SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-8369
CONNECTICUT ENERGY CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
Connecticut 06-0869582
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
855 Main Street
Bridgeport, Connecticut 06604
(Address of Principal Executive Offices) (Zip Code)
(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 mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Class Oustanding at May 8, 1998
-------------------------- -------------------------
Common Stock, $1 par value 10,249,810
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<CAPTION>
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,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
Operating Revenues............................. $ 100,773 $ 106,866 $ 177,280 $ 181,739
Purchased gas.................................. 48,174 55,736 90,650 96,045
---------- --------- --------- ---------
Gross margin................................... 52,599 51,130 86,630 85,694
Operating Expenses:
Operations................................... 13,382 13,490 26,171 26,638
Maintenance.................................. 1,046 1,013 1,984 1,928
Depreciation................................. 4,240 3,911 8,480 7,822
Federal and state income taxes............... 9,914 8,842 14,410 12,195
Municipal, gross earnings and other taxes.... 5,641 6,074 7,843 10,305
---------- --------- --------- ---------
Total operating expenses....................... 34,223 33,330 58,888 58,888
---------- --------- --------- ---------
Operating income............................... 18,376 17,800 27,742 26,806
Other (income) deductions, net................. (194) (855) (251) (591)
Interest Expense:
Interest on long-term debt and amortization
of debt issue costs........................ 3,039 3,081 6,107 6,163
Other interest, net.......................... 281 363 470 614
---------- --------- --------- ---------
Total interest expense......................... 3,320 3,444 6,577 6,777
---------- --------- --------- ---------
Net Income..................................... $ 15,250 $ 15,211 $ 21,416 $ 20,620
========== ========= ========= =========
Net income per share - Basic................... $ 1.50 $ 1.68 $ 2.16 $ 2.28
========== ========= ========= =========
Net income per share - Diluted................. $ 1.49 $ 1.67 $ 2.15 $ 2.28
========== ========= ========= =========
Dividends paid per share....................... $ 0.33 $ 0.33 $ 0.66 $ 0.66
---------- --------- --------- ---------
Weighted average common shares outstanding
during period - Basic........................ 10,178,003 9,048,288 9,894,694 9,032,000
---------- --------- --------- ---------
Weighted average common shares outstanding
during period - Diluted...................... 10,230,250 9,084,861 9,946,941 9,050,085
---------- --------- --------- ---------
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,
1998 1997
--------- ---------
(Unaudited)
Assets
------
Utility Plant:
Gross utility plant......................................... $406,892 $399,675
Less: accumulated depreciation.............................. 133,717 130,553
-------- --------
Net utility plant............................................. 273,175 269,122
Nonutility property, net...................................... 4,204 3,343
-------- --------
Net utility plant and other property.......................... 277,379 272,465
-------- --------
Current Assets:
Cash and cash equivalents................................... 8,336 6,644
-------- --------
Accounts receivable......................................... 63,035 32,127
Less: allowance for doubtful accounts....................... 2,200 2,948
-------- --------
Net accounts receivable................................... 60,835 29,179
-------- --------
Accrued utility revenues, net............................... 6,736 2,541
Unrecovered purchased gas costs............................. --- 5,523
Inventories................................................. 10,301 12,606
Prepaid expenses............................................ 1,773 4,067
-------- --------
Total current assets.......................................... 87,981 60,560
-------- --------
Deferred Charges and Other Assets:
Unamortized debt expenses................................... 5,920 6,038
Unrecovered deferred income taxes........................... 42,804 42,929
Other....................................................... 43,874 42,289
-------- --------
Total deferred charges and other assets....................... 92,598 91,256
-------- --------
Total assets.................................................. $457,958 $424,281
======== ========
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,
1998 1997
--------- ---------
(Unaudited)
Capitalization and Liabilities
------------------------------
Common Shareholders' Equity:
Common stock: authorized--20,000,000 shares, par value
$1 per share, issued and outstanding--10,247,315 shares;
9,172,468 shares........................................... $ 10,247 $ 9,172
Capital in excess of par value............................. 119,047 94,540
Unearned compensation...................................... (1,198) (1,068)
Retained earnings.......................................... 56,966 42,297
Adjustment for minimum pension liability (net of income
taxes)................................................... (427) (427)
-------- --------
Total common shareholders' equity............................ 184,635 144,514
-------- --------
Long-term debt............................................... 134,073 134,073
-------- --------
Total capitalization......................................... 318,708 278,587
-------- --------
Current Liabilities:
Short-term borrowings...................................... 12,600 31,400
Current maturities of long-term debt....................... 454 4,654
Accounts payable........................................... 11,989 12,609
Federal, state and deferred income taxes................... 16,615 5,017
Other accrued taxes........................................ 5,397 4,567
Interest payable........................................... 3,450 3,499
Customers' deposits........................................ 1,892 1,718
Refunds due customers...................................... 265 2,627
Refundable purchased gas costs............................. 5,951 ---
Other...................................................... 4,179 3,892
-------- --------
Total current liabilities.................................... 62,792 69,983
-------- --------
Deferred Credits:
Deferred income taxes and investment tax credits........... 68,380 67,893
Other...................................................... 8,078 7,818
-------- --------
Total deferred credits....................................... 76,458 75,711
-------- --------
Total capitalization and liabilities......................... $457,958 $424,281
======== ========
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
March 31,
-----------------
1998 1997
---- ----
Net cash provided by operating activities................. $18,750 $ 7,040
------- -------
Cash Flows from Investing Activities:
Capital expenditures.................................... (13,460) (11,560)
Contributions in aid of construction.................... 26 34
Payments for retirement of utility plant................ (21) (157)
Energy ventures......................................... 692 ---
------- -------
Net cash used by investing activities..................... (12,763) (11,683)
------- -------
Cash Flows from Financing Activities:
Dividends paid on common stock.......................... (6,747) (5,981)
Issuance of common stock................................ 25,452 2,466
Repayments of long-term debt............................ (4,200) (140)
(Decrease) increase in short-term borrowings............ (18,800) 11,200
------- -------
Net cash (used) provided by financing activities.......... (4,295) 7,545
------- -------
Net increase in cash and cash equivalents................. 1,692 2,902
Cash and cash equivalents at beginning of period.......... 6,644 5,121
------- -------
Cash and cash equivalents at end of period................ $ 8,336 $ 8,023
======= =======
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest................................................ $ 6,773 $ 7,320
Income taxes............................................ $ 2,200 $ 641
See Notes to Consolidated Financial Statements.
