ML20133B171
| ML20133B171 | |
| Person / Time | |
|---|---|
| Site: | Seabrook  |
| Issue date: | 12/31/1995 |
| From: | Fiscus R, Grossi R UNITED ILLUMINATING CO. |
| To: | |
| Shared Package | |
| ML20133B135 | List: |
| References | |
| NUDOCS 9701030023 | |
| Download: ML20133B171 (93) | |
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! O MThe UnitedIlluminating Company 1 4
l . Annual Report to Shareowners ;
! . Notice of 1996 Annual Meeting l . Proxy Statement 4
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, UIat a Glance Inside Cover
- Executive Letter to Shareowners Section A Summary FinancialInformation Section B 4
2 1995 AnnualReport to Shareawners Section C l' Notice of1996 AnnualMeeting Section D I Proxy Statement Section D 3 Directions to AnnualMeeting Inside Back Cover i
Please sign and return your proxy promptly.
9701030023 961226 PDR ADOCK 05000443 K PDR ,, ___
UI at a Glance FINANCIAL PROFILE Number of employees at year-end 1,358 Number of shares at year-end 14,100,091 Total payroll (000) S 72,984 Balance for common stock (000) S 51,247 Total taxes (000) S 114,397 Earnings per share of common stock $ 3.64 Total operating revenue (000) $ 690,449 Earnings per share from operations S 3.61 Net utility plant at year-end (000) $1,345,694 Dividends declared per share 5 2.82 Fuel and energy cost (000) $ 138,169 Payout ratio 78 %
Shareowners (total) 17,049 Peturn on average equity 11.84 %
in Connecticut 8,207 Book value per share 5 31.20 CUSTOMER PROFILE Residential Commercial Industrial Other Total Average number 278,326 28,550 1,599 1,122 309,597 kWh sales (000) 1,890,575 2,273,965 1,126,458 48,435 5,339,433 Sales revenue (000) $260,694 $259,715 $106,963 511,736 $639,108 Average revenue per kWh 13.79 11.42# 9.50 24.23# 11.97#
Average kWh use per customer 6,793 Peak load (MW) 1,157 UI GENERATING PROFILE In-Service Capacity UI Share Name Location Date (MW) (MW) %
Fossil Capacity Bridgepon Harbor Station Bridgeport, CT 1961-1985 572.1 572.1 100 %
New Haven Harbor Station New Haven, CT 1975 447.0 418.9 93.71 %
Nuclear Capacity Connecticut Yankee Haddam Neck, CT 1968 560.1 53.2 9.5%
Millstone Unit 3 Waterford, CT 1986 1,119.6 41.3 3.685 %
Seabrook Unit 1 Seabrook, NH 1990 1,155.0 202.1 17.5 %
Renewable Capacity Hydro Quebec Entitlement Canada NA 1,80c.0 98.1 5.5%
Power Purchase: Refuse Recovery Generator Bridgeport, CT 1988 59.5 59.5 100 %
Average fuel cost per kWh generated 1.71t Coal bumed (tons) 881,245 Generating capability at year-end (MW) 1,434 Coal burned oil equivalent (BBL) 3,622,585 Barrels of oil burned (42 gal / BBL) 2,191,341 Gas burned (MCF) 4,102,202 TRANSMISSION AND DISTRIBUTION PRGFILE Transmission and Distribution UI maintains approximately There are 3,123 pole-line miles of overhead distnbu-100 circuit miles of overhead transmission lines and tion lines and 130 conduit-bank miles of underground approximately 20 circuit miles of underground trans- distribution lines in UI's system.
mission cables.The Company also owns and operates 24 bulk substations and 46 distribution substations.
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! Executive Letter h 5' to Shareowners j i i k
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i l Richard J. Grossi Robert L. Fiscus
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j It has been another eventful year for UI. We continued to streamline operations, j
achieved growth in earnings that exceeded our targeted goal and increased our dividend to 1
shareowners in February 1996 for the sixth consecutive j year. We enjoyed the first full-year's expense savings 4s_........-............
! from the 1993 management early retirement program - - - - " - - ' - -"-
\ u l - ". .wmm, e l:.~ '., .a and our strong cash flow led to continued interest . i n . . . .'. . : N . . . . -....?.c=.~.""'"= \
expense reductions. The market price of UI common 3 ___________,,_________
j stock rebounded from the overall depressed utility 2o '
l 4Q 10 2Q 3Q 4Q 1Q 2Q SQ 4Q market of 1994, by increasing 27% in 1995. Including S3 u es UI Common Stock Price 3
dividends, the total return to shareowners was 36% ==,-w-coo- w we vor a l in 1995.
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j Strong Financial Performance i
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Earnings Earnings from operations were $3.61 per share in
, a ca 1995, a $.33 improvement over 1994. This exceeded UI's goal of i 2"*
$3.57 per share for 1995, a 4% annual growth in earnings from
! f j ; operations from the 1992 level. Total 1995 earnings, which 4 .
i ! included a net non recurring gain, were $3.64 per share.
j 2.00 1 92 03 94 98 H 1 Earnings from j Operations j uon= pn *=>
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Sain The mild weather from January through June 1995 depressed sales. However, from July ;
1 through December, seasonal extremes helped sales. The overall effect was slightly more !
l favorable inan a normal weather year for us and retail electricity sales came within 0.4% of our l 1
all-time high of 5.363 billion m, i s.s - I kilowatt hours set in 1994. Sales saa . , , , ,
8.o . Ravenue Taxes margin increased substantially
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t 3.6 (see chart) due to several factors, m s.ia.,.m
- s. i including reduced fuel expenses and the elimination of a revenue o s.o L -
Yota'i sa5: " charge that had been in effect in n'etaIlRe en$e l (Musn kd) (mdtums of dollars) {
1994.
Operating Expenses UI's total operation and maintenance costs (excluding fuel and a one-time early retirement charge) and capacity purchase expense declined for the first time since the Seabrook nuclear unit began operation in 1990, dropping 26 - 5eabrook Operuuon
$6.7 million from the 1994 level. In early 1993, as we looked ahead to 1995, we were concen'ed about our ability no{/8j 10 y to absorb the significant impact of the amortization of deferred Seabrook phase-in costs, which began in January
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-8 1995. This $12.6 million per year amortization (after tax) so et e2 es s4 es equals a reduction in earnings of $0.89 per share. However, Year to Year Change our reorganization efforts in 1993, an early retirement program, operation & Maintenance Expenses continuing business process improvement, aggressive debt (maon. < don =>
refinancings and sales margin improvements, more than offset the effects of this amortization charge.
Seabrook is still a major cost driver for the Company, and the plant achieved outstanding performance since its return from refueling in July of 1994. The plant operated at, or near, full output for 444 of the 459 days between refueling outages and its November 1995 refueling was completed in 38 days, under budget, and much more quickly than the national average of 50
- days. This is important because the marginal generating cost of Seabrook is so low compered to fossil plant generation (about a third). Seabrook's 1995 capacity factor when not being refueled was 92% and its overall lifetime capacity factor is now 76.4%.
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Cash and Interest Our cash flow remains strong, totaling about $11.30 per share or 4 times the common stock dividend at year-end. This solid performance is consistent with our strategic goal to reduce our debt by maintaining an average free cash flow of ,,, ,
at least $30 million each year after construction and dividend needs ia -
are met. Through refinancing and paydown of UI's debt, interest
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- payments declined by $7.5 million (8.9%) in 1995. Annual interest 4o -
l expense has declined from the peak level in 1989 of $114 million to approximately $77 million in 1995, a reduction of 32.8%. Y,J',,j'Er'p'en's'e " "
(rmthons of dollars) 7 Dividends in February 1995, the Board of Directors voted a 2.2% increase in the common stock dividend to an annual rate of $2.82 per share, a 78% payout of 1995 earnings. Based on i our 1995 earnings performance and our goal of 4% growth in future earnings, the Board of Directors, in February 1996, voted a 2.1% increase in the common stock dividend to an annual rate of $2.88 per share. This was the sixth consecutive annual increase in dividends.
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2 Dmdends 26 -
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as 99 to 91 92 93 S4 96 90 91 92 93 94 98 Cash Flow and Dividends Book Value (dollars per share) tdollars per share)
A continuation of earnings growth at a level higher than the dividend growth rate will soon reduce future dividend payout ratios of earnings from operations to below the mid-70%
range.
Government Explores Heightened Competition The regulatory and legislative arenas have been particularly active in Connecticut.
In September 1994, the Connecticut Department of Public Utility Control (DPUC) issued a well-reasoned decision stating that retail wheeling "is not in the best interests of the stakeholders, State Energy Po!D and the economy of the State of Connecticut?'
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In July 1995, the DPUC issued a decision that addressed the restructuring of the electric industry and the role competition will play in the future. Among its findings," Connecticut utilities are entitled to a reasonable opportunity to recover n:t, nonmitigatable, stranded investment". This latest finding i: very responsive to our concerns.
The DPUC acknowledged that any proposals to restructure the electric utility industry must address mandated costs that currently are included in the price we charge our customers.
Among these are costs associated with the purchase of high-cost energy from private power
, producers, the Connecticut tax on a utility's gross earnings and the impacts oflaws that prevent customer shutoffs. These factors, which represent about 12 15% of our price, must be accommodated if we are to enjoy a level playing field in what may eventually become a fully competitive electric energy marketplace.
All of our costs are currently being recovered through our rates. We are not deferring any current expenses awaiting future rate increases, and we are recovering in our prices certain assets at accelerated rates. This will dramatically improve our c >st position as we move into the next decade and, coupled with our plan to reduce operating expenses, should enable us to achieve price reductions in this time frame.
In the fall of 1995, the Connecticut legislature established a Task Force to review the structun 'lthe State's electric utility industry. A preliminary report was issued in February 1996 and a final report is due in early 1997. UI is actively involved in this process, with representatives of management and union serving on the Task Force. We are optimistic that the final Task Force report will be reasonable and supporti5 mf the Company's efforts.
i Outlook For 1996 and Beyond
- We continue to be guided by the following key objectives: grow earnings from ;
operations at 4% per year; increase dividends, but at a rate below that of earnings growth so as to lower the dividend payout ratio; increase our equity capitalization to 40%; retain and attract customers; help existing customers crow; and continue to reduce coe A-4
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The absence of a Seabrook refueling outage in 1996 l 84% -
should improve prospects for 1996 earnings from operations.
82% -
Other sources of anticipated earnings growth include modest ,ay, ,
sales increases and continued interest expense reductioc of 55 78y, .
million in 1996 and an additional $5 million in 1997. Continued 78 %
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opportunistic refinancing and generation of cash to pay down -
92 93 94 95 D end a eru ntage debt are key components of UI's cost reduction strategy. ,js , , {o t a a , , _ ,
"-ducing operating expenses is a key part of UI's overall corporate strategy. It is noteworthy that 64 of 73 eligible union employees chose to accept our bargaining unit early retirement plan in January 1996. This will result in a one-time charge of about 50.30 per share in the first quarter of 1996, but it should pay for itself over a three year period.
Even in an environment without the current regulatory and legislative initiatives, we has e been extremely mindful of the competition that we have long faced from other regions of the country. To compete better, we have greatly intensified our focus on customer service and have formed close relationships with our customers. While large ettstomers receive the headlines when they expand or contract their operations, we are pleased with the level of growth among small to medium-sized customers. Customer focus is a valuable component of our marketing strategy, but we also realize that price is of great concern to our customers. Toward that end, and in anticipation of a more campetitive future environment, we will soon be submitting a financial plan for review by the DPUC. This plan will address price issues without jeopardizing our financial goals.
Significant cost reductions will be a necessary element in the financial plan. We are
. currently in the midst of a unique company-wide opportunity assessment effon in collaboration with a premier electric utility and a pioneer consulting firm in re-engineering efforts. This collaborative effort is helping us reassess our business operations, processes, costs and strategies in order to enable us to strengthen the Company financially and make us more competitive.
In parallel with the collaborative effort, the Company is conducting a series of training sessions for its einp.' yees. These sessions, which include leadership, customer focus, and A-5
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financial training, are intended to reinforce in our employees the technignes and methods required to insure that we operate in the most effective manner.
In February 1996, the Company and Yale University announced they had negotiated a 10-year agreement that allows the Company to retain a major customer and the University to cogenerate a portion ofits electric needs. Beginning in mid-1997, Yale will purchase halfits electricity from UI and will produce the remaining halfitself. Under the agreement, Yale can purchase additional power from UI as its electric needs grow in the future. As a result, the sales margin decrease to UI is equivalent to a one-half percent sales reduction in each of the years 1997 and 1998.
The Yale contract is one of 17 multi-year pacts that UI has signed with major customers in recent years. These contracts, driven by increasing competition in the electric utility industry, assure UI that many ofits major customers will continue to purchase their electricity from us for years to come.
l Marketing Along with reducing costs, we plan to create sales margin growth through 1
i aggressive marketing, economic development activities and new innovative initiatives. A good I
example of this occurred in January 1996, when the Company "
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hat received DPUC approval of an electric heat pump rate that will w oa 1
allow us to compete with gas and oil for the home heating business.
We have also been utilizing the skills of a nationally recognized marketing consultant to aid us in our goal to Res dent alIIesting Cost increase our customer base and strengthen customer loyalty.
is We strongly believe that, with the enthusiastic participation and teamwork of our employees, we will continue to make solid progress in 1996 and will lay the groundwork for achievement of the key objectives that we have established in order to meet fully the expectations of our shareowners and our customers over the longer term.
I Annunt Report As an exemple of our efforts to control costs, we have consolidated all of our ,
I shareowner financial reporting into this one puEication. Consolidating these reports has reduced I A-6 i
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production costs, climinated duplicate mailings and resulted in substantial savings. In addition.
a we have prepared a comprehensive report describing our s' citegy in the increasingly competitive i'
electric utility industry, if you would like a copy of the :eport or have any questions concerning UI, please contact Investor Relations at (203) 499 2591, 1-In closing, we cordially invite you to attend the Annual Meeting of the Shareowners of
- The United illuminating Company, which will be held on Wednesday, May 15,1996 at 10
- 00 a.m. The meeting will be held at the New Haven Lawn Club,193 Whitney Avenue, New Haven, i.
i Connecticut.
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! Richard J. si Robert L Fiscus Chairman and Chief Executive Officer President and Chief Financial Officer j P.S. We have one of the leading financial and marketing "home pages" on the Intemet's World Wide Web.
j You can find us at "wwwminet.com".
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o MThe UnitedIliuminating company i
. Summary FinancialInformation l l
1 Glossary of Terms B-1 Summary Results ofOperations B-3
, Condensed Consolidat:d Statement ofIncome B-5 l Condensed Consolidated l Balance Sheet B-6
, Condensed Consolidated
- Statement ofCash Flow B-7 FinancialandStockData B-8
,b InvestorInformation B-9 i
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Glossary of Terms after-tas The effect that an item ofincome or expense has on carmngs after the impact of state and federal income taxes; the effective combined income tax rate on UIis about 42%
amortization The accountirg process of decreasing the book value of an intangible asset by periodic non cash charges against income over a specified time period.
, amortization of The amortization in 1995 to 1999 of deferred Seabrook related income Seabrook phase-in costs accrued during its p'.ne-in to rate base during 1990 to 1993.
f book value per share Calculated by dividing " Total Common Stock Equity" by " Common Shares Outstanding".
capacity factor A measure of the energy actually produced by a gentadng synem over a period of time relative to maximum amount of energy that the system was capable of producing during that time period.
conservation adjustment A component of retail customer rates that allows the Company to recover its mechanism expenditures far approved conservation and load management programs cash flow Net cash provided by operating activities as shown on the " Consolidated Statement of Cash Flows" deferring The process of delaying the recognition of an accounting cash transaction until ame time in the future.
carly retirement charges A one-time recording of the expenses associated with an early redrement program offering to employees.
earnings per share " Income Applicabic to Common Stock" divided by " Average Number of Common Shares Outstanding" carnings per share from Earnings per share excluding the effects of non recurring items ofincome or opentions expense, equity capitalization The ratio of" Common Stock Equity" to " Total Capitalization".
ratio B-1
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free cash flow Net cash from operating activities less dividend payments and capital ;
expenditures; cash available to pay down debt. !
gross earnings tas A Connecticut tax (approximately 4.3% on average) assessed on all of a j utility's retail revenues.
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kWh The energy consumed by ten 100 watt light bulbs operating for one hour; 2 MWH = Mega-watt hour or 1,000 kWhs; GWH = Giga-watt hour or i 1,000,000 kWhs.
4 l load factor A measure of the kWh consumed by a retail system over a period of time
- . relative to the kWh it would have consumed ifits rate of consumption during J'
, the entire period had equaled its maximum rate of consumption at any time during the period.
4 non-reenrring An income or expense item that is a "one-time" event... e.g., a gain from the
- sale of property; an early retirement charge.
payout ratio Cash dividends declared per share of common stock divided by earnings per share regulatory assets A balance sheet asset consisting of de right to collect certain revenues in the j future.
retail wheeling The selling of electricity to an end user in a utility's retail franchise territory by a person other than that utility.
sales naargia Revenues less fuel expense and Connecticut's tax on revenues. ,
Seabrook The nuclear generating unit lo ated in Seabrook, New Hampshire, which is jointly owned by UI and ten other New England electric utilities.
Seabrook refnseling The period when Seabrook is unavailable to produce electricity while a portion ofits nuclear fuel is being replaced.
total return Cash dividends declared per share of Common Stock over a period of time, plus (or minus) the increase (or decrease) in the narket price per share of Common Stock between the beginning and the end of the period.
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Summary Results of Operations I Progress on our earnings gro, Operation expenses 263 267 includes operanon,-
75 59 maintenance, purchased 7 -> Depreciation and amortization >- 3 Non-recurring charges capacity and preparty / 5 (1) and payroll taxes Other (income) and expenses f- 77 84
-> Interest expense 1995 includes about / income Before Income Taxes 105 90
$13 million of amortization Income taxes for operations 53 43 of previously deferred Non-recurring income texes >2 (1) revenue Income Before Accounting Change 50 48 EtTect of accounting change (1) 50 47 Net Income Gains on repurchase of preferred stock > (2) -
1 4 The company's refinancing -- Preferred stock dividends program and strong cash Balance for Common Stock 5 51 5 43 flow help to reduce interest 14 14 Average Number of Shares Outstanding expense 53.64 S3.09 E
N amings per Share A Non-recurring charges - ) !
include a property tax settlement in 1994 and
( 1995 1994 Retail Revenue $639 $619 some offsetting amounts Other Operating Revenue 3 3 <
in 1995 Retail fuel and energy expense 97 100 27 28 Sales-related taxes Retail Sales Margin $518 $494 Wholesale Revenue $ 48 $ 35 Wholesale fuel and energy expense 41 27 Wholesale Sales Margin S7 58 These condensed financial statements should be read in conjunction with the full financial statements for the year ended December 31,1995, including the report of independent accountants, dated January 29,1996,in the Annual Report to Shareowners.
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, Cendensed Consolidrted B lance Sheet This statement reports the Company's total assets (what we own and what is owed to us),
liabilities (what we owe others, now and in the future) and capitalization (amounts invested ;
in or loaned to the Company) at the end of the year.
[ December 31.1995 and 1994 cmons orDouarsi 1995 1994 Assets Utility Net Plant at Original Cost S t .278 51.268 Construction Work in Progress 42 58 i Nuclear Fuel 26 31 Other Prope.rty and Investments 27 22 l Current Assets Cash and temporary cash investments 5 11 I Customer accounts receivable, net and accrued utility revenues 92 84 includes inventory and > Other 40 62 prepayments Total 137 157 Principally unmortized -
> Deferred Charges 10 8 debt issuance costs .-> Regulatory Assets 465 531 51,985 52,075 Future revenues due from- Capitalization and Liabilities customers through the Capitalization ratemaking process, Common stock equity > S440 5428 principa!!y to collect Preferred stock 11 45 future income taxes Preferred securities 50 -
Long-term debt 845 708 Total 1.346 1.181 Noncurrent tiabilities 32 29 Current Liabilities includes dividends payable, Current portion oflong-term debt 41 193 taxes accrued, interest Notes payable -
67 accrued and pensions Accounts payable 45 43 accrued > Other 91 109 Total 177 412
, ; > Regulatory Liabilities 19 21 i
Future amounts owed to " > Deferred Income Taxes 408 429 customers through the Other 3 3 ratemaking process Commitments and Contingencies - -
51.985 S2.075 Future tax liabilities owed - -
to taxing authorities from -
Shareowners' ~ book" value - J future customer revenues 1995: 531.20 per share 1994: 530.39 per share These condensed financial statements should be read in conjunction with the full financial
, statements for the year ended December 31,1995, including the report of independent acrountants, dated January 29,1996, in the Annual Report to Shareewners.
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Cend:nsed Ccnsolidtted Statement ef Ccsh Flows This ratement summarizes cash inflows and outRows during the year from operating, investing, and financing activities.
i'or the Years Ended December 31,1995 and 1994 1995 1994 (Millions or ooirars:
Cash Flows From Operating Activities, 5 50 $ 47 Net inccme Adjustments to reconcile net income to net cash provi&d by operating activities:
80 67 Depreciation and amortization 27 10 Deferred income taxer These amounts are locluded-+ > 14 12 Amortization of nuclear fuel 10 in the calculatica of not (4)
Other non-cash income items income, but do not rep:asent 167 146 Subtotal cash outflows (6) (9)
Changes in working capital 161 137 Cash Provided by Operating Activities (41) (42)
Dividend payments Cash used for debt and equity redemptions (197) (133) 131 67 Cash provided by debt / equity issuances and borrowings Cash used for other financing activities (1) (3)
(59) (63)
Cash used for capital expenditures Use of Cash and Temporary Cash Investments (6) (37)
I1 48 Cash Balance at Beginning ofPeriod Cash Balance at End ofPeriod SS S 11 N A l
19 % 1994 1995 s\
Cash Provided by Operating Cash Available from Earnings to 195
$224 Activities less Dividend Payments $120 PayInterest Charges (A) $240 (59) (63)
Annual Cash laterest Charges (B) 73 78 Capital Expenditures S 61 $32 886 901 Difference Total Debt (C) 3.3 2.9 Cash Coverage Ratio (A)+(B) 16 %
Cash AvailabletoTotalDebt(A-B)+(C) 19%
N Y These condensed financial statements should be read in conjunction with the full financial j
statements for the year ended Decemb6,31,1995, including the report of independent '
accountants, dated January 29,1996,in the Annual Report to Shareowners.
