UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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 June 30, 1994
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 1-4315
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of registrant as specified in its charter)
New York 13-1727729
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices) (Zip Code)
(914) 352-6000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (l) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
class of common stock, as of the close of the latest practicable date.
Common Stock - $5 Par Value 13,590,075 Shares
(Class) (Outstanding at July 29, 1994)<PAGE>
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
at June 30, 1994 and December 31, 1993 1
Consolidated Statements of Income (Unaudited)
for the three months and six months ended
June 30, 1994 and June 30, 1993 3
Consolidated Cash Flow Statements (Unaudited)
for the six months ended June 30, 1994 and
June 30, 1993 4
Notes to Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 17
ITEM 4. Submission of Matters to a Vote of Security
Holders 19
ITEM 6. Exhibits and Reports on Form 8-K 20
Signatures 21
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Assets
<CAPTION>
June 30, December 31,
1994 1993
(Thousands of Dollars)
<S> <C> <C>
Utility Plant:
Electric $ 939,337 $ 931,827
Gas 192,321 189,000
Common 52,849 52,525
Utility Plant in Service 1,184,507 1,173,352
Less accumulated depreciation 387,455 372,279
Net Utility Plant in Service 797,052 801,073
Construction work in progress 33,178 30,907
Net Utility Plant 830,230 831,980
Non-utility Property:
Non-utility property 35,242 35,049
Less accumulated depreciation, depletion and amortization 13,536 13,041
Net Non-utility Property 21,706 22,008
Current Assets:
Cash and cash equivalents 5,771 14,256
Temporary cash investments 949 1,447
Customer accounts receivable, less allowance for
uncollectible accounts of $2,001 and $2,026 59,599 60,289
Accrued utility revenue 19,888 23,017
Other accounts receivable, less allowance for
uncollectible accounts of $249 and $60 11,251 11,619
Gas marketing accounts receivable, less allowance
for uncollectible accounts of $283 and $513 44,697 49,206
Materials and supplies (at average cost) 31,313 39,062
Prepayments and other current assets 48,352 40,626
Total Current Assets 221,820 239,522
Deferred Debits:
Income tax recoverable in future rates 74,783 75,468
Extraordinary property loss - Sterling nuclear project 12,810 15,481
Deferred Order No. 636 transition costs 16,390 21,500
Deferred revenue taxes 17,458 17,588
Deferred pension and other postretirement benefits 10,817 7,277
Unamortized debt expense (amortized over
term of securities) 8,019 8,565
Other deferred debits 45,042 41,584
Total Deferred Debits 185,319 187,463
Total $1,259,075 $1,280,973
The accompanying notes are an integral part of these statements.
/TABLE
<PAGE>
<TABLE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
Capitalization and Liabilities
<CAPTION>
June 30, December 31,
1994 1993
(Thousands of Dollars)
<S> <C> <C>
Capitalization:
Common stock (13,585,167 and 13,532,055 shares
outstanding) $ 67,926 $ 67,660
Premium on capital stock 131,878 130,313
Capital stock expense (6,107) (6,108)
Retained earnings 173,443 184,179
Total Common Stock Equity 367,140 376,044
Non-redeemable preferred stock (428,443 shares
outstanding) 42,844 42,844
Non-redeemable cumulative preference stock (13,234
and 13,590 shares outstanding) 431 443
Total Non-Redeemable Stock 43,275 43,287
Redeemable preferred stock (41,580 shares outstanding) 4,158 4,158
Long-term debt 379,772 380,266
Total Capitalization 794,345 803,755
Non-current Liabilities:
Reserve for claims and damages 4,160 3,830
Postretirement benefits 11,527 6,719
Pension costs 36,742 34,275
Obligation under capital leases 539 793
Total Non-current Liabilities 52,968 45,617
Current Liabilities:
Lease obligations due within one year 498 479
Long-term debt due within one year 1,067 984
Preferred stock to be redeemed within one year 1,384 1,384
Notes payable 10,050 1,200
Commercial paper 13,345 45,000
Accounts payable 44,165 57,359
Gas marketing accounts payable 46,982 54,247
Dividends payable 10,260 752
Customer deposits 5,850 5,807
Accrued Federal income and other taxes 8,313 9,586
Accrued interest 9,933 9,877
Refundable gas costs 7,286 8,967
Other current liabilities 27,920 17,114
Total Current Liabilities 187,053 212,756
Deferred Taxes and Other:
Deferred Federal income taxes 170,362 172,672
Deferred investment tax credits 17,587 18,004
Accrued Order No. 636 transition costs 16,390 21,500
Refundable fuel costs 18,065 4,405
Other deferred credits 2,305 2,264
Total Deferred Taxes and Other 224,709 218,845
Total $1,259,075 $1,280,973
The accompanying notes are an integral part of these statements.
