Order No. 636, Southern's cost of gas is expected to increase as a result of the pass-through of transition costs arising from its interstate pipelines. (See section entitled "FERC Order No. 636 Transition Costs" for further detail.) Purchased gas expense increased during 1993 as compared with 1992 primarily due to higher sales volumes and increased gas costs collected through the PGA. Purchased gas expense increased during 1992 due primarily to higher firm sales volumes during 1992 and higher incremental costs associated with the procurement of additional long-term gas supplies. Additionally, Southern recorded an increase in its purchased gas expense in 1992 to recover approximately $6,834,000 of previously deferred take-or-pay, contract buy-out and contract buy-down costs in accordance with a DPUC decision. Connecticut Energy Corporation EIGHTEEN Operations Expense Operations expense was approximately 21% higher in 1994 as compared with 1993. Approximately 49% of this increase is a result of a higher expense for uncollectible accounts. 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 decision positively impacted Southern's provision for uncollectible accounts for 1993. Southern has been allowed to recover these deferred 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 1994 is approximately $1,726,000 relating to these amortizations. The remainder of this increase is due to higher employee benefit costs relating to the adoption and the current recovery of postretirement health care expenses accrued under Statement of Financial Accounting Standards No. 106 ("SFAS 106"), as well as increases in other operations expenses such as wages, rent, insurance and other general and administrative expenses. Operations expense was approximately 4% lower in 1993 when compared with 1992. This decrease was principally attributable to the positive impact on Southern's provision for uncollectible accounts due to a December 1992 Decision by the DPUC to allow Southern to defer, for future recovery, certain shortfalls in energy assistance funding related to the 1991/92 and 1992/93 heating seasons. The total shortfall in energy assistance subject to this treatment that was deferred during 1993 was $3,100,000. This decrease more than offset increases in other operations expenses such as wages, rent, conservation and general and administrative expenses. Maintenance Expense Maintenance expense for 1994 increased approximately 9% when compared to 1993. This increase is primarily attributable to a higher level of maintenance activity due to the colder winter weather. Depreciation and Depletion Expense Depreciation expense for Southern has increased in each of the last three years because of additions to plant in service. Federal and State Income Taxes The total provision for federal and state income taxes increased in 1994 by approximately 41% when compared with 1993. This increase was primarily due to higher pre-tax income in 1994, coupled with higher effective tax rates due to the flow-through tax effect of the amortization of previously deferred costs. The total provision for federal and state income taxes increased in 1993 by approximately 18% when compared with 1992. This increase was primarily due to higher pre-tax income. The Company's effective tax rate for 1993 was similar to 1992 due to certain flow-through tax benefits. Municipal, Gross Earnings and Other Taxes Municipal, gross earnings and other taxes increased over the last three years principally due to higher provisions for gross earnings taxes because of higher revenues. Interest Expense and Preferred Stock Dividends Total interest expense and preferred stock dividends remained relatively unchanged for 1994 when compared with 1993. Higher long-term interest costs associated with higher average borrowings from the issuance of $15,000,000 of Series X First Mortgage Bonds in December 1992 and $12,000,000 of Series Y First Mortgage Bonds in September 1993 were offset by the recovery of higher interest income primarily related to deferred transition costs arising from implementation of FERC Order No. 636 by interstate pipelines and lower interest costs related to interstate pipeline refunds. Additionally, short-term interest costs were lower in 1994 due to lower average short-term borrowings. Total interest expense and preferred stock dividends remained relatively unchanged for 1993 when compared with 1992 levels. Offsetting the increase in long-term interest costs during 1993, which was primarily due to higher average long-term debt balances, were higher interest costs during 1992 because of the reversal of previously deferred interest costs relating to take-or-pay, contract buy-out and contract buy-down costs. Although Southern experienced an increase in average short-term borrowings in 1993 when compared with 1992, short-term interest costs decreased primarily due to significantly lower applicable short-term interest rates in 1993. Connecticut Energy Corporation NINETEEN Southern strives to borrow short-term funds at the most competitive rates by utilizing commercial paper and bank borrowings at money market rates. Short-term interest rates averaged 3.74% in 1994 compared with 3.47% in 1993 and 4.48% in 1992. Inflation Inflation as measured by the Consumer Price Index for all urban consumers was approximately 3.0% in 1994, 1993 and 1992. Operations and maintenance expenses increase as a result of inflation, as does depreciation expense due to higher replacement costs of plant and equipment. As a regulated utility, Southern's increases in expenses generally are recoverable from customers through rates approved by the DPUC. In management's opinion, inflation has not had a material impact on net income and the results of operations over the last three years. Rate Matters On December 1, 1993, the DPUC issued a final Decision on Southern's latest rate request. This Decision incorporated the Partial Settlement of Certain Issues ("Partial Settlement") which was previously approved by the DPUC and resolved most of the significant financial aspects of Southern's original rate request, including an increase in base rates of $13,400,000 based upon Southern's sales forecast as originally filed, an allowed return on equity of 11.45% and the implementation of the WNA. In addition, Southern was permitted to recover previously deferred costs over amortization periods from three to five years associated with shortfalls in energy assistance, the certified hardship arrearage forgiveness program, environmental remediation expenditures, economic development programs and undepreciated gas holder costs. The Partial Settlement also provides for current recovery of postretirement health care expenses accrued under SFAS 106 and the establishment of a target margin, net of gross earnings tax, of $4,000,000 for on-system sales and transportation to Southern's interruptible customers with excess margins shared between firm customers and shareholders on an 80%/20% split. (See section entitled "FERC Order No. 636 Transition Costs" for further detail.) As part of this Partial Settlement, Southern agreed that, except for certain adverse events, it would not file a general application to increase rates which would become effective on or before November 30, 1995. Recent Accounting Developments In November 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"), which will be effective for the Company's fiscal year ending September 30, 1995. This statement establishes accrual accounting for benefits such as unemployment compensation, severance benefits and disability benefits to former or inactive employees after employment terminates but before retirement. The adoption of SFAS 112 is required by the first quarter of fiscal 1995, and the Company intends to adopt this statement prospectively. The impact of this new standard is not expected to have a material effect on the Company's financial condition or results of operations. 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 $30,000,000 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. At September 30, 1994, Southern had unused lines of credit of $45,200,000. 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 in 1994 were positively affected by higher net income, lower gas inventories and lower deferred gas cost balances as well as the recovery of the majority of the transition cost balances paid to date. Partially offsetting these increases were higher accounts receivable balances. Connecticut Energy Corporation TWENTY Investing Activities Capital expenditures approximated $26,600,000 in 1994, $26,100,000 in 1993 and $22,600,000 in 1992. Southern relies upon cash flow provided by 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. Southern's capital expenditures in 1995 will approximate $25,550,000 of which 37% is budgeted for new business. The majority of the remaining planned capital expenditures are to improve, protect and maintain its existing gas distribution system. Over the 1995-99 period, Southern estimates that total expenditures for new plant and equipment will range between $110,000,000 and $130,000,000. Financing Activities As of June 1994, the quarterly dividend paid per share on the Company's common stock was increased to $0.325 per share or an annual indicated dividend rate of $1.30 per share. In March 1994, the Company completed a public sale of 1,000,000 shares of common stock at a price of $20 1/8 per share and received net proceeds of $19,375,000. The proceeds were used for the repayment of short-term debt and for other general corporate purposes. In December 1993, Southern redeemed all outstanding shares of its 4 3/4% $100 par value cumulative preferred stock. The redemption price was 100% of par value plus accrued dividends through December 30, 1993. Southern issued and sold $12,000,000 in Series Y First Mortgage Bonds at a rate of 7.08% and $15,000,000 in Series X First Mortgage Bonds at a rate of 7.67% in September 1993 and in December 1992, respectively. Each issuance was privately placed with single, separate lenders. The Series Y and Series X Bonds each have a life of 20 years and are required to be redeemed through payments of $12,000,000 and $15,000,000 on October 1, 2013 and December 15, 2012, respectively. Proceeds from the sales of Series Y and Series X Bonds were used principally to reduce short-term borrowings incurred primarily in connection with Southern's capital expenditure program. Cash flows from the Company's Dividend Reinvestment and Stock Purchase Plan ("DRP") increased in 1993 when compared to 1992. This increase was primarily due to the issuance of additional shares resulting from the initiation of a customer stock purchase plan as part of the DRP. As of June 1992, the quarterly dividend paid per share on the Company's outstanding common stock was increased to $0.32 per share or an annual indicated dividend rate of $1.28 per share. In November 1991, Southern issued and sold $60,000,000 in Series W First Mortgage Bonds at a composite interest rate of 9.05% to three lenders in a private placement. These bonds have a weighted average life of 32.5 years and are required to be redeemed through payments of $45,000,000 and $15,000,000 in the years 2021 and 2031, respectively. Proceeds from the sale of Series W Bonds were used to reduce short-term borrowings incurred to repurchase $47,750,000 of Series P, Q, R, S and a portion of Series T First Mortgage Bonds, as well as $5,000,000 in 11% Subordinated Notes. These long-term debt securities had sinking fund requirements and principal payments of $41,568,000 over the 1992-96 time frame, with total sinking fund requirements and principal payments for all of Southern's outstanding long-term debt issues for the same time frame totalling $48,086,000. In addition, the DPUC allowed the deferral of the unamortized issuance costs of the repurchased debt issues as well as the premiums relating to the repurchase of these issues. The total of these unamortized issuance costs and repurchase premiums was $5,636,000 and will be amortized over the average life of the Series W First Mortgage Bonds. Financing plans for 1995 include a proposed private placement of approximately $10,000,000 of long-term debt tentatively scheduled for the latter part of fiscal 1995 with the proceeds being used for the repayment of short-term debt and for other general corporate purposes. The method, timing and amounts of any future financings by the Company or Southern will depend on a variety of factors, including capitalization ratios, coverage ratios, interest costs, the state of the capital markets and general economic conditions. Connecticut Energy Corporation TWENTY ONE In response to the competitive forces and regulatory changes being faced by the Company, the Company has from time to time considered, and expects to continue to consider, various strategies designed to enhance its competitive position and to increase its ability to adapt to and anticipate changes in its utility business. These strategies may include business combinations with other companies as well as acquisitions of related or unrelated businesses. The Company may from time to time be engaged in preliminary discussions regarding one or more of these potential strategies. No assurances can be given as to whether any potential transaction of the type described above may actually occur, or as to the ultimate effect thereof on the financial condition or competitive position of the Company. Take-or-Pay, Contract Buy-Out and Contract Buy-Down Costs Prior to 1992, Southern deferred amounts paid to its interstate pipeline suppliers related to take-or-pay, contract buy-out and contract buy-down costs and accrued and deferred interest on its unrecovered payments, pending the DPUC's decision on this matter. In the first quarter of 1992, the DPUC issued a Decision regarding the method of recovery of these deferred amounts, but did not provide recovery of incurred and deferred interest. As of September 30, 1994, Southern has recovered approximately $5,374,000 from its firm customers through the suspension of the flow-through of purchased gas credits, $1,343,000 from the suspension of the flow-through of pipeline refunds to its customers and $602,000 from interruptible customers through the application of the uniform volumetric surcharge. Approximately $726,000 will continue to be recovered from interruptible customers through the uniform volumetric surcharge. FERC Order No. 636 Transition Costs As a result of Order No. 636 issued by the FERC, 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. Southern has incurred approximately $8,815,000 in transition costs as of September 30, 1994. Of this total, $4,468,000 represent unrecovered gas costs and $4,347,000 represent 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 addressed, among other things, the mechanism for the recovery of deferred transition costs. Under this mechanism, the DPUC has allowed the recovery of the unrecovered gas cost balances from the suspension of flow-through of purchased gas cost credits attributable to the twelve month period ended August 31, 1993 and all future years ending August 31 as well as refunds received after October 1, 1993 from interstate pipelines. Additionally, any subsequent refunds from interstate pipelines as well as any credits received by Southern for release of its capacity on interstate pipelines shall be used to offset Southern's payments of unrecovered gas costs until fully recovered. As of September 30, 1994, Southern has recovered approximately $4,468,000 