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,y Fin:nci 1 end Stock Data INCOME AND DMDENO DATA Balance for Dividend Yield on Sales Margin Pretax t fed ) W:19come_ Common Earnmgs Declared Payout Average Year $ mil 1/ share 5 md % of s m. 5 mil per Share 5 Share 5 Ratio % Pnce %
1991 461 33.17 76 16.5
. 51 3.67 2.44 66.5 7.1
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1992 477 34.22 76 15.9 52 3.76 2.56 68.1 6.7 1993 487 34 63 63 12.9 36 2.57 2.66 101.5 6.3 1904 302 35.64 81 16.1 43 3.09 2.76 89.3 8.1 1995 525 37.25 92 17.5 51 3.64 2.32
- 77.5 8.3 i 5 Yr. Avg. 490 34.98 78 15 8 47 3 31 l
, . . _ _ .._s- 2.65 61.0 7.3 COMMON SHARE DATA Pnce Range Pnce Earnmgs Ratio
%s.r S High $ Low $ Close High Low i
- Close 1991 39 % 30 39 10.7 8.2 10.6 1992 42 34 % 41 % 11.2 9.1 11.0 1993 45 % 38 % 40 % 17.9 15.0 15.7 1994 39 % 29 29 % 12.8 9.4 9.5 1995 38 % 29 % 37 % 10.6 8.1 10.3 5 Yr. Avg. 41 32 % 37 %
- 12.6 10.0 11.4 COMMON SHARE DATA (Cont'd)
Madet Pnce 5 Trading Volume g,ne, 1995 1994 1993 in Thousands ended High Low Close High Low Close High Low Close 1995 1994 1993 3/31 33 % 29 % 32 39 % 35 % 36 43 % 41 43 % 2.796 1.696 2.363 6/30 33 % 31 % 33 37 % 32 % 32 % 44 4132 42 % 1.468 1.434 1.005 9/30 35 % 31 % 35 % 34 % 29 % 30 % 45 % 42 f n 45 % 1.522 1.928 1.218 12/31 38 % 35 % 37 % 30 % 29 29 % 45 % 38't 40 % 2.657 1.7;4 1.868 GUARTERLY FINANCIAL INFORMATION Mr Sales Margin 5 mil. Pretax (fedl Net income 5 mil. Earnings per Sh- Dnidends Paid per Share S
.. ended 1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1994 1993 3/31 122 123 118 18 20 21 0.62 0.77 0.82 0.69 0.665 0.64 6/30 123 118 115 16 13 15 0 67 0.40 0.66 0.705 0.69 0.665 9/30 156 143 140 44 41 34 1.89 1.78 1.54 0.705 0 69 0.665 12/31 124 118 114 14 7 (71 0.46 0.14 (0.45: 0.705 0.69 0.665 s.m. = Sales Margin;(fed.) = Federal B8
Investe,r Information Analyst Contact Annual Meeting Date Transfer, Registrar and Dividend Reinvestment Plan Divideed Disbursing Agent Cem SM damm FM Mh W hm's hl The Bank of New York The United illummating Meeting will be held at the ers of record interested in Telephone Inquiries: Company New Haven Lawn Club.
obtaining information 1-8W24 448 P.O. Box 1564 193 Whitney Avenue, New regarding the benefits New Haven, CT Haven, CT on Wednesday, E-Mail Address: of participating in UI's MF-Shareowners@ 06506-0901 May 15,1996, beginning dividend reinvestment Email. bony.com Tel: (203) 499-2591 at 10:00 A.M.
p an may write The Bank i
Iddress shareowner of New York for more Fax:(203) 499-2594
- hquiries To: . f rmation. Internet Address ie Bank of New York bbet65a@prodig).;om abolder Relations General Counsel
' went - IlE Wiggin & Dana f' itcy '$i8 rtdudt $fryg 6dC Stock Listing New York, NY 10286 New York Stock Send Certificates For Exchave:
Transfer and Address Common Stock Changes To:
The Umk of New York Rece w and Deliver Department - 1IW P.O. Box i1002 Church Street Station New York, NY 10286 l
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The United Illuminating Company
. 1995 Annual Report to S:aareowners Management's Discussion and Analysis of Financial Condition and Results of Operation C-1 Report ofIndependent Accountants C-9 ConsolidatedStatement ofIncome C-10 Consolidated Statement of Cash Flows C-11 ConsolidatedBalance Sheet C-12 ConsolidatedStatement ofRetained Earnings C-14 Notes to Consolidated Financial Statements C-15 1
Marketfor the Company's Common Equity andRelatedStockholderMatters C-41 Executive Officers of the Company C-41 SelectedFinancialData C-42 h
I MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MAJOR INFLUENCES ON FINANCIAL CONDITION The Company's financial condition will continue to be dependent on the level of retail and wholesale sales and the Company's ability to control expenses. The two primary factors that affect sales volume are economic ,
- conditions and weather. Since 1990, annual growth in total operation and maintenance expense, excluding one-time ;
items and cogeneration capacity purchases, has averaged less than 1.0%. He Company hopes to restrict this average to J less than the rate of inflation in future years (see " Outlook").
4 The Company's financial status and financing capability will continue to be sensitive to many other factors, including conditions in the securities markets, economic conditions, interest rates, the level of the Company's income and cash flow, and legislative and regulatory developments, including the cost of compliance with increasingly stringent environmental legislation and regulations and competition within the electric utility industry. )
'ihe electric utility industry is being subjected to increasing competition. Currently, the Company's electric service ;
j rates are subject to regulation and are based on the Company's costs. Werefore, the Company, and most regulated 1 l utilities, are subject to certain accounting standards (Statement of Financial Accounting Standards No. 71 (SFAS No. !
71), " Accounting for the Effects of Certain Types of Regulation") that are not applicable to other businesses in general, l
- These accounting rules allow regulated utilities, where appropriate, to defer the income statement impact of certain
' l costs that are expected to be recovered in future regulated service rates and to establish regulatory assets on balance '
sheets for such costs. The effects of competition could cause the operations of the Company, or a portion thereof, to no longer meet the criteria for application of these accounting rules. While the Company expects to continue to meet these i criteria in the foreseeable future, if the Company were to cease meeting these criteria, accounting standards for business i in general would become applicable and immediate recognition of any previously deferred costs would be required in i the year in which the criteria are no longer met. If this change in accounting were to occur, it would have a material j adverse effect on the Company's earnings and retained eamings in that year and may have a material adverse effect on ,
the Company's ongoing financial condition as well.
l The Financial Accounting Standards Board recently issued SFAS No.121, " Accounting for the Impairment of j Long-Lived Assets to Be Disposed Of" His standard, which is effective for the 1996 calendar year, requires the recognition ofimpairment losses on long-lived assets when the book value of an asset exceeds the sum of the expected future undiscounted cash flows that result from the use of the asset and its eventual disposition. This standard also requires that rate-regulated companies recognize an impairment loss when a regulator excludes all or part of a cost from rates, even if the regulator allows the company to cam a retum on the remaining allowable costs. Under this standard, l the probability of recovery and the recognition of regulatory assets under the criteria of SFAS No. 71 must be assessed l
on an ongoing basis. Since the Company continues to follow SFAS No.71, it does not have any assets that are !
impaired under this new standard. However, the Company cannot predict what effect, if any, a competitive l marketplace or future regulatory action will have on the future impact of SFAS No.121.
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i LIQUfDITY AND CAPITAL RESOURCES j
The Company's capital requirements are presently projected as follows:
1226 E 122fl 1222 2D00 (millions) i S 5.1 5 23.8 S- S- S- l Cash on Hand - Beginning of Year 99.4 .912 101,0 .911 jll2 )
Intemally Generated Funds (less Dividends) 104.5 119.0 101.0 99.1 83.7 ]
Subrotal Less:
623 60.0 12.2 223 ill Capital Expenditures 34.6 59.0 48.8 21.6 32.6 Cash Available to pay Debt Maturities and Redemptions Less:
103 612 1116 116.0 1112 Maturities and Mandatory Redemptions S(213) iji2 $_66J1 $_243 51211 ExtemalFinancing Requirements Note: Intemally Generated Funds (less Dividends), Capital Expenditures and External Financing Requirements are estimates based on current eamings and cash flow projections and are subject to change due to future events and conditions that may be substantially difTerent than those used in developing the projections.
All of the Company's capital requirements that exceed svailable cash will have to be provided by extemal financing. Although the Company has no commitment to provide such financing from any source of funds, o a $75 million revolving credit agreement with a group of banks, described below, the Company expects to be able satisfy its extemal financing needs by issuing common stock, preferred stock and additional short-term and debt. The continued availability of these methods of financing will be dependent on many factors, including conditi in the securities markets, economic conditions, and the level of the Company's income and cash flow.
On January 17, 1995 and October 2,1995, the Company repaid, at maturity, $50 million principal amount o 6.00% Notes and $47 million principal amount of 7.25% Notes, respectively, of the Company.
On January 17,1995 and February 15, 1995, the Company repaid $55.3 million and $10.8 million principa amounts of maturing 10.32% and 9.44% First Mortgage Bonds issued by Bridgeport Electric Company, a wholly-owned subsidiary of the Company that was merged with and into the Company in September of 19 February 15,1996, the Company repaid an additional $10.8 million of the 9.44% First Mortgage Bonds issu Bridgeport Electric Company.
Oa April 3,1995, United Capital Funding Partnership L.P. (" United Capital"), a special purpose limited l parmership in which the Company owns all of the general partner interests, issued $50 million of its mo income 9 5/8% Preferred Capital Securities, Series A, (" Preferred Capital Securities") represendng limited parmership interests in United Capital. United Capital loaned the proceeds of the issuance and sale of Capital Securities to the Company in return for the Compar.y's 9 5'8% Junior Subordinated Deferrable Inter Debentures, Series A, Due 2025. The net proceeds to the Company, approximately $48.4 million, were used to redeem, on May 10,1995,512.5 million of outstanding $100 par value 7.60% Preferred Stock, Series E (including a redemption premium of $125,000) and $15.0 million of outstanding 5100 par value 7.60% Preferred Stock, (including a redemption premium of $150,000) and to reduce short-term borrowings.
- On May 10,1995, the Company made a tender offer for all of the shares ofits outstanding $100 par value 4.35 Preferred Stock, Series A,4.72% Preferred Stock, Series B,4.64% Preferred Stock, Series C, and 5.625% Preferred Stock, Series D. On June 12 and July 17,1995, the Company purchased and retired, at a discount of $2,457,531, C-2
.,' .a' 19,i78 shares of the Seri;s A,17,790 shares of the Scrits B,19,155 shares of the Series C and 10,488 shares of the Series D preferred stock issues.
In May 1995 and June 1995, the Company entered into two separate, five-year, $50 million interest rate swap agreements with a major money center bank. Under the terms of the agreements, the Company will pay interest to the bank at fixed annual rates of 6.40% and 5.92%, respectively, and the bank will pay the Company interest at floating rates equal to the three-month London Interbank Borrowing Rate (LIBOR), which floating rates correspond to the floating rates on the Term Loan borrowings described belor ne fair value of interest rate swaps is the estimated amount that the Company would receive or pay to terminata the swap agreements at the reporting date, taking into account current interest rates. At December 31,1995, the Company would have been required to pay approximately
$2.3 million to terminate the agreements.
On August 29 and September 6,1995, the Company borrowed $50 triillion and $100 million, respectively, under a Tenn Loan Agreement with a group of banks for a five year period. He Company pays interest on the borrowings at
- a floating rate equal to the three-month LIBOR plus 0.55%. The interest rate swap agreements described in the preceding paragraph have effectively converted the interest rate on $100 million of the Company's floating rate Term Loan borrowings to fixed rates. As a result, the interest rates on two $50 million borrowings under the Term Loan Agreement are fixed at 6.95% and 6.47%.
The Company has a revolving credit agreement with a group of banks, which currently extends to December 11, 1996. He borrowing limit of this facility is $75 million, reduccd from the borrowing limit of $225 million under the previous revolving credit agreement. He facility permits the Company to borrow funds at a fluctuating interest rate determined by the prime lending market in New York, and also permits the Company to borrow money for fixed periods of timc specified by the Company at fixed interest rates determined by the Eurodollar interbank market in London, or by bidding, at the Company's option. If a material adverse change in the business, operations, affairs, assets or condition, financial or otherwise, or prospects of the Company and its subsidiaries, on a consolidated basis, should occur, the banks may decline to lend additional money to the Company under this revolving credit agreement, although borrowings outstanding at the time of such an occurrence would not then become due and payable. As of December 31,1995, the Company had no short-term borrowings outstanding under this facility.
At Decembec 31,1995, the Company had $5.1 million of cash and temporary cash investments, a decrease of 56.3 million from the balance at December 31,1994. He components of this decrease, which are detailed in the Consolidated Statement of Cash Flows, are summarized as follows: ;
(Millions) l Balance, December 31,1994 $_.lL4 l l
Net cash provided by operating activities 161.5 Net cash provided by (used in) financing activities:
Financing activities, excluding dividend payments (67.0)
- Dividend payments (41.5)
Cash invested in plant, including nuclear fuel (122)
Net Change in Cash (ftl)
Balance, December 31,1995 S_.il !
l ne Company's long-term debt instruments do not limit the amount of short-term debt that the Company may issue.
He Company's revolving credit agreement described above requires it to maintain an available earnings / interest C-3
charges ratio of not less than 1.5:1.0 for each 12-month period ending on the last day of each calendar 12-month period ended December 31,1995 this coverage ratio was 3.31. .
i UI has three wholly-owned subsidiaries. Research Center,Inc. (RCI) was formed to participate in the develop of one or more regulated power production ventures, including possible participation in arrangements for the futul l
development ofindependent power production and cogeneration facilities. United Energy International, InJ formed to facilitate participation in a joint venture relating to power production plants abroad. United Resource)
(URI) serves as the parent corporation for several unregulated businesses, each of which is incorporl participate in business ventures that will complement and enhance UI's electric utility business a the Company and its shareholders and customers.
Four wholly-owned subsidiaries of URI have been incorporated. Souwestcon Properties, Inc. (SPI) pa a 25% partner in the ownership of a medical hotel building in New Haven, that has been sold. SPI no longer t property and is currently inactive. A second wholly-owned subsidiary of URI is nennal Energies, participating in the development of district heating and cooling facilities in the downtown New Ha the energy center for an office tower and participation as a 37% partner in the energy center for a city h tower complex. A third URI subsidiary, Precision Power, Inc., provides power-related equipment and ser owners of commercial buildings and industrial facilities. A fourth URI subsidiary, American Payment Systems, In manages agents and equipment for electronic data processing of bill payments made ty customers UI, at neighborhood businesses. In addition to these subsidiaries, URI also had a majority ownership i Ventana Corporation, a subsidiary that was dissolved in December 1995 and formerly offered energy c engineering and project management services to govemmental and private institutions.
He after-tax impact of the subsidiaries on the consolidated fmancial statements of the Company is as follow Assets Net Income (loss) Earnings at Dec. 31 (000's) per Share (000's)
$(2,640) $16,323 1995 $(0.19)
(3,245) 15,334 1994 (0.23)
(2,458) 8,355 1993 (0.17)
RESULTS OF OPERATIONS 1995 vs.1994 Eamings for the year 1995 were $51.2 million, or $3.64 per share, up S7.8 million, or S.55 per sha 1994. Earnings from operations, which exclude one-time items, were $50.7 million, or $3.61 per share, Earnhtgs from operations for 1994 were $46.2 million, or $3.28 per share. The one-time items we charge of S.12 per share, taken in the third quarter of 1995 and reflecting the effects of legislated tax rate reductions that reduced future tax benefits on plant previously written off, a one-time gain of f 15 p recorded in the second and third quarters of 1995, from the repurchase of preferred stock at a discount to a one-time accounting change, a charge of S.09 per share, recorded in the first quarter of 1994 to reflec of postemployment benefits under Statement of Financial Accounting Standards (SFAS) No.11 charge of S.10 per share, recorded in the fourth quarter of 1994, from the settlement of a prop the City of Bridgeport.
Retail operating revenues increased by $20.2 million in 1995 compared to 1994:
. Retail revenues increased by $13.1 million due to the completion of the 1994 non-cash amortization o sales adjustment revenues, by $6.1 million from the recovery, through the Conservation Adjustmen C-4
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! 1 M '
l Mechanism, of previously recorded and projected conservation program costs, and by a net $3.2 million from l pass-through charges for certain expense changes. The expense changes included the absence of a property tax l
credit that occurred and was refunded to customers in the third quarter of 1994 and increases in fuel costs in 1995 compared to 1994.
- A retail kilowatt-hour sales decreasu of 0.4% from the prior year reduced retail revenues by $2.1 million. The ,
Company believes that the sales decrease due to weather factors was greater than 0.4% and that there was a l small but "real" (i.e. not attributable to abnormal weather) retail kilowatt-hour sales increase of about 0.5% in i 1995 compared to 1994.
l l Wholesale " capacity" revenues decreased by 50.6 million in 1995 compared to 1994. Wholesale " energy" revenues are a direct offset to wholesale energy expense and do not contribute to sales margin, i
Retail fuel and energy expenses decreased by $3.1 million in 1995 compared to 1994. A decrease of $5.7 I million was due to improved nuclear power plant output: the 1995 Seabrook Unit I refueling outage was much I shorter than the 1994 outage, and the Seabrook Unit I and Connecticut Yankee Unit had unscheduled outages in l
1994, while Millstone Unit 3 and the Connecticut Yankee Unit (much smaller sources of generation for the l Company compared to Seabrook Unit 1) had refueling outages in the first six months of 1995 but none in 1994. l l
Operating expenses for operations, maintenance and purchased capacity charges decreased by $6.7 miilion in 1995 compared to 1994:
- Purchased capacity was $2.7 million higher due to costs associated with eleven weeks of scheduled refueling l outage at the Connecticut Yankee Unit in the first half of 1995 and somewhat higher cogeneration output.
. Operation and maintenance expense decreased by $9.4 million. There was a $7.2 million reduction in fossil power plant costs reflecting reduced scheduled maintenance activity. Employment <:osts decreased by $3.1 l million due primarily to the Company's 1993 reorganization and early retirement program, .vhich was l phased-in over 1994. Other costs increased by 50.9 million. l l
Other amortization increased by $12.6 million (after-tax and equivalent, approximately, to a $23 million revenue requirement) in 1995 compared to 1994, due to commencement of the amortization of Seabrook Unit I phase-in costs (deferred return that was recorded and accumula'.ed during the period January 1,1990 to j December 31,1993). The annual amortization amount is $12.6 million after-tax per year for five years beginning in 1995.
Other operating expenses increased in 1995 compared to 1994 from higher depreciation expense and income taxes as well as from the absence of a pass-through property tax credit that occurred in the third quarter of 1994.
Interest charges decreased by $7.5 million in 1995 compared to 1994 as a result of the Company's refinancing program and strong cash flows. Total Preferred Stock dividends (net-of-tax) were virtually unchanged in 1995 compared to 1994.
, 1994 vs.1993 Earnings for th year 1994 were $43.5 million, or $3.09 per share, up $7.3 million, or S.52 per share, from 1993. This increase reflects $7.8 million (after tax), or S.56 per share, from the aasence of a one-time charge taken in the fourth quarter of 1993 for the estimated costs of a reorganization and early retirement program associated with the Company's organization review and cost reduction program. Earnings decreased $1.5 million (after-tax),
l or $.10 per share, due to a one-time charge resulting from the settlement of a dispute with the City of Bridgeport regarding past taxes payable by the Company on its personal property in that city. Earnings also decreased $1.3 million (after-tax), or $.09 per share, from an accounting change made in the first quarter of 1994 to implement C-5
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Statement of Financial Accounting Standards No.112. Earnings per share for 1994, excludin accounting changes, increased by S.15 per share, to $3.28 per share, from $3.13 per share for 19 1993: $12.5 million Retail operating revenues incter. sed at,out $15.3 million for the year 1994 over the year I from retail rate changes, $7.1 million from higher retail kilowatt-hour sales and $1.2 rrillion
" pass-through" expenses, partly offset by $5.4 million from an increase in non-cash revi l
ne $12.5 million retail revenue increase due to rate changes resulted from a rate increase ,
Included in this $12.5 million was $5.4 million to collect sales adjustment in 1992 effective January 1,1994. A separate non cash amortization charge to revenue was i revenues booked in prior periods.
million to eliminate any current period revenue effect of these sales adjustment rate changes.
Retail kilowatt-hour sales for the year increased 1.4% over the prior year, producing addition of $7,1 million and additional sales margin (revenue less fuel expense and revenue-based million. There was virturtly no retail kilowatt-hour sales change from weather factors betwe Weather for the year of 1994 was more severe than " normal," augmenting sales by 0.9 about $4.5 million and sales margin of about $3.4 million. Retail revenues to recover " pa certain expense changes, including fossil fuel, increased by 51.2 million in 19c4 over 1993.
Wholesale " capacity" revenues increased by 50.6 million in 1994 from their 1993 level. W revenues, as well as the associated fuel expense, decreased by 511.6 million from 1993 to 1994.
Rwtail fuel and energy expenses increased 50.9 million for the year of 1994 over 1993. A s (reduction of expense) of about $1.2 million resulted from nuclear unit operations and were other offsetting fuel expense increases of $2.1 million.
Operating expenses for operations, maintenance and purchased capacity char million compared to 1993. Purchased capacity was $2.7 million lower than and Operation 1993 due outage at te Connecticut Yankee Unit, compared to ten week reflecting nine weeks of scheduled outage and ten weeks of unscheduled outage in and maintenance expenses decreased by a net $1.8 million, reflecting reduced maintena fossil fuel generating plants, the impacts of the 1993 reorganization and early retireme re-engineering efforts.
Other operating expenses, excluding one-time items and their tax effects, increas in 1994 from 1993 due to higher depreciation and income taxes.
Other income and (deductions) decreased $13.2 million for the year of 1994 from the to the elimination of the deferred returns (after-tax and not representing current cash in of the cost of Seabrook Unit I that had not been in the Company's rate base in 1993 and income tax benefits associated with the interest costs of carrying that portion of the unit
.. lower construction costs and a lower AFUDC rate, the write-off of certain terminated p capitalized, end higher losses related to unregulated subsidiaries. De revenue 1994, and the income tax benefits of the associated cost of debt, are reflected in operati Interest costs and preferred stock dividends decreased by 59.2 million in 1994 comp refinancing program, the Company has taken advantage oflower interest rates in both 199 C-6
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OUTLOOK The Company's long term earnings goal is to achieve growth in earnings per share from operations of 4%
annually from the 1992 level of $3.17 per share. The Company exceeded the goal in 1995 and anticipates achieving the goal in 1996.
The 1996 quarterly earnings from operations are expected to follow a pattem similar to that of 1995, with significantly higher earnings in the third quarter when compared to other quarters. Summer seasonal retail sales and summer pricing are the predominant factors contributing to this patte n.
It is anticipated that retail revenues for all of 1996 will increase by about SS million as a result of recovery, through the Conservation Adjustment Mechanism, of previously recorded and projected conservation costs mandated by the Department of Public Utility Control (DPUC), partially offset by competitive pricing and other price reduction mechanisms. The Company has dealt with the possible loss of customers as a result of cogeneration, relocation or shut down of operations by successfully negotiating more than a dozen multi year contracts with major customers, including its largest customer, which is constructing a cogeneration unit that will produce approximately one-half of the customer's electricity requirements. These contracts provide cost reduction and price stability for the customers while helping the Company maintain its customer base.
The Company's financial condition will continue to be dependent ca the level of retail and wholesale sales.
The two primary factors that affect sc'es volume are economic conditions and weather. Overall,1995 weather was more severe than " normal", producing additional revenues of about $6 million in 1995. A retum to " normal" weather in 1996 would result in a revenue reduction of about 56 million compared to 1995, while a "real" retail kilowatt-hour sales growth of 0.5% would increase revenues by about S3 million.
He Company expects that higher generating output from nuclear generating units (no refueling outages planned for the Seabrook Unit 1 or Millstone Unit 3 in 1996) and lower nuclear fuel prices could add $4-$5 million to sales margin (through lower retail fuel and energy expense) in 1996 compared to 1995, if normal operating assumptions are met. The Connecticut state legislature has authorized the DPUC to adopt an Energy Adjustment Clause (EAC - a fully tracking fuel clause) to replace the existing Fuel Adjustment Clause, if the EAC achieves certain objectives. The DPUC has conducted hearings on this issue. Currently, the Company is only protected for fossil price changes in its fuel expense. While the Company could benefit, under an EAC, from expense pass through for replacement fuel from extended nuclear outages, it could relinquish benefits from higher nuclear generation and lower fuel prices.
Another major factor affecting the Company's financial condition will be the Company's ability to control expenses. As part of a new three-year agreement between the Company and its union employees (the Bargaining Unit), and in conjunction with the Company's cost savings programs, a Bargaining Unit Voluntary Early Retirement Program has been initiated and will result in a one time charge against income of approximately $7.2 million (54.2 million after-tax) in the first quarter of 1996. Savings from the program should begin accruing in the second quarter of 1996. The overall agreement also resulted in the commitment, by the Company and the Bargaining Unit, to a partnership to improve efficiency, cost-effectiveness and the quality of customer service through the development of a flexible, multi-skilled and highly trained workforce, and to support the involvement of Bargaining Unit employees in helping to streamline work processes to yield maximum results at minimum costs while sustaining quality customer service.
Anticipated depreciation expense should increase expenses by S4-S5 million in 1996 from 1995 levels.
The Company expects continued reductions in interest expense of about 55 million from the 1995 level of $77 million to about $72 million. This 1996 interest expense level would be 37% below the 1989 level and would mark the seventh consecutive year of net interest expense decline.
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'Ihe Company expects an improvement in unregulated i subsidiary ff amings,earnings but c the near term, the Company's investments in these subsidiaries are unlikely to have a posit
^ v believes that these investments will contribute to future eamings growth. :
the Cor I
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. Coo 3ers
&Ly3 rand a profetssonal services hrm REPORT OF INDEPENDENT ACCOUNTANTS To the Shareowners and Directors of The United Illuminating Company:
We have audited the accompanying consolidated balance sheets of The United Illuminating Company as of December 31,1995,1994 and 1993, and the related consolidated statements of income, retained earnings and cash flows for the years then ended. 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 The United Illuminating Company as of December 31,1995,1994 and 1993, and the consolidated results ofits operations and its cash flows for the years then ended in conformity with generally accepted accounting principles.
Hartford, Connecticut nH1.u.