/TABLE
<PAGE>
<TABLE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1994 1993 1994 1993
(Thousands of Dollars)(Thousands of Dollars)
<S> <C> <C> <C> <C>
Operating Revenues:
Electric $114,964 $114,403 $226,110 $223,559
Gas 25,832 24,339 107,235 95,121
Electric sales to other utilities 1,674 1,515 4,815 3,255
Total Utility Revenues 142,470 140,257 338,160 321,935
Diversified activities 87,265 74,856 184,250 157,208
Total Operating Revenues 229,735 215,113 522,410 479,143
Operating Expenses:
Operations:
Fuel used in electric production 21,512 14,351 46,567 30,649
Electricity purchased for resale 11,447 18,430 22,419 35,655
Gas purchased for resale 15,106 13,598 65,272 55,595
Non-utility gas marketing purchases 82,475 70,998 173,550 149,416
Other expenses of operation 39,087 37,076 75,139 72,747
Maintenance 10,400 10,852 20,472 19,909
Depreciation and amortization 8,798 8,560 17,509 17,036
Amortization of property losses 1,416 1,304 2,831 2,608
Taxes other than income taxes 22,868 21,703 49,023 46,107
Federal income taxes 3,206 (531) 14,302 11,349
Deferred Federal income taxes 70 3,845 (2,159) (505)
Deferred investment tax credit (30) (49) (60) (130)
Total Operating Expenses 216,355 200,137 484,865 440,436
Income from Operations 13,380 14,976 37,545 38,707
Other Income and (Deductions):
Allowance for other funds used
during construction 27 17 57 16
Investigation costs (2,797) - (6,009) -
Other - net 112 (254) 511 (443)
Taxes other than income taxes (28) (25) (54) (52)
Federal income taxes 1,044 188 2,124 382
Deferred Federal income taxes (34) (52) (73) (85)
Deferred investment tax credit 179 197 357 394
Total Other Income and (Deductions) (1,497) 71 (3,087) 212
Income Before Interest Charges 11,883 15,047 34,458 38,919
Interest Charges:
Interest on long-term debt 7,498 7,499 14,990 15,384
Other interest 770 725 1,566 1,442
Amortization of debt premium and expense-net 302 296 603 514
Allowance for borrowed funds used during
construction (67) (74) (149) (106)
Total Interest Charges 8,503 8,446 17,010 17,234
Net Income 3,380 6,601 17,448 21,685
Dividends on preferred and preference stock,
at required rates 813 841 1,626 1,682
Earnings applicable to common stock $ 2,567 $ 5,760 $ 15,822 $ 20,003
Avg. number of common shares outstanding (000's) 13,565 13,532 13,549 13,531
Earnings per average common share outstanding $ .19 $ .43 $ 1.17 $ 1.48
Dividends declared per common share outstanding $ 1.27 $ 1.25 $ 1.90 $ 1.86
The accompanying notes are an integral part of these statements.
/TABLE
<PAGE>
<TABLE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Consolidated Cash Flow Statements (Unaudited)
<CAPTION>
Six Months Ended
June 30,
1994 1993
(Thousands of Dollars)
<S> <C> <C>
Cash Flow from Operations:
Net income $17,448 $21,685
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 17,749 17,172
Deferred Federal income taxes (1,625) (413)
Deferred investment tax credit (417) (524)
Deferred and refundable fuel and gas costs 11,979 8,839
Allowance for funds used during construction (206) (122)
Changes in certain current assets and liabilities:
Temporary cash investments 498 (1)
Accounts and gas marketing accounts receivable,
net and accrued utility revenues 8,696 (2,861)
Materials and supplies 7,749 5,177
Prepayments and other current assets (7,726) (605)
Operating and gas marketing accounts payable (20,459) (9,048)
Accrued Federal Income and other taxes (1,273) 597
Accrued interest 56 639
Other current liabilities 10,849 3,854
Other-net 5,115 (6,679)
Net Cash Provided from Operations 48,433 37,710
Cash Flow from Investing Activities:
Additions to plant (16,772) (23,066)
Allowance for funds used during construction 206 122
Net Cash Used in Investing Activities (16,566) (22,944)
Cash Flow from Financing Activities:
Proceeds from:
Issuance of common stock 1,819 -
Issuance of long-term debt - 75,000
Retirements of:
Long-term debt (455) (74,707)
Capital lease obligations (235) (217)
Net repayments under short-term debt
arrangements* (22,805) (7,000)
Dividends on preferred and common stock (28,184) (27,692)
Change in dividends payable 9,508 9,367
Net Cash Used in Financing Activities (40,352) (25,249)
Net Change in Cash and Cash Equivalents (8,485) (10,483)
Cash and Cash Equivalents at Beginning of Period 14,256 15,378
Cash and Cash Equivalents at End of Period $ 5,771 $ 4,895
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $16,354 $15,907
Federal income taxes $ 8,500 $13,050
* Debt with maturities of 90 days or less.
The accompanying notes are an integral part of these statements.
/TABLE
<PAGE>
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of June 30, 1994, the consolidated
statements of income for the three month and six month periods ended June
30, 1994 and 1993, and the consolidated cash flow statements for the six
month periods then ended have been prepared by Orange and Rockland
Utilities, Inc. (the "Company") without an audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position and
results of operations at June 30, 1994, and for all periods presented,
have been made. The amounts in the consolidated balance sheet as of
December 31, 1993 are from audited financial statements.
2. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
unaudited consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's
December 31, 1993 Annual Report to Shareholders. The results of
operations for the period ended June 30, 1994 are not necessarily
indicative of the results of operations for the full year.
3. The consolidated financial statements include the accounts of the
Company, all subsidiaries and the Company's pro rata share of an
unincorporated joint venture. All significant intercompany balances and
transactions have been eliminated.
4. Contingencies at June 30, 1994 are substantially the same as the
contingencies described in the "Notes to Consolidated Financial
Statements" included in the Company's December 31, 1993 Annual Report to
Shareholders, which material is incorporated by reference to the
Company's December 31, 1993 Form 10-K Annual Report, except, during
June, 1994, the Company entered into an agreement with Harriman Energy
Partners, LTD. to terminate a long-term power purchase agreement for 57
Mw of capacity. The company will request NYPSC approval of deferred
accounting of all associated termination costs pending recovery of those
costs in rates.
5. Certain amounts from prior years have been reclassified to conform with
the current year presentation.
6. Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112 "Employers'
Accounting for Postretirement Benefits" which required the recording of a
liability of approximately $.8 million. The adoption of Statement No.