in unrecovered gas costs through a combination of these recovery mechanisms. Gas supply realignment costs as well as stranded investment costs are to be recovered by Southern as follows: (1) retention of 50% of margins derived through off-system sales; (2) retention of 50% of all interruptible margins earned above Southern's target level; (3) retention of pipeline refunds or deferred gas cost credits for the 1992/93 period and all subsequent annual deferred gas cost periods that are in excess of the estimated unrecovered gas cost portion of transition costs; (4) retention of any capacity release credits received from pipelines in excess of those needed for unrecovered purchased gas costs and (5) if needed, a per unit surcharge applied to firm customers' bills, which will be evaluated in subsequent annual deferred gas cost proceedings. There is no hierarchy in the use of the first four recovery measures, and any and all could be utilized as available. All subsequent annual deferred gas cost credits will be applied on an annual basis. All other transition cost credits will be immediately applied on a monthly basis to offset transition costs which have been or will be subsequently billed. As of September 30, 1994, Southern has recovered approximately $3,020,000 in gas supply realignment costs as well as stranded investment costs through a combination of these recovery mechanisms. Connecticut Energy Corporation TWENTY TWO Environmental Matters 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. The coal tar discovered at Southern's three sites 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 and the United States Environmental Protection Agency of the presence of coal tar residue on the three sites. As a result of this notification, further discussions would address the extent and type of remedial action, if any, as well as the time period over which such action would occur. Because this process is at an early stage, 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. Such future analytical and cleanup costs could possibly be significant. Based upon the provisions of the Partial Settlement, management believes that Southern will properly be able to recover the costs of investigation and remediation, if any, through its customer rates. The method, timing and extent of any recovery remain uncertain, but management currently does not expect that the incurrence of such costs will have a material adverse effect on the Company's financial condition or results of operations. Personal Property Tax Audits In September 1993, Southern received notification of the results of audits by the City of New Haven pursuant to Connecticut's omitted property statute. The City of New Haven claimed that Southern owed approximately $2,600,000 in additional personal property taxes related to years 1990 through 1992; however, Southern was not aware of any audit finding of significant omitted personal property. Instead, the City of New Haven's claim was based on the assessor's retroactive reassessment of Southern's personal property. Southern initiated legal actions against the City of New Haven which alleged that, among other things, the City of New Haven had no statutory authority to issue tax bills based upon retroactive reassessments of previously declared property on which taxes were paid and that the City of New Haven's contingent fee agreement with the firm which audited Southern's records was illegal. Southern also instituted legal actions challenging the City of New Haven's assessment of Southern's personal property for the 1993 Grand List. On June 29, 1994, Southern and the City of New Haven entered into a Stipulation and Agreement ("Agreement") in settlement of these court actions. The Agreement provided for a $200,000 payment related to the tax years 1990 through 1992 without conceding liability on any of the issues involved; and a resolution of the disputed 1993 personal property assessment, which resulted in a reduction of the original 1993 assessment of approximately $1,500,000 to a new assessment of approximately $800,000. Consolidation of Operating Facilities On March 30, 1993, Southern entered into an operating lease to consolidate its three operating centers located at three cities within Southern's service territory at one central geographic location in Orange, Connecticut. The DPUC approved certain accounting treatment relative to the consolidation of the operating centers which included the transfer of the net book value of Southern's former operating centers from utility property to nonutility property after the completion of the relocation. The consolidation of Southern's operating facilities was completed in the second quarter of fiscal 1994. Connecticut Energy Corporation TWENTY THREE CONSOLIDATED STATEMENTS OF INCOME (dollars in thousands, except per share)
Years ended September 30, 1994 1993 1992 - - ----------------------------------------------------------------------------------------------------------------- Operating Revenues $240,873 $212,762 $203,011 Purchased gas 126,870 113,045 104,163 - - ----------------------------------------------------------------------------------------------------------------- Gross margin 114,003 99,717 98,848 - - ----------------------------------------------------------------------------------------------------------------- Operating Expenses: Operations 50,209 41,331 43,230 Maintenance 4,035 3,692 3,651 Depreciation and depletion 13,031 12,051 11,327 Federal and state income taxes 5,402 3,821 3,232 Municipal, gross earnings and other taxes 16,314 15,697 15,080 - - ----------------------------------------------------------------------------------------------------------------- Total operating expenses 88,991 76,592 76,520 - - ----------------------------------------------------------------------------------------------------------------- Operating income 25,012 23,125 22,328 - - ----------------------------------------------------------------------------------------------------------------- Other deductions, net 586 510 531 - - ----------------------------------------------------------------------------------------------------------------- Interest Expense and Preferred Stock Dividends: Interest on long-term debt and amortization of debt issue costs 10,920 9,945 9,064 Other interest, net and preferred stock dividends 663 1,617 2,506 - - ----------------------------------------------------------------------------------------------------------------- Total interest expense and preferred stock dividends 11,583 11,562 11,570 - - ----------------------------------------------------------------------------------------------------------------- Net Income $ 12,843 $ 11,053 $ 10,227 ================================================================================================================= Net income per share $ 1.58 $ 1.50 $ 1.43 ================================================================================================================= Dividends paid per share $ 1.29 $ 1.28 $ 1.265 ================================================================================================================= Weighted average common shares outstanding 8,134,021 7,377,419 7,135,779 - - -----------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements. Connecticut Energy Corporation TWENTY FOUR CONSOLIDATED BALANCE SHEETS (dollars in thousands, except per share)
As of September 30, 1994 1993 - - ------------------------------------------------------------------------------------------------------------------ Assets Utility Plant: Plant in service, at cost $329,917 $311,091 Construction work in progress 2,036 2,860 - - ------------------------------------------------------------------------------------------------------------------ Gross utility plant 331,953 313,951 Less: accumulated depreciation 97,458 92,151 - - ------------------------------------------------------------------------------------------------------------------ Net utility plant 234,495 221,800 Nonutility property, net 2,492 9 - - ------------------------------------------------------------------------------------------------------------------ Net utility plant and other property 236,987 221,809 - - ------------------------------------------------------------------------------------------------------------------ Current Assets: Cash and cash equivalents 1,637 2,214 Accounts and notes receivable (less allowance for doubtful accounts of $3,747 in 1994 and $4,251 in 1993) 23,698 18,403 Accrued utility revenue, net 2,630 2,307 Unrecovered purchased gas costs 4,523 5,975 Inventories 14,678 16,312 Prepaid expenses 1,847 1,565 - - ------------------------------------------------------------------------------------------------------------------ Total current assets 49,013 46,776 - - ------------------------------------------------------------------------------------------------------------------ Deferred Charges: Unamortized debt expenses 6,317 6,466 Unrecovered deferred taxes 35,398 -- Other 25,205 24,744 - - ------------------------------------------------------------------------------------------------------------------ Total deferred charges 66,920 31,210 - - ------------------------------------------------------------------------------------------------------------------ Total assets $352,920 $299,795 ================================================================================================================== Capitalization and Liabilities Common Shareholders' Equity: Common stock -- par value $1 per share: authorized -- 20,000,000 shares; issued and outstanding -- 8,700,266 in 1994; 7,488,467 in 1993 $ 8,700 $ 7,488 Capital in excess of par value 85,265 62,808 Retained earnings 31,754 29,665 Adjustment for minimum pension liability (net of income taxes) -- (108) - - ------------------------------------------------------------------------------------------------------------------ Total common shareholders' equity 125,719 99,853 - - ------------------------------------------------------------------------------------------------------------------ Redeemable preferred stock -- 638 Long-term debt 119,917 120,511 - - ------------------------------------------------------------------------------------------------------------------ Total capitalization 245,636 221,002 - - ------------------------------------------------------------------------------------------------------------------ Current Liabilities: Short-term borrowings 18,800 23,500 Current maturities of long-term debt 594 595 Accounts payable 10,886 11,960 Refunds due customers -- 1,964 Federal, state and deferred income taxes 3,565 3,634 Property and other accrued taxes 5,289 5,173 Interest payable 3,315 2,916 Customers' deposits 1,901 2,058 Other accrued liabilities 4,137 1,818 - - ------------------------------------------------------------------------------------------------------------------ Total current liabilities 48,487 53,618 - - ------------------------------------------------------------------------------------------------------------------ Deferred Credits: Deferred income taxes 51,121 13,668 Deferred investment tax cred 3,853 4,146 Other 3,823 7,361 - - ------------------------------------------------------------------------------------------------------------------ Total deferred credits 58,797 25,175 - - ------------------------------------------------------------------------------------------------------------------ Commitments and contingencies -- -- - - ------------------------------------------------------------------------------------------------------------------ Total capitalization and liabilities $352,920 $299,795 ==================================================================================================================
See notes to consolidated financial statements. Connecticut Energy Corporation TWENTY FIVE CONSOLIDATED STATEMENTS OF CHANGES IN COMMON SHAREHOLDERS' EQUITY (dollars in thousands, except per share)
Adjustment Common Stock Capital for Total ---------------------- in Minimum Common Number Par Excess of Retained Pension Shareholders' of Shares Value Par Value Earnings Liability Equity - - ------------------------------------------------------------------------------------------------------------------------------ Balance at September 30, 1991 7,096,634 $7,097 $54,647 $ 26,878 -- $ 88,622 Issuance through dividend reinvestment plan 138,287 138 2,648 -- -- 2,786 Net income -- -- -- 10,227 -- 10,227 Dividends paid on common stock ($1.265 per share) -- -- -- (9,030) -- (9,030) - - ------------------------------------------------------------------------------------------------------------------------------ Balance at September 30, 1992 7,234,921 $7,235 $57,295 $ 28,075 -- $ 92,605 Issuance through dividend reinvestment plan 253,546 253 5,513 -- -- 5,766 Net income -- -- -- 11,053 -- 11,053 Dividends paid on common stock ($1.28 per share) -- -- -- (9,463) -- (9,463) Adjustment for minimum pension liability (net of income taxes) -- -- -- -- $(108) (108) - - ------------------------------------------------------------------------------------------------------------------------------ Balance at September 30, 1993 7,488,467 $7,488 $62,808 $ 29,665 $(108) $ 99,853 Public offering 1,000,000 1,000 18,375 -- -- 19,375 Issuance through dividend reinvestment plan 211,799 212 4,082 -- -- 4,294 Net income -- -- -- 12,843 -- 12,843 Dividends paid on common stock ($1.29 per share) -- -- -- (10,754) -- (10,754) Adjustment for minimum pension liability (net of income taxes) -- -- -- -- 108 108 - - ------------------------------------------------------------------------------------------------------------------------------ Balance at September 30, 1994 8,700,266 $8,700 $85,265 $ 31,754 -- $125,719 ==============================================================================================================================
See notes to consolidated financial statements. Connecticut Energy Corporation TWENTY SIX CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
Years ended September 30, 1994 1993 1992 - - -------------------------------------------------------------------------------------------------------- Cash Flows from Operating Activities: Net income $ 12,843 $ 11,053 $ 10,227 Adjustments to Reconcile Net Income to Net Cash: Gain on sale of headquarters property -- (66) -- Loss on sale of subsidiaries -- 68 -- Depreciation, depletion and amortization 13,844 12,825 11,930 Provision for losses on accounts receivable 6,962 4,350 7,000 (Increase) Decrease in Assets: Accounts and notes receivable (12,248) (3,923) (14,269) Accrued utility revenue, net (323) (274) (72) Unrecovered purchased gas costs 1,452 (5,975) -- Inventories 1,634 (3,720) (3,158) Prepaid expenses (282) (495) 141 Unamortized debt expense (87) (244) (693) Deferred charges and other assets (4,852) (8,072) 6,662 Increase (Decrease) in Liabilities: Accounts payable (1,661) 3,636 1,745 Refunds due customers (1,964) 1,432 (767) Accrued taxes 47 1,656 (1,060) Other current liabilities 2,561 (921) (1,679) Deferred income taxes and investment tax credits 1,706 129 790 Deferred credits and other liabilities 177 1,794 (1,739) - - -------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 19,809 13,253 15,058 - - -------------------------------------------------------------------------------------------------------- Cash Flows from Investing Activities: Capital expenditures (26,669) (26,136) (22,782) Proceeds from sale of headquarters property -- 2,005 -- Proceeds from sale of subsidiaries 28 180 -- Contributions in aid of construction 51 66 148 Payments for retirement of utility plant (779) (276) (163) - - -------------------------------------------------------------------------------------------------------- Net cash used in investing activities (27,369) (24,161) (22,797) - - -------------------------------------------------------------------------------------------------------- Cash Flows from Financing Activities: Dividends paid on common stock (10,754) (9,463) (9,030) Issuance of common stock 23,669 5,766 2,786 Issuance of long-term debt -- 27,000 60,000 Repayments of long-term debt (594) (594) (4,140) Repurchase of long-term debt -- -- (52,678) Redemption of preferred stock (638) (50) (50) Payment of premium on repurchase of long-term debt -- -- (5,056) (Decrease) increase in short-term borrowings (4,700) (14,800) 18,400 - - -------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 6,983 7,859 10,232 - - -------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (577) (3,049) 2,493 Cash and cash equivalents at beginning of year 2,214 5,263 2,770 - - -------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 1,637 $ 2,214 $ 5,263 ======================================================================================================== Supplemental Disclosures of Cash Flow Information Cash Paid During the Year for: Interest $ 11,332 $ 11,101 $ 9,692 Income taxes $ 4,252 $ 2,747 $ 4,842