January 29,1996 C-9 Coopers & Lybrand LLP. a registered hmited haouy cartnersnio. is a rne-cer hrm cf Ccoce s & Lybrand Unternabona')
q j
i THE UNITED ILLUMINATING COMPANY CONSOLIDATED STATEMENT OF INCOME For the Years Ended December 31,1995,1994 and 1993 (Thousands eteept per share amounts)
E 1994 g
$656.748 $653.023
$690.449 _
Operating Revenues (Note G)
Operating Expenses 127,354 138,050 138,169 Operation 47,420 44,769 47,424 Fuel and energy - 13,620 Capacity purchased 151,330 148,332 147,660 Reorganizatha charge 41,768 41,475 36,089 Other 58,165 56,287 61,426 Maintenance 1,172 1,172 13,758
- 608 DepreciationAmortization of cancelled nuclear project and deferred44,937 -
return (Note 33,309 J and 59,828 Amortization of deferred fossil fuel costs - 2,536 -
Income taxes (Note A and E) 57,325 _ 57,932 58.943 Property tax settlement 538.209 563.293 529.356_
Other taxes (Note G) 114.814 127,156 _ 127.392_
Total Operatingincome 753 999 390 Other income and (Deductions) -
- 7,497 Allowance for equity funds n. t d during construction (1,907) 71 (4.272)
Deferred return - Seabrook Unit 1 4.901_
3,214 6.322 Other-net (Note G) 2.060 14.889 Non-operating income taxes 1.019 j 129.452 _ _
129,703 Total 128.175_
Income Before Interest Charges 73,772 80,030 ;
63,431 '
Interest Charges 3,731 4,442 4 9,002
- Interest on long-term debt (2.710)_ (3.068)_
(2.372) ~ 81,404 !
Other interest (Note G) 70,061 74,793 Allowance for borrowed funds used during construction 6.570 _ 7.818 i 4.13 8___
Amortization of debt discount and redemption premiums 74.199__ 81.363__ 89.222_ l NetInterest Charges - -__:
3.583 Minority Interest in Preferred Securities 48.089 40.481 50.393 -
Income Before Cumulative Effect of Accounting Change ;
Cumulative effect for years prior to 1994 of accounting - (1.294) -_;
change for postemployment benefits 46,795 40,481 l 50,393 (net ofincome taxes of $956)(Note H) (2,183)
Net income 3,323 _ 4.318_
Discount on preferred stock redemptions 1.329 _
Dividends on preferred stock 551.247 _ $43.472 _ ] $36.163 Income Applicable to Common Stock 14,064 14,090 14,085 Average Number of Common Shares outstanding S2.57
$3.64 $3.18 Earnings per share of Common Stock before cumulative effect of accounting change (0.091 _ _.f Cumulative effect for years prior to 1994 of accounting _
~
$2f]_,
53.64 $3.09_
change for postemployment benefits Earnings per share of Common Stock S2.66 i S2.82 52.76 Cash Dividends Declared per share of Common Stock The accompanying Notes to Consolidated Financial Statements are an integral part of the fmancial statements.
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THE UNITED ILLUMINATING COMPANY CONSOLIDATED STATEMENT OF CASH FLOWS For the Years Ended December 31,1995,1994 and 1993 i (Thessands of Dollars) 1991 1994 Cash Flows From Operating Activities 1991 )
Net income $50,393 $46,795 $40.481 i Adjustments to reconcile net income I to net cash provided by operating activities:
Depreciation and amortization )
66,958 67,336 65,788 i Deferred income taxes 27,495 9,541 9,422 Deferred investment tax credits - net (762) (762) (762)
Amortization of nuclear fuel- 13,571 11,632 21,922 Cumulative effect for years prior to 1994 of accounting change for postemployment benefits - net - 1,294 -
Allowance for funds used during construction (2,762) (3,463) (4,067)
Deferred retum - Seabrook Unit 1 - -
(7,497)
Amoitization ofdeferred return 12,586 - -
Sales adjustment revenue - 13,113 7,668 Changes in:
Accounts receivable net 9,489 2,840 3,344 ~l Fuel, materials and supplies 69 (1,140) (638) i Prepayments 9,256 (7,344) (1,833)
Accounts payable 2,555 (6,578) (10,098)
Interest accrued (6,420) (1,046) (2,431) i Taxes accrued (11,310) 9,756 1,017 l Reorganization charge accrued - - 13,620 ;
Other assets and liabilities (9,627) (4,989) 9,920 ;
Total Adjustments 111.098 90,190 105,375 l Net Cash Provided by Operating Activities 161,491 136,985 145,856 !
Cash Flows from Financing Activities l Common stock 440 109 1,834 :
Long-term debt 15(,,000 - 164,460 Preferred securities of subsidiary 50,000 - - I Notes payable (67,000) 67,000 (84,099) j Securities redeemed and retired:
Preferred stock (34,161) (16,245) - I Long-term debt (165,103) (117,391) (143,543) I (Premium) Discount on preferred stock redemption 2,183 387 -
i Expenses ofissues (2,222) - (1,742) ,
Lease obligations (1,169) (2,362) (4,174) ]
Dividends l Preferred stock (1,944) (3,658) (4,318)
Common stock (39,514) (38,520) (36,991) -
Net Cash used in Financing Activities (108,490) (110,680) (108,573)
)
Cash Flows from Investing Activities e Plant expenditures, including nuclear Sel (59,363) (63,044) (94,743)
Investment in debt securities -
- 94,529 Net Cash used in Investing Activities (59,363) (63,044) (214)
Cash and Tempora - Cash Investments:
l Net change for the period (6,362) (36,739) 37,069 l balance at beginning of period 11,432 48,171 11,102 Balance at end of period $5,070 $11,432 $48.171 Cash paid during the period for:
Interest (net of amount capitalized) $76.271 $75.802 $78.021 Income taxes S32.100 $25,555 $17,435 The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements. :
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l THE UNITED ILLUMINATING COMPANY "
CONSOLIDATED BALANCE SHEET December 31,1995,1994 and 1993 i ASSETS (Thousands of Dollars) 125L4 1221 f J291
$1,761,627 $1,690,142 Utility Plant at OriginalCost $1,809,925 493,482 _ 446,716__ l in service 532,015 1,268,145 1,243,426 Less, accumulated provision for depreciation 1,277,910 57,669 77,395 41,817
- 31,443 40,285 Construction work in progress 25,967 1,357,257 1.361,106 Nuclear fuel 1,345,694__
NetUtility Plant 21,824 _ 17,811 27,388_
Other Prcperty and Investments 11,432 48,17i Current Assets 5,070 Cash andtemporary cash investments Accounts receivable Customers,less allowance for doubtful 61,042 62,703 63,987 accounts of $6,300, $4,900 and $4,700 26,981 28,160 14,547 i 23,139 22,765 Other 28,318 22,318 21,178 Accrued utility revenues 22,249 12,307 4,963 Fuel, materials and supplics, at average cost 3,051 41 Prepayments 55__ 90 _
157,309_ 187,981 _ ;
Other 137,277___
i Total 5,527 6,631 Deferred Charges 7,577 2,119 2,163 Unamortized debtissuance expenses 2,377 7,646 _ 8,794 Other 9,954 _
Total :
l Regulatory Assets (future amounts duefrom customers through the ratemakingprocess) 403,132 408,272 l Income taxes due principally to book-tax 358,168 62,929 62,929 differences (Note A) 50,343 25,792 26,964 Deferred sturn- Seabrook Unit 1 24,620 32,573 Unamortized cancelled nuclear projects 22,244 26,269 i
- 13,113 Unamortized redemption costs -
1,540 1,600 l Sales adjustment revenues 1,505 11,293 13,149 Uranium enrichment decommissioning costs 8,424 530,955 558,600 i Other 465,304 ,
Total
),
I The accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.
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', THE UNITED ILLUMINATING COMPANY CONSOLIDATED BALANCE SHEET December 31,1995,1994 and 1993 i
CAPITALIZATION AND LIABILITIEi (Thousands of Dollars) l 1291 1994 jjjl Capitalization (Note B)
Common stock equity Commoa stock $284,542 $284,133 $284,028 Paid-in capital 769 738 734 Capital stock expense (2,207) (2,402) (3,163)
Retained earnings 156,877 145,559 141,72i_
439,981 428,028 423,324 Preferred stock 10,539 44,700 60,945 Minority interest in preferred securities 50,000 - -
Long-term debt 845,684 708,340 875,268 Total 1,346,204 1,181,068 1,359,537 Noncurrent Llabilities Obligations under capitalleases 17,508 17,799 19,871 Uranium enrichment decommissioning reserve 1,301 1,337 1,486 Nuclear decommissioning obligation 10,317 7,628 5,606 Other 2,789 2,517 2,156 Total 31,915 29,281 29,119 Current Liabilities Current ponion oflong-term debt 40,800 193,133 143,333 Notes payable - 67,000 -
Accounts payable 45,401 42,846 49,424 Dividends payable 10,072 10,467 10,445 Taxes accrued 5,297 16,607 6,851 Pensions accrued (Note H) 33,832 30,177 33,547 Interest accrued 14,506 20,926 21,972 ,
Obligations under capitalleases 291 1,169 1,838 j Other accrued liabilities 26,769 30,069, 26,813 Total 176.968 412,394 294,223 Customers' Advances for Construction 2,655 2,628 2.667 Regulatory Liabilities (future amounts owedto customers through the ratemakingprocess) ,
Accumulated deferred investment tax credits 17,909 18,671 19,433 Deferred gain on sale of utility plant - 276 2,070 Other 1,990 1,820 1,837 Total 19,899 20,767 23,340 Deferred Income Taxes (future tar liabilities owed to taxing authorities) 407,976 428,853 425,406
. Commitments and Contingencies - - -
$1,985,617 $2,074,991 $2.134,292
'Ihe accompanying Notes to Consolidated Financial Statements are an integral pan of the financial statements.
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THE UNITED ILLUMINATING COMPANY
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CONSOLIDATED STATEMENT OF RETAINED EARNINGS For the Years Ended December 31,1995,1994 and 1993 (Thousands of Dollars)
J191 1994 1191
$141,725 $142,981 f 145,559 Balance, January I 46,795 40,481 50,393 Netincome Adjustments associated with repurchase (761) -
1,988 of preferred stock 197,940 187,759 183,462 -
Total Deduct Cash Dividends Declared 1,329 3,323 4,318 Preferred stock 39,734 38,877 37,419 Common rtock 41,063 _ 42,200__ 41,737 _
Total
$156,877 $145.559 $141,725 Balance, December 31 I
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l ne accompanying Notes to Consolidated Financial Statements are an integral part of the financial statements.
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THE UNITED ILLUMINATING COMPANY j NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ne United illuminating Company is an operating electric public utility company engaged principally in the production,' purchase, transmission, distribution and sale of electricity for residential, commercial and industrial purposes in a service area of about 335 square miles in the southwestern part of the State of Connect: cut. The service l area, largely urban and suburban in character, includes the principal cities of Bridgeport (population 137,000) and New l Haven (population 124,000) and their surrounding areas. Situated in the service area are retail trade and service centers,
! as well as large and small industries producing a wide variety of products, including helicopters and . 'her transportation equipment, electrical equipment, chemicals and pharmaceuticals.
In addition, the Company has created, and owns, unregulated subsidiaries. The Board of Directors of the Company has authorized the investment of a maximum of $22.0 million in the unregulated subsidiaries and at December 31, 1995, approximately $19.8 million had been invested. De principal subsidiary, United Resources, Inc., serves as the ,
parent corporation to American Payment Systems, Inc., which manages agents and equipment for electronic data l processing of bill payments made by customers of utilities at neighborhood businesses.
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l De preparation of financial statements in conformity with generally accepted accounting principles requires >
. management to use estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of ;
contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and l expenses dnring the reporting period. Actual results could differ from those estimates.
l l (A) STATEMENT OF ACCOUNTING POLICIES Accounting Records i ne accounting records are maintained in accordance with the uniform systems of accounts prescribed by the Federal Energy Regulatory Commission (FERC) and the Connecticut Department of Public Utility Control (DPUC).
Principles of Consolidation ne consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, United Resources Inc., United Energy Intemational, Inc. and Research Center, Inc. Intercompany accounts and transactions have been eliminated in consolidation.
Regulatory Accounting ne consolidated financial statements of the Company are in conformity with generally accepted accounting principles and with accounting for regulated electric utilities prescribed by the Federal Energy Regulatory Commission (FERC) and the Connecticut Department of Public Utility Control (DPUC). Generally accepted accounting principles for regulated entities allow the Company to give accounting recognition to the actions of regulatory authorities in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 71, " Accounting for the i
- Effects of Certain Types of Regulation", In accordance with SFAS No. 71, the Company has deferred recognition of
- costs (a regulatory asset) or has recognized obligations (a regulatory liability) if it is probable that such costs will be recovered or obligation relieved in the future through the ratemaking process. In addition to the regulatory assets and liabilities shown on the Consolidated Balance Sheet, there are other regulatory assets and liabilities such as conservation l and load management costs and certain deferred tax liabilities. He Company also has obligations under long-term power contracts, the recovery of which is subject to regulation.
i C-15 l
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THE UNITED ILLUMIN ATING COMPANY NOTES TO CONSOLID ATED FINANCIAL STATEMENTS -(continu ne etTects of competition could cause the operations i ofcriteria t these theinCompany the criteria for application of these accounting l rules.
l d deferred costs would beWhile would become applicable and immediate recognition of any previously regu atory-re a required in the year in which the criteria are no longer met.
Reclassification of Previously Reported Amounts Certain amounts previously reported have been reclassified to conform w Utility Plant d during labor, materials, services and certain indirect i erating expense l ge, are cl ll construction (AFUDC). He cost of current repairs an charged to the accumulated provision for depreciation.
He Con.pny's utility plant in service as of December 31,1995,1994 an 1224 1223 1225 (000's)
$1,114,755 $1,104,156
$1,122,001 129,186 Production 158,373 143,984 Transmission 364,102 334,251 375,962 41,009 Distribution 45,924 43,600 General 31,853 29,221 32,762 52 319 Future use plant 74.903 _ 63.333 Other $1.761.627 $1690.142
$1.809.925 Allowance for Funds Used During Construction !
UDC, which in accordance with the applicable regulatory systems i of accounts, In accordance with the C.
represents the approximate cost of debt and equity capital devoted d in the to planlj li bl t FERC prescribed accounting, the portion of itthe t cash income, has He al' equity funds is presented as other income. Although the allowance i does nol historically been recoverable under the ratemaking process Weightedover averagethe se J Company compounds semi-annually the a!!owance applicable to major 1 AFUDC rates in effect for 1995,1994 and 1993 were 8.0%,8.19% and 8.75%I J
Depreciation i d Provisions for depreciation on utility plant for book i h purposes are c f addition and h nth service lives determined by independent i enginee 3.34%, 3.27% and 3.22%,
they are placed in service and ceases in the month they are remove;
' depreciation for the years ;
respectively, of the original cost of depreciable property.
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1 *.' THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
Income Taxes Effective January 1,1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No.109 l
" Accounting for income Taxes". In accordance with SFAS No.109, the Company has provided deferred taxes for all l temporary book-tax differences using the liability method. The liability method requires that deferred tax balances be l
adjusted to reflect enacted future tax rates that are anticipated to be in effect when the temporary differences reverse. :n i accordance with generally accepted accounting principles for regulated industries, the Company has established a net regulatory asset that reflects anticipated future recovery in rates of these deferred tax provisions.
For ratemakiig purposes, the Company practices full ocrmalization for all investment tax credits (ITC) related to ,
recoverable plant investments except for the ITC rela *.ed to Seabrook Unit 1, which was taken into income in l
accordance with provisions of a 1990 DPUC retail rate decision.
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Accrued Utility Revenues I ne estimated amount of utility revenues (less related expenses and applicable taxes) for service rendered but not j billed is accrued at the end of each accounting period.
j Cash and Cash Equivalents For cash flow purposes, the Company considers all highly liquid debt instmments with a maturity of three months or less at the date of purchase to be cash equivalents. He Company records outstanding checks as accounts payable until the checks have been honored by the banks.
l He Company is required to maintain an operating deposit with the project disbursing agent related to its 17.5%
ownership interest in Seabrook Unit 1. His operating deposit, which is the equivalent to one and one half months of the funding requirement for operating expenses, is restricted for use ar.1 amounted to $3.9 million, $2.3 million and
$3.4 million, at December 31,1995,1994 and 1993, respectively.
Investments
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, ne Company's investment in the Connecticut Yankee Atomic Power Companyjoint venture, a nuclear generating company in which the Company has a.91/2% stock interest, is accounted for on an equity basis. This investment amounted to 59.6 million, $9.6 million and $9.5 million at December 31,1995,1994 and 1993, respectively, Fossil FuelCosts ne amount of fossil fuel costs that cannot be reflected currently in customers' bills pursuant to the fossil fuel adjustment clause in the Company's rates is deferred at the end of each accounting period. Since adoption of the deferred accounting procedure in 1974, rate decisions by the DPUC and its predecessors have consistently made specific provision for amortization and ratemaking treatment of the Company's existing deferred fossil fuel cost balances.
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, t, THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
Research and Development Costs Research and development costs, including environmental studies, are capitalized if related to specific construction projects and depreciated over the lives of the related assets. Other research and development costs are charged to expense as incurred.
I Pension and Other Postemployment Benefits ne Company accounts for normal pension plan costs in accordance with the provisions of Statement of Financial Accounting Standards (SFAS) No. 87, " Employers' Accounting for Pensions", and for supplemental retirement plan '
, costs and supplemental early retirement plan costs in accordance with the provisions of SFAS No. 88, " Employers' l Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits". i ne Company accoums for other postemployment benefits, consisting principally of health and life insurance, un6a the provisions of SFAS No.106, " Employers' Accounting for Postretirement Benefits Other han Pensions", i which requires, among other things, that the liability for such benefits be accrued over the employrnent period that encompasses eligibility to receive such benefits. He annual incremental cost of this accrual has been allowed in retail rates in accordance with a 1992 rate decision of the DPUC.
Effective January 1,1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No.112,
" Employers' Accounting for Postemployment Benefits". His statement establishes accounting standards for employers :
who provide benefits, such as unemployment compensation, severance benefits and disability benefits to former or l inactive employees after employment but before retirement and requires recognition of the obligation for these benefits, ne effect of adopting this statement is reported as a charge against income in the first quarter of 1994 due to a change in accounting principle. He charge decreased eamings for common stock for 15 l 'oy $1.3 million, after tax, or $.09 per share.
Uranium Enrichment Obligation ;
i Under the Energy Policy Act of 1992 (Energy Act), the Company will be assessed for its proportionate share of the i costs of the decontamination and decommissioning of uranium enrichment facilities operated by the Department of i Energy. He Energy Act imposes an overall cap of $2.25 billion on the obligation assessed to the nuclear utility :
industry and limits the annual assessment to $150 million each year over a 15-year period. At December 31,1995, the
- Company's unfunded share of the obligation, based on its ownership interest in Seabrook Unit I and Millstone Unit 3, was approximately $1.3 million. Effective January 1,19c3, the Company was allowed to recover these assessments in ratn as a component of fuel expense. Accordingly, the "apany has recognized these costs as a regulatory asset on its Consolidated Balance Sheet. ,
Nuclear Decommissioning Trusts Extemal tmst funds are maintained to fund the estimated future decommissioning costs of the nuclear generating i units in which the Company has an ownership interest. Rese costs are accrued as a charge to depreciation expense over the esdmated service lives of the units and are recovered in rates on a current basis. He Company paid
$1,882,000, $1,727,000 and $1,616,000 during 1995,1994 and 1993 into the decommissioning tmst funds for Seabrook Unit I and Millstone Unit 3. At December 31,1995, the Company's share of the trust fund balances, which include accumulated eamings on the funds, were $7.2 million and $3.1 million for Seabrook Unit I and Millstone Unit 3, respectively. These fund balances are included in "Other Property and Investments" and the accrued decommissioning obligation is included in "Noncurrent Liabilities" on the Company's Con.;olidated Balance Sheet.
l C-18
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THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued) ;
Impairment of Long-Lived Assets The Financial Accounting Standards Board recently issued SFAS No.121 " Accounting for the Impairment of Long-Lived Assets to Be Disposed Of". This standard, which is effective for the 19% calendar year, requires the recognition ofimpainnent losses on long-lived assets when the book value of an asset exceeds the sum of the expected
- future undiscounted cash flows that result from tht. use of the asset and its eventual disposition. This standard also
) requires that rate-regulated companies recognize an impairment loss when a regulator excludes all or part of a cost from rates, even if the regulator allows the company to cam a retum on the remaining allowable costs. Under this standard, the probability of recovery and the recognition of regulatory assets under the criteria of SFAS No. 71 must be assessed
] on an ongoing basis. Since the Company continues to follow SFAS No.71, it does not have any assets that are impaired under this new standard.
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"s, 1 THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(B) CAPITALIZATIO*'
December 31, ,
1995 1994 1993 Shares Shares Shares Outstanding $(000's) Outstanding $(000's) Outstanding $(000's)
Common Stock Equity Common stock, no par value, at December 31(a) 14,100,091 $284,542 14,086,691 $284,133 14,083,291 $284,028
, Shares authorized 1993 30,000,000 1994 30,000,000 1995 30,000,000 Paid-in capital 769 738 734 Capital stock expense (2,207) (2,402) (3,163)
Retained earnings (b) 156,877 145,559 141,725 Total common stock equity 439,981 428,028 423,324 Preferred and Preference Stock (c)
Cumulative preferred stock,
$100 par value, shares '
authorized at December 31, 1993 1,259,455 1994. 1,247,005 1995 1,180,394 Preferred stock issues:
4.35% Set-ies A 21,247 40,425 40,425 4.72% 3eries B 30,490 48,280 50,730 4.64% Series C 12,945 32,100 32,100 5 5/8% Series D 40,712 51,200 61,200 7.60% Series E -
125,000 125,000 7.60% Series F - 150,000 150,000 105,394 10,539 447,005 44,700 45,945 459.455 Cumulative preferred stock, -
$25 par value, shares authorized at December 31, 1993 2,400,000 1994 2,400,000 1995 2,400,000 Preferred stock issues:
8.80% 1976 Series - -
600,000 15,000 ;
Cumulative preference stock,
$25 par value, shares authorized at December 31, 1993 5,000,000 1994 5,000,000 1995 5,000,000 Preference stock issues - - - - - -
Totalpreferred stock not subject to mandatory redemption 10,539 44.700 60,945 Minority Interest in Preferred Securities (d) 50,000 - -
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.,' .s THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(cont'nued)
Decemt,sr 31, 1995 1994 1993
$(000's) $(000's) $(000's)
Long-term Debt (e)
First Mortgage Bonds: i 9.44%, Series B,inaturing serially as 1 to $10,800 principal amount on February 15 in each of the years 1996 to 1999. $43,200 $54,000 $54,000 l 10.32%, Series C - 55,333 110,666 Other Long-term Debt Pollution Control Revenue Bonds: l 141/2%,1984 Series, due October 1,2009 - - 110 141/2%,1984 Series B, due December 1,2009 - - 3,830 91/2%,1986 Series, due June 1,2016 7,500 7,500 7,500 9 3/8%,1987 Series, due July 1,2012 25,000 25,000 25,000 10 3/4%,1987 Series, due November 1,2012 43,500 43,500 43,500 8%,1989 Series A, due December 1,2014 25,000 25,000 25,000 5 7/8%,1993 Series, due October 1,2033 64,460 64,460 64,460 Solid Waste Disposal Revenue Bonds:
Adjustable rate 1990 Series A due September 1,2015 30,000 30,000 30,000 Notes:
7.62 %,1991 Series A, due September 12,1994 - - 30,000 7.20 %,1991 Series B, due November 1,1994 - - 13,000 6.82%,1991 Series C, due December 2,1994 - - 10,000 6.00%,1992 Series D, due January 15,1995 - 50,000 50,000 7.00%,1992 Series E, due January 15,1997 50,000 50,000 50,000 7.25%,1992 Series F, due October 2,1995 - 47,000 47,000 7 3/8%,1992 Series G, due January 15,1998 100,000 100,000 100,000 6.20%,1993 Series H, due January 15,1999 100,000 100,000 100,000 Long-term bank loans - - 5,000 Term Loans:
6.95%, due August 29,2000 50,000 - -
6.47%, due September 6,2000 50,000 - -
Variable rate, due September 6,2000 50,000 - -
Obligation under the Seabrook Unit I sale / leaseback agreement 248.030 250,000 250,000
- 886,690 901,793 1,019,066 l
Unamortized debt discount less premium (206) (320) (465) j Totallong-term debt 886,484 901,473 1,018,601 Less current portion included in Current l 40,800 193,133 143,333 Liabilities (e) ,
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\ Totallong-term debt included in Capitalization 845,684 708,340 875,268 Total Capitalization $1,346,204 $1,181,068 $1.359.537 l
C 21
'.,, 'o THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(a) Common Stock ne Company issued 13,400 shares of common stock in 1995,3,400 shares of common stock in 1994 and 46,000 shares of common stock in 1993 pursuant to a stock option plan. During 1993, the Company also issued 4,143 Aares of common stock pursuant to a long-term incentive program.