112 did not have a significant impact on the results of current
operations because of the recording of an offsetting regulatory asset.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition:
Financial Performance
The Company's consolidated earnings per average common share outstanding for
the second quarter of 1994 were $.19 as compared to $.43 for the second
quarter of 1993. Fluctuations within the components of earnings are discussed
in the "Results of Operations". The average number of common shares
outstanding for the second quarter of 1994 were 13.6 million and 13.5 million
for the second quarter of 1993.
The current quarterly dividend rate of $.64 is equivalent to an annual
dividend rate of $2.56 per share. Dividends declared during the twelve months
ended June 30, 1994 amounted to $2.53 with a dividend payout ratio of 92.0% as
compared to $2.48 a year ago with a payout ratio of 74.5%.
The return on average common equity for the twelve months ended June 30, 1994
was 9.95%, as compared to 12.32% for the twelve months ended June 30, 1993.
Allowance for Funds Used During Construction ("AFDC") amounted to 3.7% of
earnings applicable to common stock for the quarter ended June 30, 1994 as
compared to 1.6% for the second quarter of 1993.
Capital Resources and Liquidity
At June 30, 1994, the Company and its utility subsidiaries had unsecured bank
lines of credit totaling $59 million. The Company may borrow under the lines
of credit through the issuance of promissory notes to the banks. The Company,
however, utilizes such lines of credit to fully support commercial paper
borrowings. The aggregate amount of borrowings through the issuance of
promissory notes and commercial paper cannot exceed the aggregate lines of
credit. In addition, non-utility lines of credit amounted to $15.0 million at
June 30, 1994, and the non-utility subsidiaries may undertake short-term
borrowings or make short-term investments. The average daily balance of
short-term borrowings for the six months ended June 30, 1994 amounted to $38.8
million at an effective interest rate of 3.8% as compared to $35.8 million at
3.2% for the same period of 1993. The level of temporary cash investments for
the six months ended June 30, 1994 increased to an average daily balance of
$10.2 million from $5.1 million for the same period of 1993.
Effective May 1, 1994, all shares of common stock purchased under the
Company's Dividend Reinvestment and Stock Purchase Plan ("DRP") and the
Employee Stock Purchase and Dividend Reinvestment Plan ("ESPP") with
reinvested dividends and optional cash payments, will be original issue shares
purchased from the Company. At the option of the Company, however, common
stock purchased under the DRP and ESPP may again be purchased on the open
market. The New York Public Service Commission ("NYPSC") has authorized the
Company to issue up to 750,000 shares under the DRP and ESPP. Since
May 1, 1994, $1.8 million of common equity was generated through the issuance
of approximately 52,600 shares of common stock under the Company's dividend
reinvestment and stock purchase plans. Under the original issue option, the
Company expects to raise $38 million of equity capital over the next five
years.<PAGE>
During June 1994, Standard & Poor's Corporation, Moody's Investors Service and
Fitch Investor Service lowered their ratings on the Company's securities as
detailed below:
Standard & Poor's Moody's Fitch
Current Previous Current Previous Current Previous
Commercial paper A-2 A-1 P-2 P-1 F-2 F-1+
First Mortgage bonds A- A A3 A2 A- AA-
Unsecured debt A- A Baa1 A3 A- AA-
Preferred stock BBB+ A- Baa1 A2 A- AA-
The major reasons cited for the downgrade include uncertainties resulting from
ongoing investigations surrounding alleged financial improprieties and the
termination by the NYPSC of the Company's electric rate proceeding which
included a reduction in the targeted return on equity to 10.6% (reference is
made to "Rate Activities" in this Item 2).
Rate Activities
New York
On February 4, 1993 (revised April 8, 1993), the Company filed with the NYPSC
the second adjustment to electric rates pursuant to the Revenue Decoupling
Mechanism ("RDM") which amounted to an increase in annual revenues of $11.3
million, or 3.5%, including the maximum allowable incentive award of 1.06% on
common equity. This second adjustment was approved by the NYPSC on
April 21, 1993, with new rates effective May 1, 1993.
The RDM procedures were approved by the NYPSC on August 29, 1990, in a rate
agreement which provided, among other things, for annual rate adjustments
during the three years covered by the agreement (1991-1993). These procedures
provide for the reconciliation of revenue deviations between forecasted sales
and actual sales. In addition, the RDM provides for the opportunity to
recover changes in the cost of providing service such as wages, property
taxes, inflation, capacity purchases, major maintenance costs, rate base
additions and the cost of capital.
On September 1, 1993, the Company filed with the NYPSC the first adjustment to
gas rates pursuant to a settlement agreement that the Company and the NYPSC
Staff entered into regarding an application the Company filed with the NYPSC
on January 16, 1992. The agreement, approved by the NYPSC on September 30,
1992, contains a weather adjustment clause which automatically adjusts rates
to offset the effects of variations in weather from that assumed for setting
rates. The four-year agreement provides for an overall rate of return of
10.26%, with a return on common equity of 12.15% including incentives of 50
basis points. The total increase in annual gas revenues is $2.7 million or
1.8%. Although the settlement provided for an effective date for this
adjustment of January 1, 1994, the Company agreed to extend the effective date
until June 30, 1994, in connection with the Order described below, which was
issued in the Company's electric rate case on October 4, 1993. The effective
<PAGE>
date of this adjustment was further extended until December 31, 1994 by NYPSC
Order issued June 3, 1994.
On January 29, 1993, the Company filed with the NYPSC for an increase in
electric rates of $17.1 million to be effective January 1, 1994. The rate
application proposed a three-year (1994-1996) extension of the RDM revenue
reconciliation and operating cost adjustment procedures. Continuation of the
energy efficiency and customer service incentive programs was also requested.