</TABLE>
CONNECTICUT ENERGY CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
(Unaudited)
Note 1 - Summary of Significant Accounting Policies
General
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, 1997 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, 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.
Accounting for the Effects of Regulation
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.
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, 1998 and September 30,
1997 of $58,138 and $63,606, 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.
Effective April 1, 1996, the DPUC deregulated the sale of natural gas to
firm commercial and industrial customers by giving these customers an option
to purchase natural gas from independent brokers or marketers. Commercial
and industrial customers electing to purchase natural gas in this manner pay
a DPUC-approved firm transportation rate to the local gas distribution
company ("LDCs") for the use of its distribution system.
Southern is one of three Connecticut LDCs whose firm transportation rates
are designed to provide the same margins earned from bundled services.
Because the new rates are margin neutral, there has not been any impact upon
Southern's ability to recover deferred costs through cost-based rate
regulation. Firm transportation rates have eliminated only the gas cost
component of the rates previously charged to these customers. The Company
has not experienced any adverse impact on its earnings or results of operations
from this change in rate structure. Additionally, the DPUC's initiatives for
competition have not been directed toward services for certain groups of
customers, including service to residential classes, which represent the
majority of Southern's total throughput and gross margin.
Management believes that Southern continues to meet the requirements of SFAS
71 because Southern's rates for regulated services provided to its customers
are subject to DPUC approval, are designed to recover Southern's costs of
providing regulated services and continue to be subject to cost-of-service
based rate regulation by the DPUC.
Deferred Charges and Other Assets
Deferred charges and other assets include amounts related to the following:
March 31, Sept. 30,
As of 1998 1997
- ------------------------------------------------------------------------------
Conservation costs $ 4,930 $ 4,881
Energy assistance funding shortfall 489 882
Environmental evaluation costs 626 718
Gas holder costs 185 308
Hardship heating customer accounts receivable arrearages 13,657 13,439
Hardship heating customer assistance grant program 2 634
Investment in energy ventures 2,727 3,418
Nonqualified benefit plans 2,523 2,302
Prepaid pension and postretirement medical contributions 15,047 13,228
Other 3,688 2,479
------- -------
$43,874 $42,289
======= =======
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.
Deferred Credits
Other deferred credits include amounts related to the following:
March 31, Sept. 30,
As of 1998 1997
- ------------------------------------------------------------------------------
Economic development initiatives $1,038 $1,339
Insurance reserves 1,433 1,122
Interruptible margin sharing 678 877
Nonqualified benefit plans 3,229 2,961
Other 1,700 1,519
------ ------
$8,078 $7,818
====== ======
Utility Operating Results
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, 1998
are not indicative of the results to be expected for the fiscal year ending
September 30, 1998.
Recent Accounting Developments
Effective October 1, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128"). 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. The sole difference between basic and
diluted EPS relates to the common shares granted under the Company's
restricted stock award plan.
Note 2 - Commitments and Contingencies
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. See section in
Management's Discussion and Analysis entitled "Environmental Matters" for
further detail.
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 and in its annual report to
shareholders, including its Form 10-K for the fiscal year ended September 30,
1997 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 Corporation's ("Connecticut Energy" or "Company")
consolidated net income for the three and six months ended March 31, 1998 and
1997 is detailed below:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
(in thousands, except per share) 1998 1997 1998 1997
---- ---- ---- ----
Net Income $15,250 $15,211 $21,416 $20,620
======= ======= ======= =======
Net income per share - Diluted $ 1.49 $ 1.67 $ 2.15 $ 2.28
======= ======= ======= =======
Weighted average common shares outstanding - Diluted 10,230 9,085 9,947 9,050
------- ------- ------- -------
</TABLE>
Net income for the three months ended March 31, 1998 was relatively unchanged
compared to the corresponding 1997 period. Higher firm margins, lower gross
earnings tax and lower interest expense were partially offset by lower
interruptible margins, higher operating expenses for income taxes and
depreciation and by lower other income.
Net income for the six months ended March 31, 1998 increased approximately
4% compared to the six months ended March 31, 1997 principally due to higher
firm margins, lower operations expense, lower property and gross earnings
taxes and lower interest expense. Partially offsetting the increase in net
income were lower interruptible margins and higher operating expenses for
depreciation and income taxes.
Results for both 1998 periods reflect the issuance of 1,035,000 shares of
common stock in November of 1997.
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, 1998 were 12,700 and 23,701 MMcf, respectively,
representing decreases of approximately 14% and 11% compared to the
corresponding 1997 periods. These decreases were primarily attributable to
lower volumes of firm sales, on-system interruptible sales and off-system
transportation. Partially offsetting these decreases were higher volumes of
firm transportation and off-system sales.
