UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 1-8369
CONNECTICUT ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Connecticut 06-0869582
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
855 Main Street
Bridgeport, Connecticut 06604
(Address of principal executive offices) (Zip Code)
(800) 760-7776
(Registrant's telephone number, including area code)
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 7, 1997
----- --------------------------
Common Stock, $1 par value 9,128,883
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PART I. FINANCIAL INFORMATION
CONNECTICUT ENERGY CORPORATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share)
(Unaudited)
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
Mar. 31, Mar. 31,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Operating Revenues............................. $ 106,866 $ 120,189 $ 181,739 $ 189,964
Purchased gas.................................. 55,736 66,766 96,045 104,259
--------- --------- --------- ---------
Gross margin................................... 51,130 53,423 85,694 85,705
Operating Expenses:
Operations................................... 13,490 14,294 26,638 26,593
Maintenance.................................. 1,013 1,063 1,928 2,111
Depreciation................................. 3,911 3,737 7,822 7,474
Federal and state income taxes............... 8,842 9,449 12,195 12,620
Municipal, gross earnings and other taxes.... 6,074 6,773 10,305 10,552
--------- --------- --------- ---------
Total operating expenses....................... 33,330 35,316 58,888 59,350
--------- --------- --------- ---------
Operating income............................... 17,800 18,107 26,806 26,355
Other (income) deductions, net................. (855) 122 (591) 252
Interest Expense:
Interest on long-term debt and
amortization of debt issue costs........... 3,081 2,701 6,163 5,403
Other interest, net.......................... 363 649 614 1,036
--------- --------- --------- ---------
Total interest expense......................... 3,444 3,350 6,777 6,439
--------- --------- --------- ---------
Net Income..................................... $ 15,211 $ 14,635 $ 20,620 $ 19,664
========= ========= ========= =========
Net income per share........................... $ 1.67 $ 1.64 $ 2.28 $ 2.21
========= ========= ========= =========
Dividends paid per share....................... $ 0.33 $ 0.325 $ 0.66 $ 0.65
--------- --------- --------- ---------
Weighted average number of common
shares outstanding during period............. 9,084,861 8,903,982 9,050,085 8,887,454
--------- --------- --------- ---------
See Notes to Consolidated Financial Statements.
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<CAPTION>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share)
<S> <C> <C>
Mar. 31, Sept. 30,
1997 1996
--------- ---------
(Unaudited)
Assets
------
Utility Plant:
Gross utility plant......................................... $385,090 $376,109
Less: accumulated depreciation.............................. 123,703 118,348
-------- --------
Net utility plant........................................... 261,387 257,761
Nonutility property, net...................................... 2,847 2,804
-------- --------
Net utility plant and other property.......................... 264,234 260,565
-------- --------
Current Assets:
Cash and cash equivalents................................... 8,023 5,121
-------- --------
Accounts receivable......................................... 71,727 33,615
Less: allowance for doubtful accounts....................... 2,084 2,742
-------- --------
Net accounts receivable................................... 69,643 30,873
-------- --------
Accrued utility revenues, net............................... 6,852 2,608
Unrecovered purchased gas costs............................. 92 ---
Inventories................................................. 10,056 15,331
Prepaid expenses............................................ 1,136 1,841
-------- --------
Total current assets.......................................... 95,802 55,774
-------- --------
Deferred Charges and Other Assets:
Unamortized debt expenses................................... 6,124 6,238
Unrecovered deferred income taxes........................... 43,387 41,435
Other....................................................... 39,049 35,216
-------- --------
Total deferred charges and other assets....................... 88,560 82,889
-------- --------
Total assets.................................................. $448,596 $399,228
======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share)
<S> <C> <C>
Mar. 31, Sept. 30,
1997 1996
--------- ---------
(Unaudited)
Capitalization and Liabilities
------------------------------
Common Shareholders' Equity:
Common Stock: authorized--20,000,000 shares, par value $1
per share, issued and outstanding--9,126,937 shares;
9,012,267 shares......................................... $ 9,127 $ 9,012
Capital in excess of par value............................. 93,430 91,079
Unearned compensation...................................... (1,069) ---
Retained earnings.......................................... 52,509 37,870
-------- --------
Total common shareholders' equity............................ 153,997 137,961
-------- --------
Long-term debt............................................... 134,528 138,727
-------- --------
Total capitalization......................................... 288,525 276,688
-------- --------
Current Liabilities:
Short-term borrowings...................................... 30,400 19,200
Current maturities of long-term debt....................... 4,654 595
Accounts payable........................................... 13,577 14,250
Refunds due customers...................................... 3,091 202
Federal, state and deferred income taxes................... 13,222 2,424
Property and other accrued taxes........................... 8,966 5,555
Interest payable........................................... 3,483 3,569
Customers' deposits........................................ 1,998 1,826
Refundable purchased gas costs............................. --- 520
Other...................................................... 4,026 3,545
-------- --------
Total current liabilities.................................... 83,417 51,686
-------- --------
Deferred Credits:
Deferred income taxes and investment tax credits........... 68,091 65,381
Other...................................................... 8,563 5,473
-------- --------
Total deferred credits....................................... 76,654 70,854
-------- --------
Total capitalization and liabilities......................... $448,596 $399,228
======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
CONNECTICUT ENERGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<S> <C> <C>
Six Months Ended
Mar. 31,
---------------------
1997 1996
---- ----
Net cash provided by operating activities.............................. $ 7,040 $19,711
------- -------
Cash Flows from Investing Activities:
Capital expenditures................................................. (11,560) (8,503)
Contributions in aid of construction................................. 34 31
Payments for retirement of utility plant............................. (157) (33)
Energy ventures...................................................... --- (2,100)
Other................................................................ --- 3
------- -------
Net cash used by investing activities.................................. (11,683) (10,602)
------- -------
Cash Flows from Financing Activities:
Dividends paid on common stock....................................... (5,981) (5,779)
Issuance of common stock............................................. 2,466 1,449
Repayments of long-term debt......................................... (140) (140)
Increase (decrease) in short-term borrowings......................... 11,200 (3,600)
------- -------
Net cash provided (used) by financing activities....................... 7,545 (8,070)
------- -------
Net increase in cash and cash equivalents.............................. 2,902 1,039
Cash and cash equivalents at beginning of period....................... 5,121 4,635
------- -------
Cash and cash equivalents at end of period............................. $ 8,023 $ 5,674
======= =======
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest............................................................. $ 7,320 $ 6,447
Income taxes......................................................... $ 641 $ 675
See Notes to Consolidated Financial Statements.
</TABLE>
CONNECTICUT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
1. The unaudited consolidated financial statements presented
herein should be read in conjunction with the consolidated
financial statements of Connecticut Energy Corporation
("Connecticut Energy" or "Company") for the fiscal year ended
September 30, 1996 as presented in the Annual Report on Form 10-K.
