-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Tl32tSkweHMvm9bRVY6O8PHsWA7Qc6e7H2hXVlPE9Y00acOom3NfZonKbMXPGhEV RWDgr+peFxJX0tbFzS2glA== 0000310103-98-000004.txt : 19980218 0000310103-98-000004.hdr.sgml : 19980218 ACCESSION NUMBER: 0000310103-98-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980213 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONNECTICUT ENERGY CORP CENTRAL INDEX KEY: 0000310103 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 060869582 STATE OF INCORPORATION: CT FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08369 FILM NUMBER: 98537391 BUSINESS ADDRESS: STREET 1: 855 MAIN STREET CITY: BRIDGEPORT STATE: CT ZIP: 06604 BUSINESS PHONE: 8007607776 MAIL ADDRESS: STREET 1: 855 MAIN ST CITY: BRIDGEPORT STATE: CT ZIP: 06604 10-Q 1 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 December 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 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 Outstanding at February 6, 1998 - -------------------------- ------------------------------- Common Stock, $1 par value 10,230,431 PART 1. FINANCIAL INFORMATION CONNECTICUT ENERGY CORPORATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share) (Unaudited)
Three Months Ended Dec. 31, ---------------------- 1997 1996 ---- ---- Operating Revenues............................................ $ 76,507 $ 74,873 Purchased gas................................................. 42,476 40,309 --------- --------- Gross margin.................................................. 34,031 34,564 Operating Expenses: Operations.................................................. 12,789 13,148 Maintenance................................................. 938 915 Depreciation................................................ 4,240 3,911 Federal and state income taxes.............................. 4,496 3,353 Municipal, gross earnings and other taxes................... 2,202 4,231 --------- --------- Total operating expenses...................................... 24,665 25,558 --------- --------- Operating income.............................................. 9,366 9,006 Other (income) deductions, net................................ (57) 264 Interest Expense: Interest on long-term debt and amortization of debt issue costs....................................... 3,068 3,082 Other interest, net......................................... 189 251 --------- --------- Total interest expense........................................ 3,257 3,333 --------- --------- Net Income.................................................... $ 6,166 $ 5,409 ========= ========= Net income per share - Basic.................................. $ 0.64 $ 0.60 ========= ========= Net income per share - Diluted................................ $ 0.64 $ 0.60 ========= ========= Dividends paid per share...................................... $ 0.33 $ 0.33 ========= ========= Weighted average common shares outstanding during period - Basic....................................... 9,617,544 9,016,065 --------- --------- Weighted average common shares outstanding during period - Diluted..................................... 9,669,791 9,016,065 --------- --------- See Notes to Consolidated Financial Statements.
CONNECTICUT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share)
Dec. 31, Sept. 30, 1997 1997 --------- --------- (Unaudited) Assets - ------ Utility Plant: Gross utility plant........................................ $404,953 $399,675 Less: accumulated depreciation............................ 134,396 130,553 -------- -------- Net utility plant.......................................... 270,557 269,122 Nonutility property, net..................................... 4,036 3,343 -------- -------- Net utility plant and other property......................... 274,593 272,465 -------- -------- Current Assets: Cash and cash equivalents.................................. 7,133 6,644 -------- -------- Accounts receivable........................................ 50,490 32,127 Less: allowance for doubtful accounts................... 2,940 2,948 -------- -------- Net accounts receivable.................................. 47,550 29,179 -------- -------- Accrued utility revenues, net.............................. 7,691 2,541 Unrecovered purchased gas costs............................ 8,266 5,523 Inventories................................................ 13,931 12,606 Prepaid expenses........................................... 1,532 4,067 -------- -------- Total current assets......................................... 86,103 60,560 -------- -------- Deferred Charges and Other Assets: Unamortized debt expenses.................................. 5,979 6,038 Unrecovered deferred income taxes.......................... 42,925 42,929 Other...................................................... 43,951 42,289 -------- -------- Total deferred charges and other assets...................... 92,855 91,256 -------- -------- Total assets................................................. $453,551 $424,281 ======== ======== See Notes to Consolidated Financial Statements.