In 1990, the Company's Board of Directors and the shareowners approved a stock option plan for officers and key employees of the Company. The plan provides for the awarding of options to purchase up to 750,000 shares of the Company's common stock over periods of from one to ten years following the dates when the options are granted. On June 5,1991, the DPUC approved the issuance of 500,000 shares of stock pursuant to this plan. The exercise price of each option cannot be less than the market value of the stock on the date of the grant. Options to purchase 191,800 shares of stock at an exercise price of S30.75 per share,600 shares of stock at an exercise price of $31.1875 per share, 4,000 shares of stock at an exercise price of $35.625 per share,35,133 shares of stock at an exercise price of $39.5625 per share,5,000 shares of stock at an exercise price of $42.375 per share and 18,600 shares of stock at an exercise price of $30 per share have been granted by the Board of Directors and remained outstanding at December 31, 1995.
Options to purchase 42,000 shares of stock at an exercise price of $30.75 per share,1,400 shares of stock at an exercise price of $28.3125 per share,1,200 shares of stock at an exercise price of $31.1875 per share and 1,000 shares of stock at an exercise price of $35.625 per share were exercised in 1993. Options to purchase 3,400 shares of stock at an exercise price of $30.75 per share were exercised during 1994. Options to purchase 10,800 shares of stock at an exercise price of $30.75,1,400 shares of stock at an exercise price of $28.3125 and 1,200 shares of stock at an exercise price of $31.1875 were exercised during 1995.
In October 1995, the Financial Accounting Standards Board issued SFAS No.123, " Accounting for Stock-Based Compensation". His statement establishes financial accounting and reporting standards for stock-based employee compensation plans, such as stock purchase plans, stock options, resnicted stock, and stock appreciation rights. The statement defines the methods of determining the fsir value of stock-based compensation and revites the recognition of compensation' expense for book purposes. However, the statement albws entities to continue to measure compensation expense in accordance with prior accounting principle APB No. 25," Accounting for Stock issued to
, Employees", but requires pro forma net income and camings per share be disclosed as if SFAS No.123 were applied.
The accounting provisions of SFAS No.123 apply to the Company's stock option plan and affect options granted in the year of adoption. As of December 31,1995, there were no options granted to which this statement would apply. He Company has not elected to adopt the expense recognition provisions of SFAS No.123.
(b) Retained Earnings Restriction The indenture under which the Company's Notes are issued places limitations on the payment of cash dividends on common stock and on the purchase or redemption of common stock. Retained eamings in the amount of $98.7 million were free from such limitations at December 31,1995.
(c) Preferred and Preference Stock The par value of em.h of these issues was credited to the appropriate stock account and expenses related to these ,
issues were charged to capital stock expense. I Here was no redemption of preferred stock in 1993, 1
On April 15,1994, the Company redeemed all of the 600,000 outstanding shares of its 8.80% " Preferred Stock, ;
1976 Series, at $25.25 per share plus accmed dividends.
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THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCI AL STATEMENTS - (condnued) l in July 1994, the Company purchased 2,450 shares of its 4.72% $100 par value Preferred Stock, Series B, at a discount, resulting in a non-taxable gain of $116,000.
In December 1994, the Company purchased 10,000 shares ofits 5 5/8% S100 par value Preferred Stock, Series D, at a discount, resulting in a non-taxable gain of $420,000. l On April 10,1995, the Company called for redemption all 125,000 shares of its outstanding $100 par value 7.60%
Preferred Stock, Series E and all 150,000 shares ofits outstanding $106 par value 7.60% Preferred Stock, Series F. The l Company paid a redemption premium of $275,000 in effecting these redemptions, which were completed on May 10, :
j 1995. '
l l On May 10,1995, the Company made a tender o!Ter for all of the shares ofits outstanding $100 par value 4.35% l Preferred Stock, Series A,4.72% Preferred Stock, Series B,4.64% Preferred Stock, Series C, and 5.625% Prefe:Ted Stock, Series D. On June 12 and July 17,1995, the Company purchased and retired, at a discount of $2,457.531, ,
19,178 shares of the Series A,17,790 shares of the Series B,19,155 shares of the Series C and 10,488 shares . 'the i Series D preferred stock issues. l l
Shares of preferred stock have preferential dividend and liquidation rights over shares of common stock. Preferred I l
j shareholders are not entitled to general voting rights. However, if any preferred dividends are in arrears for six or more i quarters, or if some other event of default occurs, preferred shareholders are entitled to elect a majority of the Board of ,
Directors until all preferred dividend arrears are paid and any event of default is tenninated. l 1
Preference stock is a form of stock that is junior to preferred stock but senior to common stock. It is not subject to ,
ue camings coverage requirements or minimum capital and surplus requirements governing the issuance of preferred l stock. There were no shares of preference stock outstanding at December 31,1995. l l
(d) Preferred CapitalSecurities l On April 3,1995, United Capital Funding Partnership L.P. (" United Capital"), a special purpose limited I I
partnership in which the Company owns all of the general partner interests, issued $50 million of its monthly
- income 9 5/8% Preferred Capital Securities, Series A, (" Preferred Capital Securities") representing limited
{ parmership interests in United Capital. United Capital loaned the proceeds of the issuance and sale of the Preferred 1 1 Capital Securities to the Company in return for the Company's 9 5,8% Junior Subordinated Deferrable Interest Debentures, Series A, Due 2025. The net proceeds to the Company, approximately $484 million, were used to redeem, on May 10,1995, $12.5 million of outstanding $100 par value 7.60% Preferred Ste',k, Series E (including a i redemption premium of $125,000) and $15.0 million of outstanding $100 par value 7.609. Preferred Stock, Series F l (including a redemption premium of $150,000) and to reduce short-term borrowings.
l l United Capital and the Company have itgistered an additional 550 million of Capital Securities an&or Subordinated Debentures for sale to the public frcm time to time, in one or more series, under the Securities Act of 1933.
(e) Long-Term Debt On January 17,1995 and October 2,1995, the Company repaid, at maturity, $50 million principal amount of 6.00% Notes and $47 million principal amount of 7.25% Notes, respectively, of the Company.
< On January 17,1995 and February 15, 1995, the Company repaid $55.3 million and $10.8 rrillion principal amounts of maturing 10.32% and 9.44% First Mortgage Bonds issued by Bridgeport Electric Company, a j l
- C-23
THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(ccistinued) wholly-owned subsidiary of the Company that was merged with and into the Company in September of 1994 February 15,1996, the Company repaid an additional $10.8 million of the 9.44% First Mongage Bond Bridgeport Electric Company.
In May 1995 and June 1995, the Company entered into two separate, five-year, $50 million interest agreements with a major money center bank. Under the terms of the agreements, the Company will pay mtem bank at fixed annual rates of 6.40% and 5.92%, respectively, and the bank will pay the Company inte rates equal to the three-month London Interbank Borrowing Rate (LIBOR), which floating rates corresyte to th floating rates on the Term Loan bormwings described below. The fair value ofinterest rate swaps is the estim amount that the Company would receive or pay to tenninate the swap agreements at the reporting date, tak account current interest rates. At December 31,1995, the Company would have been required to pay appro
$2.3 million to termiaate the agreements.
On Aubust 29 and September 6,1995, the Company torrowed $50 million and $100 million, respectively, u Term Loan Agreement with a group of banks for a five-year period. The Company pays interest on the borr a floating rate equal to the three-month LIBOR plus 0.55%. He interest rate wap agreements described in the preceding paragraph have effectively converted the interest rate on $100 million of the Company's floating rate Loan borrowings to fixed rates. As a result, the inteiest rates on two $50 million borrowings under the Tenn Loan Agreement are fixed at 6.95% and 6.47%.
q Maturities and mandatory redemptions / repayments are set fonh below:
122ft 1222 1228 1222 2000 (000's)
Maturities 5- $50,000 $100,000 $100,000 $150,000 Mandatory redemptions / repayments 10.800 15.171 . 15.562 15.988 5.652 Maturities and Mandatory redemptions / repayments (l) $10.800 $65.171 $115.562 $_115.988 $111652 (1) Does not include $30 million of tax-exempt adjustable rate Solid Waste Disposal Revenue Bonds,1990 Ser due September 1,2015, classified on the Company's books as a current liability (interest rate for March 1996 to September 1996 is 3.30G).
He Company has registered $200 million principal amount of Notes for sale to the public from time to time, in one or more series, under the Securities Act of 1933. In addition, the Company has registered $213.6 million of Seabrook Unit 1 Secured Lease Obligation Bonds for sale to the public under the Securities Act of 1933. Rese Lease Obligation Bonds may only be used to refinance the outstanding Seabrook Unit 1 Lease Obligation Bonds.
(C) RATE-RELATED REGULATORY PROCEEDINGS Utilities are entitled by Connecticut law to revenues sufficient to allow them to cover their operating and costs, to attract needed capital and maintain their financial integrity, while also protecting the public interest. In the Company's most recent retail rate proceeding, the DPUC authorized a return on equity of 12.4% for ratema' purposes. However, the Company may earn up to 1% above this level for six consecutive months before a m review is required by the DPUC. A Connecticut statute requires the DPUC to review and investigate the nnancial and operating records of each electric utility company, at intervals of not more than four years, to determine whether the company's rates comply with statutory standards. He Company expects that a proceeding under this statute will commence during 1996.
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THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
The Company is alkswed r: venue increases for conservation and load management expenditures through a Conservation Adjustment Mecrianism (CAM) in its retail rates, and accordingly received a revenue increase in 1995 of .
$6.1 million, or 1%, through operation of the CAM. Except for CAM revenue increases, the Company has stated !
publicly that it does not plan to seek cny retail rate increases for the foreseeable future.
Since January 1971, UI has had a fossil fuel adjustment clause (FCA) in vinually all ofits retail rates. The DPUC is required by law to convene an admin.istrative proceeding prior to approving FCA charges or credits for each month. ,
The 1:w p vi r tautomatic implementation of the charges or credits if the DPUC fails to act within five days of the administrative proceeding, although all such charges and credits are also subject to further review and appropriate adjustment by the DPUC at public hearings required to be held at least every three months. The DPUC has made no material changes in UI's FCA charges and credits as the result of any of these proceedings or hearings. The Connecticut legislature has authorized the DPUC to adopt an energy adjustment clause (EAC), a fully-tracking fuel clause, to replace t'a e FCA, if the EAC will schieve specified objectives; and the DPUC has conducted hearings on this issue.
While the FCA applies only to fossil fuel price changes, an EAC could permit recovery of replacement fuel cost :
diffe--ntials incurred during evtended nuclean generating unit outages. However, an EAC could also pass through to customers the benefits of the lower fuel costs associated with increased nuclear generation.
(D) ACCOUNTING FOR PHASE-IN PLAN The Company phased into rate base its allowable investment in Seabrook Unit 1, amounting to 5640 million, ,
during the period January 1,1990 to January 1,1994. In conjunction with this phase-in plan, the Company was ,
allowed to record a deferred retum on the portion of allowable investment excluded from rate base during the phase-in period. Accordingly, the Company is amortizing the accumulated deferred retum of $62.9 million over a five-year period that commenced January 1,1995.
e 4
C-25
THE IJNITED ILLIJMINATING COMPANY '
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(E) INCOME TAXES jl91 1994 1991 -
Income tax expense consists of: (000's) !
income tax provisions:
Current Federal $18,031 $24,190 $13,484 State 10,163 8,754 4,843 Total current 28,194 32,944 18,327 Deferred Federal 24,682 11,123 9,620 .
State 2,813 (2,538) (198) !
Total deferred 27,495 8,585 9,422 investment tax credits (762) (762) (762)
Totalincome tax expense $54,927 $40,767 $26,987 income tax components charged as follows:
Operating expenses $59,828 $44,937 $33,309 Other income and deductions - net (4,901) (3,214) (6,322) !
Cumulative effect of change in accounting for postemployment benefits -
(956) -
l Totalincome tax expense $54,927 $40,767 $26.987 i The following table details the components of the deferred income taxes: '
Alternative minimum tax $11,404 -
($139) ;
Accelerated depreciation 9,410 11,526 11,318 i Tax depreciation on unrecoverable plant investment 8,889 8,170 7,915 Pension benefits (1,460) 148 (6,641)
Conservation & load management 804 1,897 3,084 i Premiums on BEC bond redemption (753) (1,619) (2,378)
Cancelled nuclear projects (467) (467) (467) :
Seabrook sale / leaseback transaction (397) (2,039) (2,016) l Postretirement benefits 163 169 (538)
Deferred fossil fuelcosts (122) (37) (381) ,
Postemployment benefits -
(956) -
Sales adjustment revenues -
(5,553) (3,248) l Property tax adjustment - (1,991) (1,991)
Other - net 24 (663) 4,904
)
Deferred income taxes net $27.495 $8,585 $9,422 l
l l
C-26 l
l l
i i
.. o n+
5 THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued) ,
Total income taxes differ from the amounts computed by applying the federal statutory tax rate to income before taxes. The reasons for the differences are as follows:
1925 1224 1221 !
- Pre-Tax _Ia1. Pre-Tax Tax Pre-Tax _Ia1 ;
(000's) ;
j Computed tax at federal statutory rate $36,862 $30,646 $23,614 ;
4- Increases (reductions) resulting from: '
l Deferred retum-Seabrook Unit 1 12,586 4,405 - -
($7,497) (2,624) i ITC taken intoincome (762) (762) (762) (762) (762) (762)
Allowance for equity funds used during construction (390) (136) (753) (263) (999) (349,
- Tax exempt interest on municipal bonds - - - -
(283) (99)
- Book depreciation in excess of l non-normalized tax depreciation 21,586 7,555 20,625 7,218 21,711 7,599 State income taxes, net of federal income tax benefits 12,976 8,434 6,216 4,040 4,645 3,019 Other items - net (4,090) (1.431) (320) (112) (9,746) .(3.411)
Totalincome tax expense $54.927 $40.767 $26.987 l Book Income Before Federal Income Taxes $105.320 $87.561 $67.467 Effective income tax rates 52.1 % 46.6 % 40.0 %
6 At December 31,1995 the Company had deferred tax liabilities for taxable temporary differences of $535 million and deferred tax assets for .2ductible temporary differences of $127 million, resulting in a net deferred tax liability of
$408 million. Significant components of /,ferred tax liabilities and assets were as follows: tax liabilities on book / tax i plant basis differences, $206 million; tax liabilities on the cumulative amount ofincome taxes on temporary differences
,, previously flowed through to ratepayers, $148 million; tax liabilities on normalization of book / tax depreciation timing differences, $110 million and tax assets on the disallowance of plant costs, $61 million.
The Tax Reform Act of 1986 provides for a more comprehensive corporate attemative minimum tax (AMT) for years beginning after 1986. To the extent that the AMT exceeds the federal income tax computed at statutory rat.s, the excess must be paid in addition to the regular tax liability. For tax purposes, the excess paid in any year can be carried foiward indefinitely and offset against any future year's regular tax liability in excess of that year's tentative AMT, The
, Company had no AMT carryforward at December 31,1995. The AMT carryforward at December 31,1994 and 1993 was $11.4 million.
(F)SHORT-TERM CREDIT ARRANGEMENTS The Company has a revolving credit agreement with a group of banks, which currently extends to December i1, 1996. The borrowing limit of this facility is $75 million, reduced from the borrowing limit of $225 million under the previous revolving credit agreement. 'Ihe facility permits the Company to borrow funds at a fluctuating interest rate determined by the prime lending market in New York, and also permits the Company to borrow money for fixed periods of time specified by the Company at fixed interest rates determined by the Eurodollar interbank market in London, or by bidding, at the Company's option. If a material adverse change l's the business, operations, affairs, assets or condition, financial or otherwise, or prospects of the Company and its subsidiaries, on a consolidated basis, should occur, the banks may decline to lend additional money to the Company under this revolving credit agreement, although C-27
THE UNITED ILLUMINATING COMPANY i
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued) i borrowings outstanding at $a time of such an occurrence would not then become due and payable. As of December 31,1995, the Company had no short-term borrowings outstanding under this facility. $
t The Company's long-term debt instruments do not limit the amount of short-term debt that the Company ml issue. The Company's revolving credit agreement described above requires it to maintain an available ca; charges ratio of not less than 1.5:1.0 for each 12-month period ending on the last day of each calendar quarter. F '
12-month period ended December 31,1995, this coverage ratio was 3.31.
Information with respect to short-term borrowings is as follows:
t M 1224 12D (000's)
Maximum aggregate principal amount of short-term borrowings -
outstanding at any month-end $195,000 $75,000 $94,635 ,
Average aggregate short-term borrowings outstanding during the year * $117,980 $57,000 $73,700 Weighted average interest rate
- i 6.5% 4.8% 4.1% !
Principal amounts outstanding at year end $0 $67,000 $0 i Annualized interest rate on principal amounts outstanding at year-end N/A 6.7% N/A
- Average short-term borrowings represent the sum of daily borrowings outstanding, weighted for the number of days outstanding and divided by the number of days in the period. The weighted average interest rate is de!
dividing interest expense by the amount of average burrowings. Commitment fees of approximately $426,500,
$250,400 and $259,600 paid during 1995,1994 and 1993, respectively, are excluded from the calculation of the weighted average interest rate.
{
l C-28 i
L
S THE UNITED ILLUMINATING COMPANY i NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(G) SUPPLEMENTARY INFORMATION i
L921 122d- '.1291 tooo .r ,
Operatina Revenues l Retail _ $639,108 6,601
$618,868 7,162
$603,559 -
6,575
]
Wholesale - capacity .
a energy 41,631 27,765 39,356 t Other 3,109 2,953 ~3,533 ;
Total Operating Revenues $690,449 $656,748 $653,023 !
Other Incomme and (Deductions)- not l Interest and dividend income $2,624 $2,520 $3,568 Equity earnings from Connecticut Yankee 1,440 1,539 1,350 i Loss from subsidiary companies (4,898) (4,382) (4,557) i Engineering study costs (849) (1,200) -
l Miscellaneous other income and (deductions) - net (2,589) (384) (290) ;
Total Other Income and (Deductions) - net _ ($4,272) ($ 1,907) $71 !
i Other Tames _ l Charged to-Operating:
State gross camings $27,379 $27,403 $27,955 Local real estate ud personal prr,perty 25,761 26,318 24,449 '
Payrolltaxes 5,800 6,137 5,525 i
' Other 3 3 3 j L '
- 58,943 59,861 57,932 Nonoperating and other accounts $27 41 335 ;
TotalOther Taxes $59,470 $59,902 $58,267 !
v Other laterest Charmes !
Notes Payable $7,660 - $2,713 $3,049 ;
Other 1.342 1,0I 8 1,393
- TotalOther Interest Charges $9,002 $3,731 $4,442 l
i.
i i
}
C-29
r
.,. ' o-THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
(H) PENSION AND OTHER BENEFITS ne Company's qualified pension plan, which is based on the highest three years of pay, covers substantially all of
'its employees, and its entire cost is bome by the Company, ne Company also has a non-qualified supplemental plan for certain executives and a non-qualified retiree only plan for certain early retirement benefits. De net pension costs
. for these plans for 1995,1994 and 1993 were $3,842,000, $4,028,000 and $14,966,000, respectively.
De Company's funding policy for the qualified plan is to make annual contributions that satisfy the minimum !
funding requirements of ERISA but that do not a::cwd the maximum deductible limits of the Internal Revenue Code.
nese amounts are determined each year as a result c f an actuarial valuation of the plan. In accordance with this policy, ,
the Company contributed $3.3 million in 1994 for 1993 funding requirements. In addition, the Company contributed j
$3.9 million in 1994 for 1994 funding requiremerrs. No pension fund contributions were made in 1995. Previously, due to the application of the full funding limitation under ERISA, the Company had not been required to make a contribution since 1985. As of December 31,1995, the supplemental plan is unfunded, ne qualified plan's irrevocable trust fund consists principally of equity and fixed-income securities and real estate investments in approximately the following percentages:
Percentage of A==.* C=t =ory Total Fund Equity Securities 67.4 %
Fixed-income Securities 27.7 %
Real Estate 4.9%
122ft 1224 (000's) ne components of net pension costs were as follows:
Service cost of benefits earned during the period $ 3,680 $ 4,822 Interest cost on projected benefit obligation 15,217 15,023 Actualreturn on plan assets (41,166) (1,218)
Net amortization and deferral 26.1 I I (14.095) t Net pension cost $ 3.842 $ 4.532'
'In addition, an adjustment of $504,000 was recorded due to an overaccrual of the cost of special termination benefits in 1993.
Assumptions used to determine pension costs were:
Discount rate 8.50 % 7.50 %
Average wage increase 5.50 % 5.50 %
Retum on plan assets 9.00 % 9.00 %
C-30 t
THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
December 31.1995 December 31.1994 Qualified Non-Qualir-d Qualified Non-Qualified P.lan Plans P.lan P.lans (000's)
The funded status and amounts recognized in balance sheets are as follows:
Actuarial present value of benefit obligations: ,
j Vested benefit obligation $153.473 $3112 $125.289 $3E.8 Accumulated benefit obligation $160.266 $3222 $130.758 $33.8 Reconciliation of accrued pension liability:
Projected benefit obligation $217,698 $4,746 $183,951 $4,510 !
- 4. Less fair value of plan assets 195.104 165.788 .
l Projected benefit greater (less) than plan assets 22,594 4,746 18,163 4,510 i i Unrecognized prior service cost (5,510) (96) (5,619) (397)
Unrecognized net gain (loss) from past experience 1,832 (233) 1,849 -
Unrecognized net asset (obligation) l at date ofinitialapplication 10.662 .f.l.fil) 11.770 (22) l Accrued pension liability $ 29.578 $1214 $26.163 $4.014 ;
1 Assumptions used in estimating benefit obligations:
Discount rate 7.25 % 7.25 % 8.50 % 8.50 % ,
Average wage increase 4.50% 4.50 % 5.50 % 5.50 % l l
In addition to providing pension benefits, the Company also provides other postretirement benefits (OPEB),
consisting principally of health care and life insurance benefits, for retired employees and their dependents. Employees with 25 years of service are eligible for full benefits, while employees with less than 25 years of service but greater than 15 years of service are entitled to partial benefits. Years of service prior to age 35 are not included in determining the number ofyears ofservice.
Prior to January 1,1993, the Company recognized the cost of providing OPEB on a pay-as-you-go basis by expensing the annual insurance premiums. Effective January 1,1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No.106, " Employers' Accounting for Postretirement Benefits Other Than Pensions",
which requires, among other things, that OPEB costs be recognized over the employment period that encompasses eligibility to receive such benefits. In its December 16,1992 decision on the Company's application for retail rate i relief, the DPUC recognized the Company's obligation to adopt SFAS No.106, eff:ctive January 1,1993, and approved 4 the Company's request for revenues to recover OPEB expenses on a SFAS No.106 basis. A portion of these expenses l represents the transition obligation, which will accrue over a 20-year period, representing the future liability for medical and life insurance benefits based on past service for retirees and active employees.
For funding purposes, the Company established a Voluntary Employees' Benefit Association Trust (VEBA) to fund OPEB for union employees who retire on or after January 1,1994. Approximately 52% of the Company's employees are represented by Local 470-1, Utility Workers Union of America, AFL-CIO, for collective bargaining purposes. The Company established a 401(h) account in connection with the qualified pension plan to fund OPEB for non-union employees who retire on or after January 1,1994. 7he funding policy assumes contributions to these trust funds to be the total OPEB expense calculated under SFAS No.106, excluding the amount that resulted from the Company's 1993 reorganization and 1996 carly retirement program minus pay-as-you-go benefit payments for C-31
THE l'NITED ILLUMINATING COMPANY \ I NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued) pre-January 1,1994 retirees, allocated in a manner that minimizes current income tax liability, without exceeding maximum tax deductible limits. In ac:ordance with this policy, the Company contributed approximately $1.8 million and $3.1 million to the union VEBA on December 29,1994 and December 28,1995, respectively. During 1994, the Company contributed approximately $2.2 million to the 401(h) account. During 1995, no contributions were made to the 401(h) account. Plan assets for both the union VEBA and 401(h) account consist primarily of equity and fixed-income securities.
The components of the net cost of OPEB were as follows:
1221 1224 (000's)
Service cost $1,106 $1,372 Interest cost 2,584 2,534 Actual return on plan assets (2,081) 72 Amortizations and deferrals - net 2182 1,2dfi Net Cost of Postretirement Benefit ' $4.491 S5.324 Assump'. tons used to determine OPEb costs were:
Discount rate 8.5% 7.5%
Health Care Cost Trend Rate 6.5% 7.7%*
Return on plan assets 8.5% 8.5%
'Assurned rates gradually decline to 6.2% by the year 2020 A one percentage point increase in the assumed health care cost trend rate would have increased the service cost and interen cost components of the 1995 net cost of periodic postretirement benefit by approximately $600,000 and would increase the accumulated postretirement benefit obligation for health care benefits by approximately $4,100,000.
