SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
______________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 9, 1994
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
(Exact name of registrant as specified in its charter)
Vermont 1-8222 03-0111290
(State of other jurisdic- (Commission (IRS Employer
tion of incorporation) File Number) Identification No.)
77 Grove Street, Rutland, Vermont 05701
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (802) 773-2711
N/A
(Former name or former address, if changed since last report)
Item 5. Other Events.
On November 9, 1994, Central Vermont Public Service
Corporation issued a letter to shareholders representing the
third quarter 1994 quarterly report and a press release reporting
a new corporate strategy. Copies of the shareholders' letter and
the press release are filed herewith as Exhibits 13 and 20 and
are incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(c) Exhibits
See Exhibit Index on Page 4.
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.
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
BY JAMES M. PENNINGTON
James M. Pennington, Controller and
Principal Accounting Officer
November 9, 1994
EXHIBIT INDEX
Exhibit
Number Description
13 Letter to Shareholders
20 Press Release
EXHIBIT 13
November 9, 1994
To our shareholders:
This letter and the accompanying financial statements serve
as the third quarter 1994 quarterly report. Yesterday, your
board of directors took bold action for the long-term benefit of
you, our shareholders. I wanted to inform you promptly of their
actions so this letter, instead of the normal printed report, is
being sent with your dividend check a few days earlier than
usual. If you are a participant in the Dividend Reinvestment and
Common Stock Purchase Plan, your statement will be mailed
separately by the end of the month.
As you are all well aware, the value of your investment in
Central Vermont has dropped considerably in the past year, as
have values in the rest of the industry. I am as concerned as
you over this situation, and I want to share the plan CV has to
revitalize our stock price as well as to position the company for
success into the next century.
In previous reports, we've discussed the reasons for the
recent decline in stock prices throughout our industry. The
uncertainties associated with increasing competition and the
market's realization of the changes it brings about, the
slow-growth economy, and the continuing restraints of operating
as a regulated industry in an increasingly competitive world have
all contributed to the current situation. You may also have
already heard or read of the decisions our board of directors
made that will help CV meet the challenges we now face. To help
you better understand the decisions, I want to share some
background and our thinking on the issues.
We've already taken many steps toward streamlining our
operations to be more competitive: we expect to fully realize the
targeted $20 million cuts from our operating budget by the end of
1995. This includes eliminating 105 employee positions,
negotiating changes to our purchased power contracts and trimming
our spending for demand-side management programs.
Board of Directors Announces New Corporate Strategy
The electric utility industry is in a process of change
which dictates a need for financial flexibility in the face of
the developing competitive marketplace. To meet the dictates of
change, our board of directors has announced a new corporate
strategy. This strategy includes:
* A dividend targeted at approximately 60 percent of
sustainable earnings. In light of the new policy, it is
anticipated that the current annual dividend of $1.42 will be
reduced 44 percent to $.80 effective with the first quarter
dividend declaration in 1995. The dividend payment level will be
reviewed regularly in light of capital needs, projected earnings
levels and other relevant factors.
* A common stock repurchase program. The company's directors
have authorized the purchase of up to 2 million shares of its
outstanding common stock in open market transactions.
* A new strategic plan to provide earnings growth and cost
stability.
* A further reduction in corporate spending to ensure that
only projects and activities critical to reliable, cost-effective
operations are funded.
These actions are part of a plan to both control costs and rates,
and assure the company's growth and profitability into the next
century in a more competitive, price sensitive environment.
These moves will allow us to retain more capital in the business,
provide increased financial flexibility and assure our ability to
take advantage of opportunities for growth.
Actions Critical to Future of CV
We are keenly aware of the impact of these actions on
shareholders who rely on the dividend for part of their income.
However, taking these actions is critical to the future of the
company. The realities of the evolving energy environment will
mean that our earnings do not have the same degree of stability
and predictability they had in the past. In the future, more of
the company's total return to shareholders will come from
increases in the dividend and stock price and less from the
dividend yield. These actions, driven by the need to be more
competitive, will result in a yield that is more reflective of a
growth stock, rather than the traditional high yield utility.