CONNECTICUT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share)
Dec. 31, Sept. 30, 1997 1997 --------- --------- (Unaudited) Capitalization and Liabilities - ------------------------------ Common Shareholders' Equity: Common Stock: authorized-20,000,000 shares, par value $1 per share, issued and outstanding--10,227,063 shares; 9,172,468 shares............................................. $ 10,227 $ 9,172 Capital in excess of par value............................... 118,564 94,540 Unearned Compensation........................................ (1,261) (1,068) Retained earnings............................................ 45,093 42,297 Adjustment for minimum pension liability (net of income taxes).............................................. (427) (427) -------- -------- Total common shareholders' equity.............................. 172,196 144,514 -------- -------- Long-term debt................................................. 134,073 134,073 -------- -------- Total capitalization........................................... 306,269 278,587 -------- -------- Current Liabilities: Short-term borrowings........................................ 25,900 31,400 Current maturities of long-term debt......................... 4,654 4,654 Accounts payable............................................. 16,109 12,609 Federal, state and deferred income taxes..................... 7,684 5,017 Other accrued taxes.......................................... 3,675 4,567 Interest payable............................................. 2,803 3,499 Customers' deposits.......................................... 1,878 1,718 Refunds due customers........................................ 3,456 2,627 Other........................................................ 4,362 3,892 -------- -------- Total current liabilities...................................... 70,521 69,983 -------- -------- Deferred Credits: Deferred income taxes and investment tax credits............. 68,219 67,893 Other........................................................ 8,542 7,818 -------- -------- Total deferred credits......................................... 76,761 75,711 -------- -------- Total capitalization and liabilities........................... $453,551 $424,281 ======== ======== See Notes to Consolidated Financial Statements.
CONNECTICUT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited)
Three Months Ended Dec. 31, ---------------------- 1997 1996 ---- ---- Net cash used by operating activities...................... $ (9,463) $(8,857) -------- ------- Cash Flows from Investing Activities: Capital expenditures..................................... (6,360) (5,924) Contributions in aid of construction..................... 16 28 Payments for retirement of utility plant................. (47) (113) Energy ventures.......................................... 327 --- -------- ------- Net cash used by investing activities...................... (6,064) (6,009) -------- ------- Cash Flows from Financing Activities: Dividends paid on common stock........................... (3,370) (2,975) Issuance of common stock................................. 24,886 616 (Decrease) Increase in short-term borrowings............. (5,500) 17,900 -------- ------- Net cash provided by financing activities.................. 16,016 15,541 -------- ------- Net increase in cash and cash equivalents.................. 489 675 Cash and cash equivalents at beginning of period........... 6,644 5,121 -------- ------- Cash and cash equivalents at end of period................. $ 7,133 $ 5,796 ======== ======= Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest................................................. $ 4,130 $ 4,223 Income taxes............................................. $ 1,500 $ --- See Notes to Consolidated Financial Statements.
CONNECTICUT ENERGY CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands) (Unaudited) 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, 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. 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. 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 December 31, 1997 and September 30, 1997 of $64,426 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. 3. Due to the seasonal nature of gas sales for space heating purposes by Southern, the results of operations for the three months ended December 31, 1997 are not indicative of the results to be expected for the fiscal year ending September 30, 1998. 4. Deferred charges and other assets include amounts related to the following: Dec 31, Sept. 30, As of 1997 1997 - ----------------------------------------------------------------------------- Conservation costs $ 5,032 $ 4,881 Energy assistance funding shortfall 732 882 Environmental evaluation costs 668 718 Gas holder costs 246 308 Hardship heating customer accounts receivable arrearages 13,657 13,439 Hardship heating customer assistance grant program 2 634 Investment in energy ventures 2,458 3,418 Nonqualified benefit plans 2,451 2,302 Prepaid pension and postretirement medical contributions 15,047 13,228 Other 3,658 2,479 ------- ------- $43,951 $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. 5. Deferred credits include amounts related to the following: Dec. 31, Sept. 30, As of 1997 1997 - ----------------------------------------------------------------------------- Economic development initiatives $1,337 $1,339 Insurance reserves 1,363 1,122 Interruptible margin sharing 870 877 Nonqualified benefit plans 3,110 2,961 Other 1,862 1,519 ------ ------ $8,542 $7,818 ====== ====== 6. 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. 7. 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. 