-----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, I4lzXgdt6NAohsVngJrVsNM/7/+QLuH77jALE3iJI+gPXSGyFglok96SPOLpF/L9 IAhK4pjSKsWcWQ8EZxWCqQ== 0000310103-99-000004.txt : 19990211 0000310103-99-000004.hdr.sgml : 19990211 ACCESSION NUMBER: 0000310103-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990210 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: 99527074 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, 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 Outstanding at February 5, 1999 -------------------------- ------------------------------- Common Stock, $1 par value 10,350,638
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, ------------------- 1998 1997 ---- ---- Operating Revenues $ 61,594 $ 76,507 Purchased gas 27,784 42,476 ---------- --------- Gross margin 33,810 34,031 Operating Expenses: Operations 12,443 12,789 Maintenance 875 938 Depreciation 4,551 4,240 Federal and state income taxes 3,515 4,496 Municipal, gross earnings and other taxes 3,130 2,202 ---------- --------- Total operating expenses 24,514 24,665 ---------- --------- Operating income 9,296 9,366 Other (income) deductions, net (168) (57) Interest Expense: Interest on long-term debt and amortization of debt issue costs 3,213 3,068 Other interest, net 156 189 ---------- --------- Total interest expense 3,369 3,257 ---------- --------- Net Income $ 6,095 $ 6,166 ========== ========= Net income per share - basic $ 0.60 $ 0.64 ========== ========= Net income per share - diluted $ 0.59 $ 0.64 ========== ========= Dividends paid per share $ 0.335 $ 0.33 ---------- --------- Weighted average common shares outstanding during period - basic 10,239,517 9,617,544 ---------- --------- Weighted average common shares outstanding during period - diluted 10,331,531 9,669,791 ---------- --------- See Notes to Consolidated Financial Statements.
CONNECTICUT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Dollars in thousands) (Unaudited) Three Months Ended December 31, ------------------- 1998 1997 ---- ---- Net Income $6,095 $6,166 ------ ------ Other comprehensive income, net of taxes: Minimum pension liability adjustment (473) (427) ------ ------ Total other comprehensive income (473) (427) ------ ------ Comprehensive Income $5,622 $5,739 ====== ====== See Notes to Consolidated Financial Statements.
CONNECTICUT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share) Dec. 31, Sept. 30, 1998 1998 -------- -------- (Unaudited) Assets - ------ Utility Plant: Gross utility plant $413,152 $412,715 Less: accumulated depreciation 139,673 137,493 -------- -------- Net utility plant 273,479 275,222 Nonutility property, net 7,379 4,526 -------- -------- Net utility plant and other property 280,858 279,748 -------- -------- Current Assets: Cash and cash equivalents 8,100 10,091 -------- -------- Accounts receivable 42,056 28,986 Less: allowance for doubtful accounts 2,396 2,065 -------- -------- Net accounts receivable 39,660 26,921 -------- -------- Accrued utility revenues, net 6,221 2,511 Unrecovered purchased gas costs 7,953 2,529 Inventories 6,641 10,491 Prepaid expenses 4,478 5,863 -------- -------- Total current assets 73,053 58,406 -------- -------- Deferred Charges and Other Assets: Unamortized debt expenses 10,773 10,841 Unrecovered deferred income taxes 49,775 49,800 Other 61,738 60,606 -------- -------- Total deferred charges and other assets 122,286 121,247 -------- -------- Total assets $476,197 $459,401 ======== ======== See Notes to Consolidated Financial Statements.
CONNECTICUT ENERGY CORPORATION CONSOLIDATED BALANCE SHEETS (Dollars in thousands, except per share) Dec.31, Sept. 30, 1998 1998 -------- -------- (Unaudited) Capitalization and Liabilities - ------------------------------ Common Shareholders' Equity: Common stock: authorized-20,000,000 shares, par value $1 per share, issued and outstanding--10,347,988 shares; 10,289,692 shares $ 10,348 $ 10,290 Capital in excess of par value 121,855 119,961 Unearned compensation (1,487) (310) Retained earnings 50,306 47,685 Adjustment for minimum pension liability (net of income taxes) (473) (473) -------- -------- Total common shareholders' equity 180,549 177,153 -------- -------- Long-term debt 150,007 150,007 -------- -------- Total capitalization 330,556 327,160 -------- -------- Current Liabilities: Short-term borrowings 29,800 22,400 Current maturities of long-term debt 1,321 1,321 Accounts payable 12,198 10,499 Federal, state and deferred income taxes 4,291 1,537 Other accrued taxes 2,919 2,024 Interest payable 2,557 3,386 Customers' deposits 1,756 1,627 Refunds due customers 360 454 Other 5,351 4,886 -------- -------- Total current liabilities 60,553 48,134 -------- -------- Deferred Credits: Deferred income taxes and investment tax credits 75,779 75,568 Other 9,159 8,389 -------- -------- Total deferred credits 84,938 83,957 -------- -------- Commitments and contingencies 150 150 -------- -------- Total capitalization and liabilities $476,197 $459,401 ======== ======== See Notes to Consolidated Financial Statements.
CONNECTICUT ENERGY CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Three Months Ended December 31, ------------------ 1998 1997 ---- ---- Net cash provided (used) by operating activities $ 716 $(9,463) ------- ------- Cash Flows from Investing Activities: Capital expenditures (5,741) (6,360) Contributions in aid of construction 26 16 Payments for retirement of utility plant (10) (47) Investment in special contract distribution main (367) --- Energy ventures (1,316) 327 ------- ------- Net cash used by investing activities (7,408) (6,064) ------- ------- Cash Flows from Financing Activities: Dividends paid on common stock (3,474) (3,370) Issuance of common stock 775 24,886 Increase (decrease) in short-term borrowings 7,400 (5,500) ------- ------- Net cash provided by financing activities 4,701 16,016 ------- ------- Net (decrease) increase in cash and cash equivalents (1,991) 489 Cash and cash equivalents at beginning of period 10,091 6,644 ------- ------- Cash and cash equivalents at end of period $ 8,100 $ 7,133 ======= ======= Supplemental Disclosures of Cash Flow Information Cash paid during the period for: Interest $ 4,316 $ 4,130 Income taxes $ 500 $ 1,500 Supplemental Schedule of Noncash Investing and Financing Activities: On October 1, 1998, 39,767 shares of unregistered common stock were issued pursuant to the Company's Restricted Stock Award Plan. See Notes to Consolidated Financial Statements.