In the opinion of management, the accompanying financial
information reflects all adjustments which are necessary to provide
a fair presentation of the interim periods shown. All such
adjustments are of a normal recurring nature.
In preparing the financial statements in conformity with
generally accepted accounting principles ("GAAP"), the Company uses
estimates. Estimates are disclosed when there is a reasonable
possibility for change in the near term. For this purpose, near
term is defined as a period of time not to exceed one year from the
date of the financial statements. The Company's financial
statements have been prepared based on management's estimates of
the impact of regulatory, legislative and judicial developments on
the Company or significant groups of its customers. The recorded
amounts of certain accruals, reserves, deferred charges and assets
could be materially impacted if circumstances change which affect
these estimates.
2. The Company's principal subsidiary, The Southern
Connecticut Gas Company ("Southern"), prepares its financial
statements in accordance with the provisions of Statement of
Financial Accounting Standards No. 71, "Accounting for the Effects
of Certain Types of Regulation" ("SFAS 71"), which requires a cost-
based, rate-regulated enterprise such as Southern to reflect the
impact of regulatory decisions in its financial statements. The
Connecticut Department of Public Utility Control's ("DPUC") actions
through the ratemaking process can create regulatory assets in
which costs are allowed for ratemaking purposes in a period other
than the period in which the costs would be charged to expense if
the reporting entity were unregulated.
In the application of SFAS 71, Southern follows
accounting policies that reflect the impact of the rate treatment
of certain events or transactions that are permitted to differ from
GAAP. The most significant of these policies include the recording
of deferred gas costs, deferred conservation costs, deferred
hardship heating customer accounts receivable arrearages, deferred
environmental evaluation costs and an unfunded deferred income tax
liability, with a corresponding unrecovered asset, to account for
temporary differences previously flowed through to ratepayers.
Southern had net regulatory assets as of March 31, 1997
and September 30, 1996 of $55,668 and $59,281, respectively. These
amounts are included in deferred charges and other assets and
deferred credits in the consolidated balance sheets and are solely
due to the application of the provisions of SFAS 71.
During fiscal 1996, the DPUC approved regulations
designed to increase competition in the natural gas industry in
Connecticut by giving commercial and industrial gas customers the
ability to purchase gas from independent brokers and marketers and
by allowing local gas distribution companies to charge firm
transportation rates for use of their distribution systems. The
firm transportation rates are designed to provide Southern with the
same margins provided by the bundled services.
While the DPUC's actions encourage a competitive
environment by deregulating certain activities, the Company
believes that it continues to meet the requirements of SFAS 71.
3. Due to the seasonal nature of gas sales for space heating
purposes by Southern, the results of operations for the six months
ended March 31, 1997 are not indicative of the results to be
expected for the fiscal year ending September 30, 1997.
4. Certain prior year amounts have been reclassified to
conform with the current format of financial statement
presentation.
5. Deferred charges and other assets include amounts related
to the following:
Mar. 31, Sept. 30,
As of 1997 1996
- -----------------------------------------------------------------------------
Hardship heating customer accounts receivable arrearages $11,479 $11,753
Energy assistance funding shortfall 1,095 1,502
Prepaid pension and postretirement medical contributions 14,397 11,395
Conservation costs 4,440 3,954
Environmental evaluation costs 818 915
Nonqualified benefit plans 2,323 1,160
Gas holder costs 431 554
Investment in energy ventures 1,931 1,960
Other 2,135 2,023
------- -------
$39,049 $35,216
======= =======
Southern has been allowed to recover various deferred charges
in rates over periods ranging from three to five years in
accordance with the DPUC's Decision in Southern's latest rate case.
6. Deferred credits include amounts related to the
following:
Mar. 31, Sept. 30,
As of 1997 1996
- -----------------------------------------------------------------------------
Interruptible margin sharing $ 510 $ 556
Nonqualified benefit plans 2,781 2,574
Insurance reserve 1,026 722
Hardship heating customer assistance grant program 1,057 75
Economic development initiatives 1,006 675
FERC Order No. 636 transition costs 1,853 187
Other 330 684
------ ------
$8,563 $5,473
====== ======
7. Southern has identified coal tar residue at three sites
in Connecticut resulting from coal gasification operations
conducted at those sites by Southern's predecessors from the late
1800s through the first part of this century. Many gas
distribution companies throughout the country carried on such gas
manufacturing operations during the same period. See section in
Management's Discussion and Analysis entitled "Environmental
Matters" for further detail.
8. In February 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128,
"Earnings per Share" ("SFAS 128"), which will be effective for the
interim period ending December 31, 1997. This statement establishes
standards for the computation and presentation of earnings per share
("EPS") by all entities with publicly held common stock or potential
common stock. The statement replaces the presentation of primary EPS
with a presentation of basic EPS. It also requires dual presentation
of basic and diluted EPS on the face of the income statement for all
entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. The adoption
of SFAS 128 is required by October 1, 1997, and the Company intends
to adopt this statement prospectively. The impact of this standard is
not expected to have a material effect on the Company's reported EPS.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Connecticut Energy Corporation ("Connecticut Energy" or "Company") and its
subsidiaries and their representatives may, from time to time, make written
or oral statements, including statements contained in the Company's filings
with the Securities and Exchange Commission ("SEC") and in its annual report
to shareholders, including its Form 10-K for the fiscal year ended
September 30, 1996 and this quarterly report on Form 10-Q, which constitute
or contain "forward-looking" information as that term is defined in the
Private Securities Litigation Reform Act of 1995.
All statements other than the financial statements and other statements of
historical facts included in this quarterly report regarding the Company's
financial position and strategic initiatives and addressing industry
developments are forward-looking statements. Where, in any forward-looking
statement, the Company, or its management, expresses an expectation or belief
as to future results, such expectation or belief is expressed in good faith
and believed to have a reasonable basis, but there can be no assurance that
the statement of expectation or belief will result or be achieved or
accomplished. Factors which could cause actual results to differ
materially from those stated in the forward-looking statements may include,
but are not limited to, general and specific economic, financial and
business conditions; federal and state regulatory, legislative and judicial
developments which affect the Company or significant groups of its customers;
the impact of competition on the Company's revenues; fluctuations in weather
from normal levels; changes in development and operating costs; the
availability and cost of natural gas; the availability and terms of capital;
exposure to environmental liabilities; the costs and effects of unanticipated
legal proceedings; the successful implementation and achievement of internal
performance goals; the impact of unusual items resulting from ongoing
evaluations of business strategies and asset valuations and changes in
business strategy.
RESULTS OF OPERATIONS
Net Income
- ----------
Connecticut Energy's consolidated net income for the three and
six months ended March 31, 1997 and 1996 is detailed below:
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
(in thousands, except per share) 1997 1996 1997 1996
---- ---- ---- ----
Net Income $15,211 $14,635 $20,620 $19,664
======= ======= ======= =======
Net Income per Share $ 1.67 $ 1.64 $ 2.28 $ 2.21
======= ======= ======= =======
Weighted Average Shares Outstanding 9,085 8,904 9,050 8,887
------- ------- ------- -------
Net income for the three and six months ended March 31, 1997
increased approximately 4% and 5%, respectively, compared to the
three and six months ended March 31, 1996.