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 months ended December 31, 1997 and 1996 is detailed below: Three Months Ended December 31, ------------------ (in thousands, except per share) 1997 1996 ---- ---- Net Income $6,166 $5,409 ====== ====== Net income per share - Diluted $ 0.64 $ 0.60 ====== ====== Weighted average common shares outstanding - Diluted 9,670 9,016 ------ ------ Net income for the three months ended December 31, 1997 increased approximately 14% compared to the three months ended December 31, 1996 principally due to lower total operating expenses as well as higher non-operating 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 months ended December 31, 1997 were 11,001 MMcf, a decrease of approximately 7% compared to the corresponding 1996 period. This decrease was primarily attributable to lower on-system interruptible sales and off-system transportation volumes and was partially offset by higher firm transportation and off-system sales volumes. Firm Sales and Transportation Volumes - ------------------------------------- Firm sales and transportation volumes for the three months ended December 31, 1997 increased approximately 3% compared to the corresponding 1996 period. The increase was primarily due to service under Southern's firm transportation tariffs, growth in Southern's customer base and the conversions of nonheating customers to heating customers. 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 months ended December 31, 1997 and 1996: Three Months Ended December 31, ------------------ (dollars in thousands) 1997 1996 ---- ---- Gross margin earned $2,398 $3,396 ====== ====== Gross margin retained $ 699 $1,072 ====== ====== Volumes sold and transported (MMcf) 3,950 4,961 ------ ------ 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 months ended December 31, 1997 compared to the corresponding 1996 period principally due to the competitive price of other energy sources compared to natural gas. Volumes for the three months ended December 31, 1997 were lower compared to the corresponding 1996 period primarily because of decreases in on-system interruptible sales and off-system transportation volumes due to the reason previously mentioned. An increase in off-system sales activity partially offset this decrease. Gross Margin - ------------ The Company's gross margin for the three months ended December 31, 1997 was approximately 2% lower compared to the corresponding 1996 period. This decrease was principally attributed to slightly lower firm and interruptible 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 months ended December 31, 1997 was approximately 6% colder than normal, the operation of the WNA returned approximately $1,475,000 to firm customers. This compares to a return to firm customers during the three months ended December 31, 1996 of approximately $50,000. 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 months ended December 31, 1997 and 1996 by approximately $4,516,000 and $1,286,000, respectively. Operations Expense - ------------------ Operations expense for the three months ended December 31, 1997 decreased approximately 3% compared to the corresponding 1996 period primarily due to lower expense for labor, 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 costs. Partially offsetting the impact of these decreases were increased costs related to outside services, regulatory commission expense and certain other general and administrative expenses. Depreciation Expense - -------------------- Depreciation expense for the three months ended December 31, 1997 increased approximately 8% compared to the corresponding 1996 period. The increase was 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 months ended December 31, 1997 increased approximately 34% compared to the corresponding 1996 period. This increase was primarily due to higher pre-tax income. Additionally, the tax treatment of conservation expenditures, uncollectibles and the inability to make tax-deductible employee benefit plan contributions contributed to the increase. Municipal, Gross Earnings and Other Taxes - ----------------------------------------- Municipal, gross earnings and other taxes decreased approximately 48% for the three months ended December 31, 1997 compared to the corresponding 1996 period. This 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. Other (Income) Deductions, Net - ------------------------------ Other income for the three months ended December 31, 1997 was higher compared to the corresponding 1996 period primarily due to the contribution to earnings by one of the Company's nonutility subsidiaries in the 1997 quarter compared to a net loss in the 1996 quarter and an increase in investment income related to nonqualified employee benefit plans. Interest Expense - ---------------- Total interest expense decreased approximately 2% for the three months ended December 31, 1997 compared to the corresponding 1996 period primarily due to higher interest income on unrecovered purchased gas costs. The increase in interest income was partially offset by higher interest expense on margin sharing balances. 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 Southern Energy/Southern Total - ----------------------------------------------------------------------------------------------------- As of December 31, 1997: Committed lines $5,000,000 $32,000,000 --- $37,000,000 Uncommitted lines --- $10,000,000 $10,000,000 $20,000,000