See notes to consolidated financial statements. Connecticut Energy Corporation TWENTY SEVEN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share) NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements include the accounts of all subsidiary companies. Connecticut Energy Corporation's ("Company") wholly owned subsidiary, The Southern Connecticut Gas Company ("Southern"), is subject to regulations by the Connecticut Department of Public Utility Control ("DPUC") with respect to rates charged for service and the maintenance of accounting records, among other things. Southern's accounting policies conform to generally accepted accounting principles as applied to regulated public utilities and are in accordance with the accounting requirements and ratemaking practices of the DPUC. All significant intercompany transactions and accounts have been eliminated. Line of Business Operating revenues of the Company are derived primarily from Southern's operations as a retail natural gas distributor. Through nonregulated subsidiaries, the Company was engaged in a limited amount of gas production and transportation activities. In February 1993, the assets and liabilities of its nonregulated subsidiaries were sold. Accounting Changes The Company adopted Statement of Financial Accounting Standards No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106") and Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109") effective October 1, 1993. See Note 2, "Provision for Income Taxes", and Note 7, "Employee Benefits", for further detail. Utility Plant Utility plant is stated at original cost. The costs of additions and of major replacements of retired units are capitalized. Costs include labor, direct material and certain indirect charges such as engineering and supervision. Replacement of minor items of property and the cost of maintenance and repairs are included in maintenance expense. For normal retirements, the original cost of property, together with removal cost, less salvage value, is charged to accumulated depreciation when the property is retired and removed from service. Depreciation For financial accounting purposes, depreciation of utility plant is computed on the composite straightline rates prescribed by the DPUC. The annual composite rate allowed for book depreciation for Southern is 4.15%. Depreciation of transportation and power-operated equipment is computed separately and based on their estimated useful lives. For federal income tax purposes, the Company computes depreciation using accelerated methods. Federal Income Taxes In accordance with the requirements of the DPUC and the Economic Recovery Tax Act of 1981 ("ERTA"), income tax reductions to Southern resulting from such items as liberalized depreciation on 1981 to 1994 plant additions and investment tax credits on 1981 to 1986 plant additions are deferred and amortized to income over the useful lives of the remaining assets. Prior to 1981, Southern had treated the differences between tax and book depreciation on plant and equipment as adjustments to tax provisions ("flow-through method") and continues to utilize the flow-through method on pre-1981 depreciation. With specific permission from the DPUC, Southern also provides deferred federal income taxes for certain items, such as unrecovered purchased gas costs, that are reported in different time periods for tax purposes and financial reporting purposes. In addition, the oil and gas subsidiaries had provided deferred or prepaid taxes on all items directly related to exploration, drilling and transportation. In February 1992, the Financial Accounting Standards Board ("FASB") issued SFAS 109. SFAS 109 establishes financial accounting and reporting standards for deferred income taxes using an asset and liability approach. SFAS 109 requires, among other things, the recognition of the effect on deferred taxes of enacted tax rate and law changes in the year in which they occur. The Company has adopted SFAS 109, effective October 1, 1993, and has adjusted deferred tax balances to reflect the differences between the tax and financial statement basis of all assets and liabilities, regardless of whether deferred taxes had been previously provided. Deferred tax liabilities have been reduced to the extent they had been previously provided at federal statutory rates in excess of the rates in effect on the effective date of adoption. In accordance with Connecticut Energy Corporation TWENTY EIGHT NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share) Statement of Financial Accounting Standards No. 71, "Accounting for the Effects of Certain Types of Regulation" ("SFAS 71"), the Company recorded an additional deferred tax liability and a corresponding regulatory asset of approximately $35,398 due to the adoption of SFAS 109. The effect of the adoption of SFAS 109 on net income is not material since this adjustment will be recognized in income in future periods as the temporary differences reverse. Utility Revenues The primary source of the Company's revenue is derived from Southern's retail distribution of natural gas. Southern's service area spans 22 Connecticut towns from Westport to Old Saybrook including the urban communities of Bridgeport and New Haven. Southern bills its customers on a cycle basis throughout each month and accrues revenues related to volumes of gas consumed by the customer but not billed at month end. The accrual of unbilled revenues is recorded net of related gas costs and accrued expenses. Purchased Gas Costs Southern's firm rates include a Purchased Gas Adjustment clause ("PGA"), under which purchased gas costs above or below base rate levels are charged or credited to customers. As prescribed by the DPUC, most differences between Southern's actual purchased gas costs and the current cost recovery are deferred for future recovery or refund through the PGA. Weather Normalization Adjustment Southern's firm rates include a Weather Normalization Adjustment ("WNA") under which the non-gas portion of these rates is charged or credited monthly to reflect deviations from normal temperatures. The implementation of the WNA occurred in January 1994 and operates for ten months of the year (September through June). Deferred Charges Included in other deferred charges are amounts related to the deferral of certain hardship heating customer accounts receivable arrearages totalling $10,211 and $6,894 in 1994 and 1993, respectively; the deferral of certain shortfalls in energy assistance funding related to the 1991/92 and 1992/93 heating seasons amounting to $2,742 and $3,100 in 1994 and 1993, respectively; prepaid pension contributions of $6,355 and $5,532 in 1994 and 1993, respectively, and an intangible pension asset of $101 and $3,652 in 1994 and 1993, respectively. Deferred Credits Included in other deferred credits are amounts related to a minimum pension liability totaling $101 and $3,816 for 1994 and 1993, respectively, as more fully described in Note 7, "Employee Benefits." Statement of Cash Flows For purposes of reporting cash flows, short-term investments having maturities of three months or less are considered to be cash equivalents. Inventories Inventories are stated at the lower of cost or market, cost generally being determined on the basis of the average cost method. Inventories consist primarily of fuel stock and smaller amounts of materials, supplies and appliances. Net Income Per Share Net income per share is computed based upon the weighted average number of common shares outstanding during each year. NOTE 2 -- PROVISION FOR INCOME TAXES Effective October 1, 1993, the Company adopted SFAS 109. In accordance with SFAS 71, the Company has a regulatory asset of $35,398 related to the cumulative amount of income taxes on temporary differences previously flowed through to ratepayers due to the adoption of SFAS 109. In addition, the Company has a deferred tax liability of $35,398 related to future tax benefits to be flowed back to ratepayers associated with unamortized investment tax credits and decreases in both federal and state statutory tax rates. Both the regulatory asset and liability are recognized over the regulatory lives of the related taxable bases concurrent with the realization in rates. Connecticut Energy Corporation TWENTY NINE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share) The provision for income taxes includes:
Years ended September 30, 1994 1993 1992 - - ---------------------------------------------------------------------------------------------- Taxes currently payable -- federal $2,958 $ 968 $3,034 Taxes currently payable -- state 1,464 347 945 - - ---------------------------------------------------------------------------------------------- $4,422 $1,315 $3,979 - - ---------------------------------------------------------------------------------------------- Deferred (prepaid) taxes -- federal $ 980 $2,506 $ (747) Deferred (prepaid) taxes -- state -- -- -- - - ---------------------------------------------------------------------------------------------- $ 980 $2,506 $ (747) - - ---------------------------------------------------------------------------------------------- Total income tax provision $5,402 $3,821 $3,232 ==============================================================================================
Sources and tax effects of items which gave rise to deferred taxes are:
1994 1993 1992 - - ---------------------------------------------------------------------------------------------- Amortization of deferred investment tax credits $ (292) $ (292) $ (292) Unrecovered purchased gas costs (508) 2,378 (1,322) Depreciation and depletion 1,779 1,664 1,654 Minimum tax credits 452 (1,111) (740) Other (451) (133) (47) - - ---------------------------------------------------------------------------------------------- $ 980 $2,506 $ (747) ==============================================================================================
The following table reconciles the income tax provision calculated using the federal statutory tax rate to the book provision for federal and state income taxes.
1994 1993 1992 - - ---------------------------------------------------------------------------------------------- U. S. statutory federal tax rate 35% 34.75% 34% Depreciation differences 4% 5% 7% Allowance for doubtful accounts, including amounts forgiven and deferred (7%) (16%) (5%) Investment tax credits (2%) (2%) (2%) Cost to retire assets, net of salvage (2%) (1%) (2%) State taxes, net of federal tax benefit 5% 2% 6% Pension contribution (2%) -- (3%) Premium on bond retirement -- -- (15%) Reduction due to graduated tax rates (.6%) (.75%) -- Other, net (.4%) 4% 4% - - ---------------------------------------------------------------------------------------------- Effective tax rate 30% 26% 24% ==============================================================================================
Deferred income tax liabilities (assets) are composed of the following:
At September 30, 1994 - - -------------------------------------------------------------- Tax effect of temporary differences for: Depreciation $18,508 Items previously flowed through 35,398 Alternative minimum tax (1,463) Investment tax credits 3,853 Contribution in aid of construction (654) Pension contribution (547) Other (121) - - -------------------------------------------------------------- Net deferred income tax liability -- long-term $54,974 ==============================================================
At September 30, 1994 and 1993, the balance sheet caption, "Federal, state and deferred income taxes" included approximately $1,566 and $2,292, respectively, of current deferred federal and state income taxes. Connecticut Energy Corporation THIRTY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share) At September 30, 1994 and 1993, the balance sheet caption, "Federal, state and deferred income taxes" included approximately $1,463 and $1,915, respectively, of minimum tax credits available to reduce federal income taxes to be paid in future periods. NOTE 3 -- LONG-TERM DEBT Long-term debt outstanding at September 30, 1994 and 1993 consisted of:
1994 1993 - - ------------------------------------------------------------------------------ First Mortgage Bonds: Series L, 8%, due March 1, 1998 $ 4,620 $ 4,760 Series T, 10.02%, due September 1, 2003 4,091 4,546 Series U, 9.70%, due July 31, 2019 9,800 9,800 Series V, 9.85%, due July 31, 2020 15,000 15,000 Series W, 8.93% - 9.13%, due November 17, 2031 60,000 60,000 Series X, 7.67%, due December 15, 2012 15,000 15,000 Series Y, 7.08%, due October 1, 2013 12,000 12,000 - - ------------------------------------------------------------------------------ 120,511 121,106 Less -- amounts due within one year 594 595 - - ------------------------------------------------------------------------------ $119,917 $120,511 ==============================================================================
Under the provisions of Southern's mortgage bond indenture dated March 1, 1948, as supplemented from time to time, sinking fund payments are required at various dates for Series L and Series T First Mortgage Bonds. Series W First Mortgage Bonds are due in bullet payments in the years 2021 and 2031, respectively. Additionally, Series U, V, X and Y are due in single payments in the years 2019, 2020, 2012 and 2013, respectively. Substantially all of the utility plant of Southern is subject to the lien of its mortgage bond indentures. See Note 6 for dividend restrictions. The aggregate annual sinking fund contributions and principal maturities for the five fiscal years subsequent to September 30, 1994 are as follows: 1995 -- $594; 1996 -- $595; 1997 -- $595; 1998 -- $4,654; 1999 -- $455; total -- $6,893. Expenses incurred in connection with long-term borrowings are normally amortized on a straightline method over the respective lives of the issues giving rise thereto. NOTE 4 -- SHORT-TERM BORROWINGS The Company follows the practice of borrowing on a short-term basis from banks and through the sale of commercial paper. The following information relates to these borrowings for the years ended September 30, 1994, 1993 and 1992.
