UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the fiscal year ended December 31, 1993
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
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)
Common Stock, $5 Par Value -- New York Stock Exchange, Inc.
(Securities registered pursuant to Section 12(b) of the Act)
Preference Stock, No Par Value
(Securities registered pursuant to Section 12(g) of the Act)
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
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
At February 28, 1994, the approximate aggregate market value of
the voting stock held by nonaffiliates of the registrant was
$487,642,452*
At February 28, 1994, the registrant had 13,532,439 shares of
Common Stock ($5 par value) outstanding.
(Continued)
<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Continued from first page)
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of registrant as specified in its charter)
Documents incorporated by reference:
Annual Report to Shareholders for the year ended December 31, 1993
incorporated in Part I, Part II and Part IV to the extent described
therein.
The Company's definitive Proxy Statement in connection with the 1994
Annual Meeting of Common Shareholders incorporated in Part III to
the extent described therein.
* For purposes of this calculation, it is assumed that only directors
and officers of the registrant are affiliates of the registrant.
0064O.wp
<PAGE>
TABLE OF CONTENTS
Page
PART I
Item 1. Business
General Development of Business 1
Financial Information about Industry Segments 1
Narrative Description of Business: 1
Principal Business 1
Events Affecting the Company 2
Electric Operations 3
Gas Operations 9
Diversified Activities 12
Construction Program and Financing 13
Regulatory Matters 16
Utility Industry Risk Factors 19
Competition 20
Marketing 21
Environmental Matters 21
Research and Development 24
Franchises 24
Employee Relations 25
Item 2. Properties 26
Item 3. Legal Proceedings 28
Item 4. Submission of Matters to a Vote of Security Holders 39
Executive Officers of the Registrant 40
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters 41
Item 6. Selected Financial Data 41
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 41
Item 8. Financial Statements and Supplementary Data 42
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 42
PART III
Item 10. Directors and Executive Officers of the Registrant 42
Item 11. Executive Compensation 42
Item 12. Security Ownership of Certain Beneficial Owners
and Management 42
Item 13. Certain Relationships and Related Transactions 42
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 43
Signatures 50
Report of Independent Certified Public Accountants on Financial
Statement Schedules 52
Consent of Independent Certified Public Accountants 52
-i-
<PAGE>
PART I
Item 1. Business
General Development of Business:
Orange and Rockland Utilities, Inc. (the "Company") is a New York
corporation, with its principal office at One Blue Hill Plaza, Pearl
River, New York 10965 (telephone number 914-352-6000), which was formed
originally under the name Rockland Light and Power Company on May 21,
1926 through the consolidation of a company having the latter name
(organized in 1899), Catskill Power Corporation and Orange County Public
Service Company, Inc. Its present name was adopted on February 28,
1958, when The Orange and Rockland Electric Company was consolidated
with Rockland Light and Power Company.
The Company has two wholly owned utility subsidiaries, Rockland
Electric Company ("RECO"), a New Jersey corporation, and Pike County
Light & Power Company ("Pike"), a Pennsylvania corporation. The Company
has three wholly owned non-utility subsidiaries, O&R Energy Development,
Inc. ("ORED"), a Delaware corporation, Clove Development Corporation
("Clove"), a New York corporation and O&R Development, Inc. ("ORD"), a
Delaware corporation. RECO has a wholly owned non-utility subsidiary,
Saddle River Holdings Corp. ("SRH"), a Delaware corporation. SRH has
two wholly owned non-utility subsidiaries, O&R Energy, Inc. and Atlantic
Morris Broadcasting, Inc., both Delaware corporations. O&R Energy, Inc.
has a wholly owned non-utility subsidiary, Millbrook Holdings, Inc.,
also a Delaware corporation. The businesses of the non-utility
subsidiaries are described under the subheading "Diversified Activities"
in this Item 1.
Financial Information about Industry Segments:
Consolidated financial information regarding the Company's
principal business segments, Electric Operations, Gas Operations and
Diversified Activities is contained in Note 13 of the Notes to
Consolidated Financial Statements - "Segments of Business" on page 36
of the 1993 Annual Report to Shareholders, which material is
incorporated by reference in this Form 10-K Annual Report.
Narrative Description of Business:
Principal Business
The Company and its utility subsidiaries supply electricity and
gas to a territory covering approximately 1,350 square miles. The
eastern boundary of the Company's service territory extends along the
west bank of the Hudson River from a point in New Jersey six miles north
of the George Washington Bridge northerly for approximately 37 miles to
a point in New York a short distance north of the United States Military
Academy at West Point. From the Hudson River, the Company's territory
in New York State extends westward to the Delaware River, embracing all
of Rockland County, most of Orange County and a part of Sullivan County.
In New Jersey, RECO supplies electricity to the northern parts of Bergen
and Passaic Counties and small areas in the northeastern and
northwestern parts of Sussex County. Pike supplies electricity and gas
to the northeastern corner of Pike County, Pennsylvania.
<PAGE>
As of December 31, 1993, the Company and its utility subsidiaries
furnished electric service to approximately 257,000 customers in 96
communities with an estimated population of 656,000 and gas service to
approximately 109,000 customers in 57 communities with an estimated
population of 463,000. There have been no significant changes in either
the population of the Company's service territory or in the number of
customers served since December 31, 1992. At that time, electric
service was provided to approximately 254,000 customers in 95
communities with an estimated population of 648,000 and gas service was
provided to approximately 108,000 customers in 56 communities with an
estimated population of 465,000. At December 31, 1993 and 1992, 95% of
the Company's residential gas customers used gas as their major source
of space heating fuel. While the territory served is predominantly
residential, the Company also serves a number of commercial and
industrial customers in diversified lines of business activities from
which significant electric and gas revenues are derived. No customer
accounts for more than 10% of either gas or electric sales. The
business of the Company and its utility subsidiaries is seasonal to the
extent that sales of electricity are higher during the summer, mainly
due to air conditioning requirements, and sales of gas are greater in
the winter months, primarily as a result of space heating requirements.
Events Affecting the Company
On August 16, 1993, the Rockland County, New York District
Attorney charged a then Vice President of the Company with grand
larceny, commercial bribery and making illegal political contributions
and commenced a related investigation of the Company. Two other former
employees who had reported to the Vice President were also charged with
grand larceny.
On August 20, 1993, the Company's Board of Directors created a
Special Committee (the "Special Committee") of the Board, consisting
entirely of outside Directors, to conduct an independent investigation
of the issues raised by the Rockland County District Attorney and any
other matters discovered in the course of the investigation as the
Special Committee deems necessary or desirable. The Special Committee
was granted full and complete power and authority to take whatever steps
it deems necessary or desirable, including retention of counsel and
other advisors, presenting to the Board of Directors periodic reports
regarding its activities and at the appropriate time its full findings,
and making recommendations to the Board of Directors with respect to any
remedial measures it deems appropriate to prevent a recurrence of any
improprieties or irregularities discovered by the investigation. The
Special Committee has retained the law firm of Stier, Anderson & Malone
as investigative counsel, and Price Waterhouse & Co. as accounting
experts, to assist it in conducting its independent investigation.
The Special Committee will present preliminary conclusions of its
investigation at the Annual Meeting of Shareholders on May 11, 1994.
The Special Committee intends to complete its investigation as promptly
as practicable after the Annual Meeting and will report its final
conclusions and recommendations to the Board of Directors at that time.
<PAGE>
In addition, during the fourth quarter, James F. Smith was
terminated for cause as Chief Executive Officer and removed as Chairman
of the Board of Directors. President and Chief Operating Officer,
Victor J. Blanchet, Jr. was appointed to serve as acting Chief Executive
Officer. Details concerning these events, including the cost incurred
for legal counsel, accounting services, and other professional and
consultative services related to the ongoing investigations and their
effect on the Company's results of operations, are contained in the
"Review of the Company's Results of Operations and Financial Condition"
under the captions "Events Affecting the Company" and "Rate Activities"
and in Note 12 of the Notes to Consolidated Financial Statements under
the caption "Legal Proceedings" on pages 15, 19 and 34, respectively, of
the 1993 Annual Report to Shareholders, which material is incorporated
by reference in this Form 10-K Annual Report. Reference is also made to
Item 3, "Legal Proceedings", of this Form 10-K Annual Report.