The following table reconciles the funded status of the plan with the amount recognized in the Consolidated Balance Sheet as of December 31,' 1995 and 1994:
1221 1924 (000's)
Accumulated Postretirement Benefit Obligation:
Retirees and dependents S 22,720 $13,028 Fully eligible active plan participants 764 7,078 Other active plan panicipants 16.955 12.267 Total Accumulated Postretirement Benefit Obligation 40,439 32,373
' Plan assets at fair value 11.148 6.781 Accumulated Postretirement Benefit Obligation in i
Excess of Plan Assets 29,291 25,592 '
I Unrecognized net loss (8,395) (2,958)
Unamortized transition obligation (20.fiS9) (21.874) i l
Accrued Postretirement Benefit Obligation $_212 S 760 )
1 C-32 l
- 4.
- THE UNITED ILLUMINATING COMPANY l
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued) .
l l
The weighted average discount rates used to measure the accumulated postretirement benefit obligation at December 31,1995 and 1994 were 7.25% and 8.5%, respectively.
4 During 1993, in conjunction with an in-depth organizational review, the Company offered a voluntary early retirement program to non-union employees who were eligible to receive pension benefits. This offer was accepted by ;
103 employees. The 1993 OPEB cost for this program was $1.3 million. These costs are recognized as a component of the reorganization charge shown on the Company's Consolidated Statement ofIncome.
Effective January 1,1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. I12, "Eruployers' Accounting for Postemployment Benefits". His statement establishes accounting standards for employers l who provide benefits, such as unemployment compensation, severance benefits and disability benefits to former or i inactive employees after employment but before retirement and requires recognition of the obligation for these benefits.
He effect of adopting this statement is reported as a charge against income in the first quarter of 1994 due to a change in accounting principle. De charge decreased eamings fer common stock for 1994 by $1.3 million, after tax, or $.09 per share. I ne Company has an Employee Stock Ownership Plan (ESOP) for substantially all its employees. Under the plan, l eligible employees receive Company common stock and the plan provides certain tax benefits to the Company. In 1995, the Company made a contribution to the ESOP in the amount of $192,000. Prior to 1995, no contributions to the ESOP had been made since 1987.
l The Company has an Employee Savings Plan (401(k) Plan) in which substantially all employees are eligible to participate. The 401(k) Plan enables employees to defer receipt of up to 15% of their compensation and to invest such funds in a number of investment alternatives. De Company makes matching contributions to the 401(k) Plan in the i fann of Company common stock for each participant. The matching contribution currently equals fifty cents for each {
dollar of the participant's compensation deferred, but is not more than three percent of the participant's annual salary.
l He Company's matching contributions to the 401(k) Plan during 1995,1994 and 1993 were $1.6 million, $1.6 million and $1.3 million, respectively.
(I) JOINTLY OWNED PLANT At December 31,1995, the Company had the following interests in jointly owned plants:
Ownership / j Leasehold Plant In Accumulated i Share Service Depreciation (Millions)
Seabrook Unit i 17.5 % $647 $93 i j Millstone Unit 3 3.685 132 53 1 New Haven Harbor Station 93.7 137 68 I ne Company's share of the operating costs ofjointly owned plants is included in the appropriate expense captions in the Consolidated Statement of Income.
i (J) UNAMORTIZED CANCELLED NUCLEAR PROJECT From December 1984 through December 1992, the Company had been recovering its investment in Seabrook Unit 2, a nuclear generating unit under construction that was cancelled in 1984, over a regulatory approved ten-year period ;
i I
C-33
-l THE UNITED II.LUMINATING COMPANY '
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued) without a retum on its unamortized investment. In the Company's 1992 rate deci J the Company to write off its remaining investment in Seabrook Unit 2, beginning Jan:,
period, corresponding with the flowback of certain Connecticut Corporation Business Such Tax (C J decision will allow the Company to retain the Seabrook Unit 2/CCBT amounts for ratema accumulated CCBT credits not deducted from rate base during the 24-year period of amo !
longer period of time for amortization of the Seabrook Unit 2 balance. ;
(K) FUEL FINANCING OBLIGATIONS AND OTHER LEASE OBLIGATIONS He Company has a Fossil Fuel Supply Agreement with a financial institution providingI million in fossil fuel purchases. Under this agreement, the fmancing entity may acquire and fuel oil for sale to the Company, and the Company may purchase these fossil fue price for each type of fuel that reimburses the financing entity for the direct costs it ha interest rate on thirty-day, dealer-placed commercial pape ue inventories and to indemnify the financing entity against all liabilities, taxes and other exp its ownership, storage and sale of fossil fuel to the Company. His agreement currently ext .
December 31,1995, approximately $ 16.2 million of fossil fuel purchases were being fina He Company has leases (some of which are capital leases), including arrangements for equipment, vehicles and office space.
obligations of those leases as of December 31,1995 are recorded on the balanc Future minimum lease payments under capital leases, excluding the Seabrook sale!!ease being treated as a long-term financing, are estimated to be as follows:
(000's) 1996
$ 1,715 1997 i 1,715 1998 1,715 1999 1,696 2000 1,696 After2000 21.088 Total minimum capital lease payments 29,625 Less: Amountrepresentinginterest 11.826 Present value ofminimum capital lease payments
$_17.799
- In January 1994, the Company renegotiated a lease agreement for Since a service facility.
the effect of 4
renegotiating the lease, which continues to be treated as a capital lease, was a noncash ;
is not reflected in the Consolidated Statement ofCash Flows.
Capitalization of leases has no impact on income, since the sum of the amortization of a lea interest on the lease obligation equals the rental expense allowed for mtemaking purposes.
Rental payments charged to operating expenses in 1995,1994 and 1993 amounted to $11.5i m and $14.1 million, respectively.
3' i4 s:
i, I:
C-34
I
THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued)
Operating leases, which are charged to operating expense, consist principally of a large number of small, relatively short-tenn, renewable agreements for a wide variety of equipment. In addition, the Company has an operating lease for its corporate headquarters. Future minimum lease payments under this lease are estimated to be as follows:
(000's) 1996 $ 5,317 1997 5,826 1998 6,125 1999 6,426 2000 6,524 2001-2012 115.339 Total $14L151 (L) COMMITMENTS AND CONTINGENCIES Capital Expenditure Program ne Company's continuing capital expenditure program is presently estimated at approximately $310.6 million, excluding AFUDC, for 1996 through 2000.
Nuclear Insurance Contingencies ne Price-Anderson Act, currently extended through August 1,2002, limits public liability resulting from a single incident at a nuclear power plant. He first $200 million ofliabi'ity coverage is provided by purchasing the maximum amount of commercially available insurance. Additional liability coverage will be provided by an assessment of up to
$75.5 million per incident, levied on each of the nuclear units licensed to operate in the United States, subject to a maximum assessment of $10 million per incident per nuclear unit in any year. In addition, if the sum of all public liability claims and legal costs resulting from any nuclear incident exceeds the maximum amount of financial protection, each reactor operator can be assessed an additional 5% of $75.5 million, or $3.775 million. The maximum assessment is adjusted at least every five years to reflect the impact of inflation. Based on its interests in nuclear generating units, the Company estimates its maximum liability would be $23.2 million per incident. However, assessment would be limited to $3.1 million per incident, per year. With respect to each of the operating nuclear generating units in which the Company has an interest, the Company will be obligated to pay its ownership and/or leasehold share of any statutory assessment resulting from a nuclear incident at any nuclear generating unit.
He NRC requires nuclear generating units to obtain property insurance coverage in a minimum amount of $1.06 billion and to establish a system of prioritized use of the insurance proceeds in the event of a nuclear incident. He system requires that the first $1.06 billion ofinsurance proceeds be used to stabilize the nuclear reactor to prevent any significant risk to public health and safety and then for decontamination and cleanup operations. Only following completion of these tasks would the balance, if any, of the segregated insurance proceeds become available to the unit's owners. For each of the nuclear generating units in which the Company has an interest, the Company is required to pay its ownersh;p and/or leasehold share of the cost of purchasing such insurance.
Although each of these units has purchased $2.75 billion of property insurance coverage, representing the limits of coverage currently available from conventional nuclear insurance pools, the cost of a nuclear incident could exceed available insurance proceeds. In addition, two of the nuclear insurance pools that provide portions of this coverage may levy assessments against the insured owner companies if pool losses exceed the accumulated funds available to the l
C-35 i
l m
THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . (continued) pool. De maximum potential assessments against the Company with respect to losses occurring during current policy years are approximately $7.5 million.
Other Commitments and Contingencies Hydro-Quebec The Company is a participant in the Hydro-Quebec transmission intertie facility linking New England and Quebec, Canada. Phase 11 of this facility, in which UI has a 5.45% participating share, has increased the capacity value of the intertie from 690 ruegawatts to a maximum of 2000 megawatts. A ten-year Firm Energy Contract, which provides for the sale of 7 million megawatt-hours per year by Hydro-Quebec to the New England participants in the Phase !! facility, became effective on July 1,1991. He Company is obligated to fumish a guarantee for its participating share of the debt financing for the Phase !! facility. As of December 31,1995, the Company's guarantee liability for this debt amounted to approximately $8.7 milihrc Early Retirement Program As part of a new three-year agreement between the Company and its union employes, the Company offered a voluntary early setirement program to union employees who had until January 31,1996 to accept. He early retirement offer was accepted by 64 employees and the Company will recognize a charge to camings in January 1996 of $7.2 million ($4.2 million, after-tax). The employees accepting the offer will retire during the first six months of 1996.
Site Remediation Costs ne Ce r,wy has estimated that the cost of environmental remediation ofits decommissioned Steel Point Station property in Bridgeport will be approximately $11.3 million, and that the value of the property following remediation will not exceed $6 million. In its 1992 decision on Urs application for retail rate increases, the DPUC provided for additional revenues to be recovered from customers, in the amount of $4.3 million of the difference, during the period 1993-1996, subject to true-up in the Company's next retail rate proceeding based on actual remediation cosu and actual gain on the Company's disposinon of the property.
l Property Taxes On November 2,1993, the Company received " updated" personal property tax bills from the City of New Haven ;
(the City) for the tax year 1991-1992, aggregating $6.6 million, based on an audit by the Cit /s tax assessor. On May 7, 1994, the Company received a " Certificate of Correction....to correct a clerical omission or mistake" from the Cit /s tax assessor relative to the assessed value of the Compan/s personal property for the tax year 1994-1995, which certificate purports to increase said assessed value by approximately 53% above the tax assessofs valuation at February 28,1994, l generating tax c! aims of approximately $3.5 million. On March 1,1995, the Company received notices of assessment changes relative to the assessed value of the Company's personal property for the tax year 1995-1996, which notices purport to increase said assessed value by approximately 48% over the valuation declared by the Company, generating ;
tax claims of approximately $3.5 million. On May 11,1995, the Company received notices of assessment changes relative to the assessed values of the Company's personal property for the tax yeaas 1992-1993 and 19931994, which notices purport to increase said assessed values by approximately 45% and 49%, respectively, over the valuations declared by the Company, generating tax claims of approximately $4.1 million and $3.5 million, respectively. He ;
City's tax assessor is conducting hearings regarding the assessed value of the Company's personal property for the tax year 1996-1997; and the Company anticipates that the tax assessor will take some action to increase said assessed value for that tax year. The Company is contesting each of these actions by the Cit /s tax assessor vigorously. On January 9, 1996, the Connecticut Superior Court granted the Company's motion for summary judgment against the City relative to C-36
., ,, l THE UNITED ILLUMINATING COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -(continued) the " updated" personal property tax bills for the tax year 1991-1992. He City has appealed to the Appellate Court from the Superior Court decision, which decision would also be applicable to and defeat the valuation increases for the tax years 1992-1993 a1d 1993-1994 ifit is sustained on appeal. It is the present opinion of the Company that the ultimate outcome of this dispute will not have a significant impact on the financial position of the Company, 1
Environmental Concerns l In complying with existing environmental statutes and regulations and further developments in these and other areas of environmental concern, including legislation and studies in the fields of water and air quality (particularly " air toxics" and " global warming"), haardous waste handling and disposal, toxic substances, and electric and magnetic fields, the Company may incur substantial capital expenditures for equipment modifications and additions, monitoring equipment and recording devices, and it may incur additional operating expenses. Litigr ^n expenditures may also increase as a result of scientific investigations, and speculation and debate, conceming the possibility of harmful health effects of electric and magnetic fields. De total amount of these expenditures is not now determinable.
(M) NUCLEAR FUEL DISPOSAL AND NUCLEAR PLANT DECOMMISSIONING i
Costs associated with nuclear plant operations include amounts for disposal of nuclear wastes, including :, pent fuel, l and for the ultimate decommissioning of the plants. Under the Nuclear Waste Policy Act of 1982, the federal Department of Energy (DOE) is required to design, license, construct and operate a permanent repository for high level !
radioactive wastes and spent nuclear fuel. He Act requires the DOE to provide, beginning in 1998, for the disposal of spent nuclear fuel and high level radioactive waste from commercial nuclear plants through contracts with the owners and generators of such waste; and the DOE has established disposal fees that are being paid to the federal govemment ,
by electric utilities owning or operating nuclear generating units. In retum for payment of the prescribed fees, the i federal govemment is to take title to and dispose of the utilities' high level wastes and spent nuclear fuel beginning no l later than January 1998. However, the DOE has announced that its first high level waste repository will not be in ~
operaQn earlier than 2010 and possibly ne* earlier than 2013, notwithstanding the DOE's statutory and contractual responsibility to begin disposal of high-level radioactive waste and spent fuel beginning not later than January 31,1998.
He DOE has also announced that, absent a repository, DOE has no statutory obligation to begin taking high level wastes and spent nuclear fuel for disposal by January 1998. Numerous utilities and states have filed suit seeking a judicial declaration that DOE has a statutory responsibility to take title to and dispose of high level wastes and spent nuclear fuel beginning in January 1998, and seeking remedies should this not occur. The court is expected to issue findings by mid-19%. ,
Legislation is pending in the United States Congress to address Spent Fuel /High Level Waste Disposal issues; but it a = dear at this time whether legislation will be forthcoming.
Until the federal govemment begins receiving such materials, operating nuclear generating units will need to retain
. high level wastes and spent nuclear fuel on-site or make other provisions for their storage. Storage facilities for Millstone Unit 3 and the Connecticut Yankee Unit are expected to be adequate for the projected life of the units.
Storage facilities for Seabrook Unit I are expected to be adequate until at least 2010. Fuel consolidation and compaction technologies are being considered for Seabrook Unit I and may provide adequate storage capability for the projected life of the unit. In addition, other licensed technologies, such as dry storage casks, may satisfy spent nuclear fuel storage requirements.
Disposal costs for low-level radioactive wastes (LLW) that result from normal operation of nuclear generating units have increased significantly in recent years and are expected o continue to rise. He cost increases are functions of increased packaging and transportation costs and higher fees and surcharges charged by the disposal facilities.
C-37
THE UNITED ILLUMINATING COMPANY ,,' c NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (cond Millstone Unit 3, and Seabrook Unit I for disposal ankee Unit, r , Utah, is also open of L to these generatmg units for portions of their LLW. All three disposal facilities. units have contracts i ce for LLW disposal at these Because access to LLW disposal may be lost at any time, the Connecticut Ya ne Unit 3 and Seabrook Unit I have storage plans that will allow on-site sn retention of LLW f disposalis intermpted.
e event that New Hampshire has not met deadlines for complianc that the state is unsuitable for a LLW disposal facility. Both Connecticut and New Ham e ate of c and has stated options for out of-state disposal ofLLW. pshire are also pursuing other 3:
at the end of their service lives, and the NRC has ad ng units mmissioning planning, timing, funding and environmental reviews. UI and the other UI has interests estimate decommissioning costs for the units and attempt to ns rough their c
allowed electric rates to increase estimated decommissioning costs. cover expected decommissioning costs. Changes in nology can decommissioning of nuclear generating units inthe that s nance ng Financing Committee (NDFC) has established W,2 million (in 1996 dollars) as the decom a e or Seabrook and distaantling of the Unit at the end. Monthly of its estimated rompt removal decommissioning 36 payments are being made to the state-managed decommissioning trust fund.
payments made during 1995 was $1.4 million. Urs share of the fund at De million.
DPUC their plans for financing the decommissioning y with the cost estimates for Millstone dollars), respectively, Unitofwhich 3 and the theCompany's Connecticut share Yankee Unit would be approximately are $478 on (in 1996 $18 n, respectively.
nese estimates premise the prompt removal and dismantling producing life. of each Monthly decommissioning payments, based on these cost estimates, decommissioning tmst funds managed by Northeast Utilities. Urs share of the Mill payments n, de during 1995 was $459,000.
I ecommissioning Urs share of the fund at December 31,1995 was approximatel y $31 were funded by Ul ducing 1995, and Urs share of the fun .
n l
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C-38 i
THE UNITED ILLUMINATING COMPANY l l
NOTES TO CONSOLIDATED FINANCI AL STATEM ENTS -(continued) I i
- (N) PROPERTY TAX SETTLEMENT In December 1994, the Company and the City of Bridgeport settled a dispute regarding past taxes payable by the l' Company on its personal property in that city and agreed upon a method of valuation of personal property for tax purposes for future periods. As a result of the settlement agreement, the Company recognized a non-recurring charge to 1994 eamings of approximately $2.5 million ($1.5 million, after-tax).
(0) FAIR VAL,UE OF FINANCIA L INSTRUMENTS (1) .
The estimated fair values of the Compcny's financial instruments are as follows: !
1221 1224 l Carrying Fair Carrying Fair I Amount Yalg Amount ya.'uf (000's) (000's) !
Cash and temporary cash investments S 5,070 $ 5,070 $ 11,432 $ 11,432 i
Long-term debt (2)(3)(4) $638,454 $648,142 $651,473 $633,551 (1) Equity investments w re not valued because they were not considered to be material.
(2) Excludes the obligation under the Seabrook Unit I sale!!easeback agreement.
l (3) The fair market value of the Company's long-term debt is estimated by brokers based on market conditions at ;
December 31,1995 and 1994, respectively.
(4) See Note (B), Capitalization - Long-Term Debt.
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O C-39 !
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THE UNITED ILLUMINATING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS . kontinued) !
(P) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for 1995 and 1994 are set forth below: i Operating Operating Net Earnings Per Share of Quarter Revenues Income (5) Income (3V4VO Common Stock (lV2V3V4V5)
(000's) (000's) (000's) i 1995 First $165,398 $28,135 $9,470 $.62
'Second 163,429 26,535 7,774 .67 Third 200,308 47,431 26,535 1.89 .I Fourth 161,314 25,055 6,614 .46 1994 First $167,579 $32,626 $11,938 $.77 Second 153,433 26,632 6,414 .40 i Third 184,592 44,762 25,787 1.78 I Fourth 151,144 23,372 2,656 .14 l
I (1) Br, sed on weighted average number of shares outstanding each quarter.
i (2) Earnings per share for the second and third quarter of 1995 included a total gain of $.15 per share from the i repurchase ofpreferred stock at a discount to par value.
(3) Net income and eamings per share for the third quarter of 1995 included an after-tax charge of $1.6 million, or j
$.12 per share, reflecting the effects oflegislated future state income tax rate reductions which will reduce future i
tax benefits on plant previously written off. '
(4) Net income and eamings per share for the first quarter of 1994 include an after-tax charge of $1.3 million, or $.09 ,
per share, associated with the cumulative effect of the change in the method of accounting for postemployment benefits. See Note (H), " Pension and Other Benefits", lf (5) Operating income, net income and eamings per share for the fourth quarter of 1994 include an after-tax charge of l
$1.5 million, or 5.10 per share, associated with a property tax settlement, and an after-tax credit of $1.6 milhon, or J
$.11 per share, to reverse prior period overestimates of distribution losses, f i
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1 c-40 !
F
MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS UI's Common Stock is traded on the New York Stock Exchange, where the high and low sale prices during 1995 and 1994 were as follows:
1995 Sale Price J393 Sale Price
- High Los liiah las First Quarter 33 1/4 29 1/2 39 1/2 35 1/4 Second Quarter 33 5/8 31 1/4 37 1/8 32 1/2 Third Quarter 35 1/4 31 1/2 34 1/2 29 1/8 Fourth Quarter 38 1/2 35 3/4 30 1/2 29 UI has paid quarterly dividends on its Common Stock since 1900. The quarterly dividends declared in 1994 and 1995 were at a rate of 69 cents per share and 701/2 cents per share, respectively.
'Ihe indenture under which the Company's Notes are issued places limitations on the payment of cash dividends on common stock and on the purchase or redemption of common stock. Retained camings in the amount of $98.7 million were free from such limitations at December 31,1995.
As of January 31,1996, there were 16,976 Common Stock shareowners of record.
EXECUTIVE OFFICERS OF THE COMPANY Richard J. Grossi Chairman of the Board of Directors and Chief Executive Officer Robert L. Fiscus President and Chief Financial Officer James F. Crowe Executive Vice President and Chief Customer Officer Rita L.Bowlby Vice President-Corporate Affairs Raymond G. Dube Vice President-Transmission and Distribution Stephen F. Goldschmidt Vice President-Information Resouces Alben N. Henricksen Vice President-Administration David W. Hoskinson Vice President-Generation Robert H. Hyde Vice President-Customer Services E. Jon Majkowski Vice President Anthony J. Vallillo Vice President-Marketing James L. Benjamin Controller Kurt D. Mohlman Treasurer and Secretary Charles J. Pepe Assistant Treasurer and Assistant Secretary C-41
Jl 4
' ... 1 ;
l Selected Fi=ici:1 D:ta l 1995 1994 1993 i Financial Results of Operation ($000's)
Sales of electricity Retail
- Residential $260,694 8252,386 4238,185 i Commercial 259,715 250,771 (2) 256,559 Industrial 106,963 l 104,242 (2) 97,466 g Other 11.736 11.469 11,349 Total Retail 639,108 !
618,868 603,559
. Wholesale (1) 48,232 34,927 45,931
)'
Other operating revenues 3,109 2,953 3,533
) Total operating revenues ___ 690,449 656,748 653,023 Fuel and interchange energy -net 1
Retail -own load 96,538 99,589 98,694 Wholesale 41,631 27,765 39,356
, Capacity purchased-net 47,420
'I '
Depreciation 44,769 47,424 61,426 58,165 56,287 l j
q Other amortization, principally deferred return and cancelled plant 13,758 1.172 1,780 4 Other operating expenses, excluding tax expense 183,749 193,098 203,427 (3)
J i Grose earnings tax 27,379 i 27,403 27,955 Other non-income taxes 31.564 32,458 29.977 Total operating expenses, excluding income taxes 503,465 484,419 504,900 Deferred return Seabrook Unit 1 0 0 7,497 AFUDC 2,762 3.463 4,067 Other non-operating income (loss) (4,272) (1,907) interest expense 71 h
Long-term debt 63,431 73,772 80,030
. Other 13,1*0 10,301
< 12,260 Total 76,571 1 i 84,073 92,$90 Minority interest in preferred securities 3,583 l Income tax expense 0 T l g Operating income tax 59,828 44,937 33,309 ]
i Non-operating income tax (4,901) (3,214) (6.322) d Total 54,927 41,723 l d 26,987 l income (loss) before cumulative effact of accounting change 50,393 48,089 40,481 Cumulative effect of change in accounting - net of tax 0 (1,294)
'- 0 Net income (loss) 50,393 l 46,795 40,481 (4)
, Discount on preferred stock redemption (2,183) l 0 0
. Preferred and preference stock dividends l 1,329 3,323 4,318 '
income (loss) applicable to common stock $ 51,247 $43,472 $ 36,163 Operating mcome $ 12/' ,156 8127,392 $114,814 i Financial Condition ($000's)
Plant in service-net $ 1,277,910 $ 1,268,145
' 41,243,426 I Construction work in progress 41,817 57,669 i
77,395 l Plant-related regulatory asset 0 0 0
[ Other property and investments 53,355 53,267 58,096
)
j Current assets 137,277 157,309 187,981 j
Deferred charges and regulatory assets 475.258 538,601 1
567,394 Total Assets $ 1.985,617 $ 2,0 74,GT" {
$ 2,134,292 *i 4
Common stock equrry 6439,981 6428,028 $423,324 ij Preferred, preference stock and preferred securities 60,539 44,700 60,945 Long-term debt excluding current portion 845,684 708,340 875,268 Ll Noncurrent liabilities 31,915 29,281 29,119 '!