1994 1993 1992 - - --------------------------------------------------------------------------------------- Bank Loans Outstanding at the end of the year $12,800 $10,500 $22,300 Weighted average interest rate at year end 5.41% 3.36% 3.59% Average amount outstanding during year $14,951 $15,879 $17,328 Weighted average interest rate during year* 3.74% 3.47% 4.37% Maximum amount outstanding at any month end $37,400 $29,200 $26,600 Commercial Paper Outstanding at the end of the year $ 6,000 $13,000 $16,000 Weighted average interest rate at year end 4.95% 3.29% 3.35% Average amount outstanding during year $ 3,950 $11,517 $ 9,496 Weighted average interest rate during year* 3.74% 3.46% 4.67% Maximum amount outstanding at any month end $13,000 $16,000 $16,000 - - --------------------------------------------------------------------------------------- *Determined by dividing annual interest expense by average amount outstanding during the year.
Connecticut Energy Corporation THIRTY ONE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share) The Company's committed short-term bank credit lines amounted to $30,000, a portion of which supports the issuance of commercial paper. Southern has uncommitted lines of credit with two of its banks totalling $14,000 in addition to a revolving credit/term loan agreement with one of its banks. This latter agreement provides an additional credit line of up to $20,000. The revolving credit feature is in effect through December 21, 1996 and is followed by a term loan period through December 21, 2000. At September 30, 1994, Southern had no outstanding borrowings under this agreement. The fee for this facility is 1/8 of 1% per annum. At September 30, 1994, the Company had unused lines of credit of $45,200. In lieu of compensating balances, Southern pays fees for its lines of credit which are approximately 3/10 of 1% of the amount of the line of credit. The aggregate annual commitment fees on these lines were approximately $124 for the year ended September 30, 1994. NOTE 5 -- REDEEMABLE PREFERRED STOCK The following table summarizes the shares of preferred stock authorized, issued and outstanding at September 30, 1994 and 1993:
1994 1993 - - ------------------------------------------------------------------------- The Southern Connecticut Gas Company: Cumulative preferred stock, $100 par value: Authorized 200,000 200,000 4.75% issued and outstanding -- 6,500 - - ------------------------------------------------------------------------- Preferred stock, $1 par value: Authorized 600,000 600,000 Issued and outstanding -- -- - - ------------------------------------------------------------------------- Preference stock, $1 par value: Authorized 1,000,000 1,000,000 Issued and outstanding -- -- - - ------------------------------------------------------------------------- Connecticut Energy Corporation: Preference stock, $1 par value: Authorized 1,000,000 1,000,000 Issued and outstanding -- -- - - -------------------------------------------------------------------------
The 4.75% preferred stock outstanding at December 30, 1993 was redeemed at par value, plus accrued dividends. Southern's $1 par value preferred stock ranks on a parity as to dividends and payments in liquidation with Southern's $100 par value preferred stock, while the preference stock is preferred as to dividends and payments in liquidation over Southern's common stock but is subordinate to the other classes of preferred stock. NOTE 6 -- COMMON SHAREHOLDERS' EQUITY The indentures relating to the long-term debt and the Amended and Restated Certificate of Incorporation of Southern contain restrictions as to the declaration or payment of cash dividends on capital stock and the reacquisition of capital stock. Under the most restrictive of such provisions, $19,209 of Southern's retained earnings at September 30, 1994 was available for such purposes. The Company currently has two plans under which it issues common stock: the Employee Stock Ownership Plan ("ESOP") and the Dividend Reinvestment and Stock Purchase Plan ("DRP"). Additionally, common stock can be issued through a savings plan ("Target Plan"); however, through September 30, 1994, all shares have been acquired by the trustee through open market purchases. At the election of the Company, contributions for the ESOP are made to a trustee who uses the funds to acquire Company stock to be distributed to non-bargaining unit and certain bargaining unit employees who are at least 21 years of age with one year of service. These distributions are made upon termination or retirement. There were no contributions to the ESOP made during the years ended September 30, 1994 and 1993. The DRP permits shareholders to automatically reinvest their cash dividends or invest optional limited amounts of cash payments in newly issued shares or open market purchases of the Company's common stock. At September 30, 1994, there were 1,763,193 shares reserved for issuance under the DRP, ESOP and Target Plans. Connecticut Energy Corporation THIRTY TWO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share) NOTE 7 -- EMPLOYEE BENEFITS Retirement Plans Southern maintains two noncontributory pension plans covering substantially all of its employees. The plan covering salaried and certain clerical employees provides pension benefits based on compensation during the five years before retirement and on years of service. The union-negotiated plan provides benefits of stated amounts for each year of service. It is the Company's policy to fund annually the periodic pension cost of its retirement plans subject to the minimum and maximum contribution limitations of the Internal Revenue Code. A regulatory adjustment has been made to the net periodic pension cost to reflect the amount of pension cost that is realized through the ratemaking process. The Company recorded an additional minimum liability of $101 and $3,816 representing the excess of the accumulated benefit obligation over the fair value of plan assets and accrued pension costs at September 30, 1994 and 1993, respectively. This liability is offset by an intangible asset of $101 and $3,652 at September 30, 1994 and 1993, respectively, which represents unrecognized prior service costs and, in 1993, the balance (net of income taxes) was charged to a separate component of shareholders' equity. Net periodic pension cost for the years ended September 30, 1994, 1993 and 1992 included the following components:
1994 1993 1992 - - ---------------------------------------------------------------------------------------------- Service cost benefits earned during the period $ 2,117 $ 2,031 $ 1,611 Interest cost on projected benefit obligation 4,263 3,923 3,755 Actual return on plan assets (1,986) (6,817) (4,818) Net amortization and deferral (1,829) 2,883 1,394 - - ---------------------------------------------------------------------------------------------- Net periodic pension cost $ 2,565 $ 2,020 $ 1,942 Regulatory adjustment 22 (177) (99) - - ---------------------------------------------------------------------------------------------- Net pension cost $ 2,587 $ 1,843 $ 1,843 - - ---------------------------------------------------------------------------------------------- Portion capitalized to utility plant $ 439 $ 328 $ 332 ==============================================================================================
September 30, 1994 September 30, 1993 Plans Where: Plans Where: - - ---------------------------------------------------------------------------------------------------------------- Assets Accumulated Assets Accumulated Exceed Benefits Exceed Benefits Accumulated Exceed Accumulated Exceed Actuarial present value of benefit obligation: Benefits Assets Benefits Assets - - ---------------------------------------------------------------------------------------------------------------- Vested benefit obligation $(43,249) $ (3) $(31,174) $(16,752) - - ---------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation $(46,808) $(326) $(32,917) $(18,758) - - ---------------------------------------------------------------------------------------------------------------- Actuarial present value of projected benefit obligation $(54,337) $(758) $(41,540) $(18,758) Plan assets at fair value 58,217 -- 38,738 17,913 - - ---------------------------------------------------------------------------------------------------------------- Projected benefits obligation in excess of plan assets 3,880 (758) (2,802) (845) Transition obligation 996 -- 750 415 Prior service costs 3,582 317 579 3,406 Unrecognized (gain) loss (2,983) (18) 3,045 (5) Adjustment required to recognize minimum liability -- (101) -- (3,816) - - ---------------------------------------------------------------------------------------------------------------- Prepaid pension cost (liability), net $ 5,475 $(560) $ 1,572 $ (845) ================================================================================================================
Connecticut Energy Corporation THIRTY THREE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share) Key assumptions used in the determination of the projected benefit obligations and the fair value of plan assets were:
1994 1993 - - ------------------------------------------------------------- Discount rates 8 1/2% 7% Salary increase rates 5 1/2% 5% Expected rate of return on assets 9% 9 1/4% - - -------------------------------------------------------------
The significant majority of the assets of the pension plans is invested in common stock, fixed income securities and balanced mutual funds, with the balance in cash and short-term investments. Effective October 1, 1993, Southern established non-qualified pension programs to provide benefits on compensation in excess of the limitations imposed by the Internal Revenue Code and to provide additional retirement income to designated officers. Southern maintains a savings plan covering substantially all of its employees who meet minimum service requirements pursuant to which the participants may elect to contribute to the plan, through payroll deductions, 2% or more of their annual compensation either on an after-tax or before-tax basis as permitted by Section 401(k) of the Internal Revenue Code. Participants receive a matching contribution of 50% of the first 6% of annual compensation. Participants vest over a five year period and benefits are paid to employees upon retirement, death, disability or termination. Amounts expensed under the plan were $795, $772 and $670 for years ended September 30, 1994, 1993 and 1992, respectively. Postretirement Health Care Benefits In addition to providing pension benefits, Southern provides certain health care benefits for retired employees. Substantially all of the Company's employees may become eligible for those benefits if they reach age 55 while working for the Company and have completed at least 10 years of service. Prior to October 1, 1993, Southern recognized the cost of providing these benefits by expensing $350 annually in excess of paid medical claims in accordance with funding provided by a rate decision in 1990. Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other than Pensions" ("SFAS 106"), which requires accrual accounting for postretirement benefits during the employee's years of service with Southern. Southern has elected to amortize the transition obligation over 20 years. In the DPUC's Decision on Southern's latest rate request, Southern was allowed current recovery of SFAS 106 costs through customer base rates which became effective December 9, 1993. The expense of implementing SFAS 106 prior to full recovery in rates, which amounted to $367, was deferred and is being recovered over a three year period. The postretirement benefit costs for the fiscal year ended September 30, 1994 includes the following components: - - ---------------------------------------------------------- Service cost $ 598 Interest cost 1,282 Actual return on plan assets (113) Net amortization and deferral 880 - - ---------------------------------------------------------- Net periodic postretirement benefit cost $2,647 Regulatory adjustment (275) - - ---------------------------------------------------------- Net postretirement benefit cost $2,372 ==========================================================