In addition, the Company requested the implementation of a new power plant
efficiency incentive. The rate increase request included a 12.25% return on
equity. On October 4, 1993, the NYPSC, as a result of the investigation into
alleged financial improprieties, issued an Order in this case (the "October
Order") which provided that, subject to certain conditions, the Company could
agree to a six-month extension of the NYPSC's statutory suspension period to
June 30, 1994. Reference is made to Item 1, "Legal Proceedings", for a
discussion of ongoing investigations of the Company in connection with the
arrest in August, 1993 of then Vice President Linda Winikow and her subsequent
guilty plea to a felony and two misdemeanor charges. The Company agreed to
the extension of the suspension period and the associated conditions. A
condition of the October Order was that the Company continue existing rate-
making mechanisms, prescribed under the RDM procedure, for the duration of the
suspension period. In addition, the October Order specified that up to $3.0
million of revenue be made subject to refund pending final resolution of the
ongoing investigation. On December 16, 1993, the NYPSC issued an order (the
"December Order"), which approved the extension of the suspension period to
June 30, 1994, modified the Demand Side Management ("DSM") incentive,
eliminated a customer service incentive effective January 1, 1994 and directed
the Company to make up to $3.0 million ($2.25 million electric and $0.75
million gas) of revenue subject to refund. A request for further extension
through December 31, 1994, under the same conditions, was made by the Company
on December 17, 1993. The NYPSC staff submitted comments opposing some of the
terms of the Company's extension. By order issued June 10, 1994 (the "June
Order") the electric rate application was terminated. The June Order provides
for the continuation of the RDM revenue reconciliation and operating cost
adjustment procedures and the continuation of other provisions of the December
Order including up to $3.0 million of revenue made subject to refund, a 5% net
resource saving DSM incentive, and elimination of a customer service
incentive. The June Order also provides for a reduction in the RDM adjustment
factor effective July 1, 1994 reflecting the new recovery level required for
1993 net RDM deferrals less amounts recovered during the months of May and
June 1994. Finally, the June Order reduces the threshold for measuring excess
earnings from 12.0% to 10.6% effective retroactively to January 1, 1994. All
earnings in excess of 10.6% are to be deferred for future disposition pending
the conclusion of the ongoing investigation.
The NYPSC accepted the Company's proposal for a two-month temporary rate
reduction of $115,000 per month related to the misappropriation of funds. The
Company voluntarily extended the temporary rate reduction for a third month,
through January 1994, bringing the total amount refunded to New York
ratepayers to $345,000. It is not possible to predict at this time the extent
of additional refunds that may be required by the NYPSC, if any.
<PAGE>
New Jersey
In January 1992, in response to Rockland Electric Company's ("RECO's")
March 18, 1991 petition requesting a $12.9 million increase in base rates, an
increase in electric rates of $5.1 million was granted by the New Jersey Board
of Regulatory Commissioners, which was renamed effective July 5, 1994 and is
now the New Jersey Board of Public Utilities ("NJBPU"). This increase
includes a 12% rate of return on common equity. In addition, the NJBPU
initiated a Phase II proceeding in this case to address the effect of the
State of New Jersey's June 1, 1991 tax legislation. That legislation changed
the procedure under which certain taxes are collected from the State's
utilities. Previously, utilities had been subject to a 12.5% gross receipts
and franchise tax, which the utilities paid in lieu of property taxes;
however, the new tax is based upon the number of units of energy (kwh or
therms) delivered by a utility rather than revenues. The legislation also
requires that utilities accelerate payment to the State of the taxes
collected. As a result, RECO is required to make additional tax payments of
approximately $16 million during the period 1993-1994. On November 12, 1992,
the NJBRC issued a Decision and Order approving the recovery of the additional
tax over a ten-year period. A carrying charge of 7.5% on the unamortized
balance was also approved. The amount of unrecovered accelerated payments is
included in Deferred Revenue Taxes.
On February 26, 1993 the New Jersey Department of Public Advocate, Division of
Rate Counsel ("Rate Counsel") filed a Notice of Appeal from the NJBPU Decision
and Order with the Superior Court of New Jersey, Appellate Division, stating
as grounds for the appeal that the Decision is arbitrary and capricious and
would result in unjust and unreasonable rates. On March 21, 1994, the
Superior Court of New Jersey, Appellate Division, upheld the NJBRC Decision,
stating the NJBPU used proper rate-making principles.
Under an agreement with the NJBPU to return to customers funds misappropriated
by certain former employees (Reference is made to Part II, Item 1, "Legal
Proceedings"), RECO has refunded to New Jersey ratepayers $94,100 through
reductions in the applicable fuel adjustment charges in February and March
1994. The Company has also pledged to return any other funds that are
discovered to have been misappropriated.
Pennsylvania
On November 19, 1992, Pike County Light & Power Company ("Pike") filed with
the Pennsylvania Public Utility Commission ("PPUC") for a $497,000 increase in
electric rates and a $36,300 increase in gas rates. The proposed rates apply
to all residential, commercial, industrial and municipal customers. During
April 1993, Pike and the other parties involved in this proceeding signed a
stipulated agreement providing for an increase of $270,000, or 6.6% for
electric rates and $12,000, or 1.5% for gas rates. On June 10, 1993, the PPUC
approved the electric rate settlement with rates effective June 11, 1993. On
June 24, 1993, the PPUC approved the gas rate settlement with rates effective
June 25, 1993. With regard to the ongoing investigation into the alleged
financial improprieties, Pike has pledged to return to ratepayers any funds
discovered to have been misappropriated.
<PAGE>
Results of Operations:
QUARTERLY COMPARISON
The earnings per share for the second quarter of 1994 were $.19 as compared to
$.43 for the second quarter of 1993. The decrease reflects the expenses
associated with the continuing investigation and litigation involving the
Company's former officers and others, as well as the impact of the NYPSC
recent decision denying the Company's electric rate request and reducing the
Company's targeted rate of return on equity to 10.6 percent retroactive to
January 1, 1994. Consequently, this quarter's results include a significant
accounting adjustment to earnings. These expenses were somewhat offset by
improved operating results, and the success of the Company's accelerated cost-
reduction program.