Gross margin for the three months ended March 31, 1997 was
approximately 4% lower compared to the three months ended March 31,
1996 principally due to a timing difference in accrued unbilled
revenues. The decrease in gross margin was more than offset by
lower expenses in the areas of operations, maintenance, taxes and
short-term interest as well as by the receipt of interest income
from one of Southern's interstate pipeline suppliers related to
Southern's prepayment of transition costs associated with Federal
Energy Regulatory Commission ("FERC") Order No. 636.
The increase in net income for the six months ended March 31,
1997 was principally attributed to lower expenses for maintenance,
taxes and short-term interest as well as the receipt of interest
income on prepaid transition costs as described above. Higher
expenses for depreciation and long-term debt interest partially
offset these positive effects on net income.
Total Sales and Transportation Volumes
- --------------------------------------
Total volumes of gas sold and transported by the Company's
principal subsidiary, The Southern Connecticut Gas Company
("Southern"), for the three and six months ended March 31, 1997 were
14,829 and 26,604 MMcf, respectively, representing increases of
approximately 12% and 10% compared to the corresponding 1996
periods. These increases were primarily attributable to increased
on-system interruptible sales and off-system sales and
transportation volumes, which offset the effects of lower firm sales
volumes principally due to warmer weather during the 1997 periods.
Additionally, this category includes volumes associated with service
under Southern's firm transportation tariffs, which commenced during
the quarter ended June 30, 1996.
Firm Sales and Transportation Volumes
- -------------------------------------
Firm sales and transportation volumes for the three and six
months ended March 31, 1997 decreased approximately 14% and 8%,
respectively, compared to the corresponding 1996 periods. The
decreases were primarily due to weather which was approximately 12%
and 10% warmer, respectively, than the three and six months ended
March 31, 1996. Growth in Southern's customer base and the
continued conversions of nonheating customers to heating customers
partially offset the overall decrease in this category.
Interruptible Sales and Transportation Volumes
- ----------------------------------------------
Margins earned on volumes delivered to interruptible customers
vary depending upon the relationship of the market price for
alternate fuels to the cost of natural gas and related
transportation. Additionally, on-system margins earned, net of
gross earnings tax, from interruptible services in excess of an
annual target were being allocated through a margin sharing
mechanism between Southern and its firm customers. Beginning June
1, 1996, excess on-system margins earned that would have been
returned to Southern's firm customers have been redirected, with
Connecticut Department of Public Utility Control ("DPUC") approval,
to fund certain economic development and hardship assistance
programs.
The chart below depicts volumes of gas sold to and transported
for on-system interruptible customers, off-system sales volumes and
off-system transportation volumes under a special contract with The
Connecticut Light and Power Company for its Devon generating station
as well as gross margins earned and retained due to the margin
sharing mechanism on these services for the three and six months
ended March 31, 1997 and 1996, respectively:
Three Months Ended Six Months Ended
March 31, March 31,
------------------- ----------------
(dollars in thousands) 1997 1996 1997 1996
---- ---- ---- ----
Gross Margin Earned $3,650 $3,058 $ 7,046 $5,896
====== ====== ======= ======
Gross Margin Retained $2,878 $2,829 $ 3,950 $3,811
====== ====== ======= ======
Volumes Sold and Transported (MMcf) 5,332 2,179 10,293 6,485
------ ------ ------- ------
Gross margin retained represents the difference between gross
margin earned and margin to be returned through the margin sharing
mechanism. Gross margins earned and retained by Southern were
higher for the three and six months ended March 31, 1997 compared to
the corresponding 1996 periods principally due to higher margins
earned from on-system interruptible and off-system sales. Margins
from these sales were higher primarily due to higher levels of
interruptible sales and services as a result of the warmer weather
in the 1997 periods. Higher margins to be returned for the three
and six months ended March 31, 1997 were principally due to the
change in sharing mechanism for certain off-system services as of
April 1, 1996, which increased the allocation of margins to be
returned to firm customers from 50% to 85%.
Volumes for the three and six months ended March 31, 1997 were
higher compared to the corresponding 1996 periods primarily due to
increases in on-system interruptible sales and off-system sales and
transportation volumes related to the warmer weather during the 1997
periods.
Gross Margin
- ------------
Gross margin for the three months ended March 31, 1997 was
approximately 4% lower than gross margin for the three months ended
March 31, 1996. This variance in margins was primarily the result
of a timing difference in accrued unbilled revenues, which will
reverse in subsequent periods. Gross margin for the six months
ended March 31, 1997 was relatively unchanged compared to the
corresponding 1996 period.
Southern's firm rates include a Weather Normalization
Adjustment clause ("WNA") which allows Southern to charge or credit
the non-gas portion of its firm rates to reflect deviations from
normal weather. Because weather during the three and six months
ended March 31, 1997, was approximately 9% and 5% warmer than
normal, respectively, the operation of the WNA collected
approximately $4,113,000 and $3,080,000, respectively, from firm
customers during those periods. This compares to a return to firm
customers during the three and six months ended March 31, 1996 of
approximately $1,613,000 and $2,511,000, respectively.
Southern's firm rates also include a Purchased Gas Adjustment
clause ("PGA") which allows Southern to flow through to its
customers, through periodic adjustments to amounts billed, increased
or decreased costs incurred for purchased gas compared to base rate
levels without affecting gross margin. The operation of Southern's
PGA increased revenues and gas costs for the three and six months
ended March 31, 1997 by approximately $3,993,000 and $5,279,000,
respectively. For the three and six months ended March 31, 1996,
PGA adjustments increased revenues and gas costs by approximately
$5,746,000 and $6,035,000, respectively.
Operations Expense
- ------------------
Operations expense for the three months ended March 31, 1997
decreased approximately 6% compared to the corresponding 1996 period
primarily due to lower uncollectibles expense related to the absence
of certain amortizations allowed by the DPUC. The amounts allowed,
relating to Southern's 3-Way Payment Plan, were amortized over a
three year period which ended December 31, 1996. Lower insurance
reserves and regulatory commission expense also contributed to the
decrease in operations expense for the 1997 quarter. Operations
expense for the six months ended March 31, 1997 remained relatively
unchanged compared to the six months ended March 31, 1996.
Depreciation Expense
- --------------------
Depreciation expense for the three and six months ended March
31, 1997 increased approximately 5% compared to the corresponding
1996 periods. The increases were primarily due to additions to
plant in service by Southern.
Federal and State Income Taxes
- ------------------------------
The total provision for federal and state income taxes for the
three and six months ended March 31, 1997 decreased approximately 6%
and 3%, respectively, compared to the corresponding 1996 periods.