In 1990, Southern amended the Pension Plan for Salaried and Certain Other Employees to establish an account within the Pension Plan trust as permitted under Section 401(h) of the Internal Revenue Code to fund a portion of Southern's anticipated future postretirement benefit liability with amounts allowed through the ratemaking process. Through the use of the existing trust and the establishment of a Voluntary Employees' Benefit Association Trust as permitted under Section 501(c)(9) of the Internal Revenue Code, Southern plans to fund its full postretirement benefit expense under SFAS 106. Connecticut Energy Corporation THIRTY FOUR NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share) The following table reconciles the funded status of the plans with the amount recognized in the consolidated balance sheet as of September 30, 1994: - - ----------------------------------------------------------------------------------- Accumulated postretirement benefit obligation: Retirees $ (8,712) Fully eligible active plan participants (3,262) Other active plan participants (6,176) - - ----------------------------------------------------------------------------------- Total accumulated postretirement benefit obligation $(18,150) Plan assets at fair value 1,333 - - ----------------------------------------------------------------------------------- Accumulated postretirement benefit obligation in excess of plan assets (16,817) Unamortized transition obligation 16,592 Prior service cost -- Unrecognized (gain) loss (2,336) - - ----------------------------------------------------------------------------------- (Accrued) postretirement benefit obligation $ (2,561) ===================================================================================
The expected long-term rate of return on plan assets is 9%. The assumed initial health care cost trend rates used to measure the expected cost of benefits in 1994 were 14% for pre-age 65 claims and 10% for post-age 65 claims. The rates decline to 6% by the year 2010. The weighted average discount rate used to measure the accumulated postretirement benefit obligation was 8.5%. A one percentage point increase in the assumed health care cost trend rate would increase the service cost and interest cost components of the net periodic postretirement benefit cost by approximately $157 and would increase the accumulated postretirement benefit obligation for health care benefits by approximately $1,239. Postemployment Benefits In November 1992, the FASB issued Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("SFAS 112"), which will be effective for the Company's fiscal year ending September 30, 1995. The adoption of SFAS 112 is required by the first quarter of fiscal 1995, and the Company intends to adopt this statement prospectively. This statement establishes accrual accounting for benefits such as unemployment compensation, severance benefits and disability benefits to former or inactive employees after employment terminates but before retirement. The impact of this new standard is not expected to have a material effect on the Company's financial condition or results of operations. NOTE 8 -- LEASES Total rental expense was $2,864, $2,405 and $2,133 for the years ended September 30, 1994, 1993 and 1992 respectively. Southern's approximate aggregate minimum rental commitments (exclusive of taxes, maintenance, etc.) under noncancelable operating leases for each of the five fiscal years subsequent to September 30, 1994 are in total:
Commitment Office space LNG plant Other - - --------------------------------------------------------------------- 1995 $ 2,003 $ 609 $312 1996 2,003 609 190 1997 2,003 304 1 1998 2,111 -- -- 1999 2,110 -- -- Thereafter 31,397 -- -- - - --------------------------------------------------------------------- Total commitment $41,627 $1,522 $503 =====================================================================
On March 30, 1993, Southern entered into an operating lease for the purpose of consolidating its operating centers at one location in Orange, Connecticut. The consolidation occurred during the second quarter of fiscal 1994 and the initial period of the lease is for 20 years. In 1992, Southern entered into an operating lease which consolidated administrative functions at one location in Bridgeport, Connecticut. The lease period commenced in October 1992 and is for an initial period of 20 years. Connecticut Energy Corporation THIRTY FIVE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share) The Liquified Natural Gas plant lease agreement provides, among other things, for an initial term of 25 years, which expires in December 1996, with an option to renew the lease for two terms of 12 years each at rental rates based primarily on the then fair market value of the plant. There is also an option, from time to time, to purchase the plant for a purchase price based on the then fair market value of the plant. NOTE 9 -- SUPPLEMENTARY INCOME STATEMENT INFORMATION Amounts charged to costs and expenses for the years ended September 30, 1994, 1993 and 1992 included:
1994 1993 1992 - - ------------------------------------------------------------------------------------------- Maintenance and repairs $ 4,035 $ 3,692 $ 3,651 Depreciation and depletion 13,031 12,051 11,327 Property taxes 3,821 4,450 4,528 Connecticut gross earnings tax 10,506 9,349 8,690 Connecticut corporation business tax 1,464 347 945 Other taxes 213 210 151 Federal Insurance Contribution Act 2,198 2,090 2,111 Taxes capitalized as part of utility plant (424) (402) (400) - - -------------------------------------------------------------------------------------------
NOTE 10 -- QUARTERLY FINANCIAL DATA (UNAUDITED)
Dec. 31 March 31 June 30 Sept. 30 1994 Quarter ended 1993 1994 1994 1994 - - ---------------------------------------------------------------------------------------------- Operating revenues $66,714 $111,838 $36,835 $25,486 Gross margin 30,107 50,490 20,131 13,275 Operating income (loss) 8,072 16,730 1,779 (1,569) Net income (loss) 4,998 13,753 (1,338) (4,570) Net income (loss) per share* $ 0.67 $ 1.77 $ (0.16) $ (0.53) - - ---------------------------------------------------------------------------------------------- Dec. 31 March 31 June 30 Sept. 30 1993 Quarter ended 1992 1993 1993 1993 - - ---------------------------------------------------------------------------------------------- Operating revenues $64,163 $ 91,613 $33,779 $23,207 Gross margin 29,360 42,024 16,523 11,810 Operating income (loss) 8,549 14,916 915 (1,255) Net income (loss) 5,837 11,711 (2,267) (4,228) Net income (loss) per share* $ 0.80 $ 1.59 $ (0.31) $ (0.57) - - ---------------------------------------------------------------------------------------------- *Calculated on the basis of weighted average shares outstanding during the applicable quarter.
NOTE 11 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and short-term investments The carrying amount approximates fair value because of the short maturity of those instruments. Long-term debt The fair value of the Company's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities. Connecticut Energy Corporation THIRTY SIX NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share) The estimated fair values of the Company's financial instruments are as follows:
1994 - - --------------------------------------------------------------------------------- Carrying Fair Amount Value - - --------------------------------------------------------------------------------- Cash and short-term investments $ 1,637 $ 1,637 Long-term debt (including current maturities) (120,511) (124,905) - - ---------------------------------------------------------------------------------
NOTE 12 -- COMMITMENTS AND CONTINGENCIES Take-or-Pay, Contract Buy-out and Contract Buy-down Costs Prior to 1992, Southern deferred amounts paid to its interstate pipeline suppliers related to take-or-pay, contract buy-out and contract buy-down costs and accrued and deferred interest on its unrecovered payments. On November 20, 1991, the DPUC issued a Decision regarding the method of recovery of these deferred amounts. The Decision did not provide recovery of incurred and deferred interest. As of September 30, 1994, Southern has recovered approximately $5,374 from firm customers through the suspension of the flow-through of purchased gas credits, $1,343 from the suspension of the flow-through of pipeline refunds and $602 from interruptible customers through the application of the uniform volumetric surcharge in accordance with the DPUC Decisions. Approximately $726 will continue to be recovered from interruptible customers through the uniform volumetric surcharge. Environmental Matters 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. The coal tar discovered at Southern's three sites 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 and the United States Environmental Protection Agency of the presence of coal tar residue on the three sites. As a result of this notification, further discussions would address the extent and type of remedial action, if any, as well as the time period for such action. Because this process is at an early stage, management cannot at this time predict the costs of any future site analysis and remediation, if any, nor when such costs, if any, may be incurred. Such future analytical and clean-up costs could possibly be significant. Based upon the provisions of the Partial Settlement, management believes that Southern will properly be able to recover the costs of investigation and remediation, if any, from its customers. The method, timing and extent of any recovery remain uncertain, but management currently does not expect that the incurrence of such costs will have a material adverse effect on the Company's financial condition or results of operations. FERC Order No. 636 Transition Costs As a result of Order No. 636 issued by the Federal Energy Regulatory Commission ("FERC"), 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. Connecticut Energy Corporation THIRTY SEVEN NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands, except per share) Southern has incurred approximately $8,815 in transition costs as of September 30, 1994. Of this total, $4,468 represent unrecovered gas costs and $4,347 represent 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 addressed, among other things, the mechanism for the recovery of deferred transition costs. Under this mechanism, the DPUC has allowed the recovery of the unrecovered gas cost balances from the suspension of flow-through of purchased gas cost credits attributable to the twelve month period ended August 31, 1993 and all future years ending August 31 as well as refunds received after October 1, 1993 from interstate pipelines. Additionally, any subsequent refunds from interstate pipelines as well as any credits received by Southern for release of its capacity on interstate pipelines shall be used to offset Southern's payments of unrecovered gas costs until fully recovered. As of September 30, 1994, Southern has recovered approximately $4,468 in unrecovered gas costs through a combination of these recovery mechanisms. Gas supply realignment costs as well as stranded investment costs are to be recovered by Southern as follows: (1) retention of 50% of margins derived through off-system sales; (2) retention of 50% of all interruptible margins earned above Southern's target level; (3) retention of pipeline refunds or deferred gas costs credits for the 1992/93 period and all subsequent annual deferred gas cost periods that are in excess of the estimated unrecovered gas cost portion of transition costs; (4) retention of any capacity release credits received from pipelines in excess of those needed for unrecovered purchased gas costs and (5) if needed, a per unit surcharge applied to firm customers' bills, which will be evaluated in subsequent annual deferred gas cost proceedings. There is no hierarchy in the use of the first four recovery measures, and any and all could be utilized as available. All subsequent annual deferred gas cost credits will be applied on an annual basis. All other transition cost credits will be immediately applied on a monthly basis to offset transition costs which have been or will be subsequently billed. As of September 30, 1994, Southern has