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, 1998 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 December 31, 1998 and September 30, 1998 of $77,390 and $74,955, 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 local gas distribution companies ("LDCs") for the use of their distribution systems. Southern is one of three Connecticut LDCs whose firm transportation rates are designed to provide the same margins earned from bundled services. Because the 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: Dec. 31, Sept. 30, As of 1998 1998 - ----------------------------------------------------------------------------- Conservation costs $ 4,846 $ 5,004 Energy assistance funding shortfall --- 262 Environmental evaluation costs 501 684 Gas holder costs --- 62 Hardship heating customer accounts receivable arrearages 16,561 16,399 Hardship heating customer assistance grant program 1,299 1,748 Investment in energy ventures 5,511 4,195 Investment in special contract distribution main 11,761 11,394 LNG facility 225 207 Nonqualified benefit plans 3,022 3,023 Prepaid pension and postretirement medical contributions 14,207 14,207 Other 3,805 3,421 ------- ------- $61,738 $60,606 ======= ======= 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 Deferred credits include amounts related to the following: Dec. 31, Sept. 30, As of 1998 1998 - ----------------------------------------------------------------------------- Economic development initiatives $ 747 $ 397 Insurance reserves 1,260 1,153 Interruptible margin sharing 1,320 1,210 Nonqualified benefit plans 3,721 3,522 Other 2,111 2,107 ------ ------ $9,159 $8,389 ====== ====== Utility Operating Results 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, 1998 are not indicative of the results to be expected for the fiscal year ending September 30, 1999. Common Shareholders' Equity On October 1, 1998, 39,767 shares of unregistered common stock were issued to six senior officers pursuant to the Company's Restricted Stock Award Plan. The purpose of the Restricted Stock Award Plan is to motivate participants to work toward achieving corporate objectives beneficial to the Company and its shareholders by awarding them shares of common stock which become vested upon achievement of the objectives. The total number of shares that may be issued under the Restricted Stock Award Plan may not exceed 300,000. This number is subject to adjustment to prevent the dilution or enlargement of any rights of any participant with respect to his or her stock. Such shares are exempt from registration pursuant to Section 4(2) of the Securities Act of 1933. Recent Accounting Developments Effective October 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement establishes standards for reporting and presentation of comprehensive income and its components in general purpose financial statements and requires that all items required to be recognized under accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. 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, 1998 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 annual report to shareholders 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 - ---------- The Company's consolidated net income for the three months ended December 31, 1998 and 1997 is detailed below: Three Months Ended December 31, ------------------ (in thousands, except per share) 1998 1997 ---- ---- Net income $6,095 $6,166 ====== ====== Net income per share - diluted $ 0.59 $ 0.64 ====== ====== Weighted average common shares outstanding - diluted 10,332 9,670 ------ ------ Net income for the three months ended December 31, 1998 was approximately 1% lower than the corresponding 1997 period principally due to lower firm and interruptible margins, higher depreciation expense and higher interest expense on long-term debt than last year. Also, earnings for the three months ended December 31, 1997 reflected the positive impact of a change in the method of accounting for property taxes by the Company's principal subsidiary, The Southern Connecticut Gas Company ("Southern"), as required by a Connecticut Department of Public Utility Control ("DPUC") Decision. The decrease in net income for the 1998 period compared to last year was partially offset by new revenues generated by a contract to transport natural gas to an electric generating plant in Bridgeport, lower operations and maintenance expenses, lower state and federal income taxes and a contribution to earnings by the Company's nonutility subsidiaries. Results for both 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 for the three months ended December 31, 1998 were approximately 9,064 MMcf, representing a decrease of approximately 18% compared to the corresponding 1997 period. Decreases in firm sales and interruptible sales and transportation volumes, including off-system categories, were primarily attributable to warmer weather and the competitive price of other energy sources compared to natural gas. Higher firm transportation and new firm contract volumes during the three months ended December 31, 1998 partially offset the overall decrease in total sales and transportation volumes. Firm Sales, Firm Transportation and Firm Contract Volumes - --------------------------------------------------------- The Company's firm volumes for the three months ended December 31, 1998 increased approximately 1% compared to the corresponding 1997 period. This was primarily due to an increase in firm transportation volumes, new firm contract volumes generated by a contract to transport natural gas to an electric generating plant in Bridgeport and the continued growth in Southern's customer base. The overall increase in this category was partially offset by lower firm sales volumes primarily due to weather that was approximately 15% warmer than in the quarter ended December 31, 1997 as well as by slightly lower usage per customer. 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 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. Gross margin retained represents the difference between gross margin earned and margin to be allocated through the margin sharing mechanism. 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, 1998 and 1997: Three Months Ended December 31, ------------------ (dollars in thousands) 1998 1997 ---- ---- Gross margin earned $1,858 $2,398 ====== ====== Gross margin retained $ 471 $ 699 ====== ====== Volumes sold and transported (MMcf) 1,968 3,950 ------ ------ Gross margin earned and retained by Southern was lower for the three months ended December 31, 1998 compared to the corresponding 1997 period principally due to the competitive price of other energy sources compared to natural gas. This was also the principal reason for lower interruptible volumes than last year. Gross Margin - ------------ The Company's gross margin for the three months ended December 31, 1998 was approximately 1% lower compared to the corresponding 1997 period. This decrease was principally attributed to both lower firm and interruptible margins. New revenues generated by a contract to transport natural gas to an electric generating plant in Bridgeport, which began operations in July 1998, partially offset the decrease in gross margin. Southern's firm rates include a Weather Normalization Adjustment ("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, 1998 was approximately 9% warmer than normal, the operation of the WNA collected approximately $2,034,000 from firm customers. This compares to a return to firm customers of approximately $1,475,000 during the three months ended December 31, 1997. 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, 1998 and 1997 by approximately $532,000 and $4,516,000, respectively. Operations Expense - ------------------ Operations expense for the three months ended December 31, 1998 decreased approximately 3% compared to the three months ended December 31, 1997. The decrease was primarily due to lower lease payments due to the sublease of the liquefied natural gas facility to Total Peaking Services, LLC, the joint venture of one of the Company's nonutility subsidiaries, CNE Energy Services Group, Inc. Also contributing to the decrease in operations expense was a lower provision for uncollectibles, lower premiums for general insurance and lower regulatory commission expense. Higher expenses for certain employee benefit plans and outside collection agencies partially offset the overall decrease in operations expense compared to last year. Depreciation Expense - -------------------- Depreciation expense for the three months ended December 31, 1998 increased approximately 7% compared to the corresponding 1997 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 decreased approximately 22% for the three months ended December 31, 1998 compared to the three months ended December 31, 1997 primarily due to lower pre-tax income and a lower statutory state income tax rate. Municipal, Gross Earnings and Other Taxes - ----------------------------------------- Municipal, gross earnings and other taxes were approximately 42% higher for the three months ended December 31, 1998 compared to the corresponding 1997 period primarily due to the DPUC Decision which required Southern to change its accounting treatment for accruing