UIL Holdings was not immune from the sweeping economic forces that made 2002 a very difficult year for so many American businesses. Nevertheless, we held firm to our business plan and emerged poised for greater growth from a recovering economy. Our balance sheet remains strong. Our credit rating, recently reaffirmed, is solid. And our dividend, after a careful review by our Board of Directors begun last fall, remains consistent, unlikely to be affected by these turbulent times unless events occur that materially affect the company’s cash projections. We have the resiliency to weather this challenging period and the strategies to take advantage of a rebounding economy and its revitalizing effects on our businesses.

This enterprise has all the attributes characteristic of a great company. We have a strong management team that’s willing to make tough decisions. We have an active board and an outstanding work force. And we have in place sound strategies that, even under the past year’s severe stress, continued to provide a framework for growth and preserve the fundamental financial foundations of the enterprise.

While we hold true to our long-term course to replace reduced earnings from the utility with growth from our non-utility businesses, we continue to adjust to reflect changing conditions. In collaboration with the Board of Directors, we are deciding how to deal most effectively with the major factors affecting our business: an uncertain regulatory climate, a rapidly changing energy landscape, and a sluggish national economy. The solutions we develop will reflect both our capacity for innovation and our adherence to the principles that have made us a profitable, trusted business for more than 100 years and that remain the cornerstone of our management philosophy.


Seasoned Leadership, Right for the Times
The United Illuminating Company (UI), the regulated utility, continues to be the backbone of our company. As our primary revenue source, UI provides the earnings that allow us to plan for a prosperous future. In the wake of deregulation, the Enron collapse and the precipitous decline of financial markets, many utilities nationwide have suffered disastrous consequences. Some have seen their credit ratings reduced. Others have been forced to sell off assets in order to strengthen their balance sheets. In contrast, UI continues to be a stable company with a strong balance sheet, and analysts have explicitly noted our solid performance. Confidence in UI was a key component in Moody’s reaffirmation of UIL’s credit rating.

Still, decisions handed down by the Connecticut Department of Public Utility Control (DPUC) late in the year had a greater negative impact on UI’s earnings than expected, and the repercussions may be felt for years to come. We continue to work with the DPUC to address issues regarding the treatment of growing pension expenses. While we do not expect to see significant increases in earnings from the utility, we anticipate earnings from our non-utility businesses to grow as the economy recovers, the effect of our reinvestment into these businesses is felt and our business strategies are implemented.

Dealing with the effects of the DPUC ruling has necessitated difficult decisions. Internally, we have undertaken a thorough review of corporate and departmental budgets and instituted cost-saving measures. In our service area communities, we have had to implement greater control over discretionary costs and contributions. These steps were painful, but necessary, and they have so far enabled us to maintain existing employee levels so we can continue to benefit from the experience and know-how of our most valuable asset: our people.