Electric Operations
Generating Capacity and Purchased Power. As described more fully
in Item 2 of this Form 10-K Annual Report under the subheading "Electric
Generating Facilities", the capacity of the Company's plants provides
the Company with a net generating capacity of 1,032 megawatts ("Mw") in
the winter and 1,020 Mw in the summer. The electric energy which RECO
and Pike distribute to their customers is supplied by the Company. The
maximum historical one-hour demand for the Company and its utility
subsidiaries occurred on July 8, 1993 and was 1,037 Mw. Additional
statistics regarding electric operations are contained under the caption
"Operating Statistics-Electric" on page 38 of the 1993 Annual Report to
Shareholders, which material is incorporated by reference in this
Form 10-K Annual Report.
In addition to the energy produced at its generating facilities,
the Company, through various transmission interconnections, purchases
both capacity and energy from other utilities when needed to meet load
and reserve requirements and also when such power is available at a
price lower than the cost of production. The Company maintains
transmission interconnections with Central Hudson Gas and Electric
Corporation ("Central Hudson"), Public Service Electric and Gas Company
("PSE&G") and Consolidated Edison Company of New York, Inc. ("Con Ed").
Through these interconnections, and as a member of the New York Power
Pool ("NYPP"), the Company can exchange power directly with the above
utilities and, through the facilities of other members of the NYPP, the
Company can exchange power with all members of the NYPP and with
utilities in pools in neighboring states. In addition, members of the
NYPP are able to coordinate inter-utility transfers of bulk power in
order to achieve economy and efficiency, cooperate in long range
planning of generation and transmission facilities, coordinate inter-
utility operating and emergency procedures to assure reliable, adequate
and economic electric service throughout the state and provide for the
equitable sharing of the resulting benefits and costs. Through the NYPP
control center, the Company is able to purchase power in order to
optimize its generation-interchange mix, using the lowest cost energy
available to the Company in the interconnected system. By agreement
with the NYPP, the Company must maintain capacity reserves including
firm capacity purchases of not less than 18% of its peak load.
<PAGE>
During 1993, the Company purchased 464,334 megawatt hours ("Mwh")
from or through the NYPP. In addition, the Company has agreements with
the New York Power Authority ("NYPA") and certain other utilities for
the purchase of firm power. During 1993, an agreement with the NYPA
provided for firm purchases of 25 Mw of year-round capacity from the
Blenheim-Gilboa pumped-storage generating facility ("Gilboa Facility")
and firm power purchase agreements with Central Hudson and with
Pennsylvania Power & Light Company ("PP&L") provided for an additional
225 Mw of capacity. Other agreements were in effect from time to time
throughout 1993 with several other utilities, including an agreement
with Philadelphia Electric Company pursuant to which significant economy
purchases were made during 1993, which provided for short-term, firm
purchases on an as-available, as-needed basis.
During 1993 purchased power, including purchases made pursuant to
firm purchase contracts, short-term purchase agreements and interchange
agreements, amounted to 42% of the Company's energy requirements.
Details are as follows:
191993 PURCHASED POWER
Purchased From Megawatt hours
Central Hudson Gas & Electric Corp. 68,925
Philadelphia Electric Co. 427,545
New York State Electric & Gas Corp. 26,606
General Public Utilities 83
New York Power Authority (1) 130,143
New York Power Pool 464,334
Niagara Mohawk Power Corp. 16,429
Public Service Electric & Gas Corp. 321,846
Pennsylvania Power & Light Company 387,654
Cogeneration and Small Power Producers 210,688
Total 2,054,253
=========
(1) The Company delivered 2,202 Mwh of NYPA hydroelectric power to
residential customers in Rockland County and Orange County under
NYPA's municipal distribution agency program. In addition, the
Company is party to an agreement with the NYPA regarding the
purchase of peaking power from the Gilboa Facility. Pursuant to
the agreement, the Company must replace the energy purchased
from the Gilboa Facility at a ratio of three-to-two. During
1993, the Company purchased 31,738 Mwh from the Gilboa Facility
and replaced 47,636 Mwh, for the net amount of (15,898) Mwh,
which is included in the amount shown above.
With regard to future purchases of capacity and energy, contracts are
in place with NYPA, Central Hudson, PP&L and PSE&G. The NYPA agreement
for firm purchases from the Gilboa Facility, which provides for 25 Mw of
year-round capacity, will be in effect through April 2015. The firm
purchase agreement with Central Hudson will provide 50 Mw of capacity
through April 1994, and the agreement with PP&L will provide capacity
ranging between 10 Mw and 125 Mw through October 1995. In addition, a
firm purchase power agreement with PSE&G will provide between 75 Mw and
<PAGE>
300 Mw of capacity during the base contract term which extends from May
1994 through April 1998, with an additional 100 Mw available throughout
the base contract term at the option of the Company. The contract also
provides that at the option of the Company 100 Mw of additional capacity
would be available between May 1992 and April 1994 and 400 Mw of
additional capacity will be available from May 1998 through October 2000.
During 1994, the Company expects to purchase 50 Mw of capacity above the
base contract amount under these options. Other agreements will continue
to be in effect which will enable the Company to take advantage of
economic power purchases on an as available, as-needed basis.
Additional information regarding future power supply, particularly
capacity purchase contracts with Independent Power Producers and
Qualifying Facilities, is contained under the caption "Future Energy
Supply and Demand" in this Item 1. Information regarding future payments
under capacity purchase contracts is contained in Note 12 of the Notes to
Consolidated Financial Statements under the caption "Power Purchase
Agreements" on page 34 of the 1993 Annual Report to Shareholders, which
material is incorporated by reference in this Form 10-K Annual Report.
Fuel Supply. The Company's 1,032 Mw winter generating capacity is
available from the following fuel sources:
Coal,
Oil Oil Gas
Plant* & Gas & Gas Hydro Turbine Total
(Megawatts)
Lovett Plant
Units 1, 2 & 3 102.0 102.0
Units 4 & 5 399.6 399.6
Hydro Plants
Swinging Bridge,
Mongaup, Rio and
Grahamsville 43.8 43.8
Gas Turbine Plants
Hillburn and
Shoemaker 86.0 86.0
Bowline Point Plant
Units 1 & 2 400.6 400.6
502.6 399.6 43.8 86.0 1,032.0
===== ===== ==== ==== =======
*For a description of the Company's generating plants, see "Electric
Generating Facilities" in Item 2 of this Form 10-K Annual Report.
The availability and cost of fuels and the Company's choice of fuel
in any particular circumstance are affected by a number of factors, the
majority of which are beyond the control of the Company. These factors
include the domestic and international fuel supply situation,
environmental regulations, conservation measures and the availability of
alternative fuels. The Company's principal generating plants use natural
gas, coal or oil as their primary fuels. The Company has, however, reduced
its dependence on oil through the use of coal as the primary fuel for the
<PAGE>
Lovett Plant's two largest generating units, the burning of increased
volumes of natural gas in its boilers and the purchase of power from other
systems.
Electricity available for sale is a mix of Company generation by
various fuel types, supplemented by purchased power when such power is
available at a price lower than the price of generation or is needed to
meet load requirements. Details for the years 1989 through 1993 are as
follows:
1989 1990 1991 1992 1993
Gas 25% 27% 22% 21% 16%
Coal 29 32 36 33 33
Oil 28 19 14 10 5
Hydro 3 4 3 3 4
Purchased Power 15 18 25 33 42
Total 100% 100% 100% 100% 100%
==== ==== ==== ==== ====
Gas - During 1993, the Company was able to use significant volumes of
natural gas for boiler fuel at both its Lovett Plant and the Bowline Point
Plant. It also expects to be able to use natural gas in the Lovett
Plant and the Bowline Point Plant during 1994, whenever such gas is more
economical than alternative fuels. In 1993, the Company used 2.1 billion
cubic feet ("Bcf") and 6.0 Bcf of gas, respectively, at the Lovett Plant
and the Bowline Point Plant. The annual average cost per thousand cubic
feet ("Mcf") of natural gas burned in the Company's generating plants
during each of the years ended December 31, 1989 through 1993 was $2.79,
$2.78, $2.64, $2.82 and $3.01, respectively. This is equivalent to $2.71,
$2.69, $2.56, $2.74 and $2.92, respectively, per million British Thermal
Unit ("MMBTU").