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 December 31, 1997, the Company had unused lines of credit of $31,100,000. Because of the availability of short-term credit and the ability to issue long-term debt and additional equity, management believes it has adequate financial flexibility to meet its anticipated cash needs. Operating cash flows for the three months ended December 31, 1997 compared to the corresponding 1996 period were negatively impacted by higher accounts receivable balances and a smaller comparative increase in accounts payable balances. Also contributing to the reduction in operating cash flows in the 1997 period was a decrease in 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. The increase in cash requirements in the 1997 period was partially offset by a lower comparative increase in unrecovered purchased gas costs balances in contrast to the three months ended December 31, 1996. Investing Activities - -------------------- Capital expenditures approximated $6,344,000 and $5,896,000 for the three months ended December 31, 1997 and 1996, 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. One of the Company's nonutility subsidiaries, CNE Energy Services Group ("CNE Energy"), has received approval for a Certificate of Public Convenience and Necessity from the Federal Energy Regulatory Commission ("FERC"). The certificate would allow CNE Energy to operate the liquefied natural gas facility, which is currently part of Southern's regulated operations, as a storage and peaking plant for CNE Energy's customers. The original partner for the venture, PanEnergy Plus Milford Ventures Company, has found this relationship is no longer consistent with its business strategies. As a result, CNE Energy expects to announce a new venture partner within the next few months. CNE Energy will be filing tariffs with the FERC and waiting for its approval before operating the plant. 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 intends to confer with officials of the DEP and the Department of Transportation 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, 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, 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 1, 2, 3, 4 and 5 are inapplicable. Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: Exhibit 10 - Executive Compensation Plans and Arrangements The Southern Connecticut Gas Company Board of Directors Retirement Plan, effective October 1, 1997, is filed herewith at pages 20 to 23. Exhibit 27 - Financial Data Schedule Submitted only in electronic format to the Securities and Exchange Commission. (b) Reports on Form 8-K: Form 8-K, dated November 12, 1997, concerning the Company's fiscal 1997 results of operations was filed with the Commission on November 12, 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONNECTICUT ENERGY CORPORATION (Registrant) Date: February 13, 1998 /s/ Vincent L. Ammann, Jr. ----------------- ----------------------------- Vincent L. Ammann, Jr. Vice President and Chief Accounting Officer EX-10 2 THE SOUTHERN CONNECTICUT GAS COMPANY BOARD OF DIRECTORS RETIREMENT PLAN The retirement plan set forth herein is known as The Southern Connecticut Gas Company Board of Directors Retirement Plan (the "Plan"). The Plan shall be effective October 1, 1997 and shall continue in effect until amended, superseded or terminated as provided for herein. 1. Definitions: The following terms when used in this Plan with initial capital letters shall have the meanings assigned to them below: (a) "Annual Retainer" means the annual retainer payable to members of the Board of Directors during the Plan Year in which the Eligible Director retires from membership on the Board of Directors. (b) "Change in Control" of the Company shall be deemed to have occurred if: (i) Less than 2/3 of the total membership of the Board of Directors of the Company shall be Continuing Directors; or (ii) 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 Corporation's assets. In connection with this definition of "Change in Control," the capitalized terms in the definition are defined as follows: (a) "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 20% of the voting securities of the Company; (b) "Affiliate" and "Associate" shall have the meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Exchange Act; (c) "Continuing Director" means any member of the Board of Directors of the Company who was a member of the Board on October 1, 1997 and any successor of that Continuing Director while such successor is a member of the Board of Directors of the Company and who is not an Acquiring Person or an Affiliate or Associate of any Acquiring Person and who is elected to succeed the Continuing Director by a majority of the Continuing Directors; and (d) "Person" shall have the meaning assigned to it in Section 13(d) and 14(d) of the Exchange Act. (c) "Code" means the Internal Revenue Code of 1954, as amended. All references to any section of the Code shall be deemed to refer not only to such section but also to any amendment thereof and any successor statutory provision. (d) "Company" means The Southern Connecticut Gas Company and any person, firm or corporation which may succeed to the business of the Company by merger, consolidation or otherwise and which, by appropriate action, shall adopt the Plan. (e) "Effective Date" means October 1, 1997. (f) "Eligible Director" means a member of the Board of Directors of the Company eligible to receive payments in accordance with the terms of the Plan. (g) "Plan" means The Southern Connecticut Gas Company Board of Directors Retirement Plan and as it may hereafter be amended. (h) "Plan Year" means the fiscal year October 1 - September 30. (i) "Retirement Date" means the date on which the Eligible Director retires from the Board of Directors of the Company. 2. Eligibility: If an individual, duly elected to the Board of Directors of the Company, receives a retainer as a Director for ten (10) full years, has attained the age of at least 60 and is sitting as a Director at his or her Retirement Date, such individual shall be an Eligible Director entitled to retire and receive payments in accordance with the terms of this Plan. 3. Payments: An Eligible Director shall receive an annual payment, payable in monthly installments commencing on the first day of the month following his or her Retirement Date, of an amount equal to the Annual Retainer payable to Directors during the Plan Year in which the Eligible Director retires; provided, however, that in no case shall the retiring Eligible Director be paid an annual payment in excess of the Annual Retainer paid to such Director during the Plan Year in which such Director attained the age of 65. Such retirement payments shall continue for a period of ten (10) years from his or her Retirement Date or the life of the Eligible Director, whichever is shorter. If a Director dies before payments under this Plan are to be made, the Director's estate shall have no claim on any amounts accrued for such Director. 