Electric and Gas Revenues
Electric and gas operating revenues, including fuel cost and purchased gas
cost recoveries, increased by $2.2 million in the second quarter of 1994 as
compared to the same quarter of 1993.
Electric operating revenues during the current quarter were $116.6 million as
compared to $115.9 million for the second quarter of 1993, an increase of $.7
million. The components of the changes in electric operating revenues for the
quarter ended June 30, 1994 as compared to the same quarter of 1993 are as
follows:
(Millions of Dollars)
Retail sales:
Base Revenues* $ (.2)
Fuel cost recoveries (.3)
Sales volume changes 3.2
Subtotal 2.7
Sales for resale .2
Other operating revenue:
RDM revenue reconciliation
and DSM incentives (2.4)
Other .2
Total $ .7
*Includes miscellaneous surcharges and revenue tax recoveries.
Electric operating revenues for the quarter ended June 30, 1994 when compared
to the same quarter of 1993 were adversely affected by the NYPSC recent rate
decision denying the Company's electric rate request and reducing the
Company's targeted rate of return on equity to 10.6 percent. Because this
targeted return is retroactive to January 1, 1994, this quarter's electric
revenues include an over-earnings adjustment reducing revenues by $1.2
million.
<PAGE>
Actual total sales of electric energy to retail customers during the second
quarter of 1994 were 1,063,281 megawatt hours ("Mwh"), compared with 1,024,754
Mwh during the comparable period a year ago. This increase is the result of
increases in usage and the average number of customers when compared to the
same period a year ago. Before reflecting the effect of the RDM and the DSM
incentives in the Company's New York jurisdiction, electric revenues
associated with these sales were $118.2 million during the current quarter
compared to $115.5 million during the second quarter of 1993, an increase of
$2.7 million.
New York electric revenue targets under the Company's RDM, as established in a
base rate case, net of fuel and taxes, amounted to $54.2 million for the
second quarter of 1994. In accordance with RDM procedures, deviations between
revenue targets and actual sales revenue are deferred and either recovered
from or returned to customers. The variation between the target revenue and
the Company's actual sales revenue of $58.0 million for the second quarter of
1994 was $3.8 million, which is recorded as a reduction to revenue. In the
second quarter of 1993, the Company recorded $2.0 million as a reduction to
revenue.
With regard to the DSM goal achievement incentives, the Company's performance
during the second quarter of 1994 allowed it to record $.2 million of
incentive related revenue. The incentive revenue recorded in the second
quarter of 1993 was $.8 million.
The Company's performance during the remainder of 1994 will determine what, if
any, RDM revenue adjustments may be earned.
Revenues from sales to other utilities in the second quarter of 1994 amounted
to $1.7 million, an increase of $.2 million from a year ago. Sales to such
utilities totaled 69,662 Mwh, compared with 50,833 Mwh in the second quarter a
year ago. Because revenues from these sales are primarily a recovery of costs
in accordance with applicable tariff regulations, they have little impact on
the Company's annual earnings.
Gas operating revenues during the quarter were $25.8 million compared to $24.3
million for the second quarter of 1993, an increase of $1.5 million. The
components of the changes in gas operating revenues for the quarter ended
June 30, 1994 as compared to the same quarter of 1993 are as follows:
(Millions of Dollars)
Sales to firm customers:
Base revenues $ .5
Gas cost recoveries 1.4
Sales volume changes (.3)
Subtotal 1.6
Sales to interruptible (.1)
Total $ 1.5
<PAGE>
Gas sales to firm customers during the second quarter of 1994 totaled 2,829
million cubic feet ("Mmcf"), compared with 2,916 Mmcf during the same period a
year ago. Gas revenues from firm customers were $24.2 million, compared with
$22.6 million in the second quarter of 1993.
Fuel, Purchased Electricity and Purchased Gas Costs, Excluding Gas
Marketing
The cost of fuel used in the production of electricity and purchased
electricity costs increased by $.2 million during the second quarter of 1994
when compared to the same quarter of 1993. The components of the change are
as follows:
(Millions of Dollars)
Prices paid for fuel and purchased power $ (1.7)
Changes in kilowatt-hours generated
or purchased 1.5
Deferred fuel charge .4
Total $ .2
The average cost per kilowatt-hour generated and purchased was 2.50 cents for
the quarter ended June 30, 1994 compared to 2.64 for the same quarter of 1993.
Purchased gas costs for utility operations were $15.1 million in the second
quarter of 1994 compared to $13.6 million in 1993, an increase of
$1.5 million. The components of the changes in purchased gas costs are as
follows:
(Millions of Dollars)
Prices paid for gas supplies* $(2.3)
Deferred fuel charges 3.8
Total $ 1.5
*Net of refunds received from gas suppliers.
The average cost per thousand cubic feet ("Mcf") purchased for the second
quarter of 1994 including transportation and storage costs, was $4.67 compared
to $5.35 in the second quarter of 1993.
Other Operating and Maintenance Expenses
The Company's total operating and maintenance expenses excluding fuel,
purchased power and gas purchased for resale for the second quarter, increased
by $3.1 million compared with a year ago. The increase in expenses associated
with utility operations accounted for $2.5 million of this increase.
<PAGE>
This increase is primarily due to the NYPSC's recent decision which resulted
in a non-recurring accounting adjustment as well as a reduction in the amount
of operating expenses reconciled in the RDM of $2.8 million, increase in taxes
of $.8 million offset by a reduction in other operating and maintenance
expenses of $1.1 million.