Coal - The low sulfur coal (1.0 lbs. SO2 per MMBTU) used in Lovett
Plant Units 4 and 5 has been supplied to the Company primarily through
long term contracts with Massey Coal Sales, Inc. ("Massey") and Pittston
Coal Sales Corporation ("Pittston") as well as through spot market
purchases, which accounted for approximately 22% of the Company's 1993
coal requirements. The Company has the right, under the coal purchase
contracts, to suspend the purchase of coal if alternative fuel sources
become less expensive. The coal is fully washed and, as such, is low in
ash (typically 7%) and high in BTU content (26 MMBTU's per ton). The
annual average cost per ton of coal consumed at the Lovett Plant during
each of the years ended December 31, 1989 through 1993 was $58.53, $58.40,
$56.57, $55.95 and $55.25, respectively. This is equivalent to $2.26,
$2.25, $2.18, $2.16 and $2.14, respectively, per MMBTU. During 1993 coal
was the predominant fuel burned at the Lovett Plant, and the Company
expects it to be the predominant fuel burned during 1994. In February
1994, the contract with Pittston was terminated by the Company because of
Pittston's failure to meet the coal quality specification of its contract.
Alternative supplies have been obtained and arrangements for longer term
replacement coal are under review. Information regarding the coal supply
contracts is contained in Note 12 of the Notes to Consolidated Financial
Statements under the caption "Coal Supply Contracts" on page 34 of the
1993 Annual Report to Shareholders which material is incorporated by
reference in this Form 10-K Annual Report.
<PAGE>
Oil - The Company does not anticipate purchasing any significant
quantity of fuel oil for its Lovett Plant. Con Ed has undertaken the
supply of #6 fuel oil (0.37% maximum sulfur content by weight) to the
Bowline Point Plant, which is supplied under a contract between Con Ed and
the Company. Pursuant to that contract, Con Ed has also undertaken to
provide a backup oil supply for the Company's Lovett Plant under certain
conditions. The Company believes that it will be able to secure
sufficient oil supplies to meet the total requirements of #6 fuel oil for
the calendar year 1994. The annual average cost per barrel of oil burned
in the Company's generating plants during each of the years ended
December 31, 1989 through 1993 was $19.21, $23.73, $21.23, $20.43 and
$21.27, respectively. This is equivalent to $3.09, $3.81, $3.40, $3.26
and $3.39, respectively, per MMBTU.
Hydro - Water for the operation of the Company's Mongaup River Hydro
Plants is controlled by the Company through the ownership of the necessary
land in fee or through easements. In the case of the Grahamsville Plant,
water is obtained under contract with the City of New York Board of Water
Supply. This contract, which expires in 2005, entitles the Company to 8.1
Bcf of free water each year. Water in excess of 8.1 Bcf, which amounted
to 9.0 Bcf during 1993, is billed at varying rates based on an average
cost of all fuels used in power generation.
Purchased Power - The Company's practice regarding purchased power is
to supplement the Company's electric generation by purchasing both
capacity and energy when needed to meet load and reserve requirements and
also when such power is available at a price lower than the cost of
production. Details regarding purchased power are contained under the
captions "Generating Capacity and Purchased Power" and "Future Energy
Supply and Demand" in this Item 1. In addition, information regarding the
cost of electric energy is contained under the caption "Electric Energy
Costs" in the "Review of the Company's Results of Operations and Financial
Condition" on page 16 in the 1993 Annual Report to Shareholders, which
material is incorporated by reference in this Form 10-K Annual Report.
Future Energy Supply and Demand. The Company continues to be
committed to meeting customer energy needs by providing reliable energy
service at the lowest prudent cost and in an environmentally sound manner.
Through its Integrated Resource Plan the Company has responded to the
changes that have occurred in the utility industry and has incorporated a
significant number of conservation and demand reduction alternatives as
well as purchased power from both utility and non-utility generators, into
its energy strategy.
The Demand Side Management ("DSM") program involves efforts to
control electric peak demand and energy usage, and addresses the need to
improve plant utilization by making customer demand more complementary
over time to the available capacity. DSM programs are available to all
market segments. Through December 31, 1993, DSM efforts have reduced the
annual need for increased generating capacity and energy by 97.9 Mw and
173,104 Mwh, respectively, both through programs administered by the
Company and by RECO as well as through contracts with outside consultants
pursuant to the competitive bidding program. The New York State Public
Service Commission ("NYPSC") has consistently authorized the recovery of
<PAGE>
DSM costs, and in New Jersey, RECO's DSM costs are recoverable on a
current basis. Additional information regarding the recovery of DSM
costs, including the Company's achievement of certain DSM related goals
and their impact on the 1993 results of operations, as well as the impact
of certain events described under the caption "Events Affecting the
Company" in this Item 1, is contained under the captions "Electric
Operating Revenues and Sales" and "Rate Activities" in the "Review of the
Company's Results of Operations and Financial Condition" on pages 15 and
19, respectively, of the 1993 Annual Report to Shareholders, which
material is incorporated by reference in this Form 10-K Annual Report.
Reference is also made to Item 3, "Legal Proceedings" of this Form 10-K
Annual Report.
The Company's Supply-Side Management program involves the acquisition
of future increments of capacity and energy from both investor-owned
utilities and from non-utility generators. The Company has entered into
several agreements in this regard.
In 1990, the Company entered into a power supply agreement ("Wallkill
Agreement") with Wallkill Generating, L.P. ("Wallkill Generating"). The
Wallkill Agreement was approved by the NJBRC in October 1991, and in July
1991 the Federal Energy Regulatory Commission ("FERC") approved the rates
contained in the Wallkill Agreement. Pursuant to the agreement, Wallkill
Generating, a limited partnership formed by PG&E/Bechtel Generating
Company (now U.S. Generating Company), has contracted to construct and
operate a gas-fired combined cycle generating facility in the Town of
Wallkill, N.Y. and sell 95 Mw of capacity and associated energy to the
Company. The original target date for commercial operation of this
project as set forth in the Wallkill Agreement was April 1994. Wallkill
Generating has reported that construction of the project will begin in the
spring of 1994 and it will be available for commercial operation in late
1995.
In 1990, the Company entered into a long-term power supply agreement
("State Line Agreement") with State Line Power Associates Limited
Partnership ("State Line"). Under the terms of the State Line Agreement,
State Line contracted to construct and operate a gas-fired combined cycle
generating facility in the Borough of Ringwood, New Jersey and sell 100 Mw
of capacity and associated energy to the Company. In July 1992, the State
Line Agreement was terminated by the Company for, among others things,
State Line's failure to make a required milestone payment pursuant to
specified contract terms. On August 3, 1992, State Line filed suit
against the Company in the United States District Court for the Southern
District of New York claiming that the Company had wrongfully terminated
the State Line Agreement. On January 7, 1994, State Line and the Company
settled all litigation relating to the State Line Agreement. Information
regarding the settlement of the State Line litigation is contained under
Item 3, "Legal Proceedings" of this Form 10-K Annual Report, as well as in
the 1993 Annual Report to Shareholders in Note 12 of the Notes to
Consolidated Financial Statements under the caption "Legal Proceedings" on
page 34, which information is incorporated by reference in this Form 10-K
Annual Report.
In addition to the Wallkill Agreement, future increments of purchased
capacity and energy have been contracted from investor owned utilities and
<PAGE>
the NYPA as previously described under the caption "Generating Capacity
and Purchased Power" in this Item 1. In addition, the Company has
contracted to purchase approximately 90 Mw of capacity and associated
energy from various Public Utility Regulatory Policies Act ("PURPA")
Qualifying Facilities. These contracts include a contract between the
Company and Harriman Energy Partners, Ltd., ("Harriman Energy") a limited
partnership, the general partner of which is Destec Holdings, Inc.
(formerly PSE, Inc.). This contract provides for the construction of a
project that upon commercial operation, which Harriman Energy has reported
to be in late 1996, would provide the Company with approximately 57 Mw of
capacity and associated energy for a period of 25 years. Although this
contract has been approved by the NYPSC and the New Jersey Board of
Regulatory Commissioners ("NJBRC"), the Company is seeking a NYPSC order
that would revise the purchase price downward to reflect current costs of
alternative supplies.
Construction has not been commenced on either the Wallkill Generating
or Harriman Energy projects and the Company cannot predict whether either
of these projects will be constructed. If either or both of these
projects are not constructed, other economic sources of capacity and
energy should be available to the Company.
Information regarding future payments under capacity purchase
contracts is contained in Note 12 of the Notes to Consolidated Financial
Statements under the caption "Power Purchase Agreements" on page 34 of the
1993 Annual Report to Shareholders, which material is incorporated by
reference in this Form 10-K Annual Report.
Gas Operations
The Company distributes purchased natural gas, supplemented at times
of peak load by gas produced in its propane air gas plants.
As of December 31, 1993, the gas distribution system included 1,685
miles of mains. The highest historical maximum daily gas send out of
200,396 Mcf occurred on January 19, 1994. Additional statistics regarding
gas operations are contained under the caption "Operating Statistics -
Gas" on page 39 of the 1993 Annual Report to Shareholders, which material
is incorporated by reference in this Form 10-K Annual Report.