property taxes in fiscal 1998. The stipulations in the Decision ordered Southern to reduce its reserve for property taxes by approximately $3,722,000, with 50%, or approximately $1,861,000, flowing through as a one-time reduction to property tax expense and the remaining 50% refunded to firm customers through the operation of the PGA in three equal amounts during the second quarter of fiscal 1998. Lower gross earnings tax due to lower revenues for the three months ended December 31, 1998 compared to the three months ended December 31, 1997 partially offset the overall increase in municipal, gross earnings and other taxes. Interest Expense - ---------------- Total interest expense increased approximately 3% for the three months ended December 31, 1998 compared to the corresponding 1997 period primarily due to an increase in long-term debt related to the financing of the construction of distribution facilities to transport natural gas to an electric generating plant in Bridgeport. The increase in total interest expense was partially offset by lower short-term interest expense related to pipeline refunds not yet returned to firm customers and by lower short-term interest expense related to lower average short-term borrowings. Year 2000 Readiness Disclosure - ------------------------------ General Like other companies which use business-application software programs and rely on a computing infrastructure that includes embedded systems, the so-called Year 2000 issue also affects the Company and its subsidiaries. Certain of the Company's software programs and computing infrastructure that use two-digit years, rather than four-digit years, to define the applicable year may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in the computer or device shutting down, performing incorrect computations or performing inconsistently. In 1996, the Company began a project to address Year 2000 issues. It has been implementing individual strategies targeted at the specific nature of the Year 2000 issues in each of the following areas: (1) business-application systems, (2) embedded systems, (3) vendor and supplier relationships, (4) customers and (5) contingency planning. The Company's Year 2000 project is proceeding on schedule. To coordinate its comprehensive Year 2000 program, the Company established a Year 2000 Task Force, chaired by the Vice President, General Counsel and Secretary who reports directly to the Chairman and Chief Executive Officer. The Year 2000 Task Force includes executive management and employees with expertise from various disciplines including, but not limited to, information technology, operations, customer service, marketing, engineering, finance, facilities and communications, internal audit, purchasing and law. In addition, the Company has utilized the expertise of outside consultants to assist in the implementation of the Year 2000 program in such areas as project initiation and planning, business-application system inventory and analysis, business-application system remediation, business-application system replacement, and embedded systems inventory and analysis. The Company's principal subsidiary, Southern, is subject to regulation from the DPUC, among other governmental agencies. At the DPUC's request, Southern has previously reported the progress of its Year 2000 program to the DPUC on three separate occasions. On October 23, 1998, the DPUC announced that it was seeking to engage the services of a consultant to perform an audit of the computer systems at all of Connecticut's major utility companies, including Southern, to assess their readiness to handle the changeover to the year 2000. On January 28, 1999, the DPUC announced that it has retained the services of the consultant to perform a due diligence study of the Company's Year 2000 Readiness. The Company is scheduled to meet with the DPUC and its consultant in February 1999 to begin this review. Business-Application Systems In March 1997, the Company completed its inventory and assessment of all of its business-application systems. This assessment has assisted management in developing a remediation plan consisting of replacing certain equipment, modifying certain software to recognize the turn of the century, replacing certain software systems with new systems that, in addition to providing additional business management information, recognize four-digit years, and eliminating certain software and equipment. By July 31, 1998, the Company had completed modifications to all of its Financial, Accounting, Purchasing, Inventory Control and Work Management business applications targeted for version upgrade by use of internal staff and outside resources. The Company has tested and placed back into the production environment business applications for the above-mentioned business functions. The Company has determined that additional testing is required and this testing is scheduled to be completed by March 31, 1999. The Company initiated a project to update the Payroll and Human Resources business-application systems to the Year 2000 Compliant versions of the software. This project should be completed in the spring of 1999. In December 1997, the Company began a project to replace its Customer Information System with a vendor supplied business-application system. The project uses internal staff, resources from the system vendor and resources from outside business-application system consultants. The system is installed on a computer central processing unit and is being tested at the present time. The project plan includes a scheduled completion in April 1999 when the system is installed in a production environment. In September 1998, the Company began a project to upgrade the existing System Control and Data Acquisition System, which is used to monitor the flow of gas throughout the Company's distribution system, with a version that is Year 2000 compliant. The project is complete, tested and the system is Year 2000 ready. In August 1998, the Company began a project to upgrade the existing Field Service Management system, which is used to assign and dispatch service technicians, with a version that is Year 2000 compliant. The project should be completed in April 1999. In January 1998, the Company completed a project to upgrade all of the Personal Computer ("PC") software and Network software with versions that are Year 2000 compliant. As part of this project, all of the Company's PCs were upgraded or replaced and all of the Company's servers were upgraded or replaced. In January 1999, all of the Company's PCs were checked for Year 2000 readiness and some software modifications were completed as needed. The Company's supplier of desktop and network operating systems, Microsoft, has recently disclosed that certain versions of this project's software must be upgraded to the latest versions. These upgrades will be completed by May 1, 1999 at no additional cost to the Company. Embedded Systems The Company performed a review of its equipment that includes embedded systems. This review identified a number of components that are potentially date sensitive. The Company has contacted manufacturers of those components that it has identified as critical to operations and continues to contact other manufacturers of embedded components to determine whether their components are Year 2000 compliant. A test plan has been developed and will be executed in early 1999 to test the gas distribution network for embedded systems. The Company tested mission critical functions related to gas control and distribution and confirmed that the embedded systems related to measuring and monitoring gas flow are Year 2000 compliant. While additional testing will continue through the spring of 1999 on embedded systems to confirm readiness, the Company believes its gas control and distribution systems are now Year 2000 compliant. The Company also plans to test the equipment associated with its LNG operations to ensure that it is Year 2000 compliant. The quality of the responses received from manufacturers of other equipment, the estimated impact of the individual system on the Company and the ability of the Company to perform meaningful tests will influence its decision to conduct independent testing of embedded systems. Vendors and Suppliers The Company has contacted, in writing, vendors and suppliers of products and services that it considers critical to its operations. These contacts have included suppliers of interstate transportation capacity, natural gas producers, financial institutions, and electric, telephone and water companies. The quality of the responses received from vendors and suppliers is not uniform. As a result, the Company will continue to work with these vendors and suppliers to determine their level of Year 2000 compliance. The Company will evaluate the degree of its vendors' and suppliers' readiness and, to the extent the Company cannot test or verify readiness, it will develop a contingency plan which may include considering new business relationships with alternate providers of products and services as necessary and to the extent alternatives are available. With respect to those vendors and suppliers identified by the Company as critical to the Company's operations, the Company is preparing to conduct