Diversified Activities
The Company's diversified activities consist of gas marketing, gas production,
land development and communications businesses conducted by its wholly owned
non-utility subsidiaries.
Revenues from diversified activities increased by $12.4 million for the second
quarter of 1994 as compared to the same quarter of 1993, as a result of the
gas marketing subsidiary's success in adding customers and increasing its
sales volume. These revenues were offset by increases in operating expenses
for all diversified activities of $12.0 million, which is the result of
increased gas purchases of $11.5 and increases in maintenance, depreciation,
taxes, and other operating expenses of $.6 million.
Other Income, Deductions and Interest Charges - Net
Other income, net of interest charges and other deductions, decreased by $1.6
million during the second quarter of 1994 when compared to the same quarter of
1993. This decrease is primarily the result of an increase in outside
professional and consultative services related to the previously referenced
ongoing investigation.
YEAR TO DATE COMPARISON
Earnings per average common share outstanding for the six months ended
June 30, 1994 amounted to $1.17 per share as compared to $1.48 for the same
period of 1993. This decrease reflects the expenses associated with the most
recent NYPSC decision and the continuing investigation and litigation costs.
These costs were partially offset by higher electric and gas sales and
improved operating results of the Company's gas marketing subsidiary as
compared with the same period a year ago.
Electric and Gas Revenues
Electric and gas operating revenues, including fuel cost and purchased gas
cost recoveries, increased by $16.2 million for the first six months of 1994
as compared to the same period of 1993.
Electric operating revenues during the current period were $230.9 million as
compared to $226.8 million for the comparable period of 1993, an increase of
$4.1 million. The components of the changes in electric operating revenues
for the six months ended June 30, 1994 as compared to the same period in 1993
<PAGE>
are as follows:
(Millions of Dollars)
Retail sales:
Base rates* $ 1.8
Fuel cost recoveries (.4)
Sales volume changes 5.8
Subtotal 7.2
Sales for resale 1.6
Other operating revenues:
RDM revenue reconciliation
and DSM incentives (4.4)
Other (.3)
Total $ 4.1
*Includes miscellaneous surcharges and revenue tax recoveries.
Electric revenues include an over-earnings adjustment reducing 1994 year-to-
date revenues by $1.2 million (Reference is made to "Quarterly Comparison" in
this Item 1).
Actual total sales of electric energy to retail customers during the first six
months of 1994 were 2,150,019 Mwh, compared with 2,076,512 Mwh during the
comparable period a year ago. Before reflecting the effect of the RDM and the
DSM incentives in the Company's New York jurisdiction, electric revenue
associated with these sales was $230.9 million during the current period
compared to $223.7 million during the first six months of 1993, an increase of
$7.2 million.
New York electric revenue targets under the Company's RDM, as established in a
base rate case, amounted to $104.7 million for the first six months of 1994.
In accordance with RDM procedures, deviations between revenue targets and
actual sales revenue are deferred and either recovered from or returned to
customers. The variation between the target revenue and the Company's actual
sales revenue of $110.3 million for the first six months of 1994 was $5.6
million, which is recorded as a reduction to revenue. For the first six
months of 1993, the Company recorded a reduction in revenues of $2.5 million.
With regard to the DSM goal achievement incentives provided for in the RDM
agreement, the Company's performance during the first six months of 1994
allowed it to record $.2 million of incentive related revenue compared to $1.5
million of incentive revenue recorded during the comparable period of 1993.
The Company's performance during the remainder of 1994 will determine what, if
any, additional RDM revenue adjustments may be recorded.
Revenues from sales to other utilities in the first six months of 1994
amounted to $4.8 million compared to $3.2 million a year ago. Such sales
totaled 174,175 Mwh compared with 110,688 Mwh in the first six months of 1993.
Because revenues from these sales are primarily a recovery of costs in
accordance with applicable tariff regulations, they have little impact on the
Company's annual earnings.
Gas operating revenues during the first six months of 1994 were $107.2 million
compared to $95.1 million for the first six months of 1993, an increase of
$12.1 million. The components of the changes in gas operating revenues for
the six months ended June 30, 1994 as compared to the same period in 1993 are
as follows:
(Millions of Dollars)
Sales to firm customers:
Base rates* $(1.2)
Gas cost recoveries 10.1
Sales volume changes 2.3
Subtotal 11.2
Sales to interruptibles 1.3
Sales for resale (.1)
Other operating revenue (.3)
Total $12.1
Firm gas sales amounted to 13,357 Mmcf during the first six months of 1994, an
increase of 6.1% from the 1993 level of 12,590 Mmcf. Gas revenues from firm
customers were $101.7 million in the current period compared to $90.5 million
during the first six months of 1993. Sales of interruptible gas for the first
six months of 1994 amounted to 736 Mmcf, an increase of 272 Mmcf from 1993.
Revenues from these sales were $3.1 million as compared to $1.8 million for
the same period of 1993.
Fuel, Purchased Electricity and Purchased Gas Costs, Excluding Gas Marketing
The cost of fuel used in the production of electricity and purchased
electricity costs increased by $2.7 million for the first six months of 1994
when compared to the $66.3 million recorded during the same period of 1993.
The components of the changes in electric energy costs are as follows:
(Millions of Dollars)
Prices paid for fuel and
purchased power $(1.6)
Changes in kilowatt-hours
generated or purchased 4.3
Total $ 2.7
The average cost per kilowatt-hour generated and purchased was 2.64 cents in
the first six months of 1994 and 2.70 cents for the same period of 1993.
Purchased gas costs for utility operations, excluding the cost of gas
purchased for the Company's diversified activities which is discussed in this
year-to-date comparison under the heading "Diversified Activities", were
$65.3 million for the first six months of 1994 compared to $55.6 million for
the comparable period of 1993.