These decreases were primarily due to a lower effective tax rate
related to the flow-through effect of deferred gas costs which
decreased taxable income and, to a lesser extent, a reduction in the
statutory state income tax rate.
Municipal, Gross Earnings and Other Taxes
- -----------------------------------------
Municipal, gross earnings and other taxes decreased
approximately 10% for the three months ended March 31, 1997 compared
to the corresponding 1996 period. This was primarily due to a
decrease in gross earnings tax resulting from lower operating
revenues in the 1997 quarter.
Other (Income) Deductions, Net
- ------------------------------
Other income for the three and six months ended March 31, 1997
was higher compared to the corresponding 1996 periods due to the
receipt of approximately $974,000 in interest income from one of
Southern's interstate pipeline suppliers related to Southern's
prepayment of transition costs associated with FERC Order No. 636.
Interest Expense
- ----------------
Total interest expense increased approximately 3% and 5% for
the three and six months ended March 31, 1997, respectively,
compared to the corresponding 1996 periods primarily due to higher
long-term debt costs associated with the issuance of $20,000,000 in
secured Medium-Term Notes in August 1996. Higher short-term debt
costs due to higher average short-term borrowings were offset by
lower interest expense on deferred gas cost and margin sharing
balances in the 1997 periods compared to the 1996 periods.
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
- --------------------
The seasonal nature of Southern's business creates large-short-
term cash demands primarily to finance gas purchases, customer
accounts receivable and certain tax payments. To provide these
funds, as well as funds for capital expenditure programs and other
corporate purposes, Connecticut Energy and Southern have credit
lines with a number of banks as detailed below:
Shared
Connecticut Connecticut Energy/
Energy Southern Southern Total
----------- -------- ------------------- -----
Committed Lines $5,000,000 $32,000,000 $20,000,000 $57,000,000
Uncommitted Lines --- $10,000,000 $ 8,000,000 $18,000,000
At March 31, 1997, the Company had unused lines of credit of
$44,600,000. Because of the availability of short-term credit and
the ability to issue long-term debt and additional equity,
management believes it has adequate financial flexibility to meet
its anticipated cash needs.
Operating cash flows for the six months ended March 31, 1997
were lower compared to the corresponding 1996 period principally due
to the effect of warmer weather on the operation of the PGA, timing
of the payments in general accounts payable, lower accrued tax
balances and increased cash requirements related to the timing of
funding of certain employee benefit plan contributions. Partially
offsetting the overall reduction in operating cash flows was the
receipt of approximately $974,000 in interest income related to
Southern's prepayment of transition costs. The decrease in
operating cash flows for the 1997 period was also offset by the
receipt of approximately $3,014,000 in interstate pipeline refunds
and approximately $1,666,000 in previously paid transition costs,
which have not yet been returned to firm customers, and balances
related to margins earned, which will be used to fund certain
economic development initiatives in Bridgeport and to provide grants
to customers to reduce Southern's hardship arrearage balances.
Investing Activities
- --------------------
Capital expenditures approximated $11,526,000 and $8,472,000
for the six months ended March 31, 1997 and 1996, respectively.
Capital expenditures for the six months ended March 31, 1997 were
approximately 36% higher than the 1996 period due to the impact of
less severe winter weather on construction activity. On an annual
basis, Southern relies upon cash flows from operating activities to
fund a portion of these expenditures, with the remainder funded by
short-term borrowings and, at some later date, long-term debt and
capital stock financings.
Financing Activities
- --------------------
On April 23, 1997, the Company filed a Registration Statement
with the SEC for a proposed offering of up to 1,750,000 shares of its
common stock. It is a shelf registration pursuant to which new equity
capital will be raised in increments, from time to time, depending upon
market conditions and proceeds will be used for the repayment of
short-term debt and for other general corporate purposes. The method,
timing and amounts of any future financings by the Company or its
subsidiaries will depend on a variety of factors, including
capitalization ratios, coverage ratios, interest costs, the state of
the capital markets and general economic conditions.
Rate Matters
- ------------
On April 23, 1997, the DPUC issued a final Decision in Docket
No. 96-01-28, DPUC Review of the Purchased Gas Adjustment Clause. In
--------------------------------------------------
this docket, the DPUC conducted a review to determine what modifications,
if any, should be made to the PGA clause utilized by Connecticut's three
local gas distribution companies ("LDCs"). This review was conducted
to consider the impact of deregulation on the gas industry.
In its Decision, the DPUC determined that the PGA clause should
continue because it has been found to be an effective tool in
controlling volatility in earnings resulting from the instability of
gas prices. The DPUC also ruled that the LDCs will continue to be
allowed to recover wellhead to city gate purchased gas costs and
certain producer reservation fees within their PGA clause and determined
that gross earnings tax is another valid expense appropriate for recovery.
In the same manner, a decrease in any of these expenses incurred by the
LDCs will be refunded to customers through the operation of the PGA. A
technical meeting will be scheduled by June 1, 1997 for the purpose of
determining the effective date of including gross earnings tax within the PGA.
Other modifications specified in this Decision include the
standardization of PGA filings and a change in the frequency of PGA
review from monthly to semi-annually beginning in October 1997.
Environmental Matters
- ---------------------
Southern has identified coal tar residue at three sites in
Connecticut resulting from coal gasification operations conducted at
those sites by Southern's predecessors from the late 1800s through
the first part of this century. Many gas distribution companies
throughout the country carried on such gas manufacturing operations
during the same period. The coal tar residue is not designated a
hazardous material by any federal or Connecticut agency, but some of
its constituents are classified as hazardous.
On April 27, 1992, Southern notified the Connecticut Department
of Environmental Protection ("DEP") and the United States
Environmental Protection Agency of the presence of coal tar residue
at the sites. On November 9, 1994, the DEP informed Southern that
it had performed a preliminary review of the information provided to
it by Southern and had determined that, based on current priorities
and limited staff resources, a comprehensive review of site
conditions and subsequent participation by the DEP "are not possible
at this time." Until the DEP conducts a comprehensive review, no
discussions with it addressing the extent, timing and type of
remedial action, if any, can occur.
Given the DEP's response, management cannot at this time
predict the costs of any future site analysis and remediation, if
any, nor can it estimate when any such costs, if any, would be
incurred. While such future analytical and cleanup costs could
possibly be significant, management believes, based upon the
provisions of the Partial Settlement in Southern's latest rate
order, that Southern will be able to recover these costs through its
customer rates. Although the method, timing and extent of any
recovery remain uncertain, management currently does not expect that
the incurrence of such costs will materially adversely impact the
Company's financial condition or results of operations.
PART II- OTHER INFORMATION
Items 3 and 5 are inapplicable.