interviews with each vendor or supplier to review survey responses and investigate individual vendor or supplier readiness. These interviews are expected to be completed by March 1999. Customers The Company has no single customer, residential, commercial or industrial, which generates a material portion of the Company's annual revenues. The Company does not currently have complete information concerning the Year 2000 compliance status of its major customers, but has received indications that many of its customers are working on Year 2000 compliance. The Company identified its major firm, interruptible and transportation customers and communicated with these major customers to attempt to identify their level of Year 2000 compliance. The Company reminded them about potential vulnerability of application systems and of embedded systems. The Company informed them that they should assess the need to include potential remediation and/or replacement of these systems as part of their Year 2000 programs. This activity was completed as of December 15, 1998. Because the responses to the Company's major customer surveys are not complete, the Company now plans to make personal contacts with each of its major customers to exchange Year 2000 readiness information during the spring of 1999. Contingency Planning The Company's Year 2000 strategies include contingency planning, encompassing business continuity both within the Company and in the external business environment. The planning effort includes critical Company areas such as computing, networks, vendors and suppliers, operations, personnel, and business systems as well as systems and infrastructure external to the Company. All of the members of the Company's senior management team are participating in various aspects of the Company's contingency planning efforts. As part of its normal business practice, the Company maintains plans to follow during emergency circumstances, some of which could arise from Year 2000-related problems. Its contingency planning for the Year 2000 will address various alternatives and will include assessing a variety of scenarios that could emerge which will require the Company to react. Presently, the Company continues to develop its contingency plans for potential Year 2000-related problems. The Company plans to complete its contingency plan in March 1999. Potential Risks The Company believes the most significant potential risks to its internal operations are as follows: (1) the ability to use electronic devices to control and operate its distribution system; (2) the ability to render timely bills to its customers; and (3) the ability to maintain continuous operation of its computer systems. The Company's Year 2000 program addresses each of these risks and the remediation or replacement of these systems is well underway. Furthermore, the contingency plan will outline alternatives in the event that any Year 2000-related situations may occur. The Company relies on the producers of natural gas and suppliers of interstate transportation capacity to deliver natural gas to the Company's distribution system. External infrastructure, such as electric, telephone, and water service, is necessary for the Company's basic operations as well as the operations of many of its customers. Should any of these critical vendors fail, the impact of any such failure could become a significant challenge to the Company's ability to meet the demands of its customers, to operate its distribution system and to communicate with its customers. It could also have a material adverse financial impact, including but not limited to, lost sales revenues, increased operating costs, and claims from customers related to business interruptions. The Company's program to address Year 2000 issues emphasizes continued monitoring and/or testing of the progress of these critical vendors and suppliers toward meeting the projected completion of their Year 2000 programs. Financial Implications The Company currently expects to generate nonrecurring expenses of approximately $300,000 to $500,000 over the three fiscal-year period ending September 30, 1999, for business-application systems remediation, embedded systems replacement, and certain existing business-applications system replacement. Over the same time period, the Company will capitalize costs of approximately $9,000,000 to $11,000,000 incurred to replace certain existing business-application software systems with new systems that will be Year 2000 operational and provide additional business management information. Each of the components of the Company's Year 2000 program is progressing and the Company believes it is taking all reasonable steps necessary to be able to operate successfully through and beyond the turn of the century. New Legislation On October 19, 1998, the Year 2000 Information and Readiness Disclosure Act ("Y2K Readiness Act") was signed into federal law to encourage the disclosure and exchange of information about computer processing problems, solutions, test practices and test results, and related matters in connection with the transition to the year 2000. The Company expects to benefit from the Y2K Readiness Act in that it will significantly reduce the potential liability of the Company for sharing most types of Year 2000 information. The discussion contained herein is a Year 2000 Readiness Disclosure pursuant to the Y2K Readiness Act. The estimates and conclusions herein contain forward-looking statements and are based on management's best estimates of future events. Risks to completing the Year 2000 Program include the availability of resources, the Company's ability to discover and correct the potential Year 2000 sensitive problems which could have a serious impact on specific facilities, and the ability of suppliers to bring their systems into Year 2000 compliance. 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, 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
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. The credit line has been extended until December 31, 1999. This term may be further extended from year to year thereafter dependent upon the operating cash requirements of the Company and its subsidiary and approval by the bank. As of December 31, 1998, unused lines of credit totaled $47,200,000. Operating cash flows for the three months ended December 31, 1998 compared to the corresponding 1997 period were higher primarily due to a lower comparative increase in accounts receivable balances, lower gas inventories, the absence of additional prepaid pension and postretirement medical contributions and a higher comparative increase in accrued taxes. The increase in operating cash flows in the 1998 period was partially offset by a higher comparative increase in unrecovered purchased gas cost balances and lower comparative increases in accounts payable balances and pipeline refunds not yet returned to firm customers. 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. Investing Activities - -------------------- Capital expenditures, net of contributions in aid of construction, approximated $5,715,000 and $6,344,000 for the three months ended December 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. 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 has conferred with officials of the DEP, including the DEP liaison for the Department of Transportation's U.S. Highway Route Number 95 Corridor expansion project, to establish priorities in connection with the environmental assessments. As a result of those conferences, Southern and the DEP have negotiated and executed a Consent Order with respect to the Pine Street site located in Bridgeport. Pursuant to the Consent Order, Southern has agreed to undertake an investigation of the Pine Street site and its immediate surrounding area to determine potential sources of contamination and remediate contamination which may be found to have emanated or be emanating from the Pine Street site as a result of Southern's activities on the site. The schedule and scope of the investigation have been agreed to by Southern and the DEP. As a result of this Consent Order, Southern has recorded and deferred $150,000 for costs related to this site investigation. When the investigation is complete, Southern should be able to propose to the DEP what, if any, plan for remediation is appropriate for the site. Until such investigation is complete, management cannot predict the cost, if any, of any appropriate remediation for the Pine Street site. Neither can management, at this time, predict the costs for any future site analysis and remediation for the remaining two sites, 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 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, results of operations or cash flows. 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 3 - The Amended and Restated By-Laws of Connecticut Energy Corporation are filed herewith. The Amended and Restated By-Laws of The Southern Connecticut Gas Company are filed herewith. 