-----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, Qolt5XiEcoaw6rq50f2Zi6KX5JcJVdS71MaZEI2n/E/SDsQoKaxxWXLQZu547cwx L18htsD0sE7/bPe8tmhu/w== 0000310103-95-000006.txt : 19950515 0000310103-95-000006.hdr.sgml : 19950515 ACCESSION NUMBER: 0000310103-95-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950210 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONNECTICUT ENERGY CORP CENTRAL INDEX KEY: 0000310103 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 060869582 STATE OF INCORPORATION: CT FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08369 FILM NUMBER: 95508663 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-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 1994 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File No. 1-8369 CONNECTICUT ENERGY CORPORATION (Exact name of registrant as specified in its charter) Connecticut 06-0869582 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 855 Main Street Bridgeport, Connecticut 06604 (Address of principal executive offices) (Zip Code) (203) 579-1732 (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report) Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Class Outstanding at February 3, 1995 Common Stock, $1 par value 8,755,306 PART I. FINANCIAL INFORMATION CONNECTICUT ENERGY CORPORATION
ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share) (Unaudited) Three Months Ended Twelve Months Ended December 31, December 31, ------------------ ------------------- 1994 1993 1994 1993 ---- ---- ---- ---- Operating Revenues..................... $ 65,523 $ 66,714 $ 239,682 $ 215,313 Purchased gas.......................... 33,277 36,607 123,540 114,849 --------- --------- --------- --------- Gross margin........................... 32,246 30,107 116,142 100,464 Operating Expenses: Operations........................... 13,137 11,360 51,986 42,349 Maintenance.......................... 976 863 4,148 3,681 Depreciation and depletion........... 3,476 3,208 13,299 12,250 Federal and state income taxes....... 2,930 2,681 5,651 3,858 Municipal, gross earnings and other taxes........................ 3,655 3,923 16,046 15,678 --------- --------- --------- --------- Total operating expenses............... 24,174 22,035 91,130 77,816 --------- --------- --------- --------- Operating income....................... 8,072 8,072 25,012 22,648 Other deductions, net.................. 155 232 509 673 Interest Expense and Preferred Stock Dividends: Interest on long-term debt and amortization of debt issue costs... 2,716 2,731 10,905 10,363 Other interest and preferred stock dividends, net..................... 260 111 812 1,398 --------- --------- --------- --------- Total interest expense and preferred stock dividends...................... 2,976 2,842 11,717 11,761 --------- --------- --------- --------- Net Income............................. $ 4,941 $ 4,998 $ 12,786 $ 10,214 ========= ========= ========= ========= Net income per share................... $ 0.57 $ 0.67 $ 1.52 $ 1.37 ========= ========= ========= ========= Dividends paid per share............... $ 0.325 $ 0.32 $ 1.295 $ 1.28 --------- --------- --------- --------- Weighted average number of common shares outstanding during period..... 8,709,092 7,498,194 8,439,233 7,431,351 --------- --------- --------- --------- See Notes to Consolidated Financial Statements.
CONNECTICUT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
Dec. 31, Sept. 30, Dec. 31, Assets 1994 1994 1993 - ------ ----------- --------- ----------- (Unaudited) (Unaudited) Utility Plant: Gross utility plant............................... $338,636 $331,953 $318,475 Less--accumulated depreciation.................... 100,440 97,458 95,125 -------- -------- -------- Net utility plant............................... 238,196 234,495 223,350 Nonutility property, net.......................... 2,492 2,492 9 -------- -------- -------- Net utility plant and other property................ 240,688 236,987 223,359 -------- -------- -------- Current Assets: Cash and cash equivalents......................... 3,216 1,637 3,148 ------- -------- -------- Accounts receivable............................... 39,337 27,445 36,624 Less--allowance for doubtful accounts............. 2,486 3,747 3,680 -------- -------- -------- Net accounts receivable............................. 36,851 23,698 32,944 -------- -------- -------- Accrued utility revenues, net..................... 7,777 2,630 7,586 Unrecovered purchased gas costs................... 6,142 4,523 10,650 Inventories....................................... 13,101 14,678 15,723 Prepaid expenses.................................. 1,872 1,847 1,530 -------- -------- -------- Total current assets................................ 68,959 49,013 71,581 -------- -------- -------- Deferred Charges: Unamortized debt expenses......................... 6,259 6,317 6,440 Unrecovered deferred taxes........................ 36,515 35,398 33,943 Recoverable transition costs...................... 2,664 --- --- Other............................................. 25,206 25,205 26,147 -------- -------- -------- Total deferred charges.............................. 70,644 66,920 66,530 -------- -------- -------- Total assets........................................ $380,291 $352,920 $361,470 ======== ======== ======== See Notes to Consolidated Financial Statements.