We look to successfully implementing our new strategic plan
to provide the earnings growth necessary to support dividend
increases over the coming years. The plan focuses on protecting
and expanding the core business through marketing new
environmentally sensitive, electric technologies; promoting
customer growth through economic development; and expanding the
existing unregulated businesses: Catamount Energy Corp., which
concentrates in the independent power industry and SmartEnergy
Services Inc., which markets energy-efficient products and
services. Both companies operate throughout the U.S. and Canada.
CV is also actively looking for new business opportunities that
complement our existing business mix.
New Dividend Level Appropriate to Competitive Era
In 1993 CV paid shareholders dividends equal to 87 percent
of earnings, a level fairly typical across the industry.
However, we believe the new dividend payout target of 60 percent
is an appropriate response to the new industry environment. It
will allow us to conserve cash to meet unexpected contingencies
and to finance new opportunities while relying less on outside
financing. We expect the dividend to grow over time as earnings
grow. Fewer shares outstanding means that the same level of
earnings provides higher earnings per share and that less cash is
required for common stock dividends.
We expect to purchase up to 2 million shares of common
stock. Financing for these purchases will be primarily from
internally generated funds. This option will also provide the
company with an additional tool for managing its capital
structure.
Seek Headquarters Project Delay
We want to ensure that only projects critical to our
operations are funded. In light of this, we are deferring some
planned expenditures. Working with our partners, we are
presently seeking a delay in building the proposed new
headquarters building to allow a thorough reevaluation of the
project. This move to conserve capital and resources, in
combination with our other actions, will help give Central
Vermont a more flexible financial position in the future.
Achieving that, we'll be able to put more money back into the
business and be capable of investing in new business
opportunities which will create earnings growth.
Disappointing Rate Decision Still Gives Reason for Optimism
In October, we received the decision of the Vermont Public
Service Board on our request for a general rate increase. They
granted us a 4.27 percent increase in our base retail rates
rather than the 8,9 percent we requested and dropped our allowed
return on common equity to 10 percent. This return is after
deducting a .75 percent penalty for "mismanagement of power
supply options" and "failed efforts to acquire all cost-effective
energy-efficiency resources."
Although we were very disappointed in the rate decision and
disagree with the regulators on the statements quoted above, we
were pleased that the order recognized that we are in a period of
change requiring the company to operate as a more competitive
energy services provider. Citing these changes, the Public
Service Board in the rate order proposed a cooperative effort to
address restructuring and regulatory reform. We welcome this
offer of joint problem solving with our regulators and are
anxious to begin discussions.
Confidence in Future
Although the reduction of the dividend is not pleasant news
to bring to you, I am confident that our strategic plan heads us
in the direction that will enhance the value of our common stock
in the long run and enable your company to grow profitably into
the next century. Our employees -- most of whom are shareholders
- -- are working together to make it happen.
Sincerely,
Thomas C. Webb
President and CEO
<TABLE>
<CAPTION>
CENTRAL VERMONT PUBLIC SERVICE CORPORATION
Condensed Consolidated Statement of Income
(Dollars in thousands, except per share amounts)
(Unaudited)
Three Months Nine Months
Twelve Months
Ended Ended
Ended
September 30 September 30
September 30
1994 1993 1994 1993
1994 1993
<S> <C> <C> <C> <C>
<C> <C>
Operating Revenues $59,027 $60,994 $200,596 $203,288
$276,698 $282,225
Operating Expenses
Purchased power 35,324 37,678 108,701 108,436
146,848 145,889
Other operation
and maintenance 20,088 19,135 59,533 57,393
81,003 81,693
Depreciation 4,139 3,898 12,305 11,405
16,301 15,039
Taxes on income (892) (396) 5,769 8,268
9,998 12,633
-------- -------- -------- --------
------ --------
Total operating
expenses 58,659 60,315 186,308 185,502
254,150 255,254