Supply, Transportation and Storage. On April 8, 1992, the FERC
issued Order No. 636 which required significant changes to the structure
of the natural gas industry. Specifically, gas pipeline companies, which
previously had provided gas supply, transportation and gas storage
services to local gas distribution companies such as the Company, were
required to unbundle their services, and provide transportation services
only.
As a result of Order No. 636, the Company is responsible for the
acquisition of gas supply directly from gas production companies and gas
marketers. The Company was well-positioned to comply with the changes in
the gas industry which resulted from Order No. 636 by virtue of its
geographic location, high load factor and extensive gas procurement
experience. Four major pipeline company facilities are located within the
Company's service territory, and the gas supply into the territory is
<PAGE>
enhanced by an additional pipeline interconnection with a fifth Company.
These interconnections provide the Company with access to interruptible
spot market supply and the ability to pursue least-cost supply options to
serve the Company's market area. In addition, the Company has been
contracting for gas supply from producers and marketers for several years
and has made extensive use of the gas spot market. As a result, the
Company has negotiated a gas supply portfolio which is diverse as to
supplier, pipeline and terms of contract.
The Company has firm, long-term gas supply contracts with seven gas
producers. Together these contracts account for all of the Company's base
load gas requirements and include a contract with a Canadian producer
which accounts for approximately 32% of supply requirements and expires in
the year 2002. Contracts for the remaining 68% of the Company's required
gas supply have been executed with six domestic producers and have
expiration dates ranging between 1994 and 2004. All of the gas supply
contracts contain options for renewal and certain of the agreements
contain "re-opener" provisions which allow the Company to modify price and
operating terms under certain conditions. This flexibility will insure
the reliability of the Company's gas supply while allowing the Company to
enhance its supply portfolio as market opportunities arise.
In addition to its long-term contracted supply sources, the Company
has made and will continue to make direct spot purchases from producers at
competitive prices to lower its average gas cost and to secure increments
of additional supply. During 1993, the Company made spot purchases of
approximately 14.1 million Mcf of gas or 33% of the total gas supply.
In addition to purchased gas, the Company manufactures gas at its
propane air gas plants located in Middletown, Orangeburg and Suffern,
New York which have a combined capacity of 30,600 Mcf per day of natural
gas equivalent. This capacity, together with gas purchases under
contracts between the Company and its suppliers, is expected to provide
adequate peak day supplies to serve existing and projected new customers
through the year 1998. Additional increments of new supply beyond this
point are being negotiated.
In addition to the gas supply contracts, the Company has provided for
the transportation of gas through firm, long-term transportation
agreements with four major pipeline companies: Tennessee Gas Pipeline
Company ("Tennessee"), Columbia Gas Transmission Corporation ("Columbia"),
Algonquin Gas Transmission Corporation ("Algonquin") and Texas Eastern
Transmission Corporation ("Texas Eastern"). The earliest expiration date
of any of these contracts is in the year 1999. The Company also has
entered into interruptible transportation agreements with the same
pipeline companies and has the ability to make use of the spot
transportation market. All transportation contracts contain options for
renewal.
With regard to gas storage, the Company also has long-term gas
storage contract arrangements with Tennessee, Columbia, Texas Eastern and
Penn-York Energy Corporation ("Penn-York"). The Tennessee, Columbia and
Texas Eastern agreements include a provision for the transportation of the
gas held in storage by these companies, and separate agreements with
Tennessee and Columbia provide for firm transportation services for gas
<PAGE>
held in storage by Penn-York. The earliest expiration date of any of
these storage contracts is 1995 and all storage contracts contain options
for renewal. During 1993 the Company elected to secure capacity in an
innovative gas storage project operated by Avoca Natural Gas Storage. The
storage facility, which uses leached-out caverns in underground salt beds
to create a storage reservoir, is designed for fast withdrawal and refill
capacity and will enhance the Company's ability to meet incremental peak
day gas requirements.
Columbia, which provides the Company with both transportation and gas
storage services, filed for protection under Chapter 11 of the bankruptcy
code during 1991. This action has not affected Columbia's ability to
provide services under existing contracts while bankruptcy proceedings are
in progress.
As noted earlier, the Company's maximum daily send out of gas
occurred during 1994 and amounted to 200,396 Mcf. This compares to the
maximum daily gas delivery capacity of the Company's system of 225,227 Mcf
which is available from the following sources: direct purchases - 117,978
Mcf; storage withdrawals - 76,649 Mcf; and Company manufactured gas -
30,600 Mcf.
Additional information regarding gas supply and gas storage contracts
is contained in Note 12 of the Notes to Consolidated Financial Statements
under the caption "Gas Supply and Storage Contracts" on page 33 of the
1993 Annual Report to Shareholders, which material is incorporated by
reference in this Form 10-K Annual Report.
Transportation for Others. The Company, through the provisions of
FERC Order No. 436 concerning the transportation of natural gas, provides
gas transportation services for end users in the Company's service
territory who elect to obtain their own direct gas supplies. During 1993,
approximately 5.9 million Mcf of gas were transported for such end users.
Take-or-Pay Surcharge Costs and FERC Order No. 636 Transition Costs.
As a result of a 1987 FERC order, as well as other legal and regulatory
actions since that time regarding the pass-through of certain "take-or-
pay" costs by gas suppliers, the Company has deferred approximately $3.7
million of gas surcharges through December 31, 1993.
In addition, certain costs incurred by the gas pipeline companies in
complying with Order 636 have been approved by the FERC for allocation to
distribution companies including the Company. It is currently estimated
that the Company's obligation related to Order 636 transition costs will
amount to $23 million. It is anticipated that transition costs incurred
by the Company will be recoverable in gas rates to the extent such costs
were prudently incurred.
Information regarding take-or-pay charges and FERC Order 636
transition costs is contained under the caption "Gas Energy Costs" in the
"Review of the Company's Results of Operations and Financial Condition"
and in Note 12 of the Notes to Consolidated Financial Statements under
the caption "Gas Supply and Storage Contracts" on pages 17 and 33,
respectively, of the 1993 Annual Report to Shareholders, which material is
incorporated by reference in this Form 10-K Annual Report. Reference is
also made to Item 3, "Legal Proceedings" of this Form 10-K Annual Report.
<PAGE>
Diversified Activities
Both the Company and RECO have certain non-utility subsidiaries which
engage in the following diversified, non-regulated business activities:
gas marketing, radio broadcasting, real estate development and oil and gas
production. The Company's Consolidated Financial Statements, which are
incorporated in this Form 10-K Annual Report by reference to the Company's
1993 Annual Report to Shareholders, include the results of operations of
all diversified activities. In addition, the diversified activities are
considered to be a reportable business segment, due to the fact that the
gross operating revenues of the non-regulated business activities, which
are primarily attributable to the gas marketing activities, account for
more than 10 percent of the Company's total consolidated gross revenue.
The nature of the gas marketing business is such, however, that the net
earnings realized from this activity, and from all non-regulated
activities combined, are not considered to be material. In addition,
neither the assets of the non-regulated businesses nor the continued
operation of the non-regulated business lines are material to the
operations of the Company. For these reasons, the disclosure related to
the Company's diversified activities, as prescribed by Regulation S-K,
has, with few exceptions, been omitted from other sections of this Form
10-K Annual Report.
Capital contributions to the non-utility subsidiaries by the Company
and RECO are borne by the shareholders. Any losses, profits, or tax
savings from investments in non-utility subsidiaries accrue to the
shareholders and are not included in the cost of service for ratemaking
purposes. A description of the non-utility subsidiaries of the Company
and RECO follows.
Saddle River Holdings Corp. ("SRH"). SRH, a wholly owned subsidiary
of RECO, was established for the purpose of investing in non-utility
business ventures and, through subsidiaries, is currently engaged in
natural gas marketing and radio broadcasting. Gas marketing activities
are conducted through a subsidiary, O&R Energy, Inc., which provides
natural gas to industrial, commercial and institutional end users, gas
distribution companies and electric generating facilities in 38 states. A
subsidiary of O&R Energy, Inc., Millbrook Holdings, Inc., holds
approximately twelve acres of non-utility real estate in Morris County,
New Jersey. Broadcasting activities are conducted through Atlantic Morris
Broadcasting, Inc., a subsidiary of SRH which owns radio stations WKTU
(FM) in Ocean City, New Jersey, WABT (FM) in Dundee, Illinois, WALL (AM)
and WKOJ (FM) in Middletown, New York and WCSO (FM) and WLPZ (AM) in
Portland, Maine.