CONNECTICUT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
Dec. 31, Sept. 30, Dec. 31, Capitalization and Liabilities 1994 1994 1993 - ------------------------------ ----------- --------- ----------- (Unaudited) (Unaudited) Common Shareholders' Equity: Common Stock--par value $1 per share: authorized--20,000,000 shares, issued and outstanding--8,748,504 shares; 8,700,266 shares; 7,530,924 shares.............. $ 8,749 $ 8,700 $ 7,531 Capital in excess of par value................................................... 86,160 85,265 63,771 Retained earnings................................................................ 33,862 31,754 32,261 Adjustment for minimum pension liability......................................... --- --- (108) -------- -------- -------- Total common shareholders' equity.................................................. 128,771 125,719 103,455 -------- -------- -------- Preferred Stock: The Southern Connecticut Gas Company Redeemable Preferred Stock: authorized-- 200,000 shares, par value $100 per share 4.75% cumulative series, none issued authorized--600,000 shares, par value $1 per share, none issued................ --- --- --- Preference Stock: The Southern Connecticut Gas Company: authorized--1,000,000 shares, par value $1 per share, none issued Connecticut Energy Corporation: authorized--1,000,000 shares, par value $1 per share, none issued Preferred stock expense............................................................ --- --- --- -------- -------- -------- Total preferred stock.............................................................. --- --- --- -------- -------- -------- Long-term debt..................................................................... 119,917 119,917 120,511 -------- -------- -------- Total capitalization............................................................... 248,688 245,636 223,966 -------- -------- -------- Current Liabilities: Short-term borrowings........................................................... 29,000 18,800 38,900 Current maturities of long-term debt............................................ 594 594 595 Accounts payable................................................................ 13,514 10,886 16,117 Refunds due customers........................................................... --- --- 993 Federal, state and deferred income taxes........................................ 5,188 3,565 6,009 Property and other accrued taxes................................................ 7,500 5,289 7,659 Interest payable................................................................ 2,274 3,315 2,321 Customer deposits............................................................... 2,129 1,901 2,314 Other accrued liabilities....................................................... 5,697 4,137 2,537 -------- -------- -------- Total current liabilities.......................................................... 65,896 48,487 77,445 -------- -------- -------- Deferred Credits: Deferred income taxes and investment tax credits................................ 56,728 54,974 52,068 Accrued transition costs........................................................ 4,506 --- --- Other........................................................................... 4,473 3,823 7,991 -------- -------- -------- Total capitalization and liabilities............................................... $380,291 $352,920 $361,470 ======== ======== ======== See Notes to Consolidated Financial Statements.