4. Accrual of Payments, Funding and Trust Accounting: The Company shall accrue on a monthly basis the total amount of the monthly payments to be paid to Eligible Directors calculated on the net present value due and owing to each Eligible Director. Such amounts shall be a credit to a special account on the Company's books designated "Directors' Retirement Account." The Company shall not be required to fund or otherwise segregate assets for the payments to Eligible Directors. Notwithstanding the foregoing, the Company shall establish a trust fund (or amend an existing trust fund) (the "Trust"). The Company shall contribute an amount that it determines to be sufficient to actuarially fund the Eligible Directors' monthly payments under this Plan. The Company shall review such funding levels once a year as of January 1 and, if needed to maintain the funding on a sound actuarial basis, increase or decrease the level of funding. The Trust shall be a "rabbi trust" and shall be embodied in a trust agreement with an institutional trustee (the "Trustee"). Payments to Eligible Directors shall be paid from the funds in the "rabbi trust" by the Trustee to the extent not paid by the Company. The Trustee shall establish an account (an "Account") for this Plan to which shall be credited annually the Company's total contribution to be made pursuant to this Section 4. The account shall be credited with interest as earned, including realized and unrealized investment gains and losses. The establishment of the Account is solely for accounting and funding purposes and shall not otherwise restrict the use of the funds in the Trust. The Trust may contain funds contributed to the Directors Retirement Plan that became effective on October 1, 1992. 5. Directors' Contributions: This Plan is a non-contribution retirement plan. 6. Qualification of Plan: This Plan is a non-qualified plan as defined in Sections 401(a) and 501(a) of the Code. 7. Restrictions on Transfers: No Eligible Director shall assign, transfer or pledge any right or claim which such Eligible Director may have under this Plan. 8. Successors to Company: This Plan shall inure to the benefit of and be enforceable by a Director, his or her heirs, executors, administrators, successors and assigns. This Plan shall be binding upon the Company and its successors and assigns. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of its business and/or assets expressly to assume all obligations under the Plan and agree to administer and make all payments under the Plan in accordance with its terms. 9. Accounting: The Company, at no cost to Eligible Directors, shall annually, or at other times deemed appropriate by the Company's management, retain the services of counsel, independent accountants and actuaries to assure that the accounting accruals are consistent with the terms of this Plan and applicable laws. To the extent permitted by law, the Company shall be entitled to rely upon all tables, valuations, certificates, opinions and reports furnished by any actuary, accountant, counsel or other person(s) employed or engaged for such purposes. 10. Expenses of Administration: All expenses that shall arise in connection with the administration of the Plan including, but not limited to, the compensation of any actuary, accountant, counsel, other experts or other person who shall be appointed by the Company in connection with the administration thereof, shall be paid by the Company. 11. Amendment: Prior to a Change in Control of the Company, the Company reserves the right to amend, modify, suspend or terminate the Plan by action of its Board of Directors, provided, however, that no such action shall operate to recapture for the Company any payments previously made to an Eligible Director under the Plan, nor, except to the extent necessary to meet the requirements of any governmental authority, to deprive an Eligible Director of any benefit due such Eligible Director under the Plan. After the occurrence of a Change of Control, this Plan may not be amended in any way that would adversely affect or deprive an Eligible Director of benefits under the Plan. 12. Notices: Any notices required or permitted to be given under this Plan shall be in writing and shall be deemed to have been given when delivered, or when mailed, if mailed by registered or certified mail, return receipt requested to the respective addresses of the Company and Eligible Director or to such other address as any party hereto shall designate to the other party in writing. 13. Severability: The provisions of the Plan are severable. The invalidity or unenforceability of any provision of the Plan shall not affect the validity or enforceability of any other provision. 14. Governing Law: This Plan shall be governed by and interpreted in accordance with the substantive of laws of the State of Connecticut, except as any such laws may be preempted by federal law. 15. Prior Director Retirement Plan: This Plan supersedes and replaces the Company's Board of Directors Retirement Plan that became effective on October 1, 1992. EX-27 3
UT 1,000 3-MOS SEP-30-1998 DEC-31-1997 PER-BOOK 270,557 4,036 86,103 92,855 0 453,551 10,227 118,564 45,093 172,196 0 0 134,073 25,900 0 0 4,654 0 0 0 116,728 453,551 76,507 4,496 62,645 67,141 9,366 57 9,423 3,257 6,166 0 6,166 3,370 3,068 (9,463) 0.64 0.64
-----END PRIVACY-ENHANCED MESSAGE-----