. ; Current portion of long-term debt 40,800 193,133 k- ] 143,333 Notes payable ll 0 67,000 0 I/ Other current liabilities 136,168 152,261 150,890 i ,
i- Deferred income tax liabilities and other 430,530 i
452,248 451,413 '
Total Capitalization and Uebilities 61,b 5 5,617 s2,U/4.ssi 62,134,232 s' ;
I; (1) Operating Revenues, for years prior to 1992, include wholesale power exchange contract sales that l
' were reclassified from Fuel and Capacity expenses in accordance with Federal Energy Regulatory
, Commission requirements.
p (2) includes reclassification of certain Commercial and Industrial customers. >
tl t i C-42 l E
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1992 1991 1990 1989 1988 1987 1986 8226,455 8226,751 8211,891 8205,183 $200,170 $188,740 $178,268 253,456 (2) 255,782 234,704 219,852 208.801 195,972 180,888 97,010 (2) 91,895 94,526 92,855 96.665 100,354 99.939 11,065 10,886 10.536 9,943 9,732 9,480 9,516 587,986 585,314 551,657 527,833 515,368 494,546 468,611 75,484 84,236 85,657 77,925 63,263 54,708 48,010 3,855 3,821 3,332 3,348 3,570 3,077 2,508 667,325 673,371 640,646 609,106 582.201- 552,331 519,129 108,084 123,010 119,285 128,739 12.1,425 131,471 126,778 2 55,169 61,858 69,117 62,681 53,837 51,411 46,466
} 43,560 44,668 42,827 50,234 35,465 17,746 15,028 1 50,706 48,181 36,526 35,618 24,069 37,160 22,112 10,415 10,415 4,173 10,415 10,415 10,415 11,354 l 183,426 178,912 176,419 144,867 133,407 127,900 120,094 27,362 27,223 25,595 24,506 23,948 22,997 21,838
- 31,869 28,673 24,648 20,294 21.695 17,194 17,991 510,591 522,940 498,b90 477,354 424,261 416,294 381,661 l 15,959 17,970 21,503 0 0 0 0
- 3,232 5,190 3,443 65,443 75.656 81,419 78,044 l 18,545 2,697 22,654 (219,742) (23,369) (97,686) (75,380) a 88,666 90,296 94,056 91,126 90.022 88,700 88,610 i 12,882 9,847 15,468 22,849 12,069 9,228 2,223 1 101,548 100,143 109,524 113,975 102,091 97,928 90,833
, 0 0 0 0 0 0 0 48,712 47,231 43,493 37,963 44,045 50,633 51,419 (12,558) (19,299) (17,409) (101,135) (14,548) (37,440) (33,884) i 36,154 27,932 25,084 163,172) 29,497 13,193 17,535
- 56,768 48,213 54,048 (73,350) 78,639 B,649 31,764 1 0 7,337 0 0 0 0 0 j 56,768 55,550 54,048 (73,350) 78,639 8,649 31,764 0 0 0 0 0 0 0 4,338 4,530 4,751 8,233 11,348 11,953 18,969
$ 52,430 $ 51,020 $49.297 ($ 51,583) 667,291 ( $ 3,304) $ 12,795
$108.022 8103,200 $98,563 $ 93.789 4113,895 $ 85,404 $ 86,049
$ 1,224,058 $1,219,871 $ 1,209,173 8562,473 $560,930 $ 563,210 8571,549
. 59.809 54,771 50,257 675,831 812,246 737,169 742,585 <
] O O O 81,768 88,339 68,603 55,497 65,320 79,009 90,006 91,648 83,860 76,032 70,927 247,954 164,839 161,066 170,823 166,270 d 2,075 107,399 556,493 554,365 553,986 605,696 653,418 61 C,.91't 607.294
$ 2,153,634 $ 2,072,855 $ 2,064,488 $ 2.158,239 52,365,063 $2,178,002 $ 2,15 5,251
. $422,746 8401,771 $ 379,812 $362,584 $ 473,6 74 $438,564 $476,108 l j 60,945 62,640 69,700 70,000 104,000 110,000 133,000
]
893,457 909,998 899,993 868,884 862,287 767,559 661,548 '
25,853 96,973 99,933 107,781 111,971 95,070 81,263 92,833 37,500 41,667 18,667 3,667 28,667 18,667 84,099 13,000 15,000 45,000 0 0 25,675 ,
133,471 127,524 149,090 142,878 122,237 117,009 100,666 j 440,230 423,449 409,293 572,445 687,227 621,133 658,324 5 Z,15 3,534 5 2,U / 2,5D S 52,054,458 52,155,233 62,300,063 52,175,002 5 2,15 5,2 b 1 i
(3) includes the effect of a reorganization charge of $13.6 million, before-tax, associated with a voluntary early retirement program.
(4) includes the effect of a reorganization charge of $7,8 million, after-tax, C-43
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Selected Financial Data (contiIued) 1995 1994 1993 i Common Stock Data l 14,089,835 14,085,452 14,063,854 Average number of shares outstanoing '
Number of shares outstanding at year.end 14,100,091 14,086,691 14,083,291 .
Earnings (lose) per share (average) $3.64 $3.09 $2.57 i Recurring earnings (loss) per share (average) (1) $3.61 $ 3.28 $ 3.13 Book value per share $ 31.20 $30.39 $ 30.06 1
Average return on equity Total 11.84 % 10.19 % 8.45 %
Utility 13.04 % 12.50 % 10.97 %
Dividends declared per share $2.82 $2.76 $2.66 Market Price:
F, $38.500 $39.500 $45.875 ;
fw $29.500 $29.000 $38.500 ;
N st-end $37.375 $29.500 $40.250 ,
Net cash provided Dy operating actmties, less dividends (9000's) 5120,03d 594,507 5104,547 I Capital expendituras, excluding AFUDC $ 59,363 463,044 $ 94,743 M and Statistical Data h Sales by class (MWh's) ;
Residential 1,890,575- 1,892,955 1,844,041 '
Commercial 2,273,965 2,285,942 (2) 2,359,023 1 Industrial 1,126,458 1,135,831 (2) 1,036,547 )
Other 48,435 48,718 50,715 l Total 5,339,433 5,363,446 5,290,326 I Number of retail customers by class (average) .
l Residential 278,326 275,441 273,752 Commercial 28,550 28,394 (2) 28,968 l Industrial 1,599 1,538 (2) 959 Other 1,122 1,127 1,175 i Total 309,597 306,500 304.854 Revenue per kilowatt hour by class (cents)
Residential 13.79 13.33 12.92 l Commercial 11.42 10.97 10.88 Industrial 9.50 9.18 9.40 Average large industrist customers time of use rate (cents) 8.53 8.69 8.89 System requirements (MWh) 5.647,690 5,652,657 5,630,581 Peak load kilowatts . 1,156,740 1,130,780 1,114,900 Generating capability- peak (kilowatts) 1,434,102 1,462,290 1,515.420 Load factor 55.74 % 57.07% 57.65 % 1 Fuel generation mix percentages j Coal 37 35 31 Oil 7 14 16 <
Nucker 37 32 38 Cogeneration 9 9 8 ,
4 '
Gas 5 1 Hydro 5 6 6 Revenues - retail sales ($000's) i Base $637,219 $619,097 $605,887 ;
Fuel adjustment clause 1,889 (229) (2,328) :
Sales provision adjustment 0 0 0 {
Total 6639,108 6618,868 6603,559 i Revenues retail sales per kWh (conts) l 8ase 11.93 11.54 11.45 i Fuel adjustment clause 0.04 0.00 (0.04) !
Sales provision adjustment 0.00 0.00 0.00 l Total 11.97 11.54 11.41 l Fuel and energy cost per kWh (cents) 1.71 1.76 1,75 Fossil 2.22 2.14 2.08 i Nuclear - 0.85 0.94 1.23 l Number of emp6oyees at year.end 1,358 1,377 1,490 I Total payroll (6000 *S) 472,984 $75,441 $75,305 (1) Recurring earnings (loss) per share (average) is not a generally accepted accounting principle measurement. I Management provides this measurement for informational purposes only. I (2) includes reclassification of certain Commercial and Industrial customers.
C-44 I
, p . s,, ;
1992 1991 1990 1989 1988 1987 1986 13,941,150 13,899,906 13,887,748 13,887,748 13.887,748 13,887,654 13,827,431
- 14,033,148 13,932,348 13,887,748 13,887,748 13,887,748 13,887,748 13,886,566
$ 3.76 $3.67 $ 3.55 ($5.87) $4.85 (80.24) 60.93
$ 3.17 $ 2.90 $ 3.55 ($5.87) $4.85 (80.24) $ 0.93
$ 30,12 $28 84 $27.35 $26.11 $ 34.11 $31.58 $34.29 12.67 % 13.01 % 13.39 % 18.88 % 14.75 % -0.72 % ~ 2.64%
1 14.46 % 13.39 % 13.97 % 20.21 % 32.91 % 15.34 % 16.81 %
$ 2.56 $2.44 $ 2.32 $2.32 $ 2.32 $2.32 $ 2.32
$42.000 $39.125 $ 34.125 $34.250 $27.500 $34.000 $36.250
$34.125 $ 30.000 $26.875 $ 24.750 $1'9.125 $21.250 $26.625
$41.500 $ 39.000 $ 31.125 $ 34.250 $26.875 426.875 $29.250 i 5105,0ZD 5 /3,55D 535,153 5 J1,437 540,001 531,355 515, / UD
-' $66,390 $63,157 $64,018 $ 77,041 $83,735 $73.253 $ 116,124 l
1,799,456 1,851,447 1,826,700 1,883,363 1,870,318 1,780,333 1,700,302 2,303,216 (2) 2,347,757 2,259,340 2,254,099 2,174,200 2,046,289 1,914,889 3
997,168 .(2) 980,071 1,060,751 1,109,119 1,186,336 1,236,151 1,232.209 1 52,984 55,118 58,013 60,427 61,303 62,246 65,533 5,152,524 5,234,393 5,204,504 5,307,008 5,292,157 5,125,019 4.912,933
{
273,936 274,064 275,637 276,385 274,884 271,302 267,509 28,848 (2) 29,768 29,808 29,526 28,826 28,103 27,215 1,017 (2) 268 319 347 367 369 372 j 1,358 1,361 1,352 1,316 1,267 1,191- 1.179 305,159 305,461 307,116 307,574 305,344 300,955 296,275 12.58 12.25 11.60 10.89 10.70 10.60 10.48 11.00 10.89 10.39 9.75 9.60 9.58 9.45 9.73 9.38 8.91 8.37 8.15 8.12 8.11 8.84 8.64 8.06 7.58 7.14 7.04 6.79 i 5,475,664 5,541,477 5,501,495 5,603,502 5,581,897 5,403,519 5,182,516 l 1,034,440 1,145,820 1,054,600 1,094,400 1,132,100 1,039,600 985,710 1,402,800 1,474,190 1,449,600 1,289,800 1,271,500 1,236,000 1,309,700 l
60.26 % 55.21 % 59.55 % 58.45 % 56.13% $9.33% 60.02 %
34 34 43 39 37 42 37 ti 21 24 37 41 37 53 35 29 20 11 11 10 9 8 9 9 9 7 1 0 1 4 3 3 0 5 0 5 3 1 1 4 5 1
$608,176 $607,997 $589,346 $577,611 $574,422 4558,060 $537,147
-(41,221) (37,497) (45,900) (49,778). (59,054) (63,514) (68,536) 21,031 14,814 8,211 0 0 0 0 8557,956 6555,314 6551,657 6527,533 8515,365 $494,546 4465.611 11.80 11.62 11.32 10.88 10.85 10.89 10.93 (0.80) (0.72) (0.88) (0.93) (1.11) (1.24) (1.39) 0.41 0.28 0.16 0.00 0.00 0.00 0.00 i 11.41 11,15 10.60 9.95 9.74 9.65 9.54 2.43 2.67 2.63 2.75 2.53 2.54 2.45
' 2.98 3.11 2.89 2.98 2.74 2.58 2.58
, 1.42 1.62 1.55 0.89 0.87 0.94 1.02 1,554 1,571 1,557 1,627 1,620 1,604 1,576 l
$ 74,052 471,888 $69.237 $ 65,175 $62,387 457.207 452,782 i l
)
I C-45
7 o
S$rhe united titurninating coinpany l
. Notice of Annual Meeting l
- . Proxy Statement Notice ofAnnualMeeting D-1 ShareownersEntitledto Vote D-2 Nominees For Election as Directors D-3 Stock Ownership ofDirectors and Offcers D-6 Executive Compensation D-7 j
- Stock Option Plan D-9 DividendEquivalent Program D-11
Retirement Plans D-12 BoardofDirectors Report on 1 Executive Compensation D-12 Director Compensation D-15 Shareowner Return Presentation D-16 ApprovalofNon-Employee Directors Common Stock andDeferred
. Compensation Plan D-17 Directions to AnnualMeeting Inside Bac!: Cover Please r,ign and return your proxy promptly.
.. y, f
I THE UNITED ILLUMINATING COMPANY !
l NOTICE OF ANNUAL MEETING OF THE SHAREOWNERS i
TO THE SHAREOWNERS: !
l Notice is hereby given that the Annual Meeting of the Shareowners of The United Illuminating Company will be held at the New Haven Lawn Club,193 Whitt ,f Avenue, New Haven, Connecticut, on Wednesday, May 15,1996 at ten o' clock in the forenoon, for the tbilowing purposes:
- 1. To elec* a Board of Directors for the ensuing year. ;
- 2. To vote on the approval of the employment, by the Board of Directors, of Price Waterhouse LLP as the firm of ;
L indewndent public accountants to audit the books and affairs of the Company for the fiscal year 1996. :
I
- 3. To vw on the approval of The Unhd Illuminating Company Non Employee Directors Common Stock and Deferred Compensation Plan. ]
- 4. To transact such other business as may properly come before the meeting or any adjournments ;
thereof.
The Board of Directors has fixed the close of business on March 13,1996 as the record date for determination of the shareowners of the Company entitled to notice of, and to vote at, the meeting and any adjournments thereof.
l Regardless of whether you plan to attend the meeting, please fill in, sign, date and return promptly the enclosed proxy in the accompanying envelope, which requires no postage if mailed in the United States, Dated at New Haven, Connecticut, this 28th day of March,1996.
By Order of the Board of Directors, KURT MOHLMAN, Treasurer andSecretary i l
l YOUR VOTE IS IMPORTANT
]
l In order to save the Company the expense of further solicitation to ensure that a quorum is present at the Annual Meeting, please mail your proxy promptly - regardless of the number of shares you own, i and regardless of whether you plan to attend the meeting.
A diagram showing the location ofthe New Haven Lawn Club appears on the inside ofthe back cover ofthe Proxy i
Statement.
i
l PROXY STATEMENT i his statement and the accompanying proxy form are furnished on or about March 28,1996, to security holders of record as of the close of business on March 13,1996, in connection with :he solicitation of proxies for use at the Annual Meeting of the Shareowners of ne United Illuminating Company to be held at the New He~n Lawn Club, 193 Whimey Avenue, New Haven, Connecticut on Wednesday, May 15,199,5 at 10:00 a.m. for the purposes set forth in the enclosed Notice of Annual Meeting of the Shareowners. The mailing address of the principal executive office of the Company is 157 Church Street, P.O. Box 1564, New Haven, Connecticut 06506. The solicitation is made the Company, and the expense of printing and mailing proxy material will be borne by the Company. He Compa will request banks, brokers and other custodians, nominees and fiduciaries to send proxy material to beneficial owners of shares and to secure their voting instructions, if necessary, and the Company will reimburse them for their reasonable expenses in so doing. Directors, officers and employees of the Company may also solicit proxies personally or by telephone, but no compensation will be paid specifically for any such solicitation. In addition, Georgeson & Company, Inc. of New York, New York, has been retained to aid in the solicitation of proxies by similar methods at a cost to the Company of approximately $11,500, plus expenses.
SHAREOWNERS ENTITLED TO VOTE:
At the close of business on March 13, 1996, the record date for the meeting, 14,100,091 shares of Common Stock of the Company were outstanding and will be entitled to vote at the meeting, each share being entitled to one vote, on each matter coming before the meeting as set forth in the accompanying Notice of Annual Meeting of the Shareowners and commented on in this Proxy Statement. All votes on each matter coming before the meeting will be counted and tabulated by inspectors of Proxies and Tellers appointed by the President of the Company pursuan its Bylaws.
Common Stock shareowners who are participants in the Company's Automatic Dividend Reinvestment and Common Stock Purchase Plan (DRP) will receive proxy forms that will include the shares in their accounts under the DRP. He Bank of New York, the Company's agent under the DRP, has authorized the Company to vote shares held in the DRP according to the instructions received on such proxy forms.
Shares of Common Stock for which a proxy in the form that accompanies this Proxy Statement is properly signed and retumed (a) will be voted or not voted, in accordance with the choice indicated on the proxy, to fix the number of directors for the ensuing year at twelve and elect as directors the twelve persons named in this Pr Statement (or such other person or persons as the present Board of Directors shall determine, if one or more of the twelve persons named is unable to serve); (b) will be voted for or against, or not voted, in accordance with the choice indicated on the proxy, with respect to the proposal to approve the employment of Price Waterhouse LLP as independent auditors for the fiscal year 1996; (c) will be voted for or against, or not voted, in accordance with the choice indicated on the proxy, with respect to the proposal to approve the Company's Non-Employee Directors Common Stock and Deferred Compensation Plan; and (d) will be voted in accordance with the discretion of the ;
person or persons voting them with respect to such other matters, if any, as may come before the meeting. The Company is not aware of any such other matters to be presented at the meeting.
Any proxy may be revoked by the shareowner at any time prior to its use. A proxy may be revoked by filing with the Secretary of the Company a written notice of revocation or a properly signed proxy bearing a later date. A shareowner who attends the meeting in person may, if he or she wishes, vote by ballot at the meeting, there canceling any proxy vote previously given. l Under Connecticut law and the Company's Certificate of Incorporation and Bylaws, action by the shareowners on any matter ;oming before the meeting can be taken only by the affirmative vote of a majority of the shares of Common Stock represented at the meeting in person or by proxy. Accordingly, when e share represented at the !
meeting is not voted with respect to the election of directors, approval of the employment of independent auditors,!
approval of the Non-Employee Directors Common Stock and Deferred Compensation Plan, or sech other matters as
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may come before the useting, the effect is equivalent to a vote against the recommendation of the Poard of Directors j
with respect to the action tc be taken on such matter. Cumulative voting is not permitted under Connecticut law !
I I
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,,'. *a unless a corporation's cenificate of incorporation provides for cumulative voting rights; and the Company's Certificate ofIncorporation contains no provision for such rights.
1 PRINCIPAL SHAREOWNERS: ;
At the close of business on March 13,1996, there wcs no shareowner known to the Company to be the beneficial owner of more than 5% of the shares of its Common Stock. ]
l 1
NOMINEES FOR ELECTION AS DIRECTORS:
It is intended that shares of Common Stock represented by proxies who are authorized to vote for the election of ;
~
a Board of Directors on the form that accompanies this Proxy Statement will be voted to fix the number of directors :
at twelve and (unless instructed otherwise on the form) in favor of the persons listed below for election as directors of the Company. While it is not anticipated that any of the persons listed below will be unable to serve as a director, if that should occur the proxies will be voted for such other person or persons as the present Board cf Directors shall l determine. All of the nominees listed below except Delma R. Albright were elected directors at the last annual l meeting. i J
i Name, Principal Occupation, Other l Corporate Affiliations and Principal Occupations Director j During the Past Five Years ofNominee Agn? Since ;
Thelma R. Albright 49 1995 l President, Carter Products Division, Carter-Wallace, Inc., Cranbury, New Jersey. From 1994 through 1995, Ms. Albright was General Manager and Executive Vice President of ;
Revlon Beauty Care Division. From 1991 through 1993 Ms. Albright was Executive Vice President of Marketing of Carter-Wallace, Inc. Also, Director, Cosmetics, Toiletry and Fragrance Association.
Marc C. Breslawsky 53 1995 Vice Chairman, Pitney Bowes, Inc., Stamford, Connecticut. Also, Director, Pitney Bowes Credit Corp., the Computer and Business Equipment Manufacturers Association, Danbury Health Systems Inc. and United Way of Eastern Fairfield County; and Member, Corporate Council of Western Connecticut State University. ,
i David E. A. Carson 61 1993 i I
President, Chief Executive Officer and Director, People's Bank, Bridgeport, Cannecticut I
and President, Chief Executive Officer and Trustee, People's Mutual Holdings, Bridgeport, Connecticut. Also, Chairman, Bridgeport Public Education Fund, Business Advisory Committee of Connecticut Commission on Children and Bridgeport Area Foundation; Trustee of Connecticut Public Broadcasting; Director of Old State House, Hartford, Connecticut, Connecticut Mutual Investment Accounts and American Skandia Trust; and Member, Board of Directors, The Bushnell, Hartford, Connecticut, Hartford Stage Company 1 and Bridgeport Financial Review Board.
59 1987 l John F. Croweak Chairman of the Board of Directors, President and Chief Executive Officer, Blue Cross & I Blue Shield of Connecticut, Inc., North Haven, Connecticut. Also, Chairman of the Board of Directors, Connecticut American Life Insurance Company, ProMed Systems, Inc.,
OPTIMED Medical Systems and Signal Medical Services, Inc.; and Director of BCS Financial, The New Haven Savings Bank, Quinnipiac College and Opticare.
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~ Nenne, Princ&olOccupaden,06er i Corporate Afiliations and Principal Occupations )
~
Director Durins the Past Flue hers ofN ' -
J. Hugh Devlin - 4ggM Since t 53 1989 '
Managing Director and Consultant, Barr Devlin Associates, Incorporated, New York, New
- York. From 1975 through 1988, Mr. Devlin was a Managing Director of Morgan Stanley & j 1
Co., Inc., during which time he served as head ofits Public Utility Group. From January !
1989 to April 1990 Mr. Devlin served as Advisory Director of Morgan Stanley & Co., Inc.
Also, Chairman of the Board of Trustees, Riverview Medical Center.
l Robert L. Fiscus -
58 1992 President since May 1991, Director since May 1992 and Chief Financial Officer since August 1983, The United Illuminating Company. Mr. Fiscus served as Executive Vice
" President of the Company during the period January 1991 to May 1991. Also, Director of The Aristotle Corporation, Bridgeport Regional Business Council, Greater Bridgeport Area Foundation, United Way of Greater New Haven a ud Susquehanna University; Chairman of the Board of Directors of Griffin Health Services Corporation; and Member, Board of.
Governors of University of New Haven and Board of Tmstees, Central Connecticut Coast Young Men's Christian Association, Inc.
Richard J. Grossi '
60 1988 Chairman of the Board of Directors and Chief Executive Officer since May 1991, The United Illuminating Company. Mr. Grossi served as President and Chief Operating Officer .
of the. Company during the period January 1991 to May 1991. Also, Director of Tennis Foundation of Connecticut, Inc., The New Haven Savings Bank, Blue Cross & Blue Shield of Connecticut, Inc., Edison Electric Institute and Connecticut Business and Industry Association; Trustee of Yale-Neve Haven Hospital; Chairman, North American Electric )
i Reliability Council, Connecticut Pubhc Broadcasting, c In~ ., New Haven Regional Leadership !
Council and Executive Committee of the Seabrook Joint Owners.
Betsy Henley Cohn 43 1989, ;
Chairman of the Board of Directors, Joseph Cohn & Son, Inc., New Haven, Connecticut.'
Also, Chairwoman of Birmingham Utilities, Inc.; Chairman, Board of Commissioners, 9th-l j
Sqt re Tax District, City of New Haven; and Director of The Aristotle Corporation. !
John L. Lahey 49 1994 President, Quinnipiac College, Hamden, Connecticut. Also, President, Connecticut Chapter of The Newcomen Society; Director of Council for the Advancement and Support of Education, Yale New Haven Hospital and Long Wharf Theater; Vice Chairman and Director Regional Plan Association Board, New York, New York; Co-Chairman, Connecticut Committee of the Regional Plan Association Board; and Member, Greater New j 1
- Haven Regional Leadership Council.
F. Patrick McFadden, Jr.
58 1987 President and Chief Executive Officer and Director, The Bank of New Haven and BNH Bancshares, Inc., New Haven, Connecticut. Also, Chairman of the Board of Directors, Yale-New Haven Health Services Corporation; and Director of The Community Foundation for Greater New Haven.
Frank R. O'Keefe, Jr.
66 1989 Retired; former President, Long Wharf Capital Partners, Inc. 1988-1990; retired Chairman, President and Chief Executive Officer, Armtek Corporation 19861988; President and Chief Operating Officer, Armstrong Rubber Company 1980-1986; and Director of Aetna Life and Casualty Company and Southem New England Telecommunications Corporation.