<PAGE>
The components of the change are as follows:
(Millions of Dollars)
Prices paid for gas suppliers* $2.5
Gas sendout volume 4.5
Deferred fuel charges 2.7
Total $ 9.7
*Net of refunds received from gas suppliers
The average cost per Mcf purchased for the first six months of 1994, including
transportation and storage costs, was $3.40 as compared to $3.23 for the same
period of 1993.
Other Operating and Maintenance Expenses
The Company's total operation and maintenance expenses excluding fuel,
purchased power and gas purchased for resale, increased by $7.9 million
compared to a year ago. Expenses from Diversified Activities accounted for
$1.7 million of this increase, as described below. The increase associated
with utility operations was $6.2 million. This increase is the result of the
NYPSC recent rate decision, which resulted in a non-recurring accounting
adjustment as well as a reduction in the amount of operating expenses
reconciled in the RDM of $2.8 million and increases in taxes primarily as a
result of increased revenue taxes of $3.4 million. Other operating and
maintenance expense remained virtually unchanged when compared to the same
period of 1993.
Diversified Activities
Revenues from diversified activities increased by $27.0 million for the first
six months of 1994 as compared to the same period of 1993. The increase is
primarily the result of increased sales from gas marketing activities. While
revenues from gas marketing activities were significantly higher during the
first six months of 1994 compared to the first six months of 1993, an
extremely competitive market resulted in narrower profit margins during the
current period. These revenues were offset by increases in operating expenses
for all diversified activities of $25.8 million, which is the result of
increased gas purchases of $24.1 million and increases in maintenance,
depreciation, taxes and other operating expenses of $1.7 million.
Other Income, Deductions and Interest Charges - Net
Other income, net of interest charges and other deductions, decreased by $3.1
million during the first six months of 1994 when compared to the first six
months of 1993. This decrease is primarily the result of the costs of the
investigation and litigation involving former officers and others, partially
offset by a decrease in interest expense which resulted from lower interest
rates on debt refinancings.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Investigation Related Litigation
Reference is made to Part II, Item 1. Legal Proceedings, in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 for
descriptions of (i) an action entitled Orange and Rockland Utilities, Inc. v.
Smith ("Smith"), which was filed by the Company in New York State Supreme
Court, Rockland County against James F. Smith, former Chief Executive Officer
and Chairman of the Board of Directors of the Company; and (ii) the
termination for cause of the employment of Mr. Smith as Chief Executive
Officer of the Company and his removal as Chairman of the Board of Directors.
(Reference is made to Part II, Item 4. Submissions of Matters to a Vote of
Security Holders, for information regarding Mr. Smith's removal from the Board
of Directors of the Company.) Mr. Smith had the right under his employment
agreement with the Company to contest his termination for cause in an
arbitration proceeding. On May 5, 1994, Mr. Smith filed a motion demanding
arbitration of his termination for cause and the Company's claims asserted
against him in the Smith litigation. On June 17, 1994, the Court issued an
Order granting Mr. Smith's motion to compel arbitration. A meeting was held
on July 26, 1994 with parties agreeing to file their demands for arbitration
with the American Arbitration Association.
On May 12, 1994, James F. Smith v. Orange and Rockland Utilities, Inc.,
was commenced in New York State Supreme Court, Rockland County through the
filing of a Summons and Complaint and an Order to Show Cause. Through this
action, Mr. Smith sought a preliminary injunction restraining the Company from
accepting any votes cast by shareholders after 1:00 p.m. on May 11, 1994 on
proposals brought before the Company's 1994 Annual Meeting of Shareholders
which was convened on May 11, 1994 and adjourned to June 10, 1994. On June 7,
1994, Judge Howard Miller issued an Order denying Mr. Smith's request for a
preliminary injunction.
On June 7, 1994, Mr. Smith filed a second Order to Show Cause seeking to
restrain the Company from defaming him in connection with any shareholder
solicitation efforts by or on behalf of the Company with regard to a
resolution seeking his removal as a Director of the Company. The hearing on
that Order to Show Cause has been adjourned to August 16, 1994.
At a hearing held on June 30, 1994 before Judge Miller, Mr. Smith advised
the Court that he intended to file a motion for summary judgment with regard
to his action against the Company. Judge Miller directed that any such motion
be filed and served within seven to ten days of June 30, 1994. To date, the
Company has not been served with any motion papers with regard to this matter.
Reference is made to Part II, Item 1. Legal Proceedings, in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 for
descriptions of (i) an action entitled Orange and Rockland Utilities, Inc. v.
Winikow et al. ("Winikow"), which was filed under the Federal Racketeer
Influenced and Corrupt Organizations Act by the Company in the United States
District Court, Southern District of New York against a former Vice President
and several former employees of the Company; (ii) Gross v. Orange and Rockland
Utilities, Inc. ("Gross"), a purported shareholder class action complaint,
filed against the Company in the United States District Court, Southern
District of New York; and (iii) Patents Management Corporation v. Orange and
Rockland, Inc., et al. ("Patents Management"), a purported shareholder
derivative complaint filed against the Company in the Supreme Court of the
State of New York, County of New York. Conferences scheduled for July 22,
1994 with Judge Brieant in the Winikow and Gross cases, respectively, have
been adjourned to September 2, 1994. Plaintiff's attorney in Patents
Management has agreed to proceed in this litigation according to the schedule
set by Judge Brieant with regard to the Gross suit.