Firm Sales and Transportation Volumes
- -------------------------------------
Firm sales and transportation volumes for the three and six months ended
March 31, 1998 decreased approximately 5% and 2%, respectively, compared to
the corresponding 1997 periods. The decreases were primarily due to lower
firm sales volumes. The reduction in firm sales was principally due to
weather which was approximately 11% and 4% warmer than the three and six
months ended March 31, 1997, respectively. The overall decrease in this
category was partially offset by the continued growth in Southern's firm
customer base and by an increase in firm transportation volumes.
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. Margins earned, net of gross earnings
tax, from on-system interruptible services in excess of an annual target were
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. Off-system
margins earned, net of gross earnings tax, continue to be shared between
Southern and its firm customers.
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 electric 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, 1998 and 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
March 31, March 31,
------------------ ----------------
(dollars in thousands) 1998 1997 1998 1997
---- ---- ---- ----
Gross margin earned $2,801 $3,650 $5,200 $7,046
====== ====== ====== ======
Gross margin retained $2,219 $2,878 $2,918 $3,950
====== ====== ====== ======
Volumes sold and transported (MMcf) 3,692 5,332 7,641 10,293
------ ------ ------ ------
</TABLE>
Gross margin retained represents the difference between gross margin earned and
margin to be allocated through the margin sharing mechanism. Gross margin
earned and retained by Southern was lower for the three and six months ended
March 31, 1998 compared to the corresponding 1997 periods principally due to
the competitive price of other energy sources compared to natural gas.
Interruptible volumes for the three and six months ended March 31, 1998 were
lower compared to the corresponding 1997 periods primarily due to decreases
in on-system interruptible sales and off-system transportation volumes due to
the competitive price of other energy sources compared to natural gas. An
increase in off-system sales activity in both 1998 periods partially offset
the overall decrease in this category.
Gross Margin
- ------------
The Company's gross margin for the three and six months ended March 31, 1998
was approximately 3% and 1% higher, respectively, compared to the
corresponding 1997 periods. These increases were principally attributed to
higher firm margins earned by Southern.
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, 1998 was approximately 19% and 9%
warmer than normal, respectively, the operation of the WNA collected
approximately $6,899,000 and $5,182,000, respectively, from firm customers.
This compares to a collection from firm customers during the corresponding
1997 periods of approximately $4,113,000 and $3,080,000, respectively.
Southern's firm sales rates include a Purchased Gas Adjustment clause ("PGA")
which allows Southern to flow back 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, 1998 by approximately $4,785,000 and $9,301,000,
respectively. For the three and six months ended March 31, 1997, PGA
adjustments increased revenues and gas costs by approximately $3,993,000 and
$5,279,000, respectively.
Operations Expense
- ------------------
Operations expense for the three months ended March 31, 1998 decreased
approximately 1% compared to the corresponding 1997 period primarily due to
decreased costs related to uncollectibles, pensions and postretirement
healthcare benefits. Partially offsetting the impact of these decreases were
higher expenses in the areas of labor, certain employee benefits and outside
services.
Operations expense for the six months ended March 31, 1998 decreased
approximately 2% compared to the six months ended March 31, 1997. The
decrease was primarily due to lower amortizations related to Southern's
certified hardship forgiveness program due to the conclusion of the
amortization period as of December 31, 1996 and lower pension and
postretirement health care costs. Partially offsetting the overall decrease
in operations expense for the 1998 period were higher expenses in the areas
of customer installations, outside services, regulatory commission expense
and certain other general and administrative expenses.
Depreciation Expense
- --------------------
Depreciation expense for the three and six months ended March 31, 1998
increased approximately 8% compared to the corresponding 1997 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, 1998 increased approximately 12% and 18%, respectively,
compared to the corresponding 1997 periods. These increases were due to higher
pre-tax income as well as higher effective tax rates for the 1998 periods.
The higher effective tax rates for the 1998 periods were primarily caused by
the tax treatment of conservation expenditures and uncollectibles and the
inability to make tax-deductible employee benefit plan contributions.
Municipal, Gross Earnings and Other Taxes
- -----------------------------------------
Municipal, gross earnings and other taxes decreased approximately 7% and 24%
for the three and six months ended March 31, 1998, respectively, compared to
the corresponding 1997 periods. For the three months ended March 31, 1998, the
decrease was primarily due to lower gross earnings tax due to lower revenues.
For the six months ended March 31, 1998, the decrease was primarily
due to the DPUC Decision which required Southern to change its accounting
treatment for accruing property taxes (see section entitled "Regulatory
Matters" for further detail) and, to a lesser extent, lower gross earnings tax
due to lower revenues.
Other (Income) Deductions, Net
- ------------------------------
Other income for the three and six months ended March 31, 1998 was lower
compared to the corresponding 1997 periods. These variances were primarily due
to the receipt of approximately $974,000 in interest income in the 1997 periods
from one of Southern's interstate pipeline suppliers related to Southern's
prepayment of transition costs associated with Federal Energy Regulatory
Commission's Order No. 636. Partially offsetting the decreases in other income
was the contribution to earnings by one of the Company's nonutility
subsidiaries in both 1998 periods compared to a net loss in each of the
corresponding 1997 periods. Additionally, for the six months ended
March 31, 1998, other income was favorably impacted by an increase in
investment income related to nonqualified employee benefit plans.