O&R Development, Inc. ("ORD"). ORD, a wholly owned subsidiary of
the Company, was established to promote industrial and corporate
development within the Company's service territory by providing improved
sites and buildings. ORD's activities are aimed at attracting new
business and industry to the Company's service territory, which would
spread fixed costs for electricity and gas over a wider customer base.
ORD owns Interchange Commerce Center ("ICC Project"), a 300 acre
tract of land in Orange County, New York. The ICC Project has
governmental approvals for the development of 2.7 million square feet of
light industrial, office, warehouse and retail space. Approximately 2,000
<PAGE>
lineal feet of street and utilities have been installed, and two buildings
totaling over 200,000 square feet have been completed and fully leased.
Due to the current depressed condition of the real estate industry,
further construction at the Orange County site has been suspended and
emphasis is placed on marketing of available properties.
Clove Development Corporation ("Clove"). Clove, a wholly owned
subsidiary of the Company, holds approximately 5,500 acres of non-utility
real estate, located primarily in the Mongaup Valley region of Sullivan
County, New York. Historically, Clove's revenues have been derived
primarily from the sale of timber and sand, property rentals and periodic
sales of land which are not required for the Company's utility operations.
Certain portions of Clove's property lend themselves to recreational
development. Two small subdivisions have been developed and substantially
sold off. A third development, Lakeside Forest at Swinging Bridge, is
actively being marketed, with eight lots having been sold through 1993.
O&R Energy Development, Inc. ("ORED"). ORED, a wholly owned
subsidiary of the Company, is engaged in oil and gas production.
Production activities are carried on through ownership interests in
producing wells in Texas, Mississippi, Ohio and Pennsylvania. At
December 31, 1993, ORED's net investment in producing properties was
$558,000.
Additional information regarding the non-utility subsidiaries of the
Company and of RECO is contained in the "Review of the Company's Results
of Operations and Financial Condition" under the caption "Diversified
Activities", and in Note 1 of the Notes to Consolidated Financial
Statements under the caption "Principles of Consolidation" and Note 13 -
"Segments of Business", on pages 18, 25 and 36 respectively, of the 1993
Annual Report to Shareholders, which information is incorporated by
reference in this Form 10-K Annual Report.
Construction Program and Financing
Construction Program. The construction expenditures, excluding
allowance for funds used during construction ("AFDC"), of the Company and
its utility subsidiaries for the period 1994 through 1998 are presently
estimated at approximately $377.2 million, as set forth in the table
below. The Company's construction program is under continuous review and
the estimated construction expenditures are, therefore, subject to
periodic revision to reflect, among other things, changes in energy
demands, economic conditions, environmental regulations, construction
delays, the level of internally generated funds and other modifications to
the construction program.
<PAGE>
Forecasted Construction Expenditures (000's)
1994 1995 1996 1997 1998
Electric Production $18,675 $24,240 $20,980 $20,230 $24,740
Electric Transmission
and Substation 12,085 12,400 14,545 8,605 6,845
Electric Distribution 20,050 21,535 21,825 21,965 23,695
Gas Plant 14,455 14,050 14,735 16,345 12,655
General Plant 6,060 6,860 6,075 6,150 7,385
Total Construction $71,325 $79,085 $78,160 $73,295 $75,320
The Company's forecasted construction expenditures for the five year
period 1994 through 1998 consist primarily of routine production,
transmission and distribution projects for capital replacements or system
betterments and do not include any additions to generating capacity. The
1994, 1995 and 1996 forecasts do, however, contain forecasted
environmental protection expenditures of $8.2 million, $12.0 million and
$6.0 million, respectively, which will be required in order to comply with
regulations regarding reductions in nitrogen oxide emissions resulting
from the Clean Air Act Amendments of 1990.
Information regarding the Company's construction program is contained
under the caption "Liquidity and Capital Resources" in the "Review of the
Company's Results of Operations and Financial Condition" and under the
caption "Construction Program" in Note 12 of the Notes to Consolidated
Financial Statements on pages 18 and 33, respectively, of the 1993 Annual
Report to Shareholders, which material is incorporated by reference in
this Form 10-K Annual Report.
Financing. The Company has historically used short-term borrowings
in the form of commercial paper to finance construction expenditures when
such expenditures exceeded internally generated funds and to finance
short-term working capital requirements. Short-term borrowings undertaken
for construction expenditures are periodically repaid with the proceeds of
long-term debt and equity offerings.
At December 31, 1993, the Company and its utility subsidiaries had
unsecured bank lines of credit totaling $59 million. Commercial paper
borrowings, which are supported by such credit lines, amounted to $45.0
million at year end. Additional information regarding the Company's
short-term debt position is contained under the caption "Liquidity and
Capital Resources" in the "Review of the Company's Results of Operations
and Financial Condition" and in Note 8 of the Notes to Consolidated
Financial Statements - "Cash and Short-Term Debt" on pages 18 and 30,
respectively, of the 1993 Annual Report to Shareholders, which material is
incorporated by reference in this Form 10-K Annual Report.
The external financing activities of the Company and its utility
subsidiaries during 1993 were limited to refinancing of certain series of
first mortgage bonds by the Company and RECO. During the first quarter of
1993, the Company sold, at face value, $20 million of 6.14% Debentures due
<PAGE>
2000 (Series C) and $35 million of 6.56% Debentures due 2003 (Series D),
(together the "Debentures"). The net proceeds to the Company from the
sale of the Debentures, together with cash provided by the Company were
used to refund, on April 3, 1993, an aggregate of $58 million principal
amount of the Company's First Mortgage Bonds outstanding. The principal
amount and series of First Mortgage Bonds refunded were: $21 million of
7 1/2% Bonds, Series K due 2001; $12 million of 8% Bonds, Series L due
2001 and $25 million of 8 1/8% Bonds, Series M due 2003.
In addition, on March 10, 1993, RECO sold $20 million of First
Mortgage 6% Bonds, Series I due 2000 ("Series I Bonds"). The Series I
Bonds were sold at a discount to yield 6.11% to the public. The net
proceeds to RECO from the sale of the Series I Bonds were used to pay the
principal and redemption premium on an aggregate of $16,017,000 of RECO's
First Mortgage Bonds outstanding and for other corporate purposes. The
principal amount and series of First Mortgage Bonds which were refunded on
March 27, 1993 were: $5,000,000 of 9 1/8% Bonds, Series D due 2000;
$6,000,000 of 7 7/8% Bonds, Series E due 2001; $3,680,000 of 8.95% Bonds,
Series F due 2004 and $1,337,000 of 10% Bonds, Series G due 1997.
It is currently expected that the Company's capital requirements will
be met primarily with funds from operations. The Company does, however,
anticipate that it may issue debentures during 1995, the amount, timing
and terms of which would be determined by market conditions at the time of
issuance. The proceeds of such debt issuance would be used to refinance
the Company's First Mortgage Bonds, Series H, which mature during 1995 and
to reduce short term debt.
With regard to equity issues, from mid 1988 through the end of 1992
the common stock requirements under the Company's Dividend Reinvestment
and Stock Purchase Plan ("DRP") and Employee Stock Purchase and Dividend
Reinvestment Plan ("ESPP") were satisfied with original issue shares
which provided approximately $28.6 million of equity capital. Effective
January 1, 1993, common shares acquired under the DRP and ESPP have been
purchased on the open market. The Company, however, retains the option of
satisfying plan requirements with original issue shares, has registered
common stock available for that purpose and is currently evaluating a
return to the original issue option.
Additional information regarding the Company's financing activities
is contained under the caption "Liquidity and Capital Resources" in the
"Review of the Company's Results of Operations and Financial Condition"
and in Note 7 of the Notes to Consolidated Financial Statements - "Long-
Term Debt" on pages 18 and 29, respectively, of the 1993 Annual Report
to Shareholders, which material is incorporated by reference in this
Form 10-K Annual Report.
The non-utility subsidiaries of the Company and RECO also maintain
certain lines of credit and undertake long and short-term borrowings or
make investments from time to time. The non-utility long-term notes
outstanding are borrowings made pursuant to several loan arrangements.
At December 31, 1993, SRH and its subsidiaries had outstanding loans
aggregating $2.9 million, the proceeds of which were used to make
investments in broadcasting properties, and ORD had an intermediate term
mortgage outstanding which amounted to $5.4 million. In addition, a
<PAGE>
subsidiary of SRH had an available line of credit and standby letters of
credit which together amounted to $15 million under which there were $1.2
million of borrowings at December 31, 1993. Non-utility temporary cash
investments amounted to $1,440,000 at December 31, 1993.