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, . . ~ , . - . -, -- - - - , - - . .-.- . -- - - . - ,
- - . - . - - . _ - . - . _ - . . _ . - - _ - - . - _ _ . - . . . - - . - - . _ _ . ~ . -. --.
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, Name, PrincfpelOccupadon, Other i Corporate gilladons and Princ(pel Occupations Director i E .: . de Past Five Yann afM- dggM knce
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5 James A.nomas . . 57 1992
- Master, Saybrook College, Yale University and Associate Dean, Yale Law School. Also, l
- Trustee of Yale-New Haven Hospital and People's Mutual Holdings; Advisory Director of l People's Bank; and Director of People's Bank Holding Company, Sea Research Foundation 1 and Shubert Deater, New Haven, Connecticut.
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j (1) Age at May_15,1996. The Board of Directors has adopted a policy pursuant to which a director will not be a candidate for re-election after his or her 70th birthday.
7
, )
j He Board of Directors held 9 meetings during 1995. The average attendance record of the directors was 94% l
- , for meetings of the Board of Directors and its committees held during 1995. ;
1
} Ms. Henley-Cohn and Messrs. Croweak, Grossi and McFadden serve on the Executive Committee of the Board j of Directors. He Executive Committee, a standing committee that has and may exercise all the powers of the Board 1 of Directors when it is not in session, met once during 1995.
i.
Mmes.' Albright and Henley-Cohn and Messrs. Carson, Devlin, Lahey, McFadden and Domas serve on the Audit Committee of the Board of Directors. De Audit Committee, a standing committee that oversees the
. Cornpany's financial accounting and reporting practices; evaluates the reliability of the Company's system of intemal j sontrols; assures the objectivity ofindependent audits; explores other issues that it deems may potentially affect the
. Company and its employees; and makes recommendations in these regards to the officers and to the Bc ' of j: Directors, held four meetings during 1995.
. Ms. Henley-Cohn and Messrs. Breslawsky, Croweak, O'Keefe and Romas serve on the Compensation and )
j Executive Development Committee of the Board of Directors. De Compensation and Executive Development I Committee, a standing committee that reviews the performance of the omcers of the Company; reviews and-
- _ recommends to the Board of Directors the levels of compensation and other benefits paid and to be paid to the 3
omcers of the Company; reviews and administers incentive compensation programs for the omcers of the Company; l recommends to the Board of Directors nanges in said programs; reviews the recommendations of management for l its succession planning and the selection of officers of the Company; and reviews the investment standards, policies and objectives established for, and the performance and methods of, the Company's pension plan investment managers, held four meetings during 1995.
i
- . Ms. Albright and Messrs. Breslawsky, Carson, Croweak, Devlin, Lahey and O'Keefe serve on the Strategic
^
Direction Committee of the Board of Directors The Strategic Direction Committee, a standing committee that assists the Chief Executive Omcer and senior management with the development of an overall strategic plan for the
. Company, taking into account the key strategic issues facing the Company and the electric utility industry and l providing a focus for defining and implementing the annual goals and projects comprising the Company's corporate
, business and operational plans, held three meetings during 1995.
[ Messrs. Carson, Devlin, McFadden, O'Keefe and Thomas serve on the Committee on Directors. 'Ibe Committee l on Directors, a standing committee that recommends policy with respect to the composition, organization, practices
] and compensation of the Board of Directors and performs the nominating function for the Board, held five meetings ,
i in 1995. De Committee on Directors will consider nominees for election as directors recommended by shareowners l l~ upon the timely submission of the names of such nominees with their qualifications and biographical information I j forwarded to the Committee in care of the Treasurer and Secretary of the Company. l 4
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STOCK OWNERSHIP OF DIRECTORS AND OFFICERS:
The following table sets forth the number of shares of Common Stock of the Company beneficially owned, directly or indirectly, by each director, by each of the five most highly compensated officers during 1995 and by all directors and officers as a group, as of March 13,1996:
Shares Name ofIndividualor Beneficially Number ofPersonsin OwnedDirecti Groun or Indirectiv(f)
Thelma R. Albright 204 Marc C. Breslawsky 909 David E.A. Carson 2,957 John F. Croweak 841 J. Hugh Devlin 3,041 Robert L. Fiscus 85,850 Richard J. Grossi 89,319 Betsy Henley-Cohn 2,386 John L. Lahey 333 F. Patrick McFadden, Jr. 833 Frank R. O'Keefe, Jr. 906 James A. Thomas 581 James F. Crowe 49,388 David W. Hoskinson 4,613 Albert N. Henricksen 10,655 24 Director:, and Officers as a group, including those named above 308,098 (1) Based on repons fumished by the directors and officers. The shares include, in some instances, shares held by the immediate families of directors and officers or entities controlled by directors and officers, the reporting of which is not to be construed as an admission of beneficial ownership. The number of shares includes those held for the benefit of officers in the Company's Employee Stock Ownership Plan and, in the cases of Roben L.
Fiscus, 75,500 shares, Richard J. Grossi, 81,000 shares, James F. Crowe,43,500 shares, David W. Hoskinson, 2,400 shares, Albert N. Henricksen,8,400 shares and Directors and Officers as a group,251,400 shares, subject to options under the Company's 1990 Stock Option Plan. See " Stock Option Plan" below.
(2) In addition to the shares beneficially owned directly or indirectly, Messrs. Breslawsky, Carson, Devlin, O'Keefe and Thomas have been credited with 705,2,502,2,437,98 and 71 shares of Common Stock, respectively, in ;
stock accounts under the Company's Directors' Deferred Compensation Plan, described below at " Director ,
Compensation", which is proposed to be amended as described below at " Approval of Non-Employee Directors Common Stock and Deferred Compensation Plan". Shares represented in stock accounts under the existing Plan
)
l are payable, in cash only, upon termination of service on the Board of Directors, based on the Qir market value
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of the Company's Common Stock on the date of termination. As proposed to be amended, shares represented in '
stock a: counts under the Plan will be payable, in an equivalent number of shares of the Company's Common Stock, upon termination of service on the Boa d of Directors. l Each of the persons included in the foregoing table has sole voting and investment power as to the shares of Common Stock beneficially owned, directly or indirectly, by him or her, except for the following (i) as to which such i powers are shared: 7,328 shares with respect to Mr. Fiscus,100 shares with respect to Mr. Grossi,110 shares with respect to Mr. Thomas,566 shares with respect to Mr. Crowe,405 shares with respect to Mr. Henricksen and 9,241 shares with respect to all directors and officers as a group, (ii) as to which such powers are held by other people or entities: 120 shares with respect to Mr. Carson,5,723 shares with respect to Mr. Grossi,2,035 shares with respect to Ms. Henley-Cohn,628 shares with respect to Mr. O'Keefe,50 shares with respect to Mr. Thomas,10 shares with respect to Mr. Crowe, and 9,644 shares with respect to all directors and officers as a group.
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- l The number of shares of Common Stock beneficially owned by each of the persons included in the foregoing l table is less than 1% of the 14,100,091 sharea of Common Stock outstanding as of March 13,1996, The number of l shares of Common Stock beneficially owned by all of the directors and officers as a group represents approximately l 2.2% of the outstanding shares of Common Stock as of March 13,1996.
l l COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and officers, and persons who own more than ten percent of a registered class of the Company's equity serarities, to file with the Securities and Exchange Commission (SEC) and The New York Stock Exchange initial rejorts of ownership and reports of l changes in ownership of Common Stock and other equity securities of the Company. Directors, officers and greater-than-ten-percent shareowners are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
, To the Company's knowledge, based solely on review of the copies of such reports furnished to the Company
! and written represem, ' ns that no other reports were required, during the fiscal year ended December 31,1995 all l Section 16(a) filing requirements applicable to its directors, officers and greater-than-ten-percent shareowners were complied with.
l EXECUTIVE COMPENSAT!ON l
The following table shows the annual and long-term compensation, for services in all capacities to the Company l
for the years 1995,1994 and 1993, of those persons who were, at December 31,1995 (i) the chief executive officer
! and (ii) the other four most highly compensated executive officers of the Company:
Lone-Term Comnensation Aw ards Pavouts Nameand Ann ual Com nensation* Securities Under4f ag LTIP All Other I peindgalposition Year SalarvtS) Bonusf5)* Ontions (si') Pavouts(5)* Com nensation*
Richard J. Orossi 1995 5318,000 5150,000 54,500
'Chairrnan of the Board of Directors 1994 5300,000 575,200 7,000 54,620 l
l and Chief Executive Officer 1993 5280,000 $100,000 14,000 5102,935 54,497
)
Robert L. Fiscus 1995 5220,500 580,000 54,500 l President and Chief Financial 1994 5210,000 543,600 3,500 54,620 Officer 1993 $200,000 550,000 7,000 593,550 54,497 l
James F. Crowe 1995 5178,000 560,000 54,500 Executive Vice President 1994 5169,500 532,800 2,500 54,620 1993 5160,000 545,000 5,000 564,183 54,497 David W. Hoskinson 1995 5138,100 542,000 54,500 Vice President 1994 5132,700 525,500 800 54,620 1993 5128,000 533,400 1,600 54,080 l I i Albert N. Henricksen 1995 5130,000 540,000 54,500 Vice President 1994 5123,600 525,100 800 54,620 l
1993 5106,500 527,100 1,600 53,318 e
(1)None of the persons named received any cash compensation in any of the years shown other than the amounts appearing in the columns captioned " Salary," " Bonus" and "All Other Compensation." None of these persons D-7 l
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received, in any of the years shown, any cash-equivalent form of compensation, other than through participation !
in the Company's group life, health and hospitalization plans, which are available on a uniform basis to all :
salaried employees of the Company and the dollar value of which, together with the dollar value of all other non- I cash perquisites and other personal benefits received by such person, did not exceed 10% of the total salary and !
bonus compensation received by him for such year. . .
[
_ (2)The amounts appearmg in this column are awards earned in the years 1993,1994 and 1995 pursuant to the :
Company's Executive Incentive Compensation Program described below. l (3)De _ Company has never awarded restricted stock or stock appreciation rights (SARs) to any employee. [
information with respect to the options appearing in this column, and a description of the nature and terms of the !
options awarded, is set forth below at "Stoct Option Plan.",ae stock options granted in 1993 and 1994 were !
awarded together with Dividend Equivalen*, Units described below at " Dividend Equivalent Program". l (4) The amounts appearing in this column are the values at payout of shares of the Company's Common Stock earned !
for a 1989-1992 performance perid under the Company's 1987 Long-Term Incentive Plan. This Plan was j
. terminated in 1993. Here were ne payouts prior to 1993 to any employee under the Company's 1987 Long-Term j Incentive Plan. l (5) ne amounts appearing in this column are cash contributions by t'ie Company to its 401(k) Plan on behalf of each l of the persons named to match pre-tax elective deferral contributions by him to 6t plan from his salary and 1 t
bonus compensation (included in the colume.;. captioned " Salary" and " Bonus").
i ne Company's Executive Incentive Compensation Program was established in 1985 for the purposes of(i) [
helping to attract and retain executives and key managers of high ability, (ii) heightening the motivation of those i executives and key managers to attain goals that are in the interests of shareowners and customers, and (iii) ;
encouraging effective management teamwork among the executives and key managers of the Company. Under this !
program, cash awards may be made each year to officers and key employees based on their achievement of pre-established performance levels with respect to specific shareowner goals, customer goals and individual goals for the preceding year, and upon an assessment of the officers' performance as a group with respect to strategic opportunities 1 during that year. Eligible officers and key employees, performance levels and specific goals are determined in 'j advance of each year by directors who are not employees of the Company, and incentive awards are paid following i action by the Board of Directors after the close of the year. Incentive awards are made from individual target j incentive award amounts, which are prescribed percentages of the individual participants' salaries, ranging from 20% i to 35% depending on each participant's payroll salary grade. A participant may, by achieving his or her pre- i established performance levels with respect to specific shareowner goals, customer goals and individual goals for a !
year, become eligible for an incentive award of up to 150% of his or her target incentive award amount for that year, j In January 1988, the Company entered into employment agreements with Messrs. Grossi, Fiscus and Crowe, )
each of which will continue in effect until terminated by the Company on three years' notice or by the officer on six j months' notice. These agreements provide that the annual salary rates of Messrs. Grossi, Fiscus and Crowe will be !
$141,000, $128,500 and $102,000, respectively, subject to upward revision by the Board of Directors at such times as j the salary rates of wher officers of the Company are reviewed by the directors, and subject to downward revision by j the Board of Directors contemporaneously with any general reduction of the salary rates of other officers of the ;
Company, except in the event of a change in control of the Company. The salaries paid to Messrs. Grossi, Fiscus and !
Crowe in 1993,1994 and 1995, shown on the above table, were paid pursuant to these agreements. Each of these l agreements also provides that when the officer's employment by the Company terminates after he has served in l accordance with its terms, the Company will pay him an annual supp> ental retirement benefit in an amount equal i to the excess, if any, of(A) over (B), where (A) is 2.2% of his highest three-year average total compensation from )
the Company times the number of years (not to exceed thirty) of his service deemed as an employee of the Company, I and (B) is the annual benefit payable to him under the Company's pension plan. If the Company terminates the l officer's employment without cause, he will be paid the actuarial present value of this supplemental retirement l benefit. A trust fund has been established by the Company for the funding of the supplemental retirement benefits )
accruing under these employment agreements and to ensure the performance of the Company's other payment {
obligations under each of these employment agreements in the event of a change in control of the Company. j l
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STOCK OPTION PLAN On May 23,1990, the shareowners of the Company approved a stock option and stock appreciation rights plan, The United Illuminating Company 1990 Stock Option Plan (the " Plan"). The Plan is intended to promote the profitability of the Company and its subsidiaries by: (i) providing certain officers and key full-time employees with incentives to contribute to the success of the Company, and (ii) enabling the Company to attract, retain and reward the best available managerial employees. The Plan became effective as of January 22,1990 and, unless terminated j sooner by the Board of Directors, will terminate on January 21,2000. After termination, no further options or stock '
appreciation rights will be granted under the Plan, although options and rights outstanding on the termination date will not be canceled by the termination.
A maximum of 750,000 shares of the Company's no par value Common Stock may be acquired by participants in the Plan. He shares acquired will be either authorized but unissued shares or treasury shares, in the discretion of the Company. Options under the Plan may be granted as incentive Stock Options ("lSOs"), intended to qualify for favorable tax treatment under federal tax law, or as Nonqualified Stock Options ("NSOs"). When ISOs or NSOs become exercisable and are exercised by the employee to whom they have been granted, the employee pays to the ,
Company the exercise price per share fixed on the date of the option grant and receives shares of Common Stock j equal to the number ofISOs or NSOs exercised. All proceeds received by the Company from the exercise of options will be used for general corporate purposes. Stock Appreciation Rights ("SARs") may also be granted under the Plan, but only in tandem with ISOs or NSOs. When SARs become exercisable and are exercised, the employee receives shares of Common Stock having an aggregate fair market value on the exercise date equal to the difference between the fair market value per share of the Common Stock on that date and the exercise price per share of the tandem ISOs or NSOs, multiplied by the number of SARs exercised. The exercise of an ISO or NSO automatically extinguishes any tandem SAR; and the exercise of an SAR automatically extinguishes its tandem ISO or NSO.
l The Plan requires that the exercise price per share for a!! options be equal to or greater than the fair market value I of the Common Stock on the date of the grant of the option. In the case of the grant of any ISO to an optionee who, !
at the time of the grant, owns more than 10% of the total combined voting power of all classes of stock of the 1 Company or any subsidiaries, the Plan requires that the option exercise price per share be equal to or greater than 110% of the fair market value of shares of Common Stock on the date the option is granted. Fair market value on i any date is determined by averaging the high and low sale prices on that date of the Common Stock on ne New j i
York Stock Exchange. He exercise price of an option is payable in cash or in shares of Common Stock having a fair market value on the date the option is exercised egal to tha :gpgate exercise price of the options being exercised, ;
J or any combination of cash and such shares.
I The Company's Board of Directors, exclusive of any Director who is also an employee, administers the Plan. l Re Board selects the optionees, determines the number of stock options to be granted to each optionce, whether such stock options will be NSOs or ISOs, and whether such stock options will have tandem SARs. The Board also l determines the period within which each stock option granted will be exercisable, and may provide that the stock options will become exercisable in installments. He following rules must be observed: (i) no stock option or SAR !
may be exercisable less than one year, or more than ten years. from the date it is granted, (ii) no more than 1/3 of the number of stock options or SARs granted to any optionee on any date may first become exercisable in any twelve-month period, (iii) in the case of the grant of an ISO to an optionee who, at the time of the grant, owns more than 10% of the total combined voting power of all classes of stock of the Company or any ofits subddiaries, in no event l may such ISO or any tandem SAR be exercisable more than five years from the date it is granted, (iv) in the case of ISOs, the number of stock options granted to an optionee on any date that may first become exercisable in any l
calendar year must be limited to $100,000 divided by the exercise price per share,(v) stock options may be exercised only in quantities of 500 or more shares, unless the number of shares subject to stock options exercisable by the optionee is less than 500, in which event the optionee may exercise all, but not less than all, of such exercisable stock ,
options, and (vi) except as otherwise provided in the Plan, an optionee may exercise a stock option or SAR only if he or she is, and has continuously been since the date the stock option was granted, a full-time employee of the Company or one ofits subsidiaries.
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- f.*g, Upon the termination cf an optionee's full-time cmployment, whether as a result cf retirement, de:th, disability, or voluntary or involuntary separation, all of the optionee's options (and any tandem SARs) that are not then exercisable will automatically expire. Stock options (and any tandem SARs) exercisable on the date of termination due to deam will be exercisable for a period of one year aAer the date of death. ISOs (and any tandem SARs) exercisable on the date of termination due to retirement will be exercisable for a period of three months aner such termination. ISOs (and any tandem SARs) exercisable on the date of termination due to a disability will be exercisable for a period of one year aAer such termination. NSOs (and any tandem SARs) exercisable on the date of termination due to retirement or dissbility will be exercisable for a period of three years aRer such termination. All stock options (and any tandem SARs) exercisable on the date of voluntary or involuntary termination of full-time employment due to any cause other than death, retirement, disability or termination in connection with an optionee's acceptance of full-time employment by another business entity will be exercisable as follows: ISOs will be exercisable within tlne months aner the date of termination and NSOs will be exercisable within five months aRer the date of termination. However, if an optionee is terminated for cause or engages in an occupation or business that is a competitor of the Company or any ofits subsidiaries, all of such optionee's unexercised stock options (and any tandem SARs) may be canceled by the Board of Directors.
' No ISOs or SARs have been awarded under the 1990 Stock Option Plan. On December 20,1993 and December 19,1994,14,000 and 7,000 NSOs, respectively, were granted to the Chief Executive Officer and 15,200 and 7,600 NSOs, respectively, were granted to the other four most highly compensated executive officers of the Company, as shown in the Long-Term Compensation Awards column in the Executive Compensation table above and described in the following table, together with Dividend Equivalent Units that are described at " Dividend Equivalent Program" below.. No NSOs were awarded to the Chief Executive Officer or any of the other four most highly compensated executive officers of the Company in 1995.
STOCK OPTION EXERCISES IN 1995 AND YEAR-END OPTION VALUES The following table shows aggregated Common Stock option exercises during 1995 by the Chief Executive Officer and each of the other four most highly compensated executive officers of the Company, including the aggregate value of gains on the dates of exercise. In addition, this table shows the number of shares covered by both exercisable and non-exercisable options as of December 31,1995. Also reported are the values as of December 31, 1995 for "in-the-money" options, calculated as the positive spread between the exercise price of existing options and the year-end fair market value of the Company's Common Stock. The Company has never awarded stock appreciation rights (SARs) to any employee.
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
- Number of Securities Value of Unexerr .d Underlying Unexercised in-the-Money Options Ootions at FY-End(#YU at FY-End d}W Shares Acquired on Value Hamg Exercise (#) Reali7ed(Sp2) Exercisable Not Exercisablem Exercisable Not Exercisabie
- Richard J. Grossi, 0 $ 0 60,000 21,000 $405,000
$52,500 Robert L. Fiscus 0 $ 0 65,000 10,500 $438,750 $26,250 i James F. Crowe . . 0 $ 0 36,000 7,500 $243,000 $18,750 David W. Hoskinson.. ., . 4,000 $13,250 0 2,400 $ 0 $ 6,000 Albert N. Henricksen... .. 0 $ 0 6,000 2,400 $ 40,500 $ 6,000 (1) The Company has never awarded stock or stock appreciation rights (SARs) to any employee.
(2) Fair market value at exercise date less exercise price.
(3) The shares represented could not be acquired by the persons named as of December 31, 1995, and future exercisability of the options is subject to the persons' remaining employed by the Company for varying periods of time, absent retirement, death or total disability.
(4) Fair market value of shares at December 31,1995 ($37.50) less exercise price.
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- \ e' DIVIDEND EQUIVALENT PROGRAM in 1993 the Board of Directors formulated a Dividend Equivalent Program for officers of the Company. The purpose of this program is to increase the alignment between the long-te.m incentive program and the Company's long-term objective of achieving a superior total retum to shareowners compared to peer electric utilities. Under the program, an initial two-year Performance Period and an initial three-year Performance Period commenced on January 1,1994 and a series of three-year Performance Periods will commence on January 1,1995 and on each January ! thereafter to and including January 1,2003. At or prior to the commencement of each Performance Period, the Board of Directors designates the office s of the Company, if any, who will be participants in the program for that Performance Period, the number of Dividend Equivalent Units to be awarded each officer-participar.t for that Performance Period, and a peer group ofinvestor-owned electric utility companies comparable to the Company for that Performance Period. Each Dividend Equivalent Unit (" Unit") is an amount of money equal to the sum of all dividends paid per share of the Company's Common Stock during the Performance Period. At the end of each Performance Period, the number of Units camed for the Performance Period is calculated on the basis of the Company's total shareowner return during the Performance Period relative to the peer group of companies preselected by the Board of Directors. Total shareowner return for the Company and each member of the peer group ;
for a Performance Period is measured by the formula: '
Change in Market Price from Dividends Paid l Beginnine to End of Period + During the Period I Market Price at Begirming of Period if the Company's total shareowner return for the Performance Period ranks at the 60th percentile among the total shareowner returns of the peer group companies, the number of Units camed will equal the number of Units awarded l for the Performance Period. If the Company's total shareowner return ranks at the 90th percentile or higher among I those of the peer group, the number of Units earned will be twice the number awarded. If the Company % total l shareowner return ranks at the 30th percentile or lower among those of the peer group, no Units will be earned for j the Performance Period. If the Company's total shareowner return ranks between the foregoing percentiles, the ;
number of Units earned will be calculated by interpolating on a straight-line basis from zero to two times the number of Units awarded. However, no Units awarded will be earned if the Company's total shareowner return fer the !
Performance Period does not at least equal the average Ask Yield quoted on the first trading day of the Performance ,
Period for United States Treasury notes maturing during the month of January following the end of the Performance l Period.
There were no Dividend Equivalent Units awarded in 1995 by the Board of Directors.
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RETIREMENT PLANS '
He following table shows the estimated annual benefits payable as a single life annuity under the Company's ;
- qualified defined benefit pension plan on retirement at age 65 to persons in the camings classifications and with the ,
years of service shown. Retirement benefits under the plan are determined by a fixed formula, based on years of !
service and the employee's average annual camings from the Company during the three years during which the employee's earnings from the Company were the highest, applied uniformly to all employees. ,
' Employee's Average Amasal Earnings During !
the Highest 3 . s'a&=-*-8 Annual " -- % "n=S': at Ane 65*
I Years of ServiceN3 20 Years") 25 Years"8 30 Years") 35 Years"3 40 Years"3
$100,000 $ 37,117 $ 46,397 $ 46,997 $ 47,597 - S 48,197-
$150,000 $ 57,117 $ 71,397 5 71,997 $ 72,597 $ 73,197
)- $200,000 $ 75,729 $ 94,912 $114,432 $115,032 $115,632 t
$250,000 $ 89,348* ' - $112,115* $114,432* $115,032* $115,632*
$300,000 $ 89,348 5 $112,115* $114,432* $115,032m $115,632* -
$350,000 - $ 89,348* $112,115* $114,432* . $115,032* $115,632* !
$400,000 $ 89,348* $112,115* $114,431* $115,032* $115,632* !
$450,000 $ 89,348* $112,115* Sild,431m $115,032m $115,632* !
- (1) Earnings include annual salary and cash bonus awards paid pursuant to the Company's Executive !
Incentive Compensation Program .See " Executive Compensation above. .