Interest Expense
- ----------------
Total interest expense decreased approximately 4% and 3% for the three and
six months ended March 31, 1998, respectively, compared to the corresponding
1997 periods primarily due to lower short-term interest expense related to
lower average short-term borrowings. Partially offsetting the decreases in
total interest expense was an increase in short-term interest expense on
deferred purchased gas costs for the three months ended March 31, 1998 and
an increase in short-term interest expense on pipeline refunds not yet
returned to firm customers for the six months ended March 31, 1998.
Year 2000
- ---------
Many enterprises that rely on computer processing for critical functions have
been affected by the existence of certain systems that are not capable of
processing dates beyond December 31, 1999. To determine whether system
development plans need to be modified to include renovation of such systems,
an evaluation must be made of those systems that will be used in the year 2000.
The Company has addressed this issue by expanding its computer system planning
process to include a complete inventory and assessment of the risks and
exposures of its hardware and software. Based on this review, management
believes that its current plans address the affected systems and that any
renovation activities will not have a material adverse impact on the financial
condition or the results of operations of the Company.
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:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Shared
Connecticut Connecticut
Energy Southern Energy/Southern Total
- -------------------------------------------------------------------------------------------------
As of March 31, 1998:
Committed lines $5,000,000 $32,000,000 $20,000,000 $57,000,000
Uncommitted lines --- $10,000,000 $10,000,000 $20,000,000
</TABLE>
Effective January 1, 1998, Connecticut Energy and Southern entered into an
agreement with one bank for a shared committed line of credit in the amount of
$20,000,000, replacing an existing line that expired on December 20, 1997. The
new agreement extends the credit line term until December 31, 1998, and the
initial term may be extended from year to year thereafter dependent upon the
operating cash requirements of the Company and its subsidiary and approval by
the bank. At March 31, 1998, the Company had unused lines of credit of
$64,400,000. 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, 1998 compared to the
corresponding 1997 period were higher primarily due to collections from
customers through the operation of the PGA and a lower comparative increase
in accounts receivable balances. The increase in operating cash flows in the
1998 period was partially offset by a lower comparative reduction in gas
inventories and reductions in refunds due customers, transition cost liability
and liabilities related to margins earned which are used to fund certain
economic development initiatives in Bridgeport and to provide grants to
customers to reduce Southern's hardship assistance balances.
Investing Activities
- --------------------
Capital expenditures, net of contributions in aid of construction,
approximated $13,434,000 and $11,526,000 for the six months ended March 31,
1998 and 1997, respectively. 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
- --------------------
In November 1997, the Company completed a public sale of 1,035,000 shares of
its common stock at a price of $24.25 per share and received net proceeds of
approximately $24,224,000. The proceeds of this sale were used for the
repayment of Southern's short-term debt. 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.
Regulatory Matters
- ------------------
In October 1997, Southern requested that the DPUC consider a proposed change
in Southern's accounting treatment for property taxes, which would account for
such taxes as a prepaid expense. This method is consistent with the practice of
other major public service companies in Connecticut. Southern had been accruing
for property taxes in the year prior to the payment date. On November 19, 1997,
under the reopened Docket No. 93-03-09, Application of The Southern Connecticut
Gas Company to Increase Its Rates and Charges, the DPUC approved Southern's
proposal. The stipulations in the Decision ordered Southern to reduce its
reserve for property taxes by approximately $3,722,000, with fifty percent,
or approximately $1,861,000, flowing through as a one-time reduction to
property tax expense and the remaining fifty percent to be refunded to firm
customers through the operation of the PGA in three equal amounts during the
second quarter of fiscal 1998.
In accordance with Connecticut statutes, Southern is undergoing a periodic
review of rates and services by the DPUC that commenced in January 1998. A
periodic review entails a complete review by the DPUC of Southern's financial
and operating records. Public hearings will be held to determine whether
Southern's current rates are unreasonably discriminatory or more or less than
just, reasonable and adequate. Management cannot predict the financial or
operational impact of any decision which may result from this review.
Southern received a Decision from the DPUC on its special contract with Duke
Energy Trading and Marketing to transport natural gas to the 520 megawatt
electric generating plant under construction in Bridgeport. Under the
contract, Southern will own, operate and maintain the 16", nearly 11-mile
main, and CNE Energy Services Group, Inc. ("CNE Energy"), one of the Company's
nonutility subsidiaries, will be solely responsible for financing the project
and its maintenance costs. This effectively removes any risk from Southern or
its ratepayers for any future operating and maintenance costs. Construction
has commenced and is expected to be completed and the plant to be operational
during the summer of 1998.
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."
On September 8, 1997, Southern received a letter from the DEP informing it that
the three sites had been entered on the Connecticut Inventory of Hazardous
Waste Sites. The letter states that the site located on Pine Street in
Bridgeport, Connecticut may be of particular interest to the state of
Connecticut because of its proximity to the Connecticut Department of
Transportation expansion project of the U.S. Highway Route Number 95 Corridor.
Placement of the sites on the Inventory of Hazardous Waste Sites means that
the DEP may pursue remedial action pursuant to the Connecticut General
Statutes.
Each site is located in an area that permits Southern to voluntarily perform
any remedial action. Connecticut law also allows Southern to retain a
Licensed Environmental Professional to conduct further environmental
assessments and, if necessary, to develop remedial action plans in
accordance with Connecticut Remediation Standard Regulations. Southern is
currently conferring with officials of the DEP to establish priorities in
connection with the environmental assessments.
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 that, based upon the provisions
of the Partial Settlement in Southern's most recent rate order and regulatory
precedent with other local gas distribution companies in Connecticut, 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.
Other
- -----
In February 1998, a joint venture of CNE Energy, Conectiv/CNE Energy Services,
LLC, formed an alliance with Berkshire Energy Marketing, a division of the
Massachusetts natural gas distribution utility, Berkshire Gas Company. The
alliance will sell energy commodities and services to commercial and industrial
customers in western Massachusetts, eastern New York and southern Vermont.