For a description of the non-utility subsidiaries of the Company and
of RECO, see "Diversified Activities" in Item 1 of this Form 10-K Annual
Report.
Information regarding certain financial statistics of the Company is
contained under the caption "Financial Statistics" on page 40 of the 1993
Annual Report to Shareholders, which material is incorporated by reference
in this Form 10-K Annual Report.
Credit Ratings. The current ratings of the Company's principal
securities and its commercial paper are as follows:
Duff and
Phelps
Moody's Standard Credit Fitch
Investors & Poor's Rating Investors
Service,Inc. Corporation Company Service,Inc.
First Mortgage Bonds A2 A+ A+ AA-
Unsecured Debt A3 A+ A AA-
Preferred Stock a2 A A- AA-
Commercial Paper P-1 A-1 D-1 F-1+
The Company's credit ratings are not fixed, but rather are subject to
periodic revision or withdrawal by the particular rating agency, and each
rating should be evaluated independently of any other rating. The ratings
assigned to the Company's securities by the rating agencies are not a
recommendation to buy, sell or hold the Company's securities, but rather
are assessments of the respective credit-worthiness of the Company's
various securities by the rating agencies. The Company's bonds have a
high credit rating, its preferred stock has a medium credit rating and its
commercial paper has a high credit rating.
Regulatory Matters
State Regulation. The Company and its utility subsidiaries are
subject to the jurisdiction of state commissions in their respective
states of incorporation. The state commissions have the authority to
regulate, among other things, rates, services, the issuance of securities
and accounting and depreciation procedures. The Company is subject to the
jurisdiction of the NYPSC, which covers approximately 77% of consolidated
energy sales. RECO is subject to the jurisdiction of the NJBRC, which
covers approximately 21% of consolidated energy sales. Pike is subject to
the jurisdiction of the Pennsylvania Public Utility Commission (the
"PAPUC") which covers approximately 1% of consolidated energy sales.
Sales for resale, which are subject to regulation by the FERC, account for
the remaining 1% of consolidated energy sales.
Federal Regulation. The Company, pursuant to an order of the
Securities and Exchange Commission, has been exempted from all of the
<PAGE>
provisions of the Public Utility Holding Company Act of 1935, except
Section 9(a)(2) thereof relating to the acquisition of securities of other
public utility companies.
The Company and its utility subsidiaries are subject to the
jurisdiction of the FERC as "public utilities". This regulation
primarily relates to sales and exchanges of electricity for resale,
certain transportation, sales and exchanges of natural gas under the
Natural Gas Act, Company sales to its utility subsidiaries and certain
other matters including accounting, recordkeeping and reporting.
Other Regulation. The Company and its utility subsidiaries are also
subject to regulation by various other Federal, state, county and local
agencies under numerous regulations dealing with, among other things,
environmental matters, energy conservation, long-range planning, fuel use,
plant siting and gas pricing.
Current Rate Activities. Information regarding the current rate
filings of the Company and its utility subsidiaries, including the impact
which the recent events affecting the Company, which are described under
the caption "Events Affecting the Company" in this Item 1, had on the rate
proceedings of the Company and its utility subsidiaries, is contained
under the caption "Rate Activities" in the "Review of the Company's
Results of Operations and Financial Condition" on page 19 of the 1993
Annual Report to Shareholders, which information is incorporated by
reference in this Form 10-K Annual Report, as well as in Item 3, "Legal
Proceedings" of this Form 10-K Annual Report. Information regarding NYPSC
proceedings dealing with certain "take-or-pay" gas contract costs is also
contained under Item 3, "Legal Proceedings" of this Form 10-K Annual
Report, and in the 1993 Annual Report to Shareholders in the "Review of
the Company's Results of Operations and Financial Condition" under the
caption "Gas Energy Costs" beginning on page 17 and in Note 12 of the
Notes to Consolidated Financial Statements under the caption "Gas Supply
and Storage Contracts" on page 33, which information is incorporated by
reference in this Form 10-K Annual Report.
<PAGE>
Rate Relief. During the past five years, the Company and its utility
subsidiaries have sought rate relief to cover the impact of increased
costs. The amounts of rate relief approved by the NYPSC, NJBRC and PAPUC
are set forth in the following table.
Historical Rate Relief
1989 - 1993
Annual Amount Overall Rate Return on
Class of ($000's) of Return Equity
Service Effective Date Requested Granted Granted (%) Granted (%)
No Activity 1989 - - - -
Electric - N.Y. 01/01/90 (a) 6,800 - -
Gas - Pa. 06/16/90 100 55 (b) (b)
Electric - Pa. 10/01/90 210 105 (b) (b)
Gas - N.Y. 12/01/90 (c) 2,500 (c) (c)
Electric - N.Y. 01/01/91 22,483 10,450 (d) (d)
Gas - N.Y. 12/29/91 3,570 554 9.42 10.3
Electric - N.J. 01/24/92 12,863 5,100 10.17 12.0
Electric - N.Y. 05/01/92 (e) 7,417 (e) (e)
Gas - N.Y. 12/15/92 7,962 3,776 (f) (f)
Electric - N.J. 01/01/93 (g) 1,685 (g) (g)
Electric - N.Y. 05/08/93 (h) 11,308 (h) (h)
Electric - Pa. 06/11/93 498 270 (i) (i)
Gas - Pa. 06/25/93 36 12 (i) (i)
(a) Recovery of DSM costs pursuant to a cost recovery mechanism, Least
Cost Annual Power Supply ("LCAPS"), as approved by the NYPSC.
Beginning in January 1991, DSM cost recovery is accomplished through
the RDM procedures as approved by the NYPSC in Case 89-E-175.
(b) No redetermination of the rate of return on common equity was made
under a stipulated agreement. The implied return on common equity is
12.50%, and the implied overall rate of return is 10.33%.
(c) A third stage filing made pursuant to the NYPSC Order in the Company's
1988 gas base rate case provided for the recovery of wages, employee
welfare expenses, property taxes, inflation on non-fuel operation and
maintenance expenses and gas rate base additions.
(d) The Company was provided with an opportunity to earn a return on
common equity of 12.51% through the achievement of incentives related
to certain DSM and customer service goals.
(e) The first post rate year filing made in accordance with the NYPSC
Order in the Company's 1989 electric base rate case provided for the
recovery of inflation on non-fuel operation and maintenance expenses,
rate base additions and cost of capital. In addition, the Company was
permitted to recover a net under collection resulting from the
reconciliation of revenue and expenses as provided in the 1989 Order.
<PAGE>
(f) The Company was provided with an opportunity to earn a return on
common equity of 12.15% through the achievement of incentives related
to its main replacement program, gas efficiency programs and gas
marketing programs.
(g) Rate increase as ordered by the NJBRC to reflect the effect of revised
legislation regarding gross receipts and franchise taxes. Rate
recovery with interest is permitted over a ten year period.
(h) The second post rate year filing made in accordance with the NYPSC
Order in the Company's 1989 electric base rate case provided for the
recovery of inflation on non-fuel operation and maintenance expenses,
rate base additions and cost of capital. In addition, the Company was
permitted to recover a net under collection resulting from the
reconciliation of revenue and expenses as provided in the 1989 Order.
(i) No redetermination of the rate of return on common equity was made
under a stipulated agreement. The implied return on common equity is
12.00%, and the implied overall rate of return is 9.98%.
Information regarding possible rate impacts of certain events described
under the caption "Events Affecting the Company" in this Item 1 is contained in
Item 3, "Legal Proceedings", of this Form 10-K Annual Report.
Utility Industry Risk Factors
The electric and gas utility industry is exposed to risks relating to
increases in fuel costs, numerous regulatory and environmental
restrictions, delays in obtaining adequate rate relief, increases in the
costs of construction and construction delays, the effects of energy
conservation, the effect of weather-related sales and revenue fluctuations
and meeting the growth of energy sales.
The Company and its utility subsidiaries are, to some extent,
experiencing all of these challenges. However, the impact on the Company
and its utility subsidiaries has been less than for the utility industry
in general, principally due to the Company's relatively low construction
expenditures, low external financing requirements, and, in particular, due
to rate procedures in effect for the Company's New York electric and gas
operations. Under an electric rate mechanism, the Revenue Decoupling
Mechanism ("RDM"), the cost of conservation programs is recoverable on a
current basis and, because of the decoupling of sales volume fluctuations
from revenues, any decrease in earnings which would otherwise result from
customer conservation is also recoverable. This decoupling of sales level
fluctuations from revenue, although reconciled in subsequent periods, also
mitigates the risk of loss of earnings due to abnormal weather conditions.