recovered approximately $3,020 in gas supply realignment costs as well as stranded investment costs through a combination of these recovery mechanisms. Personal Property Tax Audits In September 1993, Southern received notification of the results of audits by the City of New Haven pursuant to Connecticut's omitted property statute. The City of New Haven claimed that Southern owed approximately $2,600 in additional personal property taxes related to years 1990 through 1992; however, Southern was not aware of any audit finding of significant omitted personal property. Instead, the City of New Haven's claim was based on the assessor's retroactive reassessment of Southern's personal property. Southern initiated legal actions against the City of New Haven which alleged that, among other things, the City of New Haven had no statutory authority to issue tax bills based upon retroactive reassessments of previously declared property on which taxes were paid and that the City of New Haven's contingent fee agreement with the firm which audited Southern's records was illegal. Southern also instituted legal actions challenging the City of New Haven's assessment of Southern's personal property for the 1993 Grand List. On June 29, 1994, Southern and the City of New Haven entered into a Stipulation and Agreement ("Agreement") in settlement of these court actions. The Agreement provided for a $200 payment related to the tax years 1990 through 1992 without conceding liability on any of the issues involved; and a resolution of the disputed 1993 personal property assessment, which resulted in a reduction of the original 1993 assessment of approximately $1,500 to a new assessment of approximately $800. Connecticut Energy Corporation THIRTY EIGHT MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of Connecticut Energy Corporation is responsible for the preparation and integrity of the consolidated financial statements and all other financial information included in this annual report. The financial statements were prepared in conformity with generally accepted accounting principles consistently applied and they necessarily include amounts which are based on estimates and judgments made with due consideration to materiality. Management maintains a system of internal accounting controls which it believes provides reasonable assurance that Company policies and procedures are complied with, assets are safeguarded and transactions are executed in accordance with appropriate corporate authorization and recorded in a manner which permits management to meet its responsibility for the preparation of financial statements. The Company's system of controls includes the communication and enforcement of written policies and procedures. The Audit Committee of the Board of Directors, comprised of non-employee directors, meets periodically and as necessary with management, the internal auditors and Coopers & Lybrand L.L.P. to review audit plans and results and the Company's accounting, financial reporting and internal control practices, procedures and results. Both Coopers & Lybrand L.L.P. and the Company's internal audit department have full and free access to all levels of management. S/ Carol A. Forest S/ Vincent L. Ammann, Jr. Carol A. Forest Vincent L. Ammann, Jr. Vice President, Finance, Vice President and Chief Financial Officer and Treasurer Chief Accounting Officer REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Connecticut Energy Corporation We have audited the accompanying consolidated balance sheets of Connecticut Energy Corporation and its subsidiaries (the Company) as of September 30, 1994 and 1993 and the related consolidated statements of income, changes in common shareholders' equity and cash flows for each of the three years in the period ended September 30, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Connecticut Energy Corporation and its subsidiaries as of September 30, 1994 and 1993, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1994 in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, in fiscal 1994 the Company changed its methods of accounting for income taxes and postretirement benefits other than pensions. S /Coopers & Lybrand, L.L.P. New Haven, Connecticut November 1, 1994 Connecticut Energy Corporation THIRTY NINE ELEVEN YEAR FINANCIAL SUMMARY (Financial information presented for 1994 through 1990 is for the twelve month period ended September 30; all information for prior years is for the twelve month period ended December 31.) (dollars in thousands, except per share)
1994 1993 1992 1991 ----------------------------------------------------------------------------------------------------------------- Operations Operating revenues $240,873 $212,762 $203,011 $179,172 Purchased gas 126,870 113,045 104,163 86,778 Gross margin 114,003 99,717 98,848 92,394 Operations and maintenance expenses 54,244 45,023 46,881 42,475 Depreciation and depletion 13,031 12,051 11,327 10,540 Federal income taxes 3,938 3,474 2,287 4,324 Other taxes 17,778 16,044 16,025 15,238 Other deductions and (income), net 586 510 531 349 Interest expense 11,575 11,530 11,536 10,428 Subsidiary preferred stock dividends 8 32 34 36 Income before cumulative effect of accounting change $ 12,843 $ 11,053 $ 10,227 $ 9,004 Cumulative effect of accounting change -- -- -- -- Net income $ 12,843 $ 11,053 $ 10,227 $ 9,004 Net income per share before cumulative effect of accounting change (f) $ 1.58 $ 1.50 $ 1.43 $ 1.38 Net income per share (f) $ 1.58 $ 1.50 $ 1.43 $ 1.38 Annual dividend paid per common share (f) $ 1.29 $ 1.28 $ 1.265 $ 1.24 ----------------------------------------------------------------------------------------------------------------- *Capitalization Common shareholders' equity $125,719 $ 99,853 $ 92,605 $ 88,622 Redeemable preferred stock -- 638 687 736 Long-term debt 119,917 120,511 94,106 87,378 ----------------------------------------------------------------------------------------------------------------- Total capitalization $245,636 $221,002 $187,398 $176,736 ----------------------------------------------------------------------------------------------------------------- *Capitalization (% of total) Common shareholders' equity 51.2 45.2 49.4 50.1 Redeemable preferred stock -- 0.3 0.4 0.4 Long-term debt 48.8 54.5 50.2 49.5 ----------------------------------------------------------------------------------------------------------------- Total capitalization 100.0% 100.0% 100.0% 100.0% ----------------------------------------------------------------------------------------------------------------- *Common Stock (f) Shares outstanding at end of period 8,700,266 7,488,467 7,234,921 7,096,634 Book value per share at end of period $ 14.45 $ 13.33 $ 12.80 $ 12.49 Market value per share at end of period $ 21.63 $ 24.88 $ 22.25 $ 19.00 Average daily trading volume 5,500 9,000 4,500 5,000 Shareholders of record at year end 12,094 11,094 9,153 9,163** Percent of institutional ownership 21 18 18 14 ----------------------------------------------------------------------------------------------------------------- Assets Gross utility plant $331,953 $313,951 $293,687 $273,862 Net utility plant $234,495 $221,800 $210,054 $198,695 *Additions to utility plant (capital expenditures) $ 26,618 $ 26,070 $ 22,634 $ 20,331 Oil and gas properties, net -- -- $ 496 $ 542 Total assets $352,920 $299,795 $269,504 $247,969 ----------------------------------------------------------------------------------------------------------------- Ratios (% of total) Gross margin as a % of operating revenues 47.3 46.9 48.7 51.6 Dividend payout as a % of earnings 81.6 85.3 88.5 89.9 Effective federal tax rate 23.0 24.0 18.0 32.0 *Return on ending common equity 10.2 11.1 11.0 10.2 Price to earnings 13.7 16.6 15.6 13.8 Dividend yield 6.0 5.1 5.7 6.5 Market price as a % of book value 149.7 186.6 173.8 152.1 ----------------------------------------------------------------------------------------------------------------- *Information used in the National Association of Investors Corporation (NAIC) stock selection format. **A number of duplicated accounts were consolidated when the Company changed Transfer Agents in July 1992. (a) The results for both the year ended September 30, 1990 and December 31, 1989 include the results for the three months ended December 31, 1989, which included the effects of the unusually cold weather experienced in the month of December and a writedown of the value of oil and gas properties. (b) Includes the cumulative effect of accounting change for municipal property taxes which increased earnings by $.21 per share. (c) The writedown of the value of oil and gas properties reduced earnings by $.10 per share in 1990 and 1989; $.05 per share in 1987; $.16 per share in 1984.
Connecticut Energy Corporation FORTY
1990 1989 1988 1987 1986 1985 1984 ---------------------------------------------------------------------------------------------------------- (a)(b)(c) (a)(c) (c) (d) (e) (c) $174,059 $171,218 $156,978 $157,867 $156,028 $163,847 $163,925 84,154 81,794 71,787 75,337 79,333 88,517 89,115 89,905 89,424 85,191 82,530 76,695 75,330 74,810 44,085 42,636 38,869 38,218 36,011 34,965 33,453 10,664 10,297 8,533 8,427 7,487 7,632 7,817 3,819 4,740 5,839 6,325 5,270 5,416 5,595 14,431 14,560 14,146 13,617 13,487 13,452 14,375 (228) 356 713 276 261 (12) 75 10,156 8,598 7,653 7,484 6,848 6,898 6,065 39 403 751 849 1,244 1,403 1,419 $ 6,939 $ 7,834 $ 8,687 $ 7,334 $ 6,087 $ 5,576 $ 6,011 1,280 -- -- -- 1,911 -- -- $ 8,219 $ 7,834 $ 8,687 $ 7,334 $ 7,998 $ 5,576 $ 6,011 $ 1.12 $ 1.28 $ 1.49 $ 1.38 $ 1.16 $ 1.21 $ 1.35 $ 1.33 $ 1.28 $ 1.49 $ 1.38 $ 1.53 $ 1.21 $ 1.35 $ 1.23 $ 1.20 $ 1.17 $ 1.12 $ 1.12 $ 1.07 $ 1.01 ---------------------------------------------------------------------------------------------------------- $ 74,413 $ 75,001 $ 73,311 $ 61,187 $ 58,731 $ 55,573 $ 46,901 786 835 6,429 7,270 8,112 12,487 12,659 91,506 79,686 69,137 64,461 58,714 53,666 48,104 ---------------------------------------------------------------------------------------------------------- $166,705 $155,522 $148,877 $132,918 $125,557 $121,726 $107,664 ---------------------------------------------------------------------------------------------------------- 44.6 48.2 49.2 46.0 46.8 45.7 43.5 0.5 0.6 4.3 5.5 6.4 10.3 11.8 54.9 51.2 46.5 48.5 46.8 44.0 44.7 ---------------------------------------------------------------------------------------------------------- 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% ---------------------------------------------------------------------------------------------------------- 6,250,161 6,176,665 6,088,017 5,346,879 5,277,276 5,209,677 4,517,781 $ 11.91 $ 12.14 $ 12.04 $ 11.45 $ 11.13 $ 10.67 $ 10.38 $ 16.63 $ 17.63 $ 14.50 $ 13.67 $ 16.00 $ 12.25 $ 11.42 2,950 4,200 2,850 2,550 4,500 3,150 2,250 7,382 7,493 7,662 7,577 7,960 7,778 7,702 15 16 16 13 N/A N/A N/A ---------------------------------------------------------------------------------------------------------- $255,446 $241,624 $222,236 $204,947 $191,589 $172,396 $156,492 $189,108 $181,358 $166,970 $155,289 $144,509 $130,415 $119,012 $ 23,102 $ 23,184 $ 19,471 $ 17,790 $ 20,543 $ 17,344 $ 13,567 $ 605 $ 698 $ 1,760 $ 1,889 $ 2,564 $ 3,026 $ 4,099 $229,600 $239,327 $214,458 $193,842 $186,449 $173,211 $161,976 ---------------------------------------------------------------------------------------------------------- 51.6 52.2 54.3 52.3 49.2 46.0 45.6 92.5 93.8 78.5 81.2 73.2 88.4 74.8 35.0 37.0 38.0 44.0 42.0 44.0 43.0 11.0 10.4 11.8 12.0 13.6 10.0 12.8 12.5 13.8 9.7 9.9 10.5 10.1 8.5 7.4 6.8 8.1 8.2 7.0 8.7 8.8 139.6 145.2 120.4 119.4 143.8 114.8 110.0 ---------------------------------------------------------------------------------------------------------- (d) Includes cumulative effect of accounting change for unbilled revenues which increased earnings by $.37 per share. The writedown of the value of oil and gas properties in 1986 reduced earnings by $.03 per share. (e) The adoption of the new pension accounting standard in 1985 reduced pension costs and increased earnings by $.09 per share when compared to 1984. The writedown of the value of oil and gas properties reduced earnings by $.12 per share. (f) Adjusted to reflect the Company's 3-for-2 stock split in October 1989 and a 2-for-1 stock split in May 1984.