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: February 10, 1999 By: /s/ Vincent L. Ammann, Jr. ----------------- -------------------------------- Vincent L. Ammann, Jr. Vice President and Chief Accounting Officer EX-3 2 Effective as of 1/26/99 CONNECTICUT ENERGY CORPORATION AMENDED and RESTATED BY-LAWS ARTICLE 1. Meetings of Shareholders. SECTION 1. Annual Meeting. The annual meeting of the shareholders of the Corporation for the election of Directors and the transaction of any other proper business shall be held on the last Tuesday of January in each year, if not a legal holiday, and, if a legal holiday, then on the next succeeding business day. The annual meeting of the shareholders of the Corporation shall be held within the franchise area of the Company or as designated by the Board of Directors. SECTION 2. Special Meeting. Special meetings of the shareholders may be called at any time by the Chairman of the Board of Directors, the President or by the Board of Directors and shall be held within the Cities of Bridgeport or New Haven or within the franchise area of the Company, as designated in the call for the meeting. SECTION 3. Notice of Meeting. A notice in writing of each meeting of the shareholders, stating the place, day and hour thereof, and -- when such meeting is a special meeting -- the general purpose or purposes for which it is called, shall be given by the Secretary or an Assistant Secretary or the officer or person calling the meeting to each shareholder, by leaving such notice with him or at his residence or usual place of abode, or by mailing a copy thereof addressed to him at his last known post office address as last shown on the stock records of the Company, postage prepaid. Such notice shall be given, in the case of an annual meeting of shareholders, not less than seven days nor more than fifty days before the date of the meeting and, in the case of a special meeting, shall be given at least thirty days before the date of the meeting, unless the Board of Directors, acting by a majority of the directors then in office, shall determine otherwise. No business shall be transacted at any special meeting of shareholders which was not specified in the notice thereof. SECTION 4. Prescribing the date on which shareholders of record shall be entitled to notice and to vote. The Board of Directors of the Corporation, prior to each annual or special meeting of the shareholders of the Corporation, may by resolution fix a date not more than seventy days and not less than ten full days prior to the date of such meeting as of which shareholders of record shall be entitled to notice of such meeting and to vote thereat, and only shareholders of record as of said date shall be entitled to notice of such meeting and to vote thereat. SECTION 5. Voting. At each meeting of shareholders, each shareholder then entitled to vote may vote in person or by proxy, and shall, unless otherwise provided in the Certificate of Incorporation, have one vote for each share of stock registered in such shareholder's name on the record date fixed by the Board of Directors. SECTION 6. Rules of Order. At each meeting of shareholders, the time and manner of discussions shall be as set forth in the applicable provisions of Roberts Rules of Order. ARTICLE 2. Directors. SECTION 1. Number and Election. The business, property and affairs of the Corporation shall be managed by, or under the direction of, its Board of Directors. The number of directors of the Corporation (exclusive of directors (the "Preference Stock Directors") who may be elected by a separate vote of the holders of then outstanding shares of any class or series of Preference Stock) shall be eight. The Board of Directors (exclusive of Preference Stock Directors) shall be divided into three classes, as nearly equal in number as possible. At the annual meeting of shareholders in 1984, one class shall be elected to hold office for a term expiring at the 1985 annual meeting, one class shall be elected to hold office for a term expiring at the 1986 annual meeting, and one class shall be elected to hold office for a term expiring at the 1987 annual meeting. At each annual meeting of shareholders of the Corporation the date of which shall be fixed by or pursuant to the By-Laws of the Corporation, the successors of the class of directors whose terms shall expire at that meeting shall be elected for a term expiring at the annual meeting of shareholders held in the third year following their year of election. Each director shall hold office until his successor shall have been duly elected and qualified. The election of directors need not be by ballot unless the By-Laws so provide. No decrease in the number of directors shall shorten the term of any incumbent director. SECTION 2. Notification of Nominations. Subject to the rights of the holders of any class or series of Preference Stock then outstanding, nominations for the election of directors may be made by the Board of Directors or by any shareholder entitled to vote for the election of directors. Any shareholder entitled to vote for the election of directors at a meeting may nominate persons for election as directors only if written notice of such shareholder's intent to make such nomination is given, either by personal delivery or by United States mail, postage prepaid, to the Secretary of the Corporation not later than (i) with respect to an election to be held at an annual meeting of shareholders, 90 days in advance of such meeting, and (ii) with respect to an election of directors to be held at a special meeting of shareholders, the close of business on the seventh day following the date on which notice of such meeting is first given to shareholders. Each such notice shall set forth: (a) the name and address of the shareholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the shareholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the shareholder and each nominee and any other person or persons (naming such person or persons) pursuant to which the nomination or nominations are to be made by the shareholder; (d) such other information regarding each nominee proposed by such shareholder as would have been required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission had each nominee been nominated, or intended to be nominated, by the Board of Directors and (e) the consent of each nominee to serve as a director of the Corporation if so elected. The chairman of the meeting may refuse to acknowledge the nomination of any person made without compliance with the foregoing procedure. SECTION 3. Vacancies. Subject to the rights of the holders of any class or series of Preference Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors from death, resignation, retirement, disqualification, removal from office or other cause shall be filled solely by the Board of Directors, acting by the affirmative vote of not less than a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director so chosen shall hold office until the next election of the class for which such director shall have been chosen and until his successor shall be elected and qualified. The shareholders of the Corporation shall have no right to fill any vacancies, whether resulting from an increase in the authorized number of directors or otherwise. SECTION 4. Removal. Subject to the rights of the holders of any class or series of Preference Stock then outstanding, any director or the entire Board of Directors of the Corporation may be removed only for cause and only by affirmative vote of (1) the Board of Directors, acting by not less than a majority of the Directorships or (2) the holders of 80% of the combined voting power of the then outstanding shares of Voting Stock, voting together as a single class. For the purposes of this Section 4, (1) "cause" shall exist only if a director (i) has been convicted of a felony in a final adjudication or (ii) has been adjudged in a final adjudication to have willfully engaged in gross misconduct materially and demonstrably injurious to the Corporation, and (2) "final adjudication" shall mean a judgment by a court of competent jurisdiction which becomes final (x) after completion or all proceedings for direct review or (y) after expiration of the time to obtain initial or further direct review, no such review having been taken. SECTION 5. Meetings. Regular meetings of the Board of Directors shall be held on the fourth Tuesday of each calendar month, except for the months of February, June, August and December. The meeting for the month of January shall be held on the last Tuesday immediately after the annual meeting for shareholders. If any such meeting date occurs on a legal holiday, then such meeting shall be held on the next succeeding business day. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, the Secretary of the Corporation or any three Directors. SECTION 6. Notice of Meeting. Notice of all regular and special meetings of the Board of Directors shall be given to each member of the Board of Directors, at least two days before any such meeting orally, or by mailing at least seven days before to each such member at his last known post office address a written notice thereof, giving the time and place of such meeting. SECTION 7. Quorum. A majority of the number of directorships at the time shall constitute a quorum; and a majority of the Directors in attendance at any meeting of the Board of Directors shall, in the presence of a quorum, decide its action. A minority of the number of directorships at the time present at any regular or special meeting may, in the absence of a quorum, adjourn to a later date but may not transact any business, except as provided in Section 3 of this Article. SECTION 8. Age of Directors. No person shall be elected or re-elected as a Director after attaining the age of seventy years. SECTION 9. Election of Officers. As soon as may be convenient after the annual meeting of the shareholders of the Corporation, the Board of Directors shall meet and elect the officers of the Corporation in accordance with these By-Laws. SECTION 10. Executive Committee. The Board of Directors of the Corporation, by the affirmative vote of Directors holding a majority of the directorships, may elect from its membership an Executive Committee having such number of members as may be prescribed from time to time by the Board of Directors. Members of the Executive Committee may be elected for such terms as may be prescribed by the Board of Directors provided, however, that the term of office of any member of the Executive Committee shall not extend beyond the term for which such member is elected as a Director of the Corporation. The Board of Directors may fill any vacancy in the Executive Committee. During the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all of the powers of the Board of Directors in the management and direction of the affairs of the Corporation in all matters in which specific direction shall not be given by the Board of Directors. All action by the Executive Committee shall be reported to the Board of Directors at the next meeting succeeding such action and shall be subject to review and alteration by the Board of Directors, providing that no rights of third parties shall be affected by any such review or alteration. Regular minutes of the proceedings of the Executive Committee shall be kept in a book provided for that purpose. The Executive Committee shall determine and fix its rules with respect to meetings and procedure and the number required for a quorum and shall conduct business as provided by such rules. Meetings of the Executive Committee shall be held on such dates as may be fixed from time to time by the Board of Directors and may be called at any time by the Chairman of the Board of Directors or by the President of the Corporation. SECTION 11. Audit Committee. There shall be an Audit Committee having such number of members as prescribed by the Board of Directors from time to time. Members of the Audit Committee shall be Directors who are neither officers nor employees of the Corporation. The Audit Committee shall recommend the employment of independent accountants to audit the financial statements of the Corporation, determine the scope of the audit, confer with the auditors respecting their examination and accounting practices, review the Corporation's financial and accounting practices and controls, and report its doings to the Board of Directors. SECTION 12. Pension Committee. There shall be a Pension Committee having such number of members as prescribed by the Board of Directors from time to time. Members of the Pension Committee shall be Directors who are neither officers nor employees of the Corporation. The Pension Committee shall perform the duties specified in the Company's pension plans and other employee benefit plans and such further duties respecting such plans as may be prescribed by law. The Pension Committee shall report its doings to the Board of Directors. SECTION 13. Committees. The Board of Directors may, from time to time, elect or appoint such other committees and prescribe the duties and authority thereof as the Board of Directors may deem necessary or convenient. ARTICLE 3. Officers. SECTION 1. Election and Qualifications. The Directors shall elect annually from their own number a President of the Corporation and may also elect from their own number a Chairman of the Board of Directors and shall elect or appoint a Treasurer and a Secretary and such other officers as the Board of Directors may, from time to time, deem necessary or advisable. No employee of the Corporation who has (a) for the last two consecutive years, held a bona fide executive or high policymaking position with the Corporation (b) become entitled to nonforfeitable annual retirement benefits from the Corporation which equal or exceed, in the aggregate, $44,000 or such other amount as required by law, exclusive of Social Security benefits and (c) attained the age of sixty-five years, shall thereafter be elected an officer of the Corporation. SECTION 2. Term of Office. The term of office of all officers of the Corporation shall be one year and until their respective successors shall have been chosen and qualified; but any officer may be removed from office at any time by the affirmative vote of a majority of the members of the Board of Directors then in office. SECTION 3. Chairman of the Board of Directors. The Chairman of the Board of Directors, if one shall be elected, shall preside at all meetings of the shareholders and of the Board of Directors at which he is present and shall have such powers and duties as may, from time to time, be prescribed by the Board of Directors. The Chairman of the Board of Directors, when designated by said Board as the Chief Executive Officer, shall provide general direction to the activities of the Corporation in conjunction with and acting through the President and shall have the final decision in all matters pertaining to the management of the business of the Corporation, all subject, however, to the control of the Board of Directors. The Chairman of the Board of Directors shall possess the same power as the President to execute on behalf of the Corporation all deeds, leases, conveyances, certificates of stock and contracts. SECTION 4. President. The President shall report to the Chairman of the Board of Directors when such Chairman has been designated by the Board of Directors as the Chief Executive Officer and shall have general supervision of the affairs of the Corporation and over its several officers, subject, however, to the control of the Board of Directors. The President shall have the power to execute all deeds, leases, conveyances, certificates of stock and contracts on behalf of the Company, shall make reports to the Board of Directors and shareholders and shall perform such other duties as are incident to the office of President or are properly required of the President by the Board of Directors. The President, in the absence of the Chairman of the Board, shall preside at all meetings of the shareholders and Board of Directors. The President shall, whenever it may in his opinion be necessary, prescribe the duties of officers and employees of the Corporation where duties are not otherwise prescribed by the Board of Directors. SECTION 5. Vice President and Assistant Vice President. The Vice Presidents and Assistant Vice Presidents shall perform duties as may be prescribed from time to time by the Board of Directors or required by law. SECTION 6. Treasurer. The Treasurer shall plan and direct the collection, receipt, custody and disbursement of funds and the handling of other financial assets. The Treasurer shall direct the Corporation's banking and credit functions and perform such other duties as are commonly incident to the Office of Treasurer or required by law. SECTION 7. Secretary. The Secretary shall attend the meetings of the shareholders, the Board of Directors and Executive Committee and keep minutes thereof. He shall send out notices of all meetings required by law or these By-Laws. He shall have the custody of the papers and books other than books of account and of the seal of the Corporation, and he shall affix the seal to all proper documents and shall attest the same; and he shall perform the usual duties incident to the Office of the Secretary and such other duties as may be prescribed, from time to time, by the Board of Directors or required by law. ARTICLE 4. Seal. The Corporation shall have a common seal, which shall contain the words CONNECTICUT ENERGY CORPORATION in a circle, within which the words and figures Incorporated 1970 Seal shall be contained. ARTICLE 5. Stock Certificates and Transfers. SECTION 1. Form. Stock certificates shall be in such form as the Board of Directors may, from time to time, determine and shall be signed by the President and by the Secretary or the Treasurer and sealed with the common seal of the Corporation. When such stock certificates shall be signed by a transfer agent or an assistant transfer agent or a registrar, the respective signatures of such President, Secretary or Treasurer may be facsimiles of such signatures, and the seal of the Corporation may be a facsimile of such seal. SECTION 2. Transfer. Transfer of shares shall be made only upon the books of the Corporation by the registered holder in person or by attorney, duly authorized, and upon surrender of the certificate or certificates for such shares properly assigned for transfer. SECTION 3. Lost or Destroyed Certificates. The holder of any certificate representing shares of stock of the Corporation may notify the Corporation of any loss, theft or destruction thereof, and the Board of Directors may thereupon, in its discretion, cause a new certificate of the same number of shares