Item 1. Legal Proceedings
-----------------
In a class action styled Connecticut Heating & Cooling
Contractors Association, Inc. v. Connecticut Natural Gas
Corp., Connecticut Superior Court - Middlesex, two trade
associations and two plumbing and heating contractors in
November 1995 sued Southern as well as the other
Connecticut LDCs for violations of the Connecticut Unfair
Trade Practices Act and tortious interference with
business expectancies in connection with the LDCs' provision
of service and maintenance to heating, cooling and
ventilating systems and appliances. An Amended Complaint
was filed in response to motions filed by the defendants
in which one of the two contractor plaintiffs was removed
from the case. The plaintiffs seek declaratory and
injunctive relief. The plaintiffs seek treble damages in
excess of $15,000, punitive damages and attorneys' fees.
Southern and one of the other defendants filed a Motion to
Strike the Complaint on the grounds of misjoinder of
causes of action. The Court granted Southern's Motion to
Strike. The plaintiffs then filed a substituted complaint
which added conspiracy and antitrust allegations in an
effort to cure the defects raised in the Motion to Strike.
Southern is preparing a Request to Revise the new
complaint and will review it for another Motion to Strike.
Southern intends to vigorously defend itself in this suit,
which management believes is without merit. In the
opinion of management, resolution of this lawsuit is not
expected to have a material adverse impact on the
Company's financial condition or results of operations.
Item 2. Changes in Securities
---------------------
During the second quarter, a total of 52,247 shares of
unregistered common stock were issued to five senior
officers of the Company pursuant to the Company's 1997
Restricted Stock Award Plan. Such shares are exempt from
registration pursuant to Section 4(2) of the Securities
Act of 1933.
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
(a) The annual meeting of the registrant was held on January
28, 1997.
(b) Election of Directors:
Non-
For Against Abstain Vote
--- ------- ------- ----
J. R. Crespo 7,345,295 122,382 0 0
Richard R. Freeman 7,349,820 117,857 0 0
Newman M. Marsilius III 7,350,747 116,930 0 0
(c) Election to employ the firm of Coopers & Lybrand L.L.P. as
the independent accountants to audit the books and affairs
of the registrant and its subsidiaries for the 1997 fiscal
year:
Non-
For Against Abstain Vote
--- ------- ------- ----
Coopers & Lybrand L.L.P. 7,330,798 57,279 79,600 0
(d) Election to approve 1997 Restricted Stock Award Plan:
Non-
For Against Abstain Vote
--- ------- ------- ----
1997 Restricted
Stock Award Plan 6,574,322 538,754 296,010 58,591
(e) Election to approve Non-Employee Director Stock Plan:
Non-
For Against Abstain Vote
--- ------- ------- ----
Non-Employee Director
Stock Plan 6,485,228 596,517 327,341 58,591
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 10(a) - Connecticut Energy Corporation 1997
Restricted Stock Award Plan is filed herewith at pages 23
to 35.
Exhibit 10(b) - Connecticut Energy Corporation Non-
Employee Director Stock Plan is filed herewith at pages 36
to 40.
Exhibit 27 - Financial Data Schedule
Submitted only in electronic format to the Securities and
Exchange Commission.
(b) Reports on Form 8-K:
There were no reports filed on Form 8-K during
the quarter.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CONNECTICUT ENERGY CORPORATION
(Registrant)
DATE: May 13, 1997 /s/ Vincent L. Ammann, Jr.
------------ ----------------------------
Vincent L. Ammann, Jr.
Vice President and
Chief Accounting Officer
EXHIBIT A
CONNECTICUT ENERGY CORPORATION
1997 RESTRICTED STOCK AWARD PLAN
SECTION I.
Establishment, Designation and Purpose
--------------------------------------
The Board hereby establishes a plan, designated as the
Connecticut Energy Corporation 1997 Stock Award Plan (the "Plan").
The purpose of the Plan is to motivate Participants to work to
achieve corporate objectives beneficial to the Corporation and its
shareholders by awarding to them shares of Stock which become
vested upon achievement of the objectives. The Plan should assist
the Corporation to retain capable officers and other key employees
who are eligible to participate in the Plan, and to attract and
retain others who may reasonably expect to become Participants in
the Plan after a reasonable period of employment with the
Corporation or its Affiliates. Definitions of terms in boldface
type are set out in Section XIV.
SECTION II.
Administration
--------------
The Plan shall be administered by the Committee, which is
authorized, in its sole discretion, to establish such rules and
regulations, consistent with the terms of this Plan, as the
Committee deems necessary or advisable for the proper
administration of the Plan and to take such other action in
connection with or in relation to the Plan as the Committee deems
necessary or advisable.
Each action of the Committee pursuant to the Plan, including
any Award granted thereunder, shall be final and conclusive for all
purposes and upon all persons, including, without limitation, the
Corporation and its Affiliates, the Committee, the Board, the
affected officers or key employees of the Corporation and/or its
Affiliates and their respective successors in interest.
The Committee shall, in its sole discretion, determine
(i) which officers and key employees of the Corporation and its
Affiliates (who may also be members of the Board) shall be eligible
to receive Awards pursuant to the Plan; (ii) the time or times at
which Awards will be granted; (iii) the number of shares of Stock
to be awarded; (iv) the time or times within which the Awards may
be subject to forfeiture; and (v) all other conditions of each
Award. The provisions and amount of the Awards need not be the
same with respect to each recipient or with respect to the same
recipient for different Performance Periods.
SECTION III.
Effective Date
--------------
The Plan will become effective upon approval by the Board,
subject to approval by the shareholders of the Corporation.
SECTION IV.
Stock
-----
The Stock to be issued under the Plan shall be made available
from treasury or authorized and unissued shares of Stock of the
Corporation. The total number of shares of Stock that may be
issued under the Plan may not exceed 300,000 shares, provided,
however, that in the event of a stock dividend, stock split,
reverse stock split, recapitalization, reorganization, merger,
consolidation, spin-off, repurchase, share exchange or similar
corporate transaction or event affecting the Stock, the Committee
shall make appropriate adjustments as are necessary to the number
of shares of Stock available or awarded under the Plan in order to
prevent the dilution or enlargement of any rights of any
Participant with respect to his or her Stock. Any fractional share
resulting from an adjustment pursuant to this section shall be
canceled and a cash equivalent shall be credited to the
Participant's Account. Shares of Stock issued pursuant to Awards
granted under the Plan that are subsequently forfeited pursuant to
Section VI shall be reincluded in the number of shares available
for issuance under the Plan.
SECTION V.
Eligibility
-----------
Any officer or senior salaried employee of the Corporation or
any of its Affiliates may be selected by the Committee to
participate in the Plan. A Participant may be the recipient of one
or more Awards, as determined from time to time by the Committee.
No Participant may acquire pursuant to Awards granted under the
Plan more than 180,000 of the shares of Stock available for issue
pursuant to the Plan, nor may a Participant receive more than
$250,000 in dividends or distributions credited to his or her
Account with respect to shares of Stock actually awarded for any
one Performance Period.
SECTION VI.