Conectiv/CNE Energy also has existing alliances with distribution utilities in
New Hampshire and Rhode Island.
PART II- OTHER INFORMATION
Items 1, 2, 3 and 5 are inapplicable.
Item 4. Submission of Matters to a Vote of Security-Holders
---------------------------------------------------
(a) The annual meeting of the registrant was held on January 27, 1998.
(b) Election of Directors:
Non-
For Against Abstain Vote
--- ------- ------- ----
Henry Chauncey, Jr. 8,565,821 128,257 0 0
Richard M. Hoyt 8,572,876 121,202 0 0
Christopher D. Turner 8,573,501 120,577 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 1998 fiscal year:
Non-
For Against Abstain Vote
--- ------- ------- ----
Coopers & Lybrand L.L.P. 8,600,567 40,446 53,065 0
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit 10 - Agreement between The Southern Connecticut Gas Company
and Connecticut Energy Corporation and Samuel W. Bowlby related to
change in control, dated July 1, 1997, is filed herewith at pages 21 to
31.
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 14, 1998 By: /s/ Vincent L. Ammann, Jr.
------------ ------------------------------
Vincent L. Ammann, Jr.
Vice President and
Chief Accounting Officer
AGREEMENT
THIS AGREEMENT, made as of the 1st day of July, 1997, by and among The
Southern Connecticut Gas Company, a company incorporated in the State of
Connecticut with executive offices at 855 Main Street, Bridgeport,
Connecticut ("Southern"), and Connecticut Energy Corporation, a company
incorporated in the State of Connecticut with executive offices at 855 Main
Street, Bridgeport, Connecticut ("the Company"), and Samuel W. Bowlby, an
individual residing at 131 Underhill Road, Hamden, Connecticut 06517 (the
"Executive").
WHEREAS, Executive serves as Vice President, General Counsel and Secretary
of the Company and Southern; and
WHEREAS, Southern and the Company seek to retain Executive in these
positions; and
WHEREAS, Executive desires to continue his employment with Southern and the
Company in accordance with the terms set forth below;
NOW, THEREFORE, in consideration of the remuneration and other benefits to
be provided by Southern and the Company and the services to be provided by
Executive, and in consideration of other mutual promises herein contained,
the parties hereby agree as follows:
1. DEFINITIONS.
The following terms when used herein with initial capital letters shall,
unless the context clearly requires to the contrary, have the meanings
assigned to them below:
(a) "Cause" means the Executive's gross negligence, willful misconduct or
conviction of a felony, which negligence, misconduct or conviction has a
demonstrable and material adverse affect upon the Company or Southern,
provided that the Company or Southern shall have given the Executive written
notice of the alleged negligence or misconduct and the Executive shall have
failed to cure such negligence or misconduct within 30 days after his receipt
of such notice. The Executive shall be deemed to have been terminated for Cause
effective upon the effective date stated in a written notice of such
termination delivered by the Company or Southern to the Executive and
accompanied by the resolution duly adopted by the affirmative vote of not
less than 2/3 of the entire membership of the Board of Directors of the
Company or Southern at a meeting of said Board (after reasonable notice to the
Executive and an opportunity for the Executive, with his counsel present, to be
heard before the Board) finding that, in the good faith opinion of the Board of
Directors of the Company or Southern, the Executive was guilty of conduct
constituting Cause hereunder and setting forth in reasonable detail the facts
and circumstances claimed to provide the basis for the Executive's termination,
provided that the effective date shall not be less than 30 days from the date
such notice is given.
(b)"Change in Control" of the Company shall be deemed to have occurred if:
(i) Any Person is or becomes an Acquiring Person;
(ii) Less than 2/3 of the total membership of the Board of Directors of the
Company shall be Continuing Directors; or
(iii) The shareholders of the Company shall approve a merger or
consolidation of the Company or a plan of complete liquidation of the Company
or an agreement for the sale or disposition by the Company of all or
substantially all of the Company's assets.
In connection with the preceding definition of "Change in Control", the
capitalized terms therein are defined as follows:
(iv) "Acquiring Person" means any Person who is or becomes a "beneficial
owner" (as defined in Rule 13d-3 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) of securities of the Company representing 20%
or more of the combined voting power of the Company's then outstanding voting
securities, unless such person has filed Schedule 13G and all required
amendments thereto 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 meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Exchange Act as in effect as of the date hereof.
(vi) "Continuing Directors" means any member of the Board of Directors of
the Company who was a member of said Board prior to the date hereof and any
successor of a Continuing Director while such successor is a member of the
Board of Directors of the Company who is not an Acquiring Person or an
Affiliate or 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 13(d) and
14(d) of the Exchange Act.
(c) "Good Reason" means:
(i) An adverse change in the Executive's status, duties or responsibilities
as an Executive of the Company or Southern;
(ii) Failure of the Company or Southern to pay or provide the Executive in
a timely fashion the salary or benefits to which he is entitled under any
Employment Agreement between the Company or Southern and the Executive then
in effect or under any benefit plans or policies in which the Executive was
then participating (including, without limitation, any incentive, bonus,
stock option, restricted stock, health, accident, disability, life insurance,
thrift, vacation pay, deferred compensation and retirement plans or policies);
(iii) The reduction of the Executive's salary (except in connection with a
uniform and general reduction of salaried employees' compensation effected by
the Company or Southern);
(iv) The taking of any action by the Company or Southern (including the
elimination of a plan without providing substitutes therefore, the reduction
of the Executive's awards thereunder or failure to continue the Executive's
participation therein) that would substantially diminish the aggregate
projected value of the Executive's awards or benefits under the Company's or
Southern's benefit plans or policies described in Section 1(c)(ii) in which
the Executive was then participating; provided, however, that the Board of
Directors may determine at any time to discontinue Southern's Management
Incentive Compensation Plan. The Executive further acknowledges that awards
under such Plan may vary from year to year and that, under the terms of such
Plan, no awards or reduced awards may be made in any particular year.