CONNECTICUT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Three Months Ended Twelve Months Ended Dec. 31, Dec. 31, ------------------- -------------------- 1994 1993 1994 1993 ---- ---- ---- ---- Net Cash provided by (used by) Operating Activities: $ 658 $ (7,520) $27,997 $ 5,236 ------- -------- ------- -------- Cash Flows from Investing Activities: Capital expenditures................................ (7,261) (4,845) (29,076) (23,977) Proceeds from sale of headquarter's property........ --- --- --- 2,005 Proceeds from sale of subsidiaries.................. 6 --- 21 180 Contributions in aid of construction................ 14 23 41 91 Payments for retirement of utility plant............ (99) (89) (793) (421) Other............................................... (50) --- (50) --- ------- -------- ------- -------- Net cash used in investing activities................. (7,390) (4,911) (29,857) (22,122) ------- -------- ------- Cash Flows from Financing Activities: Dividends paid on common stock...................... (2,833) (2,403) (11,185) (9,525) Issuance of common stock............................ 944 1,006 23,607 4,459 Issuance of long-term debt.......................... --- --- --- 12,000 Repayments of long-term debt........................ --- --- (594) (594) Repurchase of long-term debt and subordinated notes. --- --- --- --- Redemption of preferred stock....................... --- --- --- (50) Early redemption of preferred stock................. --- (638) --- (638) Increase (decrease) in short-term borrowings........ 10,200 15,400 (9,900) 10,600 ------- -------- ------- -------- Net cash provided by financing activities............. 8,311 13,365 1,928 16,252 ------- -------- ------- -------- Net increase (decrease) in cash and cash equivalents.. 1,579 934 68 (634) Cash and cash equivalents at beginning of period...... 1,637 2,214 3,148 3,782 ------- -------- ------- -------- Cash and cash equivalents at end of period............ $ 3,216 $ 3,148 $ 3,216 $ 3,148 ======= ======== ======= ======== Supplemental Disclosures of Cash Flow Information: Cash paid during the period for: Interest............................................ $ 3,992 $ 3,669 $11,654 $ 11,608 Income taxes........................................ $ 1,456 --- $ 5,707 $ 1,816 See Notes to Consolidated Financial Statements.
CONNECTICUT ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. The unaudited consolidated financial statements presented herein should be read in conjunction with the consolidated financial statements of Connecticut Energy Corporation ("Company") for the fiscal year ended September 30, 1994 as presented in the Annual Report on Form 10-K . In the opinion of management, the accompanying financial information reflects all adjustments which are necessary to provide a fair presentation of the interim periods shown. All such adjustments are of a normal recurring nature. 2. Because sales of gas for space heating purposes by the registrant's principal subsidiary, The Southern Connecticut Gas Company ("Southern"), are dependent upon weather conditions and typically are greater during the winter months, the results of operations for the three months ended December 31, 1994 are not indicative of the results to be expected for the full fiscal year. 3. Included in other deferred charges are amounts related to the deferral of certain hardship heating customer accounts receivable arrearages totalling $9,505,000, $10,211,000 and $7,145,000 at December 31, 1994, September 30, 1994 and December 31, 1993, respectively; the deferral of certain shortfalls in energy assistance funding related to the 1991/92 and 1992/93 heating seasons amounting to $2,601,000, $2,742,000 and $3,100,000 at December 31, 1994, September 30, 1994 and December 31, 1993, respectively; prepaid pension contributions of $7,153,000, $6,355,000 and $5,662,000 at December 31, 1994, September 30, 1994, and December 31, 1993, respectively, and an intangible pension asset of $101,000, $101,000 and $3,652,000 at December 31, 1994, September 30, 1994 and December 31, 1993, respectively. 4. Included in other deferred credits are amounts related to a minimum pension liability totalling $101,000, $101,000 and $3,816,000 at December 31, 1994 and September 30, 1994 and December 31, 1993, respectively. 5. Southern has identified coal tar residue at three sites in Connecticut. This residue results from historic coal gasification operations conducted at those sites by Southern's predecessors from the late 1800s through the first part of this century. Many gas distribution companies throughout the country carried on such gas manufacturing operations during the same period. See section entitled "Environmental Matters" on page 18 for further detail. 6. Effective October 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits". 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 had no material effect on the Company's financial condition or results of operations. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net Income - --- ------ Connecticut Energy Corporation's ("Company") consolidated net income for the three and twelve months ended December 31, 1994 and 1993 is detailed below: Three Months Ended Twelve Months Ended December 31, December 31, ------------------ ------------------- (in thousands, except 1994 1993 1994 1993 per share) ---- ---- ---- ---- [S] [C] [C] [C] [C] Net Income $4,941 $4,998 $12,786 $10,214 ====== ====== ======= ======= Net Income Per Share $ 0.57 $ 0.67 $ 1.52 $ 1.37 ====== ====== ======= ======= Weighted Average Shares Outstanding 8,709 7,498 8,439 7,431 ------ ------ ------- ------- Higher margins for the three months ended December 31, 1994, which were principally due to the full effect of 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"), were offset by higher operations expense to reflect the recovery of expenses due to the adoption of Statement of Financial Accounting Standards No. 106 ("SFAS 106"), as well as other previously deferred costs. Also contributing to the slight decrease in net income for the three months ended December 31, 1994 as compared with the same 1993 period were higher levels of depreciation expense, a higher effective tax rate for the 1994 quarter and higher short-term interest expense related to higher average short-term rates and lower interest income primarily related to the recovery of previously deferred transition costs. For the twelve months ended December 31, 1994, higher margins were principally due to the rate increase implemented by Southern, Southern's ability to retain additional interruptible margins earned due to the changes in the annual margin sharing period and target made by the State of Connecticut Department of Public Utility Control ("DPUC") in Southern's last rate decision and the continued conversion of existing non-heating customers to heating customers. Partially offsetting these increases were higher operating expenses in the areas of uncollectibles, wages (including some overtime due to colder weather during the 1993/94 winter), employee benefits costs principally due to the adoption of SFAS No. 106, depreciation, rent and increased taxes due to higher pre-tax income and higher revenues. Results for the twelve months ended December 31, 1994 were also affected by higher interest costs due to Southern's issuance of $12,000,000 in additional long-term debt in September 1993. The increases in costs on long-term debt for the twelve months ended December 31, 1994 were offset by lower other interest costs. Operating Revenues - --------- -------- The Company's operating revenues for the three months ended December 31, 1994 were approximately 2% lower than the corresponding period ended December 31, 1993. Although there was an increase in operating revenues due to the implementation a 6.6% increase in Southern's base rates in December 1993 and the collection of approximately $2,190,000 from firm customers through the Weather Normalization Adjustment ("WNA"), this was more than offset by lower collections through the operation of Southern's Purchased Gas Adjustment Clause ("PGA") and weather that was approximately 14% warmer than normal during the three months ended December 31, 1994. For three months ended December 31, 1993 the weather was approximately 2% colder than normal which positively affected operating revenues for that period since the WNA was not in effect. For the twelve months ended December 31, 1994, operating revenues were approximately 11% higher when compared with the corresponding 1993 period. The increase can be principally attributed to the implementation of new base rates, collections through the operation of the PGA and the addition of more heating customers through conversions of existing non-heating customers. For the twelve months ended December 31, 1994, Southern refunded approximately $577,000 through the operation of the WNA. Total Sales and Transportation Volumes - ----- ----- --- -------------- ------ Southern's total volume of gas sold and transported for the three months ended December 31, 1994 was 12,662 MMcf, which represents a 48% increase over the comparable 1993 period. This increase was primarily attributable to volumes of gas transported in accordance with a special contract for The Connecticut Light and Power Company's ("CL&P") Devon generating station ("Devon Station") which began in July 1994 as well as Southern's ability to sell gas off-system in accordance with the DPUC's decision regarding the implementation of Federal Energy Regulatory Commission ("FERC") Order No. 636 by the Connecticut local gas distribution companies. For the twelve months ended December 31, 1994, Southern's total volumes of gas sold and transported of 37,366 MMcf were approximately 30% higher than the comparable 1993 period principally due to higher transportation volumes to CL&P's Devon Station and off-system sales volumes. Firm Sales Volumes - ---- ----- ------- Firm sales volumes sold by Southern for the three and twelve months ended December 31, 1994 decreased 17% and 3%, respectively, as compared to the corresponding 1993 periods. This decrease was principally due to weather that was 15% warmer during the three months ended December 31, 1994 when compared to the corresponding 1993 period. 