Awards
------
Awards, except as otherwise specifically provided in the grant
thereof, shall be granted to selected Participants for services
rendered to the Corporation or to an Affiliate by the Participant
and shall be subject to the following terms and conditions:
(a) The Committee shall specify the number of shares of Stock
to be issued by the Corporation to each Participant as a Target
Award for each Performance Period (which may overlap an earlier
Performance Period with respect to which the Participant has
received a Target or Actual Award).
(b) The Committee shall, pursuant to Section IX hereof,
establish objective or quantitative performance goals which must be
achieved or satisfied for each Participant's Target Award to become
an Actual Award.
(c) Each time a Target Award is awarded, the Committee shall
establish any applicable schedule of performance goals pursuant to
which percentages (greater, lesser, or equal to 100%, but in no
event greater than 150%) of a Target Award can be earned as an
Actual Award.
(d) The Restricted Shares awarded as a Target Award shall be
issued, subject to and in accordance with the provisions of
Section XI hereof, by the Corporation to the Participant, not later
than the beginning of the Performance Period (except that as to the
Performance Period including the fiscal year in which the Effective
Date occurs, the performance goals shall be established, the Target
Awards made and Restricted Shares issued within sixty (60) days
following the approval of the Plan by the shareholders).
(e) Actual Awards earned shall be awarded within sixty (60)
days after the end of the applicable Performance Period.
(f) If a Change in Control occurs during a Performance
Period, all Target Award shares shall become Actual Awards shares
effective as of the date of the Change in Control.
(g) Actual Awards shall be deemed to have vested on the last
day of the Performance Period in which the Actual Award was earned,
subject to the following conditions:
(i) Any Target Award which has not vested at the
time of the Participant's termination of
employment with the Corporation or an
Affiliate for any reason (including, without
limitation, termination by the Corporation
with or without cause) other than death, shall
be forfeited to the Corporation.
(ii) Upon the death of a Participant during a
Performance Period, a fraction of the Target
Award shares shall be converted to Actual
Award shares in which the Participant is
vested at death. The numerator of the
fraction shall be the number of whole months
in the Performance Period, prior to the
Participant's death and the denominator of the
fraction shall be the number of months in the
Performance Period.
(iii) Target Awards which are converted to Actual
Awards upon a Change in Control shall vest
upon the occurrence of a Change in Control.
SECTION VII.
Nontransferability of Stock
---------------------------
Shares of Stock issued as Target Awards shall not be
transferable by the Participant to whom they are issued, and such
Stock may not be sold, exchanged, transferred, pledged,
hypothecated, assigned, or otherwise disposed of at any time prior
to the vesting of an Actual Award. Any distributions under the
Plan shall be made only to the applicable Participant or his or her
estate. No Award, sum or other interest under the Plan shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt by a
Participant or any beneficiary under the Plan to do so shall be
void. No interest under the Plan shall in any manner be liable for
or subject to the debts, contracts, liabilities or torts of any
Participant or his or her estate.
SECTION VIII.
Registration, Possession, Issuance and
Delivery of Shares and Dividends
--------------------------------
(a) Each grant of Stock under the Plan shall be immediately
registered on the transfer ledgers of the Corporation in the name
of the Participant who receives the grant. From the date of such
transfer on the books of the Corporation, each Participant shall be
entitled to vote such Stock as the record owner thereof. Prior to
the end of the Performance Period, such rights to vote shall relate
to the shares issued as a Target Award; thereafter, such rights
shall be based upon the number of shares, if any, comprising the
Actual Award. Possession of the certificate representing shares of
Stock shall be retained by the Treasurer of the Corporation for the
benefit of each Participant until the provisions of the Plan
relating to the removal of restrictions have been satisfied and the
Participant has become vested as to particular shares of Stock.
Thereupon, the Treasurer of the Corporation shall promptly deliver
the certificates for such shares to the Participant.
Notwithstanding any other provision of the Plan, the grant,
issuance or delivery of any shares of Stock may be postponed for
such period as may be required to comply with any applicable
requirements of any national securities exchange or any
requirements under any other law or regulation applicable to the
grant, issuance or delivery of such shares. The Corporation shall
not be obligated to grant, issue or deliver any such shares if the
grant, issuance or delivery thereof would constitute a violation of
any provision of any law or of any regulation of any governmental
authority or any national securities exchange.
(b) Each Participant will be entitled to receive all cash
dividends and other distributions made with respect to the Stock
granted under the Plan as a vested Actual Award. Cash dividends on
the Stock shall be credited to each Participant's Account if, as
and when dividends are declared and paid by the Corporation with
respect to its outstanding shares of common stock. In the case of
dividends paid in property other than cash, the amount of the
dividend shall be deemed to be the fair market value of the
property at the time of the payment of the dividend, as determined
in good faith by the Committee and shall be credited to the
Participant's Account. Pending the satisfaction of performance and
vesting conditions, such dividends and distributions shall be
credited based on the number of shares conditionally awarded. Only
dividends and distributions with respect to shares in an Actual
Award which has vested shall be distributed from a Participant's
Account to the Participant. As of the date the Account is
distributed, such Account shall be credited with interest equal to
six percent per annum, compounded quarterly on the average daily
balance in such Account, determined retroactively on the basis of
the number of shares actually awarded which have subsequently
become vested.
(c) All of the shares of Stock granted to a Participant under
the Plan, together with all cash dividends and interest thereon
accumulated in the Participant's Account, shall become free of
restrictions imposed by this Section and shall be distributed to
the Participant entitled thereto when the Participant's interest
therein becomes vested.
SECTION IX.
Performance Goals
-----------------
Performance goals shall be established in writing by the
Committee for each Participant for each Performance Period not
later than ninety (90) days after the beginning of the Performance
Period to which they relate and shall be used by the Committee to
determine the number of shares earned as an Actual Award at the end
of that Performance Period. The Committee is authorized to revise
the criteria upon which Awards are based prior to the commencement
of any Performance Period; however, once the Committee has
established the Performance Period, the criteria for that
Performance Period may not be revised. Conversion of Target Awards
to Actual Awards shall be conditioned upon the achievement of
(some, all or more than) one or more stated earnings per share
("EPS") and total shareholder return ("TSR") objectives. EPS shall
be measured against a specified budgeted amount and TSR shall be
measured against the TSR for a selected group of peers (companies
whose activities are similar to those that the Corporation engages
in). In addition, the performance goals of officers and employees
of Affiliates may also include earnings objectives set for the
Affiliate(s) by which they are employed.
SECTION X.
Tax Treatment
-------------
Stock awarded to Participants represents compensation to them
for their service as employees of the Corporation or its
Affiliates. The Corporation shall require the withholding of any
and all taxes that the Corporation believes to be required to be
withheld by any government or agency thereof. The Corporation, in
its discretion, may withhold Stock in lieu of cash, with the
Corporation remitting to the appropriate tax authorities the fair
market value of the Stock withheld. The Participant or his or her
estate shall bear all taxes, irrespective of whether withholding is
required.