-------- --------- -------- ---------
----------- --------
Operating Income 368 679 14,288 17,786
22,548 26,971
Other Income, Net 1,482 1,458 2,963 3,358
4,080 3,420
Benefit (Provision)
for Income Taxes (159) (154) 161 (231)
116 (340)
--------- -------- --------
- --------- ----------- --------
Total Operating and
Other Income 1,691 1,983 17,412 20,913
26,744 30,051
Net Interest Expense 2,482 2,337 7,598 7,359
9,192 10,290
--------- -------- --------- --------
--------- --------
Net Income (Loss) (791) (354) 9,814 13,554
17,552 19,761
Preferred Stock
Dividend Requirements 507 664 1,631 1,995
2,294 2,658
-------- -------- ---------
- --------- --------- --------
Earnings (Losses)Available
for Common Stock ($1,298) ($1,018) $8,183 $11,559
$15,258 $17,103
-------- --------- -------- --------
--------- --------
Average shares of common
stock outstanding 11,779,744 11,428,724 11,699,969
11,337,873 11,653,937 11,285,700
Earnings (Losses) Per Share
of Common Stock ($0.11) ($0.09) $0.70
$1.02 $1.31 $1.52
Dividends Per Share of
Common Stock $0.355 $0.355 $1.065
$1.065 $1.42 $1.4125
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidated Balance Sheet
(Dollars in thousands)
September 30 December 31
1994
1993 1993
(Unaudited)
<S> <C>
<C> <C>
ASSETS
Net utility plant $321,560
$317,856 $319,408
Investments in affiliates at equity 27,025
27,222 26,963
Non-utility investments 29,769
27,551 30,123
Non-utility property, less accumulated depreciation 3,185
3,232 3,203
Current assets 31,834
33,633 44,118
Regulatory assets and other deferred charges 60,780
49,908 56,335
--------
-------- --------
Total assets $474,153
$459,402 $480,150
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock equity, 11,785,848 shares for 1994 $173,559
$168,858 $173,836
Preferred and preference stock 28,054
35,054 35,054
Long-term debt 117,676
79,423 122,419
Total capitalization 319,289
283,335 331,309
Long-term lease arrangements 20,737
21,825 21,553
Current Liabilities
Short-term debt 2,805
15,200 1,356
Current portion of long-term debt 4,230
19,350 4,850
Other current liabilities 40,838
44,307 40,419
Total current liabilities 47,873
78,857 46,625
Deferred Credits
Deferred income taxes and investment tax credits 63,118
53,997 60,813
Yankee Atomic purchased power contract 8,362
10,281 9,768
Environmental cleanup 4,900
4,900 4,900
Other deferred credits 9,874
6,207 5,182
Total deferred credits 86,254
75,385 80,663
Total capitalization and liabilities $474,153
$459,402 $480,150
</TABLE>
<TABLE>
<CAPTION>
Condensed Consolidated Statement of Cash Flows
(Dollars in thousands)
(Unaudited)
Nine
Months Ended
September 30
1994 1993
<S> <C>
<C>
Cash Flows Provided (Used) by
Operating Activities
Net income
$9,814 $13,554
Adjustments to reconcile net income to net
cash provided by operating activities
Deferred revenues -
(4,682)
Depreciation
12,305 11,405
Deferred income taxes and investment tax credits
2,663 6,461
Allowance for equity funds during construction
(72) (44)
Net deferral and amortization of nuclear refueling
replacement energy and maintenance costs
4,431 (3,237)
Change in working capital items
17,200 13,659
Other, net
161 184
Net cash provided by operating activities
46,502 37,300
Investing Activities
Increase in temporary investments
(3,726) (1,394)
Construction and plant expenditures
(15,189) (14,678)
Conservation and load management expenditures
(4,574) (4,380)
Investments in affiliates
13 152
Non-utility investments
354 (4,452)
Other investments, net
(382) (702)
Net cash used in investing activities
(23,504) (25,454)
Financing Activities
Sale of common stock
3,988 6,340
Short-term debt, net
1,449 13,100
Retirement of preferred stock
(7,000) -
Retirement of long-term debt
(5,362) (19,323)
Common and preferred dividends paid
(14,731) (13,370)
Other
(12) (49)
Net cash used in financing activities
(21,668) (13,302)
Net Increase (Decrease) in Cash
1,330 (1,456)
Cash at Beginning of Period
823 2,714
Cash at End of Period
$2,153 $1,258
</TABLE>
EARNINGS AND OPERATING RESULTS
For the quarter ended September 30, 1994, Central Vermont
experienced a loss of 11 cents per share of common stock
compared to a 9 cent loss in the same quarter in 1993. Due to
the company's winter sales peak and higher winter rates, the
company normally experiences losses in the second and third
quarters when sales are lower and rates are reduced. For the
nine and twelve month periods ended September 30, 1994, earnings
were $.70 and $1.31, respectively, compared to $1.02 and $1.52
in the same periods in 1993.