In addition, the NYPSC has approved certain incentives in the form of an
increased return on equity based on the achievement of goals related to
the Company's DSM programs. Capacity costs associated with purchased
power are recoverable under the RDM. Pursuant to an Order of the NYPSC
dated October 4, 1993, the RDM has been extended until June 30, 1994.
Information regarding such October 4, 1993 Order and its effect is
contained in Item 3, "Legal Proceedings" of this Form 10-K Annual Report.
<PAGE>
Under the provisions of the gas rate settlement agreement which was
approved by the NYPSC on September 30, 1992, the Company's New York gas
revenue became subject to a weather adjustment clause which, as in the
case of New York electric revenue, mitigates the effect of variations in
weather conditions on gas revenue and earnings.
With regard to future power supply, the Company will utilize
competitive bidding to mitigate the risks associated with the Company's
purchase of both electric energy and capacity, particularly with regard to
prudency determinations and cost recovery. Additional information
concerning the DSM program, the RDM rate procedure and the gas weather
adjustment clause is contained under the captions "Electric Operating
Revenues and Sales", "Gas Operating Revenues and Sales" and "Rate
Activities" in the "Review of the Company's Results of Operations and
Financial Condition" on pages 15, 17 and 19, respectively, of the 1993
Annual Report to Shareholders, which material is incorporated by reference
in this Form 10-K Annual Report. Reference is also made to the caption
"Future Energy Supply and Demand" in this Item 1.
The problems associated with nuclear energy have not affected the
Company as it has no operating nuclear plants nor any under construction,
and has no plans for future participation in nuclear projects. For
further information on the recovery by the Company of its investment in
the cancelled Sterling Nuclear Project, see Note 3 of the Notes to
Consolidated Financial Statements - "Sterling Nuclear Project" on page 27
of the 1993 Annual Report to Shareholders, which information is
incorporated by reference in this Form 10-K Annual Report.
Competition
There are competitive factors present in the electric and gas
industry which affect utility companies in varying degrees. Among these
are the use by interruptible or dual-fuel customers of lower priced
alternative fuels; the establishment of municipal distribution agencies;
the ability of gas producers to sell gas directly to end users, usually
through an independent gas marketer; the presence of cogenerating systems,
small power producers and independent power producers; and the increasing
interest in, and research on, the development of energy sources other than
those now in use.
In recent years, changing laws and governmental regulation, combined
with a growing interest in self-generation and an increase in nonregulated
energy suppliers has served to intensify the level of competition
experienced by regulated utilities. The National Energy Policy Act of
1992 ("Energy Policy Act") is expected to bring major changes to the
electric utility industry, including increased competition from a new
category of wholesale electric generators which are exempt from the Public
Utility Holding Company Act of 1935. The Energy Policy Act also empowers
the FERC to require utilities, under certain circumstances, to provide
open access to electric wholesalers for use of the utility's transmission
systems. With regard to the natural gas industry, FERC Order 636 will
increase competition by assuring that equitable access to interstate
pipeline capacity is provided to local distribution companies and end-
users.
<PAGE>
The Company recognizes the changes in the regulated utility
environment and is committed to remain competitive in its core business.
The Company's five year strategic plan has put forth as a corporate
objective the achievement of a competitive edge by providing the most
economical and effective energy service to customers. Such competitive
factors are not expected to have a material effect on either the Company
or its utility subsidiaries for the foreseeable future.
Marketing
The primary focus of the Company's marketing efforts is the efficient
use of energy by the Company's residential, commercial and industrial
customers. Existing programs being marketed include all state approved
DSM programs, as well as all other energy conservation programs.
With regard to economic development incentive mechanisms, the
Company's marketing program promotes the NYPSC approved competitive gas
pricing rates which are aimed at maintaining duel fuel and interruptible
gas customers. In New Jersey, marketing efforts include promotion of the
NJBRC Job Development Rates which offer discounts to customers who expand
their operations or who locate to vacant buildings in the RECO service
territory.
Environmental Matters
The Company is subject to regulation by Federal, state, county and,
to some extent, local authorities with respect to the environmental
effects of its operations, including regulations relating to air and water
quality, aesthetics, levels of noise, hazardous wastes, toxic substances,
protection of vegetation and wildlife and limitations on land use. In
connection with such regulation, various permits are required with respect
to the Company's facilities. Generally, the principal environmental areas
and requirements to which the Company is subject are as follows:
Water Quality. The Company is required to comply with Federal and
State water quality statutes and regulations, including the Federal Clean
Water Act ("Clean Water Act"). The Clean Water Act requires that Company
generating stations be in compliance with state issued State Pollutant
Discharge Elimination System Permits ("SPDES Permits"), which prescribe
applicable conditions to protect water quality. On May 18, 1992, the
Company applied to the State of New York Department of Environmental
Conservation (the "NYDEC") for the renewal of its SPDES Permit for the
Lovett Coal Ash Management Facility. The existing permit expired on
December 1, 1992, but remains in effect until issuance of a new permit.
The Company also has a SPDES Permit, effective October 1, 1991 for its
Lovett generating station. Additional information concerning the Lovett
SPDES Permit is contained in Item 3, "Legal Proceedings" of this Form 10-K
Annual Report.
The Bowline Point generating station currently operates under a SPDES
permit which expired on October 1, 1992. This permit remains in effect
since a permit renewal application was filed on April 3, 1992, which was
within the statutory deadline for renewal application. The Company is now
proceeding with the State Environmental Quality Review Act process as part
of the permit renewal procedure.
<PAGE>
The Company entered into a settlement with the United States
Environmental Protection Agency (the "EPA") and others that relieved the
Company for at least 10 years from a regulatory agency requirement that,
in effect, would have required that cooling towers be installed at the
Bowline Point generating station. In return, the Company agreed to
certain plant modifications, operating restrictions and other measures.
This settlement expired in May 1991. On May 15, 1991, the Company and
others entered into an Interim Agreement with the NYDEC to continue
specific operating conditions and other measures for a period from May 15,
1991 to September 30, 1992. Several intervenors to the original
settlement filed a civil action challenging the Interim Agreement's
legality. On March 23, 1992, the parties to the Interim Agreement and
intervenors signed a Consent Order terminating litigation and agreeing to
certain operating limitations and biological monitoring requirements. The
Consent Order was due to expire on September 1, 1993. On August 5, 1993,
the parties executed the First Amended Consent Order which extends the
agreement through September 1, 1994.
Air Quality. Under the Federal Clean Air Act, the EPA has
promulgated national primary and secondary air quality standards for
certain pollutants, including sulfur oxides, particulate matter and
nitrogen oxides. The NYDEC has adopted, and the EPA has approved, the New
York State Implementation Plan ("SIP") for the attainment, maintenance and
enforcement of these standards. In order to comply with the SIP, the
Company burns #6 fuel oil at its Lovett and Bowline Point generating
stations with a 0.37% maximum sulfur content by weight.
Pursuant to the SIP, the Company is governed by the following
limitations when it is burning coal at Lovett Units 4 and 5: if one unit
is burning, the Company may emit sulfur dioxide at a rate not to exceed
1.5 lb/MMBTU, and if two units are burning, the Company may emit sulfur
dioxide at a rate not to exceed 1.0 lb/MMBTU per unit.
The NYDEC has proposed to revise the SIP to meet ozone attainment
standards and to provide a mechanism for Title V emissions fee billing.
Under the proposed fee revision, beginning in 1994, Title V sources which
include the Company's Lovett Plant and Bowline Point Plant will be
required to pay an emission fee based upon actual air emissions reported
to NYDEC at a rate of approximately $25 per ton of air emissions. The
effect of the proposed revision, based on 1992 emissions would have been
approximately $450,000.
The Clean Air Act Amendments of 1990, which became law on
November 15, 1990, could restrict the Company's ability to meet increased
electric energy demand after the year 2000 or could substantially increase
the cost to meet such demand. Regulations pertaining to nitrogen oxide
reduction and continuous emissions monitoring systems will require
increased capital expenditures totaling approximately $26.2 million during
1994 through 1996 as follows: $8.2 million in 1994, $12.0 million in 1995
and $6.0 million in 1996. The Company will continue to assess the impact
of the Clean Air Act Amendments of 1990 on its power generating operations
as additional regulations implementing these Amendments are promulgated.
The NYPSC has commenced a proceeding to consider the implications of
compliance with the Clean Air Act Amendments of 1990 by electric utilities
in New York State.