SECTION XI.
Amendments, Suspensions and Termination of Plan
-----------------------------------------------
The Board or the Committee may terminate the plan, in whole or
in part, suspend the Plan, in whole or in part from time to time,
and may amend the Plan from time to time, including the adoption of
amendments deemed necessary or desirable to qualify the Awards
under laws of various states (including tax laws) and under rules
and regulations promulgated by the Securities and Exchange
Commission with respect to employees who are subject to the
provisions of Section 16 of the Exchange Act. The Board or
Committee may correct any defect or supply an omission or reconcile
any inconsistency in the Plan or in any Award granted thereunder,
without the approval of the shareholders of the Corporation,
provided, however, that no action shall be taken without the
approval of the shareholders of the Corporation which may increase
the number of shares of Stock available for Awards or withdraw
administration of the Plan from the Committee (except as provided
in Section IV), or permit any person while a member of the
Committee to be eligible to receive an Award. Without limiting the
foregoing, the Board or the Committee may make amendments
applicable or inapplicable only to Participants who are subject to
Section 16 of the Exchange Act. No amendment, termination or
suspension of the Plan shall in any manner affect Awards previously
granted without the consent of the Participant to whom shares were
previously awarded. The Plan shall terminate upon the earliest
occurrence of one of the following events:
(i) The issuance of all of the shares of Stock authorized
to be issued pursuant to the Plan;
(ii) The vote of the Board or the Committee to terminate the
Plan; or
(iii) Ten (10) years after the Effective Date.
SECTION XII.
Restrictive Legend and Stock Power
----------------------------------
(a) Each certificate evidencing Restricted Shares shall bear
an appropriate legend referring to the terms, conditions and
restrictions applicable to such Stock. Any attempt to dispose of
such Stock in contravention of such terms, conditions, and
restrictions shall be ineffective. The Committee may adopt rules
which provide that the certificates evidencing such shares may be
held in custody by a bank or other institution, or that the
Corporation may itself hold such shares in custody until the
restrictions thereon shall have lapsed and may require, as a
condition of any Award, that the recipient Participant shall have
delivered to the custodian bank or the Treasurer of the Corporation
a stock power endorsed in blank relating to the Stock evidenced by
such certificate.
(b) As a condition of participation in the Plan, each
Participant to whom a Target Award is granted agrees that the
certificates for the Restricted Shares may be inscribed with the
following legend:
"The shares of the Corporation's common stock evidenced
by this certificate are subject to the terms and
restrictions of the Corporation's 1997 Restricted Stock
Plan; such shares are subject to forfeiture or
cancellation under the terms of said Plan; and such
shares shall not be sold, transferred, assigned, pledged,
encumbered or otherwise alienated or hypothecated except
pursuant to the provisions of said Plan, a copy of which
Plan is available from the Corporation upon request."
SECTION XIII.
Governing Law
-------------
The Plan and all determinations made and actions taken pursuant
thereto shall be governed by the laws of the State of Connecticut.
SECTION XIV.
Glossary
--------
(a) "Account" means the internal account maintained by or on
behalf of the Corporation in which cash dividends and interest
thereon are accumulated for the benefit of each Participant in the
Plan. The Accounts established for Participants are merely an
administrative convenience and the Corporation shall not be
required to segregate any cash or other property of the
Corporation. Any amounts which become payable to a Participant
shall be paid from the general assets of the Corporation.
(b) "Affiliate" shall have the meaning ascribed to that term
in Rule 12b-2 of the General Rules as and Regulations under the
Exchange Act as in effect on the Effective Date.
(c) An "Award" has two components:
(i) A "Target Award" which consists of a conditional
grant of Restricted Shares to a Participant at the
beginning of a Performance Period; and
(ii) An "Actual Award", which consists of an unconditional
grant of entitlement (upon satisfaction of any
applicable vesting conditions) to shares equal in
number to none, some, all or more than all (but in no
event, more than 150%) of the Restricted Shares
issued as a Target Award as to which the performance
goals have been satisfied.
(d) "Board" means the Board of Directors of the Corporation.
(e) A "Change in Control" of the Corporation shall be deemed
to have occurred if:
(i) Any Person is or becomes an Acquiring Person;
(ii) Less than 2/3 of the total membership of the
Board shall be Continuing Directors; or
(iii) The shareholders of the Corporation shall
approve a merger or consolidation of the
Corporation or a plan of complete liquidation of
the Corporation or an agreement for the sale or
disposition by the Corporation of all or
substantially all of the Corporation's assets.
In connection with the preceding definition of "Change in
Control", the capitalized terms appearing in boldface type herein
are defined as follows:
(iv) "Acquiring Person" means any Person who is or
becomes a "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act of securities of
the Corporation representing 20% or more of the
combined voting power of the Corporation's then
outstanding voting securities, unless such
person has filed with respect to its holdings
and continues to hold such securities for
investment in a manner qualifying such Person to
utilize Schedule 13G and all required amendments
thereunder with respect to its holdings and
continues to hold such securities for investment
in a manner qualifying such person to utilize
Schedule 13G for reporting of ownership.
(v) "Affiliate" and "Associate" shall have the
respective meaning ascribed to such terms in
Rule 12b-2 of the General Rules and Regulations
under the Exchange Act as in effect on the
Effective Date hereof.
(vi) "Continuing Directors" means any member of the
Board who was a member of the Board prior to the
date hereof and any successor of a Continuing
Director while such successor is a member of the
Board who is not an Acquiring Person or an
Affiliate or an Associate of an Acquiring Person
and who is recommended or elected to succeed the
Continuing Director by a majority of the
Continuing Directors.
(vii) "Person" shall have the meaning assigned to it
in Section 13d and 14d of the Exchange Act.
(f) "Committee" means the Nominating and Salary Committee
appointed by the Board from among its members who are
both Outside Directors and Non-Employee Directors, as
from time to time constituted.
(g) "Corporation" means Connecticut Energy Corporation, a
corporation organized and existing under the laws of the
State of Connecticut or its successor.
(h) "Effective Date" means the date of adoption of the Plan
by the Board, subject to the subsequent approval of the
Plan by the Corporation's shareholders.
(i) "Exchange Act" means the Securities and Exchange Act of
1934, as amended.
(j) "Non-Employee Director" means a member of the Board who
satisfies the definition of that term as set forth in
Rule 16b-3(b)(3)(i) of the Exchange Act rules.
(k) "Outside Director" means a member of the Board who
satisfies the definition of that term as set forth in
Section 162(m) of the Internal Revenue Code of 1986, as
amended from time to time, and the Treasury Regulations
thereunder.
(l) "Participant" means an employee of the Corporation or one
of its Affiliates who has been selected by the Committee
to receive an Award.
(m) "Pension Plan" means The Southern Connecticut Gas Company
Pension Plan for Salaried and Certain Other Employees.