(v) A failure by the Company or Southern to obtain from any successors the
assent to this Agreement contemplated by Section 12 hereof; or
(vi) The relocation of the principal office at which the Executive is to
perform his services on behalf of the Company or Southern to a location
outside the State of Connecticut or a substantial increase in the Executive's
business travel obligations.
The Executive shall be deemed to have terminated his employment for Good
Reason effective upon the effective date stated in a written notice of such
termination given by him to the Company and Southern setting forth in
reasonable detail the facts and circumstances claimed to provide the basis
for termination, provided that the effective date may not precede, nor be
more than 60 days from, the date such notice is given. The Executive's
continued employment shall not constitute consent to, or a waiver of
rights with respect to, any circumstance constituting Good Reason hereunder.
(d) "Qualifying Surviving Spouse" means the Executive's widow to whom he
has been married for more than one year at the time of benefit payment
commencement pursuant to this Agreement.
2. EMPLOYMENT: Southern and the Company shall employ Executive and
Executive hereby accepts such employment upon the terms and conditions
hereinafter set forth.
3. TERM OF EMPLOYMENT: The term of this Agreement shall begin on July 1,
1997, and shall continue thereafter until terminated by either party by
written notice given to the other party at least thirty (30) days prior to
the effective date of any such termination. The effective date of the
termination shall be the date stated in such notice, provided that if the
Company or Southern specifies an effective date that is more than thirty (30)
days following the date of such notice, the Executive may, upon thirty (30)
days' written notice to the Company or Southern, accelerate the effective date
of such termination.
4. COMPENSATION: For all services rendered by Executive under this
Agreement, Southern shall pay Executive an annual base salary, payable at
such times as is customary for Southern to pay its officers, in such amount
as Southern's Board of Directors shall establish from time to time.
Executive's base salary is subject to upward or downward revision by the
Board of Directors at such time as the Board generally increases or reduces
the salary rates of other officers of Southern. Executive shall also
participate in Southern's Management Incentive Compensation Plan (the "Plan")
for such years as the Board of Directors determines the Plan shall be in
effect. Executive shall be entitled to any other benefits available to officers
and employees of Southern generally.
5. CHANGE IN CONTROL: If a Change in Control of the Company shall have
occurred, and Executive's employment by the Company or Southern is terminated
effective as of a date within three (3) years after the date of such Change
in Control for any reason other than (1) his death, (2) his Disability, (3)
his retirement on his Normal Retirement Date, (4) by the Company for Cause,
or (5) by Executive without Good Reason, Executive shall be under no further
obligation to perform services for the Company or Southern and shall be
entitled to receive the following payments:
(a) The Company or Southern shall pay to Executive his full base salary
through the effective date of the termination within five (5) business days
thereafter and all benefits and awards (including both the cash and stock
components) to which Executive is entitled under any benefit plans or
policies in which he was a participant prior to the Change in Control, at the
time such payments are due pursuant to the terms of such benefit plans or
policies as in effect immediately prior to the Change in Control.
(b) In addition to the entitlements set forth in Section 3(a), the Company
or Southern shall pay to Executive, in a lump sum not later than ten (10)
business days following the effective date of the termination:
(i) an amount equal to three (3) times Executive's annual base salary on
the effective date of the termination or, if higher, immediately prior to the
Change in Control;
(ii) an amount equal to three (3) times the greater of (A) the highest amount
of the annual bonus awarded to Executive in the five (5) fiscal years
immediately preceding the year in which the Change in Control occurred or (B)
an amount equal to the amount Executive would have been awarded under the
Company's bonus plan in effect immediately prior to the Change in Control for
the fiscal year in which the Change of Control occurred had he continued to
render services to the Company at the same level of performance at the same
level of salary, and in the same position as immediately prior to the Change
in Control.
(iii) an amount equal to three (3) times the greater of (A) the largest annual
contribution made by Southern (or the Company, or by both) to The Southern
Connecticut Gas Company TARGET Plan for Salaried and Certain Other Executives
on Executive's behalf during the five (5) fiscal years immediately preceding
the year in which the Change of Control occurred or (B) an amount equal to
the contribution the Company would have made to said Plan on his behalf for
the fiscal year in which the Change of Control occurred had he participated
in said Plan for the entire fiscal year, received a base salary equal to the
salary he was receiving immediately prior to the Change in Control and had he
elected to contribute to the Plan the same percentage of his base salary as
he was contributing on said date; and
(iv) an amount equal to thirty five percent (35%) of Executive's annual base
salary on the effective date of the termination or, if higher, immediately
prior to the Change in Control (as compensation for medical, life insurance
and other benefits lost as a result of termination of his employment).
(v) If a payment may be increased by reference to an alternate calculation
which cannot be made by the time the payment is due, payment of the lesser
known amount shall be made when due, and if any additional amount becomes
due, such additional amount shall be paid within ten (10) days after the
information upon which calculation of such payment is dependent first becomes
available.