Connecticut Energy Corporation FORTY ONE OPERATING DATA
Sept. 30 Sept. 30 Sept. 30 Sept. 30 Sept. 30 Dec. 31 Years ended 1994 1993 1992 1991 1990 1989 - - ------------------------------------------------------------------------------------------------------------------------------ Table 1 Percentage of Operating Revenues - - ------------------------------------------------------------------------------------------------------------------------------ Purchased gas costs 52.7 53.1 51.3 48.4 48.4 47.8 Operations 20.8 19.4 21.3 21.7 23.0 22.6 Maintenance 1.7 1.7 1.8 2.0 2.3 2.3 Depreciation and depletion 5.4 5.7 5.6 5.9 6.1 6.0 Taxes 9.0 9.2 9.0 10.9 10.5 11.3 - - ------------------------------------------------------------------------------------------------------------------------------ Purchased gas costs and operating expenses 89.6 89.1 89.0 88.9 90.3 90.0 - - ------------------------------------------------------------------------------------------------------------------------------ Interest expense and other deductions, net 5.1 5.7 6.0 6.1 5.7 5.5 Earnings applicable to common stock (a) 5.3 5.2 5.0 5.0 4.0 4.5 - - ------------------------------------------------------------------------------------------------------------------------------ Total 100.0 100.0 100.0 100.0 100.0 100.0 ============================================================================================================================== Table 2 Analysis by Customer Class Averaged Over 12 Months - - ------------------------------------------------------------------------------------------------------------------------------ Residential nonheating - - ------------------------------------------------------------------------------------------------------------------------------ Mcf* consumption per customer 23 24 24 24 26 26 Annual revenue per customer $ 317 $ 299 $ 300 $ 289 $ 290 $ 279 Rate per Mcf $ 13.74 $ 12.62 $ 12.35 $ 12.04 $ 11.32 $ 10.89 Margin per Mcf $ 8.36 $ 7.63 $ 7.52 $ 7.61 $ 7.13 $ 6.97 Annual number of customers 35,170 36,184 37,444 39,186 40,997 42,001 - - ------------------------------------------------------------------------------------------------------------------------------ Residential heating - - ------------------------------------------------------------------------------------------------------------------------------ Mcf consumption per customer 115 110 108 97 108 110 Annual revenue per customer $ 1,187 $ 1,074 $ 1,045 $ 904 $ 941 $ 919 Rate per Mcf $ 10.35 $ 9.73 $ 9.70 $ 9.36 $ 8.69 $ 8.33 Margin per Mcf $ 5.03 $ 4.81 $ 4.81 $ 4.95 $ 4.56 $ 4.49 Annual number of customers 102,043 100,872 99,706 97,406 95,240 93,447 - - ------------------------------------------------------------------------------------------------------------------------------ Residential apartments - - ------------------------------------------------------------------------------------------------------------------------------ Mcf consumption per customer 2,132 2,132 2,149 2,006 2,152 2,217 Annual revenue per customer $ 16,611 $ 15,294 $15,217 $ 13,401 $13,141 $12,764 Rate per Mcf $ 7.79 $ 7.18 $ 7.08 $ 6.68 $ 6.11 $ 5.76 Margin per Mcf $ 2.59 $ 2.35 $ 2.33 $ 2.38 $ 2.08 $ 2.02 Annual number of customers 751 751 739 725 707 694 - - ------------------------------------------------------------------------------------------------------------------------------ Commercial - - ------------------------------------------------------------------------------------------------------------------------------ Mcf consumption per customer 452 444 435 387 415 409 Annual revenue per customer $ 3,826 $ 3,527 $ 3,440 $ 2,917 $ 2,902 $ 2,714 Rate per Mcf $ 8.47 $ 7.95 $ 7.90 $ 7.53 $ 6.99 $ 6.64 Margin per Mcf $ 3.15 $ 3.03 $ 3.02 $ 3.13 $ 2.85 $ 2.80 Annual number of customers 13,142 12,965 12,831 12,758 12,717 12,459 Annual number of heating customers 7,813 7,630 7,541 7,498 7,479 7,297 - - ------------------------------------------------------------------------------------------------------------------------------ Industrial firm - - ------------------------------------------------------------------------------------------------------------------------------ Mcf consumption per customer 2,199 2,085 1,925 1,754 1,856 1,900 Annual revenue per customer $ 16,568 $ 14,935 $13,691 $ 11,812 $11,584 $11,202 Rate per Mcf $ 7.53 $ 7.16 $ 7.11 $ 6.73 $ 6.24 $ 5.89 Margin per Mcf $ 2.30 $ 2.30 $ 2.32 $ 2.40 $ 2.16 $ 2.10 Annual number of customers 1,274 1,283 1,287 1,305 1,334 1,314 Annual number of heating customers 731 728 716 716 722 702 - - ------------------------------------------------------------------------------------------------------------------------------ Interruptible and off-peak - - ------------------------------------------------------------------------------------------------------------------------------ Mcf consumption per customer 37,870 30,545 23,035 21,933 14,558 16,303 Annual revenue per customer $121,940 $105,892 $86,215 $104,186 $56,657 $57,061 Rate per Mcf $ 3.22 $ 3.47 $ 3.74 $ 4.75 $ 3.89 $ 3.50 Margin per Mcf $ 0.87 $ 0.88 $ 0.99 $ 1.39 $ 1.06 $ 0.82 Annual number of customers 184 152 136 127 136 145 - - ------------------------------------------------------------------------------------------------------------------------------ Number of total customers 152,564 152,207 152,143 151,507 151,131 150,059 Cost per Mcf of gas $ 4.22 $ 4.30 $ 4.02 $ 4.04 $ 3.71 $ 3.46 ============================================================================================================================== *Mcf -- one thousand cubic feet; MMcf -- one million cubic feet
Connecticut Energy Corporation FORTY TWO OPERATING DATA
Sept. 30 Sept. 30 Sept. 30 Sept. 30 Sept. 30 Dec. 31 Years ended 1994 1993 1992 1991 1990 1989 - - ------------------------------------------------------------------------------------------------------------------------ Table 3 Revenue by Customer Class (dollars in thousands) - - ------------------------------------------------------------------------------------------------------------------------ Residential $145,975 $131,632 $127,224 $110,062 $111,321 $110,392 Commercial firm 50,838 46,022 44,316 37,538 37,080 35,003 Industrial firm 21,339 19,180 17,696 15,557 15,527 15,236 - - ------------------------------------------------------------------------------------------------------------------------ Total firm revenue $218,152 $196,834 $189,236 $163,157 $163,928 $160,631 - - ------------------------------------------------------------------------------------------------------------------------ Interruptible, transportation and special contract $ 21,127 $ 14,697 $ 12,478 $ 14,814 $ 9,103 $ 9,695 Other 1,594 1,231 1,297 1,201 1,028 892 - - ------------------------------------------------------------------------------------------------------------------------ Total operating revenues $240,873 $212,762 $203,011 $179,172 $174,059 $171,218 ======================================================================================================================== Margin by Customer Class (b) - - ------------------------------------------------------------------------------------------------------------------------ Residential $ 71,643 $ 63,391 $ 62,449 $ 57,153 $ 57,913 $ 58,310 Commercial firm 19,315 17,265 16,946 15,446 15,102 14,699 Industrial firm 6,688 6,111 5,794 5,491 5,379 5,431 - - ------------------------------------------------------------------------------------------------------------------------ Total firm margin $ 97,646 $ 86,767 $ 85,189 $ 78,090 $ 78,394 $ 78,440 - - ------------------------------------------------------------------------------------------------------------------------ Interruptible, transportation and special contract $ 4,258 $ 2,427 $ 3,666 $ 5,302 $ 3,383 $ 3,121 - - ------------------------------------------------------------------------------------------------------------------------ Total margins $101,904 $ 89,194 $ 88,855 $ 83,392 $ 81,777 $ 81,561 ======================================================================================================================== Table 4 Sources of Gas Supply in MMcf* - - ------------------------------------------------------------------------------------------------------------------------ Tennessee Gas Pipeline 24 -- 1,873 2,249 4,546 4,511 Algonquin Gas Transmission 53 229 2,521 5,476 7,518 7,662 Texas Eastern -- 372 1,539 1,649 -- -- SCG Gas Quest -- -- -- -- 111 97 Distrigas 1,287 761 1,472 1,435 2,602 2,735 Producers/Marketers 17,213 14,958 13,750 11,505 8,394 8,623 Alberta Northeast 12,631 12,446 4,863 -- -- -- - - ------------------------------------------------------------------------------------------------------------------------ Total 31,208 28,766 26,018 22,314 23,171 23,628 ======================================================================================================================== Additional storage supply: LNG 86 12 269 2 (22) 392 Pipeline (c) (388) (1,362) (1,345) -- (6) 99 Propane -- 33 -- 2 113 45 - - ------------------------------------------------------------------------------------------------------------------------ Total additional supply (302) (1,317) (1,076) 4 85 536 - - ------------------------------------------------------------------------------------------------------------------------ Total supply 30,906 27,449 24,942 22,318 23,256 24,164 ======================================================================================================================== Table 5 Gas Throughput in MMcf* (d) - - ------------------------------------------------------------------------------------------------------------------------ Sales: Residential 14,038 13,635 13,233 11,790 12,957 13,391 Commercial firm 5,902 5,786 5,583 4,935 5,269 5,234 Industrial firm 2,787 2,673 2,476 2,287 2,478 2,558 Interruptible, transportation and special contract (e)(f) 10,509 6,296 7,992 8,784 6,668 6,310 Other uses (g) 1,066 712 517 521 572 617 - - ------------------------------------------------------------------------------------------------------------------------ Total requirements 34,302 29,102 29,801 28,317 27,944 28,110 ======================================================================================================================== Peak day delivery in Mcf 227,477 203,557 182,688 189,192 177,616 177,616 - - ------------------------------------------------------------------------------------------------------------------------ Degree days -- actual 5,750 5,467 5,354 4,654 5,523 5,744 Degree days as percentage of 'normal' 104% 99% 97% 85% 100% 104% ======================================================================================================================== (a) Before nonrecurring credit in 1990. (b) Margin in this table is calculated as revenue minus purchased gas costs and gross receipts tax. (c) Includes new storages acquired during 1992 and 1993 due to the restructuring of services under FERC Order No. 636. (d) Sales volumes from the residential, commercial firm and industrial firm classes of customers reflect volumes delivered but not yet billed at year end. (e) Interruptible service balances daily available supply and demand sales. Southern or the customer can terminate interruptible service at any time. (f) Transportation volumes represent customer-owned gas transported directly to end users which includes volumes under a special contract for transportation to Connecticut Light and Power Company's Devon generating station. (g) Includes gas used by Southern and unaccounted for gas.
Connecticut Energy Corporation FORTY THREE GLOSSARY Balancing -- The process of reconciling the difference between gas deliveries contracted for and gas actually used on a daily basis. FERC Order No. 636 -- A mandate issued by the Federal Energy Regulatory Commission, effective November 1, 1993, which required pipeline companies to separate or "unbundle" the functions of selling and transporting natural gas. Firm Customers -- Customers with priority of supply using natural gas under contracts which anticipate no interruptions. Gross Margin -- For gas distribution business, operating revenues minus the cost of purchased gas equals the gross profit margin. The cost of gas is passed directly on to customers. Heating Degree Days -- The mean temperature for a single day subtracted from 65 degrees Fahrenheit, the temperature at which the average household begins using heat. Interruptible Customers -- Large industrial or commercial customers that have dual fuel capabilities whose service can be interrupted if capacity is needed to serve firm customers. LNG -- Liquified Natural Gas: natural gas liquified by reducing its temperature to minus 260 degrees Fahrenheit. Mcf -- One thousand cubic feet: a standard measurement of natural gas. MMcf: million cubic feet. Bcf: billion cubic feet. NGV -- Natural gas-powered vehicle. Off-System -- Providing gas service to parties outside of a company's own distribution system. Throughput -- The amount of gas carried on a distribution system, including gas sold to and transported for end users. Transportation Volumes -- Customer-owned gas purchased from a supply source and conveyed through a pipeline or distribution system. Weather Normalization Adjustment (WNA) -- Formula which adjusts customers' monthly bills to reflect normal weather patterns (based on the 30-year average temperature for each billing period), lowering bills during periods of colder than normal weather and raising them during warmer than normal periods. Connecticut Energy Corporation FORTY FOUR INVESTMENT INFORMATION To obtain a copy of Form 10-K filed with the Securities and Exchange Commission or to request further financial information contact Judith Falango, Manager, Investor and Shareholder Relations, Connecticut Energy Corporation, P.O. Box 1540, Bridgeport, CT 06601, or call (203) 579-1732. NAIC Stock Selection Data The National Association of Investors Corporation (NAIC) is an organization with over 250,000 members which provides investment education for the long-term value-oriented investor in common stock. As a corporate member of NAIC, the following data is presented in NAIC's stock selection format. Historical balance sheet data can be found on pages 40 and 41 in the Eleven Year Financial Summary. Connecticut Energy Corporation was honored for two years in a row to have its 1991 and 1992 annual report chosen by NAIC members as one of only five "National Winners" for the Nicholson Awards. Connecticut Energy is also a participant in NAIC's "Low Cost Investment Plan" which encourages members to make regular contributions to dividend reinvestment and stock purchase plans such as ours.