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 mechanism on these sales and services: Three Months Ended Twelve Months Ended December 31, December 31, ------------------ ------------------- (in thousands) 1994 1993 1994 1993 ---- ---- ---- ---- Gross margin earned $2,951 $1,462 $8,911 $5,873 ====== ====== ====== ====== Gross margin retained $ 716 $ 419 $5,642 $3,234 ====== ====== ====== ====== Volumes sold and transported (MMcf) 6,993 1,693 15,809 6,487 ------ ------ ------ ------ Margins earned on volumes delivered to interruptible customers vary depending upon the relationship of the market price for alternate fuels to the cost of natural gas and related transportation. Additionally, margins earned, net of gross earnings tax, from interruptible service in excess of an annual target are allocated through a margin sharing mechanism between firm customers and Southern. Margins earned and retained by Southern were higher for the three months ended December 31, 1994 as compared with the corresponding 1993 period principally due to higher levels of interruptible sales and higher margins earned on those sales. Also contributing to increased margins was Southern's ability to sell and transport gas off-system pursuant to the DPUC'S decision regarding the implementation of FERC Order No. 636. The increase in margins retained for the twelve months ended December 31, 1994 when compared to the corresponding 1993 period 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 as well as Southern's ability to sell and transport off-system gas. Purchased Gas Expense - --------- --- ------- Purchased gas expense for the three months ended December 31, 1994 decreased approximately 9% when compared with the corresponding 1993 period primarily due to lower firm sales volumes for the 1994 period. This decrease would have been greater but for the suspension of the flow-through of approximately $4,974,000 in interstate pipeline refunds to Southern's customers relating to the recovery of previously deferred transition costs. Purchased gas expense for the twelve months ended December 31, 1994 increased approximately 8% when compared to the corresponding 1993 period. This increase was primarily due to a higher base cost of gas and the suspension of the flow-through of approximately $2,468,000 in gas cost credits and $9,022,000 in interstate pipeline refunds to Southern's customers relating to the recovery of previously deferred transition costs which amounts would have reduced purchased gas expense. Operations Expense - ---------- ------- Operations expense for the three and twelve months ended December 31, 1994 increased approximately 16% and 23%, respectively, when compared to the corresponding 1993 periods. For the three and twelve months ended December 31, 1994, approximately 54% and 51% of these increases, respectively, were 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 the fiscal year ended September 30, 1993. Southern has been allowed to recover these costs as well as deferred costs associated with Southern's certified hardship forgiveness program beginning January 1, 1994 in accordance with the DPUC's latest rate decision. Accordingly, included in operations expense for the three and twelve months ended December 31, 1994, is approximately $676,000 and $2,403,000, respectively, relating to these amortizations. The remainder of the increase in operations expense is due to higher employee benefit costs relating to the adoption and the current recovery of postretirement health care expenses as well as increases in other operations expenses such as wages, rent, pension costs and other general and administrative expenses. Maintenance Expense - ----------- ------- Maintenance expense for the three and twelve months ended December 31, 1994 increased approximately 13% as compared to the same 1993 periods. These increases were primarily attributable to higher labor and material costs associated with Southern's mains. The twelve months ended December 31, 1994 includes a higher level of maintenance activity due to the colder weather experienced during the 1993/94 winter. Depreciation and Depletion - ------------ --- --------- Depreciation expense for the three and twelve months ended December 31, 1994 increased approximately 8% as compared to the corresponding 1993 periods primarily due to additions to plant in service by Southern. Federal and State Income Taxes - ------- --- ----- ------ ----- The total provision for federal and state income taxes for the three and twelve months ended December 31, 1994 increased approximately 9% and 46%, respectively, as compared to the corresponding 1993 periods. These increases were primarily due to higher pre-tax income for both 1994 periods, coupled with a higher effective tax rate for the three and twelve months ended December 31, 1994 due to the flow-through tax effect of the amortization of previously deferred costs. Interest Expense and