to be issued to such holder upon satisfactory proof of such loss, theft or destruction, and the deposit of indemnity by way of bond or otherwise, in such form and amount and with such surety or sureties as the Board of Directors may require, to indemnify the Corporation against loss or liability by reason of the issuance of such new certificate. ARTICLE 6. Negotiable Instruments. SECTION 1. Signatures. All bills, notes, checks or other negotiable instruments shall be made in the name of the Corporation and shall be signed by such officer or officers of the Corporation and in such manner as the Board of Directors shall designate. SECTION 2. Endorsements. No officer or agent of this Corporation shall have power to endorse in the name of or on behalf of the Corporation any note, bill of exchange, draft, check or other written instrument for the payment of money--save only for the purpose of collection of said instrument--except upon the express authority of the Directors. ARTICLE 7. Indemnification of Directors, Officer and Employees. The Corporation shall indemnify the persons described in Section 33-320a of the Connecticut General Statutes or the equivalent section of the Connecticut Stock Corporation Act to the full extent and in the manner required by such law. ARTICLE 8. Amendments. Notwithstanding any other provisions in the Certificate of Incorporation or these By-Laws of the Corporation (and notwithstanding the fact that a lesser percentage may be specified by law or the Certificate of Incorporation of the Corporation), these By-Laws may be adopted, repealed or amended only upon the affirmative vote of (i) the holders of 80% of the combined voting power of the then outstanding shares of Voting Stock, voting together as a single class, or (ii) the Board of Directors acting by not less than a majority of the entire Board of Directors. EX-3 3 Effective as of 1/26/99 THE SOUTHERN CONNECTICUT GAS COMPANY AMENDED and RESTATED BY-LAWS ARTICLE 1. Meeting of Shareholders. SECTION 1. Annual Meeting. The annual meeting of the shareholders of the Corporation for the election of Directors and the transaction of any other proper business shall be held on the last Tuesday of January in each year, if not a legal holiday, and, if a legal holiday, then on the next succeeding business day. The annual meeting of the shareholders of the Corporation shall be held within the franchise area of the Company or as designated by the Board of Directors. SECTION 2. Special Meeting. Special meetings of the shareholders may be called at any time by the Chairman of the Board of Directors, the President or by the Board of Directors and shall be held within the Cities of Bridgeport or New Haven or within the franchise area of the Company, as designated in the call for the meeting. SECTION 3. Notice of Meeting. A notice in writing of each meeting of the shareholders, stating the place, day and hour thereof, and -- when such meeting is a special meeting -- the general purpose or purposes for which it is called, shall be given by the Secretary or an Assistant Secretary or the officer or person calling the meeting to each shareholder, by leaving such notice with him or at his residence or usual place of abode, or by mailing a copy thereof addressed to him at his last known post office address as last shown on the stock records of the Corporation, postage prepaid, not less than seven days nor more than fifty days before the date of the meeting. SECTION 4. Prescribing the date on which shareholders of record shall be entitled to notice and to vote. The Board of Directors of the Corporation, prior to each annual or special meeting of the shareholders of the Corporation, may by resolution fix a date not more than seventy days and not less than ten full days prior to the date of such meeting as of which shareholders of record shall be entitled to notice of such meeting and to vote thereat, and only shareholders of record as of said date shall be entitled to notice of such meeting and to vote thereat. SECTION 5. Order of Business. So far as consistent with the purpose of the meeting, the order of business at all shareholders' meetings shall be as follows: 1. Roll call of shareholders 2. Reading of Minutes of preceding meeting and action thereon 3. Reports of Directors, Officers and Committees 4. Election of Directors -- if an annual meeting 5. Unfinished business 6. New business. SECTION 6. Rules of Order. At each meeting of shareholders, the time and manner of discussion shall be as set forth in the Roberts Rules of Order. ARTICLE 2. Directors. SECTION 1. Number and Election. The business, property and affairs of the Corporation shall be under the care, control and management of not less than eight nor more than twenty-four Directors who shall be elected annually by the shareholders. SECTION 2. Vacancies. Vacancies in the Board of Directors created by an increase in the number of directorships shall be filled at a meeting of shareholders of the Corporation, and any other vacancies in the Board of Directors, because of death, resignation, or for any other reason, may be filled by the remaining Directors. SECTION 3. Meetings. Regular meetings of the Board of Directors shall be held on the fourth Tuesday of each calendar month, except for the months of February, June, August, October and December. The meeting for the month of January shall be held on the last Tuesday immediately after the annual meeting for shareholders. If any such meeting date occurs on a legal holiday, then such meeting shall be held on the next succeeding business day. Special meetings of the Board of Directors may be called by the Chairman of the Board, the President, the Secretary of the Corporation or any three Directors. SECTION 4. Notice of Meeting. Notice of all regular and special meetings of the Board of Directors shall be given to each member of the Board of Directors, at least two days before any such meeting orally, or by mailing at least seven days before to each such member at his last known post office address a written notice thereof, giving the time and place of such meeting. SECTION 5. Quorum. A majority of the number of directorships at the time shall constitute a quorum; and a majority of the Directors in attendance at any meeting of the Board of Directors shall, in the presence of a quorum, decide its action. A minority of the number of directorships at the time present at any regular or special meeting, may, in the absence of a quorum, adjourn to a later date but may not transact any business. SECTION 6. Age of Directors. No person shall be elected or re-elected as a Director after attaining the age of seventy years. SECTION 7. Election of Officers. As soon as may be convenient after the annual meeting of the shareholders of the Corporation, the Board of Directors shall meet and elect the officers of the Corporation in accordance with the By-Laws. SECTION 8. Executive Committee. The Board of Directors of the Corporation, by the affirmative vote of Directors holding a majority of the directorships, may elect from its membership an Executive Committee having such number of members as may be prescribed from time to time by the Board of Directors. Members of the Executive Committee may be elected for such terms as may be prescribed by the Board of Directors provided, however, that the term of office of any member of the Executive Committee shall not extend beyond the term for which such member is elected as a Director of the Corporation. The Board of Directors may fill any vacancy in the Executive Committee. During the intervals between the meetings of the Board of Directors, the Executive Committee shall possess and may exercise all of the powers of the Board of Directors in the management and direction of the affairs of the Corporation in all matters in which specific direction shall not be given by the Board of Directors. All action by the Executive Committee shall be reported to the Board of Directors at the next meeting succeeding such action and shall be subject to review and alteration by the Board of Directors, providing that no rights of third parties shall be affected by any such review or alteration. Regular minutes of the proceedings of the Executive Committee shall be kept in a book provided for that purpose. The Executive Committee shall determine and fix its rules with respect to meetings and procedure and the number required for a quorum and shall conduct business as provided by such rules. Meetings of the Executive Committee shall be held on such dates as may be fixed from time to time by the Board of Directors and may be called at any time by the Chairman of the Board of Directors or by the President of the Corporation. SECTION 9. Audit Committee. There shall be an Audit Committee having such number of members as prescribed by the Board of Directors from time to time. Members of the Audit Committee shall be Directors who are neither officers nor employees of the Corporation. The Audit Committee shall recommend the employment of independent accountants to audit the financial statements of the Corporation, determine the scope of the audit, confer with the auditors respecting their examination and accounting practices, review the Corporation's financial and accounting practices and controls, and