Income-Revenue Data Common Share Data ==================================================================================================================== Gross margin Pretax (fed.) net Price range P-E ratio ------------ ----------------- ----------- --------- Income Net Divi- % Yield $ $ per $ % of tax income Earned dend Pay- on avg. $ $ Year mil. share(a) mil. g.m. $ mil. $ mil. $ $ out price high low high low ==================================================================================================================== 1989 89.4 14.61 12.5 14.0 4.7 7.8 1.28 1.20 94 7.4 18 7/8 14 14.6 10.9 - - -------------------------------------------------------------------------------------------------------------------- 1990 89.9 14.52 10.7 11.9 3.8 8.2(a) 1.33(a) 1.23 92 7.4 18 7/8 14 1/2 14.2 10.9 - - -------------------------------------------------------------------------------------------------------------------- 1991 92.4 14.11 13.3 14.4 4.3 9.0 1.38 1.24 90 7.4 19 3/8 14 1/4 14.0 10.3 - - -------------------------------------------------------------------------------------------------------------------- 1992 98.8 13.85 12.5 12.7 2.3 10.2 1.43 1.265 88 5.8 24 3/4 18 5/8 17.3 13.0 - - -------------------------------------------------------------------------------------------------------------------- 1993 99.7 13.52 14.6 14.6 3.5 11.1 1.50 1.28 85 5.5 26 1/2 20 1/8 17.7 13.4 - - -------------------------------------------------------------------------------------------------------------------- 1994 114.0 14.02 16.8 14.7 3.9 12.8 1.58 1.29 82 5.6 26 20 16.5 12.7 - - -------------------------------------------------------------------------------------------------------------------- 5 Yr. avg. 99.0 14.00 13.6 13.7 3.6 10.3 1.44 1.26 87 6.3 23 1/8 17 1/2 15.9 12.1 - - --------------------------------------------------------------------------------------------------------------------
Quarterly Financial Information ================================================================================================================= Pretax (fed.) Gross margin $ mil. net income $ mil. Earned per share $ Dividends paid per share $ Quarter -------------------- -------------------- -------------------- -------------------------- ended 1994 1993 1992 1994 1993 1992 1994 1993 1992 1994 1993 1992 ================================================================================================================= 12/31 30.1 29.4 27.2 7.2 8.1 5.7 .67 .80 .57 .320 .320 .312 - - ----------------------------------------------------------------------------------------------------------------- 3/31 50.5 42.0 41.2 20.0 16.3 14.8 1.77 1.59 1.50 .320 .320 .312 - - ----------------------------------------------------------------------------------------------------------------- 6/30(b) 20.1 16.5 18.2 (2.7) (3.5) (1.7) (.16) (.31) (.14) .325 .320 .320 - - ----------------------------------------------------------------------------------------------------------------- 9/30(b) 13.3 11.8 12.2 (7.7) (6.3) (6.3) (.53) (.57) (.49) .325 .320 .320 - - -----------------------------------------------------------------------------------------------------------------
================================================================================================================ Market price $ --------------------------------------------------------------------- Trading volume Quarter 1994 1993 1992 in thousands ended high low close high low close high low close 1994 1993 1992 ================================================================================================================ 12/31 26 23 24 7/8 23 1/2 20 1/8 23 20 3/8 18 5/8 20 1/4 266.3 282.8 285.7 - - ---------------------------------------------------------------------------------------------------------------- 3/31 25 20 21 1/4 25 3/8 22 1/2 25 1/8 21 7/8 18 7/8 21 1/4 508.7 892.5 317.2 - - ---------------------------------------------------------------------------------------------------------------- 6/30 22 1/2 20 1/4 20 1/4 26 1/2 24 5/8 25 1/8 22 5/8 19 1/2 22 3/8 336.3 289.4 229.5 - - ---------------------------------------------------------------------------------------------------------------- 9/30 22 1/4 20 1/4 21 5/8 26 24 3/8 24 7/8 24 3/4 21 5/8 22 1/4 262.2 543.0 275.5 - - ---------------------------------------------------------------------------------------------------------------- (a) Includes the cumulative effect of accounting change in 1990. (b) It is not unusual for a company primarily engaged in the distribution of natural gas to incur a loss in quarters ending in June and September.
Connecticut Energy Corporation FORTY FIVE SHAREHOLDER INFORMATION Annual Meeting The Annual Meeting of Shareholders will take place Tuesday, January 31, 1995 at 10 a.m. in the Trumbull Marriott Hotel, 180 Hawley Lane, Trumbull, Connecticut. Stock Listing Information Connecticut Energy's common stock is listed on the New York Stock Exchange under the ticker symbol "CNE". Quotes may be obtained in daily newspapers where it is listed under "ConnEn" in the New York Stock Exchange composite table. Shareholder Communications In addition to the Connecticut Energy Corporation annual report, three quarterly reports are published for shareholders. These reports are automatically mailed to shareholders of record. If your shares are held in your broker's name, you may receive quarterly reports by calling Connecticut Energy collect (203) 579-1732 and requesting to be put on our mailing list for quarterly reports. Transfer Agent The First National Bank of Boston (Bank of Boston) is the Transfer Agent and Registrar for Connecticut Energy Corporation (CNE) common stock. No stock transfer or shareholder account activity takes place at the Connecticut Energy Corporation offices. For the fastest response to any of the following needs: Call Bank of Boston investor relations representatives toll free at: (800) 736-3001 or (800) 952-9245 TTY/TDD service for the hearing impaired If you need * to change your account mailing address * to report a lost or stolen dividend check or stock certificate * information about your shareholder account * information about transferring shares * an authorization form to join our Dividend Reinvestment and Stock Purchase Plan * a form to initiate the direct deposit of dividends Or write Bank of Boston, Investor Relations, Mail Stop 45-02-09, P.O. Box 644, Boston, MA 02102-0644 Dividends Dividends on common stock are declared quarterly by the Board of Directors and are usually paid on the last business day of each quarter. Shareholders of record receive dividends directly from the Company's Transfer Agent, Bank of Boston, unless they have elected to reinvest their dividends through the Dividend Reinvestment and Stock Purchase Plan. Direct Deposit Your dividends can be directly deposited to your checking or savings account. This not only gives you the availability of funds the same day they are paid, it eliminates the worry of lost, stolen or mail delayed checks. Call Bank of Boston at the toll free numbers above for an authorization form. Allow four to six weeks for this to be in effect. Connecticut Energy Corporation FORTY SIX SHAREHOLDER INFORMATION (CONTINUED) Dividend Reinvestment and Stock Purchase Plan This Plan provides shareholders of the Company's common stock with a simple and convenient method of investing dividends and/or voluntary cash contributions in additional shares of the Company's stock without payment of any brokerage commission or service charge. Some important features of the Plan: * Cash contributions are invested monthly. * Voluntary cash contributions from $50 to $50,000 can be made. * Bank draft authorization allows for automatic contributions to the Plan. * A "safekeeping" feature allows shareholders to have Bank of Boston hold their certificates. * Shareholders can establish or roll over Individual Retirement Accounts (IRA) through the Plan. You must be a shareholder of record -- that is, the shares must be registered in your name, not your broker's -- to participate. The total return graph below shows the value of reinvesting dividends over time. $1,000 invested in Connecticut Energy ten years ago (September 1984) would have grown to $2,027 at the end of ten years. With dividends reinvested, the value of the same initial investment would have grown to $4,100 in the same time period. VALUE OF $1,000 INVESTED SEPT. 30, 1984 CHART Initial Reinvested Stock Investment Dividend Price - - ---------------------------------------------- 9/84 1000.000 0 1000.000 9/85 1156.254 106.0263 1262.280 9/86 1460.943 257.6324 1718.575 9/87 1390.630 363.4785 1754.109 9/88 1343.755 491.6461 1835.401 9/89 1687.510 802.2411 2489.751 9/90 1558.603 916.7809 2475.384 9/91 1781.261 1261.361 3042.622 9/92 2085.950 1691.373 3777.323 9/93 2332.045 2115.926 4447.971 9/94 2027.356 2072.708 4100.064 To receive additional information describing the Plan, including a prospectus and enrollment information, call Bank of Boston toll free at (800) 736-3001 or (800) 952-9245 TTY/TDD service for the hearing impaired. Investment Dates Cash contributions sent to purchase additional shares of stock through the Dividend Reinvestment and Stock Purchase Plan are usually invested on the last business day of the month. Checks for these purchases must be received by Bank of Boston at least five business days before the investment date. Checks received after the cut off date will be held until the next investment date. Gift Certificates If you are transferring shares of stock from your Dividend Reinvestment and Stock Purchase Plan (Plan) account as a gift, we would be happy to supply you with a gift certificate. This allows the actual shares to remain in safe- keeping in a Plan account for the recipient. For further information call Connecticut Energy Corporation collect at (203) 579-1732. Allow two weeks for the transfer to occur. Connecticut Energy Corporation FORTY SEVEN CORPORATE DIRECTORY Board of Directors - - ----------------------------------- Connecticut Energy Corporation and The Southern Connecticut Gas Company J.R. Crespo Chairman, President and Chief Executive Officer, Connecticut Energy Corporation and The Southern Connecticut Gas Company Henry Chauncey, Jr. Lecturer and Head of Management Program, Department of Epidemiology and Public Health, Yale School of Medicine James P. Comer, M.D. Maurice Falk Professor of Psychiatry, Yale Child Study Center and Associate Dean, Yale School of Medicine Richard F. Freeman President and Chief Executive Officer, Bridgeport Area Foundation Richard M. Hoyt President and Chief Executive Officer, Chapin & Bangs Company Paul H. Johnson President and Chief Executive Officer, Gaylord Hospital Newman M. Marsilius III President and Chief Executive Officer, The Producto Machine Company Samuel M. Sugden Chairman, LeBoeuf, Lamb, Greene & MacRae L.L.P. Christopher D. Turner Regional Manager, Resource Management International Helen B. Wasserman Member, Board of Governors for Higher Education, State of Connecticut Officers - - --------------------------------------------------------- Connecticut Energy Corporation J.R. Crespo Chairman, President and Chief Executive Officer Vincent L. Ammann, Jr. Vice President and Chief Accounting Officer Carol A. Forest Vice President, Finance, Chief Financial Officer and Treasurer Michael H. Pinto Vice President, Government Affairs J. Richard Tiano Vice President, General Counsel and Secretary The Southern Connecticut Gas Company J.R. Crespo Chairman, President and Chief Executive Officer Thomas A. Trotta Senior Vice President and Chief Operating Officer Vincent L. Ammann, Jr. Group Vice President, Corporate Planning and Administration Carol A. Forest Vice President, Finance, Chief Financial Officer and Treasurer J. Richard Tiano Vice President, General Counsel and Secretary Frank L. Esposito Vice President, Human Resources and Corporate Services James P. Healy Vice President, Information Technology Ernest W. Karkut Vice President, Purchasing and Plant Services Peter D. Loomis Vice President, Distribution and Customer Service Larry S. McGaughy Vice President, Marketing and Corporate Engineering Phyllis A. O'Brien Vice President, Accounting and Regulatory Services Independent Accountants - - ----------------------------------------- Coopers & Lybrand L.L.P. 2 Whitney Avenue New Haven, CT 06510 Labor Union Leadership - - ----------------------------------------- United Steel Workers of America Local 12000 Gabriel Gambardella President Francis J. O'Connor Vice President [RECYCLE LOGO] Continuing our commitment and concern for the environment as an integral part of our business responsibility, this entire document was printed on recycled paper containing 50% recovered fiber. Connecticut Energy Corporation FORTY EIGHT [LOGO] Connecticut Energy Corporation 855 Main Street Bridgeport Connecticut 06604 Special Olympics World Games Connecticut 1995 [LOGO] TM Official Provider EX-27 4 FINANCIAL DATA SCHEDULE
UT 1,000 YEAR SEP-30-1994 SEP-30-1994 PER-BOOK 234,495 2,492 49,013 66,920 0 352,920 8,700 85,265 31,754 125,719 0 0 119,917 12,800 0 6,000 594 0 0 0 87,890 352,920 240,873 5,402 83,589 88,991 25,012 (586) 24,426 11,575 12,851 8 12,843 10,754 10,920 19,809 1.58 1.58
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