(2) Intemal Revenue Code Section 401(a)(17) limits earnings used to calculate qualified plan benefits to s
$150,000 for 1994,1995 and 1996. His limit was used in the preparation of this table. (In addition, l qualified plan benefits cannot exceed an Internal Revenue Code Section 415(b) limit of $120,000 for 1995 and 1996). ne Board of Directors has adopted a supplemental executive retirement plan that ,
permits the Directors to award supplemental retirement benefits to officers (other than Messrs. i Grossi, Fiscus and Crowe) individually selected by the Directors in amounts sufficient to prevent - !
these Internal Revenue Code limitations from adversely affecting their retirement benefits I determined by the pension plan's fixed formula.
(3) De amounts shown in the table are not subject to any deduction for Social Security or other offset i amounts, f
(4) As of their last employment anniversary dates, Messrs. Grossi, Fiscus, Crowe, Hoskinson and 1
Henricksen had accmed 38,23,31,38 and 32 years of service, respectively. [
I BOARD OF DIRECTORS COMPENSATION AND EXECUTIVE DEVELOPMENT COMMITTEE REPORT ON EXECUTIVE COMPENSATION ,
All of the members of the Compensation and Executive Development Committee of the Board of Directors ;
(the Committee) are non-employee Directors. !
He Committee formulates all of the objectives and policies relative to the compensation of the officers of the Company, subject to approval by the entire Board of Directors; and the Committee recommends to the Board of
{
i Directors all of the elements of the officers' compensation arrangements, including the design and adoption of compensatian programs, the identity of program participants, salary grades and structure, annual payments of salaries
{
and any annual awards under the long-term incentive program.
De Company's basic executive compensation program consists of three comporm annual salaries, i bonuses under an annual incentive compensation program, and long-term incentive plan awards. The overall i objective of this program is to attract and retain qualified executives and to produce strong financial performance for !
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the benefit of the Company's shareholders while providing a high level of customer service and value for its customers. Accordingly, all of the Committee's decisions, in 1995 and in prior years, have ultimately been based on the Committee's assessment of the Company's overall performance relative to other electric utilities of comparable size, the compensation practices and programs of other companies that are most likely to compete with the Company for services of executive officers, the Company's strategic objectives, and the challenges it faces.
The Committee formulates annual salary ranges for officers by periodic comparisons to rates of pay for comparable positions in other electric utilities as reported in the Edison Electric Institute's Executive Compensation Survey (the EE1 Survey). Within the applicable range, each individual officer's annual salary is then set at a level that will compensate the officer for day-to-day performance, in the light of the officer's level of responsibility, past performance, prior year's salary and bonus, and potential future contributions to the Company's strategic objectives.
As described in detail above at " Executive Compensation", " Stock Option Plan" and " Dividend Equivalent Program", the Company's annual bonus program and its long-term incentive plans have somewhat different pugoses.
Under the annual Executive Incentive Compensation Program, cash awards may be made each year to officers based on their achievement of performance levels formulated by the Committee with respect to (1) specific shareowner goals, (2) specific customer goals, (3) specific individual goals, and (4) a qualitative assessment of the officers' performance as a group with respect to strategic opportunities of the Company during that year. He Company's long-term incentive plans, consisting of the Stock Option Plan and the Dividend Equivalent Program, reward officers for achieving a return to shareowners over multi-year periods of time. The Stock Option Plan's rewards are measured by the performance of the Company's common stock price on the New York Stock Exchange; and the Dividend Equivalent Program links long-term incentive awards to total return to shr.reowners compared to a peer group of electric utilities. Although these long-term incentive plans are designed to provide strong incentives for superior future performance, they alto encourage officers to continue serving the Company, because the exercisability of stock options and the receipt of dividend equivalent awards are conditioned upon the officer's continued service for specified periods of time. i For 1995, the annual bonus opportunities of the Company's officers were targeted by the Committee such that the combination of each officer's 1995 salary and annual Executive incentive Compensation Program award, assuming that pre-established performance goals were met, would approximate on average the SC+h percentile of compensation for comparable positions as reported in the 1994 EEI Survey. Goals were establishea e focus the officers' attention on specific operating performance and customer satisfaction criteria - and a prerequisite threshold level of earnings per share of the Company's Common Stock was specified in order for any bonus to be camed. He pre-established performance goals for 1995 included, depending on the officership position, measures of: intemal generation of funds, customer satisfaction, sales margin and utility costs. These quantitative elements comprised 80% l of the Committee's bonus award in each ir stance, Some of the officers' achievements with respect to 1995 pre- i established performance goals were especially strong, including 120% of the earnings per share goal,125% of the j sales margin goal,145% of the utility costs goal,150% of the internal generation of funds goal, and 150% of the i customer satisfaction goals. He remaining 20% of the Committee's awards for 1995 were based on the Committee's j qualitative assessment of the performance of the Company's officers as a group with respect to strategic opportunities I during 1995. For 1995, this assessment focused on the officers' strong public and private leadership in stimulating economic development in the Company's service territory and in the surrounding region, and in their guiding the Company through a reorganization process that will reduce future costs, increase productivity and funher improve customer service. Overall, the Committee's bonus awe.rds for 1995 under the Executive Incentive Compensation j Program were 35% above the trial of the pre-established target awards, reflecting a strong performance by the i Company's officers.
Due to an ongoing review of the structare of the Company's long-term incentive plans, no long-term incentive compensation plan awards, either stock options or Dividend Equivalent Program awards, were granted for a ,
performance period beginning in 1995.
It is not expected that any compensation paid to an executive officer during 1996 will become non-deductible under Intemal Revenue Code Section 162(m)(the "million dollar pay cap").
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CHIEF EXECUTIVE OFFICER COMPENSATION FOR 1995 -
i In December of 1994, the Committee recommended, and the Board of Directors approved, a 1995 annual salary of $318,000 for Mr. Grossi, as Chairman of the Board of Directors and Chief Executive Officer of the .
Company. This annual salary was below the median salary for this officership position at other electric utilities of I comparable size, as reported in the 1994 EEI Survey; but it was consistent with the Committee's judgment that a greater proportion of the targeted combination of base salary and targeted annual performance bonus should be shifted to the performance bonus component of his compensation. Mr. Grossi's annual bonus performance target for 1995, under the Executive Incentive Compensation Program, was set at $110,000, consisting of an earnings per share ;
of Common Stock threshold and pre-established goals with respect to internal generation of funds, customer satisfaction, sales margin and utility costs. At the conclusion of 1995, the Committee recommended, and the Board of Directors approved, a 1995 bonus award of $150,000 to Mr. Grossi, representir g 135% of his targeted annual performance bonus. As detailed above, earnings per share and sales margin for 1995 exceeded target goals, and utility costs, internal generation of funds and custorner satisfaction significantly exceeded terget goals; and the Committee's qualitative assessment of the performance of the officers as a group with respect to strategic ;
opportunities during 1995 was positive and, in the judgment of the Committee, reflected favorably on Mr. Grossi's leadership.
COMPENSATION AND EXECUTIVE DEVELOPMENT COMMITTEE Frank R. O'Keefe, Jr., Chainnan Marc C. Breslawsky John F. Croweak Betsy Henley-Cohn James A. Thomas COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION No director of the Company who served as a member of the Compensation and Executive Development Committee during 1995 was, during 1995 or at any time prior thereto, an officer or employee of the Company.
During 1995 no director of the Company was an executive officer of any other entity on whose Board of Directors an executive officer of the Company served, except that John F. Croweak, a director of the Company and a member of the Compensation and Executive Development Committee of the Company's Board of Directors, served as Chairman of the Board of Directors, President and Chief Executive Officer of Blue Cross & Blue Shield of Connecticut, Inc.,
and Richard J. Grossi, Chairman of the Board of Directors and Chief Executive Officer of the Company, served as a director of Blue Cross & Blue Shield of Connecticut, Inc.
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DIRECTOR COMPENSATION The remuneration of directors of the Company includes a retainer fee of $4,000 per quarter year (one fourth of which is payable in shares of Common Stock or by credit to a stock account under the Directors' Deferred Compensation Plan described below), plus a fee of $700 for each meeting of the Board of Directors or committee of the Board of Directors attended. Committee chairpersons receive an additional fee of $500 per quarter year.
Directors who are employees of the Company receive no retainer or meeting attendance fees. Non-employee directors are also provided travel / accident insurance coverage in the amount of $200,000.
Under the Company's present Directors' Retirement Program, each director retiring with at least five years of non-employee service on the Board of Directors receives a retirement benefit for a number of years equal to his or her years of non-employee service as a director. Each directer retiring after his or her 65th birthday with ten or more years of non-employee service receives a lifetime retirement benefit. In either case, the retirement benefit is paid at the rate of the directors retainer fee in effect at the time of his or her retirement, and is subject to periodic review and i revision by the Board of Directors thereafter. If a director dies either while in service or subsequent to his or her retirement but prior to the payment of retirement benefits for the number of years that the director served on the Board of Directors, the amount of earned but unpaid retirement benefits is paid to the directors beneficiary, provided that the director has served on the Board of Directors for at least five years. The Directors' Retirement Program is proposed to be replaced, for all current and future members of the Board of Directors, by the Non-Employee Directors Common Stock and Deferred Compensation Plan, as described below at " Approval of Non-Employee Directors Common Stock and Deferred Compensation Plan".
Under the Company's existing Directors' Deferred Compensation Plan, each non-employee director has an option to defer the payment of all or part of his or her retainer, committee chairperson fees and meeting attendance fees.
Under the plan, amounts deferred are credited when payable, at the director's election, to either a stock account (based on the fair market value of the Company's Common Stock on the date payment of the fee or retainer accrues) or a cash account. Amounts equal to cash dividends on the shares represented in the stock account are credited to the stock account. The cash account accrues interest quarterly at the prime rate in effect at the beginning of each month l at Citibank, N.A. Shares represented in a stock account are payable, in cash only, upon termination of service on the Board of Directors, based on the fair market value of the Company's Common Stock on the date of termination. For income tax purposes, the amounts deferred plus interest are income only upon receipt by the director and are a deduction for the Company in the year of actual payment. The Directors' Deferred Compensation Plan is proposed to be amended as part of the Non-Employee Directors Common Stock and Deferred Compensation Plan as described below at " Approval of Non-Employee Directors Common Stock and Deferred Compensation Plan". I D-15
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SHAREOWNER RETURN PRESENTATION Set forth below is a line graph comparing the yearly percentage change in the Company's cumulative total shareowner return on its Common Stock with the cumulative total return on the S&P Composite-500 Stock Index, the S&P Public Utility Index and the S&P Electric Power Companies Index for the period of five fiscal years i commencing 1991 and ended 1995. .
$220 -
Comparison of Five-Year Cumulative
$210 W h* ,o
-G--- UIL - -o . S&P 500 ,' '
$200 -
O = S&P Putic Ubbty index . 0. .S&P'EM Pwr. Co. Index ,'
$190 t
' $180 ,'
,o D I
$170 ,'
$160 e' - .
........o ,
$150 0';p;, ., ,,/
$140 0 ,,, '
,,,...==;&, '
,..***,a .,****=., _'Ol' ,
$120 ,-
' U O
$110 1
$100 ,
$90f l . ; . ; ; ; I Dec. Dec. Dec. Dec. Dec. Dec.
31 31 31 31 31 31 1990 1991 1992 1993 1994 1995 1990 1911 1992 1992 1994 1995 UIL $100 $133 $150 $156 $125 $170 S&P 500 100 130 134 154 156 213 S&P Pub. Uty, 100 114 123 140 129 182 S&P El. Co. 100 129 136 156 135 175
- Assumes that the value of the investment in the Company's Common Stock and each index was $100 on December 31, 1990 and that all dividends were reinvested. For purposes of this graph, the yearly percentage change in cumulative shareowner retum is measured by dividing (I) the sum of (A) the cumulative amount of dividends for the year, assuming d dividend reinvestment, and (B) the difference in the fair market value at the end and the beginning of the year, by (11) the fair market value at the beginning of the year. The changes displayed are not necessarily indicative of future returns -
measured by this, or any method.
i EMPLOYMENT OF LNDEPENDENT PUBLIC ACCOUNTANTS:
The Board of Directors of the Company, at a meeting held on December 11,1995, and in accordance with the recommendation ofits Audit Committee, voted to emf S y the firm of Price Waterhouse LLP to make an audit of the i books and affairs of the Company for the fiscal year 1996. One or more representatives of Price Waterhouse LLP will attend the annual meeting, will be afforded the opportunity to make a statement if they desire to do so and will be available to answer questions that may be asked by shareowners.
The engagement of Coopers & Lybrand L.L.P., which audited the books and affairs of the Company for the l fiscal years 1994 and 1995, terminated with that firm's audit of the Company's financial statements for the fiscal year 1995. The reports of Coopers & Lybrand L.L.P. on the Company's financial statements for the fiscal years 1994 and 1995 have not contained any adverse opinion or a disclaimer of opinion, and neither of these reports was qualified or ,
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modified as to uncertainty, audit scope or accounting principles. During the fiscal years 1994 and 1995, and through March 1,1996, the Company had no disagreement with Coopers & Lybrand LL.P. on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, and none of the following kinds of events (each of which would have been a " reportable event" under the regulations of the Securities and Exchange Commission) occurred, i.e. Coopers & Lybrand L.LP, did not advise the Company: that intemal controls necessary for the Company to develop reliable financial statements did not exist; that information had come to the attention of Coopers & Lybrand LLP. that led it to no longer be able to rely on the representations of the Company's management or made it unwilling to be associated with the financial statements prepared by management; that there existed a need to expand significantly the scope of the audit of Coopers & Lybrand L.L.P.; that information had come to the attention of Coopers & Lybrand LLP. that if further investigated might (i) materially impact the fairness or reliability of either an audit report previously issued by Coopers & Lybrand LLP. or the financial statements underlying such report or the financial statements to be issued covering the fiscal period subsequent to December 31,1995 (including information that might prevent Coopers & Lybrand L.LP. from rendering an unqualified audit report ou im. Company's financial statements for the fiscal year 1995), or (ii) cause Coopers &
Lybrand LLP. to be unwilling to rely on the representations of the Company's management or be associated with I the Company's financial statements; or that information had come to the attention of Coopers & Lybrand LLP. that it had concluded materially impacted the fairness or reliability of either (i) an audit report previously issued by Coopers & Lybrand L.L.P. or the. financial statements underlying such report, or (ii) the Company's financial statements to be issued covering the fiscal period subsequent to December 31,1995 (including information that, unless resolved to the satisfaction of Coopers & Lybrand LL.P., would prevent that firm from rendering an unqualified audit report of the Company's financial statements for the fiscal year 1995). One or more representatives of Coopers & Lybrand L.LP. will attend the annual meeting, will be afforded the opportmity to make a statement if they desire to do so and will be available to answer questions that may be asked by shareowners.
Neither the Company, nor any other person acting on behalf of the Company, has, at any time during the fiscal year 1994, the fiscal year 1995 or through March 1,1996, consulted Price Waterhouse LLP regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company's financial statements, or (ii) the subject matter of a disagreement with Coopers & Lybrand L.LP. or a reportable event.
4 ff the shareowners do not, by the affirmative vote of a majority of the shares of Common Stock represented at the meeting, approve the employment of Price Waterhouse LLP as independent auditors, their employment will be reconsidered by the Board if Directors.
The Board of Directors recommends a vete FOR the foregoing proposal APPROVAL OF NON-EMPLOYEE DIRECTORS COMMON STOCK AND DEFERRED COMPENSATION PLAN On March 25,1996, the Board of Directors adopted, subject to shareholder approval, a Common Stock and d .ferred compensation plan for non-employee directors of the Company. This Plaa (the " Director Plan") will replace the existing Directors' Retirement Program, which is described above at " Director Compensation", for all crrrent and future members of the Board of Directors; and its terms and provisions are contained in an amended version of the existing Directors' Deferred Compensation Plan, which is described above at " Director Compensation". The Director Plan is designed to strengthen and enhance the alignment of the interests of the directors with those of the Company's other shareowners, and to enable the Company to continue to attract and retain qualified individuals to serve on its Board of Directors. The Common Stock feature of the Director Plan has two components: ongoing annual awards; and one-time retirement program termination awards. The deferred compensation feature of the Director Plan consists of two accounts for each participating director: a cash account for the accumulation of director's fees payable in cash that the director elects to defer, on which interest accrues at the prime rate in effect at the beginning of each month at Citibank, N.A.; and a stock account, for the accumulation of units that are equivalent in value to shares of the Company's Common Stock (" Stock Units"), on which amounts equal to cash dividends on the Stock Units in the account accrue as additional Stock Units.
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- j. General O p * * 'u
)
Eligibilityi Only the Company's outside directors are eligible to participate in th' e Director Plan. No director who is an officer or employee of the Company or any affiliate or subsidiary of the Company may participate. T:
F_
Company currently has ten outside directors. Participation in the Director Plan is mandatory for the outside
' directors.
Shares Available under the Plan: The Director Plan authorizes the issuance of up to 200,000 shares of the -
g
.pany's Common Stock (the " Stock"). However, the number of shares issuable under the Directer Plan will be
[
-psted by the Board of Directors in the event of a stock dividend, stock split, combination, reclassification, 1 recapitalization or other capital adjustment of all shares of Stock; and shares of Stock payable to a director under the l
Director Plan may be either unissued shares or issued and outstanding shares purchased by the Company in the market for that purpose. {'
' Administration: The Director Plan' operates pursuant to procedures and guidelines set forth in the Director Plan itself. Other than the Board of Directors' determination of the total amount payable to outside directors as retainer f
and/or meeting and special fees, no discretion regardin1 awards of Stock or Stock Units, or the accumulation of j
interest or Stock Units, under the Director Plan is vsted in the Board of Directors or any other officer of the ;
Company. "
Annual Awards
. Under the Director Plan, an award of Stock Units to each outside director's deferred compensation stock account will be made on or about the first day of March in each year, commencing with the year 1997 and continuing thro:
the year 2010 (each such date a " Grant Date"). However, each outside director may elect to receive shares of Stock. -
in lieu of having an equivalent number of Stock Units credited to his or her deferred compensation stock accou, provided that an appropriate written election is made at least six months before the Grant Date. Each annual award }
will consist of a number of whole and fractional Stock Unis equal to the sum of 200 plus the quotient resulting from ;
dividing (a) twenty five percent (25%) of the annual retainer fee by.(b) the Market Value of the Stock on the Grant l Date. For purposes of the Director Plan, the " Market Value" of the Stock will be the average of the high and low sale prices reported on the New York Stock Exchange composite tape. Stock Units credited to a director's stock account in the Director Plan as a result of annual awards will at all times be fully vested and nonforfeitable, and will i
I be payable, in an equivalent number of shares of Stock, only upon termination of the director's service on the Board
. ofDirectors. ,
I Because annual awards are subject to retainer fee levels, and the value of these awards will be determined based 1
- on the Market Value of the Stock in the future, the amount and value of the annual awards to be received under the !
Director Plan by the outside directors cannot be determined in advance. However, if the Director Plan had been in
{
effect during 1995, each of the ten outside Directors would have been awarded, on March 1,1995,304.065 Stock - 4 Units valued, on that date, at $38.4375 each, or 304 shares of Stock and a fractional share cash payment of $2.50. i I
s
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__m . _ - _ - - . . . _ - . _ _ . - . _ _ _ _ _ . _ _ _ _ _ . _ _ _ _.._ _ _ _ _ _ _ .__.._._ _
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! Retirement Program Terminatina Awards As of May 15,1996, a specified number of Stock Units will be credited to the deferred compensation stock account of each of the Company's current outside directors, each of whom has irrevocably waived any benefits payable under the Company's existing Directors' Retirement Program, contingent upon shareholder approval of the -
. D:retor Plan. The number of Stock Units for each current outside director is based on a formula that assigns 3
' actua ial value to the w.sted ber.efits that could have been paid to each outside director under the existing retirement program; and the aggregate number cf Stock Units credited to the ten outside directors will be 7,333. The Stock
,. Units credited to a Director's stock account in the Director Plan as a result of a retirement program termination award
- j. will at all times be fully vested and nonforfeitable, and will be payable, in an equivalent number of shares of Stock, .
only upon % mination of the directors savice on the Board of Directors.
Election to Defer Fama ne. Director Plan permits outside directors to elect to defer receipt of all or part of the seventy five percent
- j. (75%) portion of the annual retainer fee, committee chairperson fees and meeting fees payable in cash, provided that an appropriate written election to defer is made at least six months before the date that the fee is payable. All 4
amounts deferred are credited when payable, at the director's election, to either the directors cash account or to the director's stock account (in a number of whole and fractional Stock Units based on the Market Value of the Stock on j the date the fee is payable). All amounts so credited to a director's cash account or stock account in the Director Plan
{ will at all times be fully sested and nonforfei?able, and will be payable, the cash account in cash and the stock j account in an equivalent number of shares of Stock, only upon termination of the director's service on the Board of Directors.-
Termination: Amendment Unless sooner terminated by the Board of Directors, no annual awards will be made under the Director Plan after March 1,2010, although Stock Units may be awarded and paid after that date to the extent of the remaining
- shares of Stock authorized for issuance under the Director Plan, In the event of a merger, consolidation or other i corporate reorganization transaction with a shareholder or group of shareholders holding 25% or more of the j outstanding Stock, all of the cash accounts and stock accounts in the Director Plan will be terminated and become p.yable, in cash, immediately, ne Board of Directors may terminate, suspend or amend the Director Plan, provided 3 that certain material amendments will be submitted for shareholder approval if and to the extent necessary for the
! Director Plan to satisfy the requirements of the exemption from the short-swing profits rules under Section 16 of the l Securities and Exchange Act of 1934. De Director Plan provisions that establish the amount, price n.nd time of
] . annual awards may not be amended more than once every six months.
The following resolution will be submitted to the meeting:
" RESOLVED: nat ne United llhuninating Company Non-Employee Directors Common Stock and l'
Defe:Ted Compensation Plan be approved." l
$ The affirmative votes of a majority of shares of Common Stock represented at the meeting will be required to approve the Non-Employee Directors Common Stock and Deferred Compensation Plan. The l Board of Directors recommends a vote FOR this Pisa.
1 l
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1
a ,.s DATE FOR SUBMISSION OF PROPOSALS BY SECURITY HOLDERS:
Shareowners who intend to present proposals for action at the 1997 Annual Meeting of the Shareowners of the Company are advised that such proposals must be received at the principal executive offices of the Company by November 29,1996 '.n order to be included in the Company's proxy statement and form of proxy for that meeting.
I 1
The Cc,f;any has filed with the Securities and Exchange Commission, pursuant to Rule 13a-1 of the {
Commission under Section 13 of the Securities Exchange Act of 1934, an Annual Report (Form 10-K) for the i fiscal year ended December 31,1995. The Company will provide a copy of said Form 10-K, including the financial statements and the schedule thereto, without charge, to each person from whom the Board of Directors has solicited a proxy for use at the Annual Meeting of the Shareowners of the Company as set forth l
In the foregoing Proxy Statement, on the written request of such person directed to Kurt Mohlman, Treasurer ;
and Secretary, The United Illuminating Company,157 Church Street, P.O. Enx 1564 New Haven, Connecticut l 06506. Copies of said Form 10 K furnished without charge will not include all of the exhibits thereto. The '
Company will furnish a copy of any such exhibit upon the payment of a fee to defray the Company's expense ,
(10 cents per page, plus postage) of furaishing it.
l l
l By Order of the Board of Directors March 28,1996 KURT MOHLMAN, Treasurer andSecretary 6
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i TakeExit #3(TrumbullStreet sechem a -l $
- e i Exit). Go straight two blocks to , C i Whitney Avenue. Right on tradley et j Whitney. Club sign and entrance on right.
/
1 Trumbum a Fran Wilbur Cross Parkway
. (Route 15) g U, ,
l Exit 61 Take Whimey Avenue Exit. Go g U h*
- i towards New Haven approximately 4 j five miles. Club sign and entrance
- on left.
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_ _ wou m_
From Downtown New Haven l -
i Take Church Street towards ""
' Hamden. Church Street becomes _ _ e l Whitney Avenue. 'TheClubison 3a th! right hand side (diagonally
_E j across from the Peabody Museurt.). s Small sign at Club's entrance. Court a g m
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! s 8 m N"
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Please note:
'Ihe Club is set back on Whitney >
[_j j i Avenue. (You must go down a u drivewa to seeit.) There are _
d lonfdings bui in [ront ofit 'naking it M j difficult to see from Whitney
- Avenue.
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f f *
%i * / l-0 UI The United filmnineting Company 157 Church Street P.O. Box 1564 New Haven, CT 06506-0901 203.4992591 www.minet.com I
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