report its doings to the Board of Directors. SECTION 10. Pension Committee. There shall be a Pension Committee having such number of members as prescribed by the Board of Directors from time to time. Members of the Pension Committee shall be Directors who are neither officers nor employees of the Corporation. The Pension Committee shall perform the duties specified in the Company's pension plans and other employee benefit plans and such further duties respecting such plans as may be prescribed by law. The Pension Committee shall report its doings to the Board of Directors. SECTION 11. Committees. The Board of Directors may, from time to time, elect or appoint such committees and prescribe the duties and authority thereof as the Board of Directors may deem necessary or convenient. ARTICLE 3. Officers. SECTION 1. Election and Qualifications. The Directors shall elect annually from their own number a President of the Corporation and may also elect from their own number a Chairman of the Board of Directors and shall elect or appoint one or more Vice Presidents, a Treasurer and a Secretary and such other officers as the Board of Directors may, from time to time, deem necessary or advisable. No employee of the Corporation who has (a) for the last two consecutive years, held a bona fide executive or high policymaking position with the Corporation, (b) become entitled to nonforfeitable annual retirement benefits from the Corporation which equal or exceed, in the aggregate, $44,000 or such other amount as required by law, exclusive of Social Security benefits and (c) attained the age of sixty-five years, shall thereafter be elected an officer of the Corporation. SECTION 2. Term of Office. The term of office of all officers of the Corporation shall be one year and until their respective successors shall have been chosen and qualified; but any officer may be removed from office at any time by the affirmative vote of a majority of the members of the Board of Directors then in office. SECTION 3. Chairman of the Board of Directors. The Chairman of the Board of Directors, if one shall be elected, shall preside at all meetings of the shareholders and of the Board of Directors at which he is present and shall have such powers and duties as may, from time to time, be prescribed by the Board of Directors. The Chairman of the Board of Directors, when designated by said Board as the Chief Executive Officer, shall provide general direction to the activities of the Corporation in conjunction with and acting through the President and shall have the final decision in all matters pertaining to the management of the business of the Corporation, all subject, however, to the control of the Board of Directors. The Chairman of the Board of Directors shall possess the same power as the President to executive on behalf of the Corporation all deeds, leases, conveyances, certificates of stock and contracts. SECTION 4. President. The President shall report to the Chairman of the Board of Directors when such Chairman has been designated by the Board of Directors as the Chief Executive Officer and shall have general supervision of the affairs of the Corporation and over its several officers, subject, however, to the control of the Board of Directors. He shall have the power to execute all deeds, leases, conveyances, certificates of stock and contracts on behalf of the Corporation, shall make reports to the Board of Directors and shareholders and shall perform such other duties as are incident to the office of President or are properly required of him by the Board of Directors. The President, in the absence of the Chairman of the Board, shall preside at all meetings of the shareholders and Board of Directors. The President shall, whenever it may in his opinion be necessary, prescribe the duties of officers and employees of the Corporation where duties are not otherwise prescribed by the Board of Directors. SECTION 5. Executive Vice President. The Executive Vice President shall act as chief assistant to the President of the Corporation. He shall, in the President's absence and subject to the President's direction, exercise the authority and perform all of the duties which the President of the Corporation is authorized by its By-Laws to exercise, or to perform such other duties as may, from time to time, be assigned to the Executive Vice President by the Board, by the Chairman of the Board when designated the Chief Executive Officer or by the President of the Corporation. He is also designated as the Vice President to assume the duties of the President in the absence of the latter, as specified in Article 3, Section 4 of the By-Laws. In the absence of or failure to designate an Executive Vice President, the Senior Vice President shall perform the foregoing duties and have the foregoing authority. SECTION 6. Vice President and Assistant Vice President. The Vice Presidents and Assistant Vice Presidents shall perform duties as may be prescribed from time to time by the Board of Directors or required by law. SECTION 7. Vice President - Finance. The Vice President - Finance shall direct the Corporation's financial and related activities, including supervision of the Corporation's treasury accounts, tax payments and insurance. He shall be responsible for formulating and appraising financial plans to insure provision of adequate funds to meet long-term and short-term requirements and shall perform such other duties as may be prescribed from time to time by the Board of Directors. SECTION 8. Treasurer. The Treasurer shall plan and direct the collection, receipt, custody and disbursement of funds and the handling of other financial assets. The Treasurer shall direct the Corporation's banking and credit functions and perform such other duties as are commonly incident to the Office of the Treasurer or required by law. SECTION 9. Secretary. The Secretary shall attend the meetings of the shareholders, the Board of Directors and Executive Committee and keep minutes thereof. He shall send out notices of all meetings required by law or these By-Laws. He shall have the custody of the papers and books other than books of account and of the seal of the Corporation, and he shall affix the seal to all proper documents and shall attest the same; and he shall perform the usual duties incident to the Office of the Secretary and such other duties as may be prescribed, from time to time, by the Board of Directors or required by law. SECTION 10. Assistant Treasurer. In the absence or disability of the Treasurer, the duties of the Treasurer shall be performed by an Assistant Treasurer. SECTION 11. Assistant Secretary. In the absence or disability of the Secretary, the duties of the Secretary shall be performed by an Assistant Secretary. ARTICLE 4. Seal. The Corporation shall have a common seal, which shall contain the words SOUTHERN CONNECTICUT GAS COMPANY in a circle, within which the words and figures Incorporated 1967 Seal shall be contained. ARTICLE 5. Stock Certificates and Transfers. SECTION 1. Form. Stock certificates shall be in such form as the Board of Directors may, from time to time, determine and shall be signed by the President or any Vice President and by the Secretary or Assistant Secretary or by the Treasurer or Assistant Treasurer and sealed with the common seal of the Corporation. When such stock certificates shall be signed by a transfer agent or an assistant transfer agent or a registrar, the respective signatures of such Chairman of the Board of Directors, President, Vice President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer may be facsimiles of such signatures, and the seal of the Corporation may be a facsimile of such seal. ARTICLE 6. Negotiable Instruments. SECTION 1. Signatures All bills, notes, checks or other negotiable instruments shall be made in the name of the Corporation and shall be signed by such officer or officers of the Corporation and in such manner as the Board of Directors shall designate. SECTION 2. Endorsements. No officer or agent of this Corporation shall have power to endorse in the name of or on behalf of the Corporation any note, bill of exchange, draft, check or other written instrument for the payment of money--save only for the purpose of collection of said instrument--except upon the express authority of the Directors. ARTICLE 7. Indemnification of Directors, Officers and Employees. The Corporation shall indemnify the persons described in Section 33-320a of the Connecticut General Statutes or the equivalent section of the Connecticut Stock Corporation Act to the full extent and in the manner required by such law. ARTICLE 8. Amendments. These By-Laws may be amended or repealed at any regular of special meeting of the Board of Directors by the vote of a majority of the Directors, provided that notice of the consideration of such amendment or repeal shall be included in the notice of said meeting. EX-27 4
UT 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. 1,000 3-MOS SEP-30-1999 DEC-31-1998 PER-BOOK 273,479 7,379 73,053 122,286 0 476,197 10,348 121,855 50,306 180,549 0 0 150,007 29,800 0 0 1,321 0 0 0 114,520 476,197 61,594 3,515 48,783 52,298 9,296 168 9,464 3,369 6,095 0 6,095 3,474 3,213 716 0.60 0.59
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