Reference is made to Part II, Item 1. Legal Proceedings, in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 for a
description of an action entitled Feiner, et al. v. Orange and Rockland
Utilities, Inc., a purported ratepayer class action complaint against the
Company which was filed in the United States District Court, Southern District
of New York. As stated therein, on February 18, 1994 the Company filed a
motion to dismiss this case. On April 22, 1994 a hearing on this motion was
held before Judge Brieant followed by a second hearing before Judge Brieant on
June 22, 1994. To date, there has been no decision issued with regard to the
Company's motion.
A conference scheduled for July 22, 1994 with Judge Brieant with respect
to the Feiner litigation has been adjourned to September 2, 1994.
Reference is made to Part II, Item 1. Legal Proceedings, in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 for a
description of an action entitled Bernstein v. Orange and Rockland Utilities,
Inc. and James F. Smith, a purported shareholder class action complaint
against the Company and a former Chairman of the Board of Directors and Chief
Executive Officer of the Company which was filed in the United States District
Court, Southern District of New York. On April 28, 1994, the Company filed
its answer in this suit. On May 23, 1994, Mr. Smith filed his answer and a
cross-claim against the Company claiming, among other things, that the Company
is obligated to indemnify him with regard to this action.
On June 10, 1994, the Company filed a Notice of Motion seeking leave from
the Court to amend the Company's April 28, 1994 answer to assert a cross-claim
against Mr. Smith. The Company does not believe it is obligated to indemnify
Mr. Smith with regard to this litigation.
A conference scheduled for July 22, 1994 with Judge Brieant with respect
to the Bernstein litigation has been adjourned to September 2, 1994.
Other Litigation
Reference is made to Part II, Item 1. Legal Proceedings, in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, for a
description of an action entitled Carpenters Local No. 964 Pension Fund v.
DiGiacinto, et al., filed in the Supreme Court of the State of New York,
County of New York. As stated therein, the Company is a third party defendant
in this action which is based on the claim of residents of a subdivision that
the deterioration of wallboard materials buried at the subdivision site has
resulted in a continuous release of hydrogen sulfide gas thereby rendering
their homes unfit for dwelling. At this time, the Company does not believe
that this litigation will have a material effect on the business or financial
condition of the Company.
Regulatory Matters
Reference is made to Part II, Item 1. Legal Proceedings, in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, for a
description of an electric rate case filed by the Company with the NYPSC on
January 29, 1993 (Case 93-E-0082). On June 10, 1994, the NYPSC issued an
Order terminating this case. Further information regarding Case 93-E-0082 and
its termination is contained under the caption "Rate Activities" in Part I,
Item 2. "Management's Discussion and Analysis of Financial Condition and
Results of Operations", and under the caption "Reports on Form 8-K" in Part
II, Item 6. "Exhibits and Reports on Form 8-K" of this Quarterly Report on
Form 10-Q.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company's Annual Meeting of Shareholders was convened on
May 11, 1994, and adjourned to June 10, 1994.
(b) The following Directors were elected on May 11, 1994 for three-year
terms expiring at the Annual Meeting of Shareholders in 1997: J.
Fletcher Creamer, Kenneth D. McPherson and Linda C. Taliaferro. The
following Directors have continued in office after the meeting:
Ralph M. Baruch, Victor J. Blanchet, Jr., Michael J. Del Giudice,
Frank A. McDermott, James F. O'Grady, and H. Kent Vanderhoef. On
June 10, 1994, by a vote of the holders of 82.5% of the outstanding
shares of the Company, James F. Smith, a Director of the Company,
was removed from the Board of Directors for cause.
(c) The following matters were submitted to a vote of security holders
at the Company's Annual Meeting of Shareholders held on May 11,
1994:
1. The nominees for election as Directors were elected by the
following vote:
Shares Shares Broker
For Withheld Non-Votes
J. Fletcher Creamer 11,908,257 292,164 N/A
Kenneth D. McPherson 11,877,937 322,484 N/A
Linda C. Taliaferro 11,837,065 363,356 N/A
3. A proposal to appoint the firm of Arthur Andersen & Co.,
independent public accountants, to audit the books, records and
accounts of the Company and its subsidiaries for the year 1994
<PAGE>
was approved by the following vote:
Shares Shares Shares Broker
For Against Abstaining Non-Votes
11,807,759 181,285 211,377 N/A
The following matter was submitted to a vote of security holders at
the Company's Annual Meeting of Shareholders held on May 11, 1994,
the polls remained open on this proposal until the adjourned date on
June 10, 1994:
2. A proposal to remove James F. Smith from the Board of
Directors for cause was approved by the following vote:
Shares Shares Shares Broker
For Against Abstaining Non-Votes
11,175,063 272,564 285,153 914,350
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K
Reference is made to Item 6.(b), Reports on Form 8-K, in the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, for a
description of a Current Report on Form 8-K dated March 31, 1994, filed by the
Company with the SEC on April 13, 1994.
On June 17, 1994, the Company filed with the SEC a Current Report on Form
8-K dated June 10, 1994, disclosing the shareholder vote resulting in the
removal of James F. Smith from the Board of Directors of the Company.
On June 22, 1994, the Company filed with the SEC a Current Report on Form
8-K dated June 3, 1994, disclosing (i) the NYPSC Order terminating the
Company's Electric Rate Case 93-E-0082 and (ii) the NYPSC Order suspending the
second stage increase in the Company's gas rates and service charges.
On July 18, 1994, the Company filed with the SEC a Current Report on Form
8-K dated July 14, 1994, disclosing the election of D. Louis Peoples as Vice
Chairman of the Board of Directors and Chief Executive Officer of the Company.
<PAGE>
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.
ORANGE AND ROCKLAND UTILITIES, INC.
(Registrant)
Date: August 12, 1994 By TERRY L. DITTRICH
Terry L. Dittrich
Acting Controller
Date: August 12, 1994 By ROBERT J. McBENNETT
Robert J. McBennett
Treasurer