(n) "Performance Period" means a three-year period comprising
three fiscal years of the Corporation.
(o) "Plan" means this Connecticut Energy Corporation 1997
Restricted Stock Award Plan.
(p) "Restricted Shares" means shares of Stock issued to a
Participant as a Target Award subject to the conditions
imposed thereon by the Committee until such time as such
shares become vested in the Participant.
(q) "Stock" means the Corporation's Common Stock, $1.00 par
value.
(r) To "Vest" means, with respect to a Participant's interest
in shares of Stock, that such interest has become
nonforfeitable.
EXHIBIT B
CONNECTICUT ENERGY CORPORATION
NON-EMPLOYEE DIRECTOR STOCK PLAN
SECTION I.
Establishment, Designation and Purpose
--------------------------------------
The Board hereby establishes a plan, designated as the Non-
Employee Directors Stock Plan of Connecticut Energy Corporation
(the "Plan"). The purpose of the Plan is to align the interests of
Non-Employee Directors with the Corporation's shareholders by
awarding Stock to Non-Employee Directors. The Plan should assist
the Corporation in attracting and retaining capable Non-Employee
Directors who are committed to furthering the success of the
Corporation and its Affiliates in ways that are reflected in the
market value of the Corporation's shares. Definitions of words in
boldface type are contained in Section XII.
SECTION II.
Administration
--------------
The Plan shall be administered by the Committee, which is
authorized, in its sole discretion, to establish such rules and
regulations, consistent with the terms of this Plan, as the
Committee deems necessary or advisable for the proper
administration of the Plan, to administer the Plan and to take such
other action in connection with or in relation to the Plan as the
Committee deems necessary or advisable.
SECTION III.
Effective Date
--------------
The Plan will become effective upon adoption by vote of the
Board, subject to approval by the shareholders of the Corporation.
SECTION IV.
Stock
-----
The Stock to be issued under the Plan shall be made available
from treasury or authorized and unissued shares of Stock of the
Corporation. The total number of shares of Stock that may be
issued under the Plan may not exceed 13,000, provided, however,
that in the event of a stock dividend, stock split, reverse stock
split, recapitalization, reorganization, merger, consolidation,
spin-off, repurchase, share exchange or similar corporate
transaction or event affecting the Stock, the Committee shall make
appropriate adjustments as are necessary to the number of shares of
Stock that may be awarded under the Plan in order to prevent the
dilution or enlargement of any rights of any Non-Employee Director.
SECTION V.
Eligibility
-----------
All Non-Employee Directors shall be eligible to participate in
the Plan.
SECTION VI.
Awards
------
Each Non-Employee Director incumbent on the Effective Date
will be awarded one hundred (100) shares of Stock on the date of
the meeting of the Board following the Corporation's 1997 Annual
Meeting of Shareholders. Each year at the meeting of the Board
following the Corporation's annual meeting of shareholders, each
then-incumbent Non-Employee Director will be awarded 100 shares of
Stock. Such Stock may be awarded upon such other conditions or
subject to such restrictions, not inconsistent with the provisions
of the Plan, as the Committee shall deem appropriate.
SECTION VII.
Transferability of Stock
------------------------
Unless awarded pursuant to conditions or restrictions
specified by the Committee at the time of award, shares of Stock
awarded pursuant to the Plan shall not be subject to restrictions
on transferability, exchange, sale or assignment.
SECTION VIII.
Distribution of Stock
---------------------
Unless otherwise specified by the Committee at the time of
award, shares of Stock shall be issued (and transferred on the
books of the Corporation to the names of) to the respective
Non-Employee Directors to whom awarded, effective as of the date of
award, on or as soon after the date of award as is reasonably
feasible. From the date of such transfer on the books of the
Corporation, each Non-Employee Director shall be the absolute owner
of the Stock issued to him or her, respectively and, as such owner,
shall be entitled to receive dividends and to vote such Stock as
the record owner thereof.
SECTION IX.
Tax Treatment
-------------
Stock awarded to Non-Employee Directors shall be in addition
to, and not in lieu of, compensation to them for their service as
directors of the Corporation. For accounting and tax treatment
purposes, Stock shall be valued at the closing price of the Stock
as reported in the Wall Street Journal (or other reputable
publication containing daily price quotations of the Stock) as of
the close of trading on the business day next preceding the date of
grant of the award (or, in the event of a grant subject to
restrictions justifying deferral of inclusion in income, the date
as of which such restrictions lapse).
SECTION X.
Amendments and Termination of Plan
----------------------------------
The Plan may be terminated or amended in whole or in part at
any time by the Board; provided, however, that the Board may not,
without further approval of the Corporation's shareholders,
increase the number of shares of Stock which may be issued under
the Plan, (except as may be necessary to effect an adjustment
pursuant to Section IV hereof) materially increase the benefits
accruing to Non-Employee Directors under the Plan or materially
modify the requirements for eligibility to participate in the Plan.
The President or any Vice President of the Corporation, with the
concurrence of the Vice President and General Counsel, is
authorized to make administrative modifications to the Plan deemed
necessary or desirable in order to conform provisions of the Plan
to the requirements of federal or state laws applicable to the
Corporation. No amendment or termination of the Plan shall alter
or impair any rights or benefits accruing under the Plan to a
Non-Employee Director without the express consent of such
Non-Employee Director. The Plan shall terminate upon the earliest
occurrence of one of the following events:
(i) The issuance of all of the shares of Stock authorized
to be issued pursuant to Section IV of the Plan;
(ii) The vote of the Board to terminate the Plan; or
(iii) Ten (10) years after the Effective Date.
SECTION XI.
Governing Law
-------------
The Plan and all determinations made and actions taken
pursuant thereto shall be governed by the laws of the State of
Connecticut.
SECTION XII.
Glossary
--------
(i) "Affiliate" shall have the meaning ascribed to that
term in Rule 12b-2 of the General Rules and Regulations
under the Exchange Act as in effect as of the Effective
Date.
(ii) "Board" means the Board of Directors of the
Corporation.
(iii) "Committee" means the Nominating and Salary Committee
appointed by the Board from among its members, as from
time to time constituted.
(iv) "Corporation" means Connecticut Energy Corporation, a
corporation organized and existing under the laws of
the State of Connecticut or its successors.
(v) "Effective Date" means the date of adoption of the Plan
by the Board, subject to the subsequent approval of
Plan by the Corporation's shareholders.
(vi) "Exchange Act" means the Securities and Exchange Act of
1934, as amended.
(vii) "Non-Employee Director" means a member of the Board who
is not an employee of the Corporation or of any of its
Affiliates and who was not employed by the Corporation
or any of its Affiliates for a period twelve (12)
months preceding such individual's election to the
Board.
(viii) "Plan" means the Non-Employee Directors Stock
Compensation Plan of Connecticut Energy Corporation.
(ix) "Stock" means the Corporation's Common Stock, $1.00 par
value.
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