The amount of all payments due to Executive pursuant to this Section 5(b)
shall be reduced by four percent (4%) for each full calendar month by which
the date which is two (2) years from the effective date of the Executive's
termination extends beyond his Normal Retirement Date (as that term is
defined in The Southern Connecticut Gas Company Pension Plan for Salaried
Employees).
Upon entering into this Agreement and for a period of fourteen (14) days
following each anniversary of the date hereof (the "Election Period"), the
Executive may, in writing, direct the Company or Southern to pay any amounts
to which he is entitled under this Section 5(b) in five (5) equal annual
installments, with the first such installment payable within ten (10)
business days of the effective date of the termination and each successive
installment payable on the anniversary of the effective date of the termination
or the next following business day if such date is not a business day (the
"Deferred Payment Election"). A Deferred Payment Election, once made, cannot
be revoked except during an Election Period; provided, however, no Deferred
Payment Election can be made or revoked by Executive during an Election
Period that occurs after a Change in Control or at a time when, in the judgment
of the Company, a Change in Control may occur within sixty (60) days of such
Election Period.
(c) The Company or Southern shall pay or provide to Executive, or his widow
or children as the case may be, such amounts and benefits as may be required
so that the pension and other post-retirement benefits paid or made available
to him, his widow and his children are equal to those, if any, which would
have been paid under The Southern Connecticut Gas Company Pension Plan for
Salaried Executives as in effect immediately prior to the Change in Control,
assuming Executive continued in the employ of the Company or Southern at the
same salary until the third anniversary of the effective date of the termination
of his employment or until his Normal Retirement Date, whichever is earlier.
(d) Executive shall not be required to mitigate the amount of any payment
provided in this Section 5, nor shall any payment or benefit provided for in
this Section 5 be offset by any compensation earned by him as the result of
employment by another employer, by retirement benefits, or by offset against
any amount claimed to be owed by the Executive to the Company or Southern, or
otherwise.
(e) If any payment to Executive required by this Section 5 is not made
within the time for such payment specified herein, the Company or Southern
shall pay to him interest on such payment at the legal rate payable from time
to time upon judgments in the State of Connecticut from the date such payment
is payable under the terms hereof until paid.
(f) If any payment or benefit to Executive provided for in this Agreement is
subject to the excise tax imposed pursuant to Section 4999 of the Internal
Revenue Code of 1986, as amended, (which tax, together with any similar tax
hereafter imposed is referred to in this Agreement as the "Excise Tax") the
Company or Southern shall pay to him an additional amount such that the total
amount of the payments to or for the benefit of Executive under this
Agreement (including payments made pursuant to this Section 5(f), net of the
Excise Tax and all other applicable federal, state and local taxes shall
equal the total amount of the payments and benefits to which Executive
would have been entitled under this Agreement but for this Section 5(f), net
of all applicable federal, state and local taxes except the Excise Tax.
The amount of the payment to Executive under this Section 5(f) shall be
estimated by the Company's independent auditors based upon the following
assumptions:
(i) All payments to Executive under this Agreement and all other payments and
benefits to him in connection with a Change in Control of the Company shall be
deemed to be "parachute payments" within the meaning of Section 280G(b)(2) of
the Code, and all "excess parachute payments" shall be deemed to be subject
to the Excise Tax unless, in the written opinion of tax counsel selected by
the Company's independent auditors, (a signed copy of which opinion shall be
delivered to Executive) such payment or benefits are not subject to the Excise
Tax;
(ii) Except to the extent that the total of the payments and benefits to
Executive under this Agreement exceeds the total of the "excess parachute
payments" made to him, no such payments or benefits shall be deemed to be
part of the "base amount" within the meaning of Section 280G(b)(3) of the
Code; and
(iii) Executive shall be deemed to pay federal, state and local taxes at the
highest marginal rate of taxation for the applicable calendar year.
The estimated amount of the payment due to Executive pursuant to this
Section 5(f) shall be paid to him in a lump sum not later than thirty (30)
business days following the effective date of termination. In the event that
the amount of the estimated payment is less than the amount actually due to
him under this Section 5(f), the amount of any such shortfall shall be paid
to him within ten (10) days after the existence of the shortfall is discovered.
(g) If the Executive's employment terminates for any reason following a
Change in Control before the Executive has met the five-year (or other,
then-current) Credited Service requirement imposed by the terms of the
Pension Plan for Salaried and Certain Other Employees of The Southern
Connecticut Gas Company (the "Plan") as a prerequisite for 100% vesting of
benefits from the Company or Southern in amounts equal to the benefits he
would have been eligible to receive under the Plan had he
completed the number of Years of Service requisite
for 100% vesting of benefits under the Plan, determined by crediting all such
Years of Service for purposes of benefit accrual and assuming that
compensation (including incentive or other bonus-type compensation) for such
years was payable at the rate being paid to the Executive at the time of
termination of employment (or prior to the Change in Control, if higher).
For purposes of interpretation and implementation of the provisions of
Section 5(c) of this Agreement, the Executive will be deemed to have
satisfied the vesting service requirements of the Plan when determining the
benefits to which he, his widow and children are entitled pursuant to that
Section.
6. DUTIES: Executive shall serve in such capacities and with such titles as
may be assigned to him by the Board of Directors of Southern and the Company,
and shall assume such duties as the Board of Directors of Southern and the
Company shall assign to him.
7. TERMINATION: Subject to the applicable provisions of Section 5 of this
Agreement, Executive's employment pursuant to this Agreement may be
terminated by Southern or the Company on thirty (30) days written notice at
any time, with or without Cause. Executive's term of employment shall also
terminate upon his death or permanent disability. Such terminations shall
not constitute a termination of employment without Cause for purposes of
Section 5 of this Agreement. Permanent disability shall mean Executive's
inability by reason of physical or mental impairment or illness to fulfill his
obligation hereunder for the reasonably foreseeable future, as determined by the
Board of Directors of Southern and the Company after considering all relevant
medical evidence.