Preferred Stock Dividends - -------- ------- --- --------- ----- --------- Total interest expense and preferred stock dividends increased approximately 5% for the three months ended December 31, 1994 as compared to the corresponding 1993 period. This increase was primarily due to lower amounts of interest income relating to the deferred and current recovery of transition costs arising from the implementation of FERC Order No. 636 by interstate pipelines in addition to higher short-term interest costs due to higher average interest rates during the 1994 quarter. Partially offsetting the increase were lower interest costs related to interstate pipeline refunds. Total interest expense and preferred stock dividends remained relatively unchanged for the twelve months ended December 31, 1994 when compared with the corresponding 1993 period. Higher long-term interest costs associated with higher average borrowings from the issuance of $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 during the twelve months ended December 31, 1994 due to lower average short-term borrowings. 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 December 31, 1994, Southern had unused lines of credit of $35,000,000. Because of the availability of short-term credit and the ability to issue long-term debt and additional equity, management believes it has adequate financial flexibility to meet its anticipated cash needs. Operating cash flows for the three months ended December 31, 1994 were positively affected by the receipt of approximately $4,974,000 in interstate pipeline refunds utilized to offset previously deferred transition costs and lower inventory balances. Operating cash flows for the twelve months ended were positively affected by higher net income, the receipt of interstate pipeline refunds utilized to offset previously deferred transition costs and lower gas storage inventory balances. Investing Activities - --------- ---------- Capital expenditures approximated $7,247,000 and $4,822,000 for the three months ended December 31, 1994 and 1993, respectively, and $29,035,000 and $23,886,000 for the twelve months ended December 31, 1994 and 1993, respectively. Southern, on an annual basis, 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. In December 1994, the Company formed a new non-utility subsidiary called Connecticut Energy Development Corporation ("CEDC"). CEDC initially is expected to participate as an equity holder in entities to be formed to purchase and market natural gas and potentially participate in other non-regulated activities. Financing Activities - --------- ---------- Financing plans for 1995 include a proposed private placement of approximately $10,000,000 of long-term debt by Southern 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. FERC Order No. 636 Transition Costs - ---- ----- --- --- ---------- ----- As a result of FERC Order No. 636, costs are being incurred by Southern's interstate pipeline suppliers to convert existing "bundled" sales services to "unbundled" transportation and storage services. These transition costs include: (1) unrecovered gas costs, (2) gas supply realignment costs, (3) stranded investment costs and (4) new facilities costs. Southern has paid approximately $9,428,000 of an estimated $16,335,000 in transition costs as of December 31, 1994. Of this total amount paid, $4,468,000 represent unrecovered gas costs and $4,960,000 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 prescribed, 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 costs balances from the suspension of the 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 December 31, 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 costs credits for the 1992/93 period and all subsequent annual deferred gas costs 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 costs 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 December 31, 1994, Southern has recovered approximately $9,202,000 in gas supply realignment costs as well as stranded investment costs through a combination of these recovery mechanisms. 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 in Southern's last rate order, 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. PART II- OTHER INFORMATION Items 1, 2, 3, 4 and 5 are inapplicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit 27 Financial Data Schedule Submitted only in electronic format to the Securities and Exchange Commission. (b) Reports on Form 8-K: There were no reports filed on Form 8-K during the quarter. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONNECTICUT ENERGY CORPORATION (Registrant) DATE: February 8, 1995 /s/ Vincent L. Ammann, Jr. -------------------------- Vincent L. Ammann, Jr. Vice President and Chief Accounting Officer EX-27 2
UT 1,000 3-MOS SEP-30-1995 DEC-31-1994 PER-BOOK 238,196 2,492 68,959 70,644 0 380,291 8,749 86,160 33,862 128,771 0 0 119,917 29,000 0 0 594 0 0 0 102,009 380,291 65,523 2,930 21,244 24,174 8,072 (155) 7,917 2,976 4,941 0 4,941 2,833 2,716 658 0.57 0
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