Operating revenues were nearly $2 million lower than in the
third quarter 1993, reflecting the fact that in 1993 the company
recorded approximately $1.3 million of revenues deferred from
1991. Purchased power costs decreased by $2.4 million, however,
other expense increases partially offset these decreases. The
result was a decline in earnings for common for the quarter of
$300,000.
Although the rate decision will have a positive impact on
revenues in the fourth quarter 1994, the company anticipates
other aspects of the order will result in a $2 million after-tax
write-off for the period. Though showing some improvement during
the past two quarters, retail sales have increased slightly less
than 1 percent on a year-to-date basis.
DIVIDEND DECLARED
On October 3, 1994, the board of directors declared a
dividend of thirty- five and one-half cents ($.355) per share of
common stock. The dividend is payable November 15, 1994 to
shareholders of record at the close of business October 31,
1994. Your quarterly dividend check is enclosed unless you are a
participant in the Dividend Reinvestment and Common Stock
Purchase Plan, in which case your statement is enclosed. If you
are a preferred stockholder, your dividend is payable January 1,
April 1, July 1 and October 1 and your check will be sent at
that time.
<TABLE>
<CAPTION>
SUMMARY STATISTICS
(Unaudited)
September 30 September 30
1994 1993
<S> <C> <C>
Common Stock Data:
Closing stock price $12 1/2 $23 1/2
Range (12 months) $12 1/8-23 3/4 $22 1/8-25 1/4
Book value $14.73 $14.73
Shares outstanding 11,785,848 11,465,556
Common shareholders 17,035 16,500
Capitalization Ratios:*
Common equity 53.6% 55.8%
Preferred stock 8.7 11.6
Long-term debt 37.7 32.6
100.0% 100.0%
*Includes current maturities
</TABLE>
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
Energy Sales: (MWH)**
Nine Months Ended September 30
% Change % Change
1994 Prior Year 1993 Prior Year
<S> <C> <C> <C> <C>
Retail:
Residential 720,149 .6 716,053 (.1)
Commercial 639,449 1.7 628,655 2.2
Industrial 287,974 (.3) 288,703 (5.5)
Other 5,674 .6 5,640 (.4)
Total Retail 1,653,246 .9 1,639,051 (.3)
Other Utilities:
Firm 13,274 (75.5) 54,288 (16.0)
Entitlement 597,176 (14.7) 699,985 (7.6)
Other 569,362 172.2 209,204 (2.2)
Total Sales 2,833,058 8.9 2,602,528 (2.9)
**Includes energy from New York Power Authority
</TABLE>
EXHIBIT 20
CONTACT: BRUCE SIMONS 802-747-5427
FOR RELEASE: IMMEDIATE
CENTRAL VERMONT ANNOUNCES NEW CORPORATE STRATEGY
TO POSITION ITSELF FOR FUTURE GROWTH
IN COMPETITIVE MARKETPLACE
RUTLAND Nov. 9, 1994 -- Recognizing the need for financial flexibility
in the face of an increasingly competitive marketplace, the Board of
Directors of Central Vermont Public Service (NYSE: CV) yesterday approved
a series of steps to control costs and rates and assure the company's
success into the next century. This new corporate strategy involves:
* A dividend targeted at approximately 60 percent of
sustainable earnings. In light of the new policy, it is
anticipated that the current annual dividend of $1.42
will be reduced 44 percent to $.80 effective with the
first quarter dividend declaration in 1995. The
dividend payment level will be reviewed regularly in
light of capital needs, projected earnings levels and
other relevant factors.