8. AMENDMENT: Amendment of the terms of this Agreement shall not be valid
unless made in writing and signed by duly authorized representatives of
Southern and the Company and by Executive.
9. EXECUTIVE'S EXPENSES: The Company and Southern, or the successor of
either of such companies, shall pay or reimburse Executive (or, if
appropriate, his Qualified Surviving Spouse) for all costs, including
reasonable attorney's fees and expenses of litigation and arbitration,
incurred by Executive (or his Qualified Surviving Spouse) in successfully
contesting or disputing any action taken by the Company and Southern, or the
successor of either of such companies, purportedly pursuant to Section 5 of
this Employment Agreement or in successfully seeking to obtain or enforce any
right or benefit provided by Section 5 of this Employment Agreement.
10. NOTICES: Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and personally delivered or sent
by registered or certified mail postage prepaid, properly addressed (if to
Executive, at his residence address as then reflected in the Company's
personnel records; if to Southern and the Company, at 855 Main Street,
Bridgeport, Connecticut 06604, Attention: Vice President, Human Resources or
at such other address as the executive offices of the Company may be
located), return receipt requested, and shall be deemed given as of the date of
delivery or personally delivered or of mailing if properly mailed.
11. WAIVER OF BREACH: The waiver by Southern or the Company of a breach of
any provision of this Agreement by Executive shall not operate or be
construed as a waiver of any prior or subsequent breach by Executive.
12. INTEGRATION: This Agreement shall be the sole and exclusive Agreement
among Southern, the Company, and Executive, and any other agreements or
arrangements among them are hereby superseded, canceled, and made void and of
no effect.
13. BINDING AGREEMENT: This Agreement shall inure to the benefit of and be
enforceable by Executive, his heirs, executors, administrators, successors,
and assigns. This Agreement shall be binding upon the Company, Southern and
their successors and assigns. The Company and Southern respectively shall
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of its or their
business and/or assets expressly to assume and agree to perform this Agreement
in accordance with its terms. The Company and Southern respectively shall
obtain such assumption and agreement prior to the effectiveness of any
succession. The obligations of this Agreement may not be assigned by Executive.
14. COUNTERPARTS: This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
15. CHOICE OF LAW: This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut (except that, if
application of Connecticut's choice of law rules would result in this
Agreement being governed, construed or interpreted in accordance with the
substantive law of a jurisdiction other than Connecticut, Connecticut's
choice of law rules shall not supersede or vary the choice of law made by
this Section 15).
16. SEVERABILITY: The provisions of this Agreement are severable, and the
invalidity or unenforceability of any provision shall not affect the validity
or enforceability of any other provision.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
THE SOUTHERN CONNECTICUT GAS COMPANY
By /s/Samuel M. Sugden
-------------------------------------------
Samuel M. Sugden, duly authorized Chairman,
Nominating and Salary Committee
CONNECTICUT ENERGY CORPORATION
By /s/Samuel M. Sugden
-------------------------------------------
Samuel M. Sugden, duly authorized Chairman,
Nominating Salary Committee
/s/Samuel W. Bowlby
-------------------------------------------
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, BALANCE SHEETS AND STATEMENTS OF CASH FLOWS
OF CONNECTICUT ENERGY CORPORATION AND IS QUALIFED IN ITS ENTIRETY BY REFERENCE
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<PERIOD-END> MAR-31-1998
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0
<EARNINGS-AVAILABLE-FOR-COMM> 21,416
<COMMON-STOCK-DIVIDENDS> 6,747
<TOTAL-INTEREST-ON-BONDS> 6,107
<CASH-FLOW-OPERATIONS> 18,750
<EPS-PRIMARY> 2.16
<EPS-DILUTED> 2.15
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
AMENDED AND RESTATED FINANCIAL DATA SCHEDULE
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, BALANCE SHEETS AND STATEMENTS OF CASH FLOWS
OF CONNECTICUT ENERGY CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 261,387
<OTHER-PROPERTY-AND-INVEST> 2,847
<TOTAL-CURRENT-ASSETS> 95,802
<TOTAL-DEFERRED-CHARGES> 88,560
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 448,596
<COMMON> 9,127
<CAPITAL-SURPLUS-PAID-IN> 93,430
<RETAINED-EARNINGS> 52,509
<TOTAL-COMMON-STOCKHOLDERS-EQ> 153,997
0
0
<LONG-TERM-DEBT-NET> 134,528
<SHORT-TERM-NOTES> 30,400
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 4,654
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 125,017
<TOT-CAPITALIZATION-AND-LIAB> 448,596
<GROSS-OPERATING-REVENUE> 181,739
<INCOME-TAX-EXPENSE> 12,195
<OTHER-OPERATING-EXPENSES> 142,738
<TOTAL-OPERATING-EXPENSES> 154,933
<OPERATING-INCOME-LOSS> 26,806
<OTHER-INCOME-NET> 591
<INCOME-BEFORE-INTEREST-EXPEN> 27,397
<TOTAL-INTEREST-EXPENSE> 6,777
<NET-INCOME> 20,620
0
<EARNINGS-AVAILABLE-FOR-COMM> 20,620
<COMMON-STOCK-DIVIDENDS> 5,981
<TOTAL-INTEREST-ON-BONDS> 6,163
<CASH-FLOW-OPERATIONS> 7,040
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.28
</TABLE>