* A common stock repurchase program. The company's
directors have authorized the purchase of up to
2 million shares of its outstanding common stock in open
market transactions.
* A new strategic plan to provide earnings growth and
cost stability.
* A further reduction in corporate spending to ensure
that only projects and activities critical to reliable,
cost-effective operations are funded.
"These actions are part of a plan to both control costs and rates,
and assure the company's growth and profitability into the next century.
They will allow us to retain more capital in the business, provide
increased financial flexibility and assure our ability to take advantage
of opportunities for growth," said CV President Thomas C. Webb.
Webb continued, "The company has to shift from operating in a fully
regulated environment to operating successfully in what is becoming a more
competitive, price sensitive environment. In the future, more of the
company's total return to shareholders will come from increases in the
dividend and stock price and less from the dividend yield. CV's actions
today, driven by the need to be more competitive, will result in a yield
that is more reflective of a growth stock, rather than the traditional high
yield utility."
Recognizing the Public Service Board's proposal, made in the recent rate
order, to join in a cooperative effort to address restructuring and
regulatory reform of the industry, Webb said "This offer of joint problem
solving with our regulators is very welcome and we are anxious to begin
discussions."
Webb went on to describe CV's new strategic plan which has to provide the
earnings growth necessary to support dividend increases over the coming
years. The plan, he said, "focuses on protecting and expanding the core
business through marketing new environmentally sensitive, electric
technologies; promoting customer growth through economic development; and
expanding the existing unregulated businesses, one of which concentrates
in the independent power industry and the other which markets energy-
efficient products and services." Both companies operate throughout the U.S.
and Canada. CV is alos actively looking for new business opportunities that
complement our existing business mix.
Webb continued, "The endeavor we began last year to identify and
eliminate $20 million from our operating costs was only a beginning. We've
nearly achieved those savings but our new strategy includes an active,
ongoing program to stabilize rates by controlling costs. At the same time,
we will continue cost- effective demand-side management programs,
particularly focusing on savings opportunities that would otherwise be
lost."
Regulatory uncertainties, slow economic growth, the availability of new
technologies and the participation of new power suppliers have left
electric utilities without the same degree of stability and predictability
of earnings they had in the past.
Executive Vice President and Chief Operating Officer Robert H. Young
commented, "Our new strategic objectives and the less predictable nature of
earnings mean it's necessary that we pay a lower ratio of dividends to
earnings. In 1993 CV paid shareholders dividends equal to 87 percent of
earnings, a level fairly typical across the industry. However, we believe
the new payout target of 60 percent of sustainable earnings is an
appropriate response to the new industry environment. It will allow us to
conserve cash to meet unexpected contingencies and to finace new
opportunities while relying less on outside financing.
"Fewer shares outstanding means that the same level of earnings provides
higher earnings per share and that less cash is required for common stock
dividends. In addition, the dividend payout ratio will now be low enough
to allow the dividend to grow as earnings grow," continued Young. "As this
happens, there will be a real opportunity to enhance shareholder value."
Speaking of the stock buy-back, Young explained, "We expect to purchase
up to 2 million shares of common stock. Financing for these purchases will
be primarily from internally generated funds. This option will also
provide CV with an additional tool for managing our capital structure."
Talking about the further reduction in corporate spending, Young
commented, "We want to ensure that only projects critical to our
operations are funded. In light of this, we are deferring some planned
expenditures. Working with our partners, we are presently seeking a
delay in building the proposed new headquarters building to allow a
thorough reevaluation of the project. This move to conserve capital and
resources, in combination with our other actions, will help give Central
Vermont a more flexible financial position in the future. Achieving that,
we'll be able to put more money back into the business and be capable of
investing in new business opportunities which will create earnings growth."
CV Chairman of the Board, F. Ray Keyser Jr., emphasized the board of
directors' support for the new corporate direction noting, "Electric
utilities across the nation are revisiting their direction and financial
policies in light of the evolving competition. I am confident that our
program is well thought out and positions CV for success in a competitive
deregulated environment."
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