<PAGE>
Toxic Substances and Hazardous Wastes. The Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
by the Superfund Amendments and Reauthorization Act of 1986 ("Superfund"),
provides that both the owners and operators of facilities where releases
of hazardous substances into the environment have occurred or are
imminent, and the generators and transporters of hazardous substances
disposed of at the facilities, are, regardless of fault, jointly and
severally liable for all response, removal and remedial action costs and
also for damages to natural resources.
As part of its operations, the Company generates materials which are
deemed to be hazardous substances under Superfund. These materials
include asbestos and dielectric fluids containing polychlorinated
biphenyls ("PCB's"), both of which are disposed of at licensed, off-site
locations not owned by the Company. Other hazardous substances may be
generated in the course of the Company's operations or may be present at
Company-owned locations.
The Company has from time to time, received process or notice of
claims under Superfund or similar state statutes relating to sites at
which it is alleged that hazardous substances generated by the Company
(and, in most instances, by a large number of other potentially
responsible parties) were disposed of. Similar claims may be asserted
from time to time hereafter, involving additional sites. Typically, many
months, and sometimes years, are required to fully determine the probable
magnitude of the cleanup costs for a site, the extent, if any, of the
Company's responsibility, the number and responsibility of other parties
involved, the financial ability of the other parties to pay their
proportionate share of any costs, and the probable ultimate liability
exposure, if any, of the Company. This process is still under way at most
of the sites of which the Company has notice, and the costs at some of
these sites may be substantial. However, based on the information and
relevant circumstances known to the Company at this time, the Company's
share of these costs is not expected to be material.
Information concerning certain Superfund claims involving the Company
is included in Item 3, "Legal Proceedings" of this Form 10-K Annual
Report.
Environmental Expenditures. The Company estimates that expenditures
attributable, in whole or in substantial part, to environmental
considerations totaled $13.7 million in 1993.
Compliance with Federal, state and local laws and regulations which
have been enacted or adopted regulating the discharge of materials into
the environment or otherwise relating to the protection of the environment
is not anticipated to have a material financial impact on the Company.
The Company's projected environmental expenditures are under
continuous review and are revised periodically to reflect changes in
environmental regulations, inflation, technology and other factors which
are beyond the control of the Company. Although the Company is unable to
predict the ultimate impact of environmental regulations on existing or
proposed facilities or on the operations of the Company, the Company
believes that its expenditures for compliance with environmental
regulations will be given appropriate rate treatment by the respective
regulatory commissions.
<PAGE>
Information concerning environmental issues and their potential
effect on the Company's operations is included in Note 12 of the Notes to
Consolidated Financial Statements under the captions "Construction
Program" and "Environmental" on pages 33 and 35 of the 1993 Annual Report
to Shareholders, which information is incorporated by reference in this
Form 10-K Annual Report, as well as in Item 3 "Legal Proceedings" of this
Form 10-K Annual Report.
Research and Development
The Company supports research and development agencies involved in
utility research, provides funds for joint utility research projects and
conducts its own internal program. Research and development expenditures
amounted to approximately $5.0 million in 1993, $3.7 million in 1992, and
$3.4 million in 1991.
The Company provides support to national agencies such as the
Electric Power Research Institute and the Gas Research Institute. At the
state level, the Company supports the Empire State Electric Energy
Research Corporation, the New York State Energy Research and Development
Authority and the New York Gas Group Research, Development and
Demonstration Committee.
Generally, the Company's internal research and development program
concentrates on projects which uphold the corporate goal of providing safe
and reliable electric and gas service to customers at a minimum price and
in an environmentally acceptable manner. The program includes projects
which seek improvement of generation and distribution systems, mitigation
of environmental impacts of electric power generation, and advancement in
customer utilization and conservation. Current projects include a
demonstration of a process to beneficiate coal combustion fly ash for use
in the construction industry, the development of a new technique for
locating faults in underground cables, and the development of a
methodology for measuring the impact of commercial and industrial demand-
side management programs.
Franchises
The Company's municipal consents or franchises, together with its
corporate or charter powers, give it the right to carry on its operations
in the territory served. The municipal consents or franchises held by the
Company are not exclusive. In certain municipalities, the area served by
the Company is limited either by the terms of the consents or franchises
or by order of the NYPSC. Under the present provisions of the Public
Service Law of the State of New York, no other private corporation can
commence public utility operations in any part of the territory now served
by the Company without obtaining a certificate of public convenience and
necessity from the NYPSC. Such certificate would not be required with
respect to a municipality furnishing electric or gas service under the
provisions of the General Municipal Law of the State of New York.
Municipal corporations, upon compliance with the provisions of the General
Municipal Law, are authorized to acquire the public utility service of any
public utility company by purchase or by condemnation.
The municipal consents or franchises of the Company are not uniform
and contain, in certain instances, provisions relating to, among other
<PAGE>
things, the time of commencing operations, the furnishing of service to
the particular municipality, the approval by the municipal authorities of
the location and construction of distribution facilities, indemnification
of the municipality against liabilities and damages in consequence of
construction, and administrative matters. Such provisions are not
considered by the Company to be unduly burdensome.
In connection with the construction and maintenance of its electric
transmission lines, the Company has specific franchises for transmission
lines constructed outside its electric service territory and is authorized
under its general consents or franchises to construct and maintain its
transmission lines where constructed in its electric service territory.
The Company's gas franchises authorize the construction and maintenance of
its gas mains.
Employee Relations
At December 31, 1993, the Company had 1,721 employees of whom 27 were
part-time employees. The current contract with Local 503 of the
International Brotherhood of Electrical Workers ("IBEW") representing 977
production, maintenance, commercial and service employees of the Company
became effective June 1, 1991 and expires June 1, 1994. This contract
does not include supervisory employees.
The Company's utility subsidiaries, RECO and Pike, have no employees
other than officers. All services are performed for the utility
subsidiaries by employees of the Company pursuant to Joint Operating
Agreements approved by the NJBRC and the PAPUC, through which the Company
is reimbursed for these services. Several employees of the Company
provide managerial and clerical services for the non-utility subsidiaries
of the Company and of RECO, the cost of which are either paid directly by
the subsidiaries or are reimbursed to the Company through periodic
billings. In addition, the non-utility subsidiaries, at December 31,
1993, had 147 full-time and 51 part-time employees, none of whom were
participants in the Company's various employee benefit plans or were
covered by the Company's contract with the IBEW.
<PAGE>
Item 2. Properties
The Company's property consists primarily of electric generation,
transmission and distribution facilities and gas distribution facilities.
These properties are required for the continued operation of the Company's
major business segments. In addition, the Company maintains certain
miscellaneous utility and non-utility property. The Company's facilities
are in satisfactory condition, are suitable for the particular purpose for
which they were acquired, and are adequate for the Company's present
operations.
Electric Generating Facilities. The Company's generating plants, all
of which are located in New York State, are as follows:
Maximum
Summer Percent Net Mwh
Net Mw of Total Generated
Plant Name Units Energy Source Capacity Capacity in 1993
Swinging Bridge, 8
Mongaup & Rio Hydroelectric 25.8 2.5% 60,437
Grahamsville 1 Hydroelectric 18.0 1.8 103,941
Hillburn 1 Jet Fuel/Gas 37.0 3.6 2,509
Shoemaker 1 Jet Fuel/Gas 37.0 3.6 5,048
Lovett 5 Coal/Oil/Gas 501.7 49.2 1,869,967
Bowline Point 2 Oil/Gas 400.6(1) 39.3 850,930
1,020.1 100.0% 2,892,832
(1) Company's share of maximum summer net megawatt capability.
Electric Transmission and Distribution Facilities. The Company owns, in
whole or in part, and operates 512 miles of transmission lines, 67
substations, 67,683 in-service line transformers and 4,891 miles of
distribution lines. The electric transmission and distribution facilities of
the Company and its utility subsidiaries are located within the Company's New
York, New Jersey and Pennsylvania service territory, which is described under
the caption "Principal Business" in Item 1 of this Form 10-K. The Bowline
Substation and the related transmission facilities are jointly owned by the
Company and Con Ed and are operated by the Company. The Ramapo Substation
and certain related transmission facilities consist of property which is
either owned by the Company, owned by Con Ed or jointly owned by the Company
and Con Ed and which is operated and maintained by the Company.
Gas Facilities. The Company owns and operates three propane air gas
plants at Middletown, Orangeburg and Suffern, New York and its gas
distribution system, which is located within its gas franchise territory in
New York and Pennsylvania, includes 1,685 miles of mains.
Miscellaneous Properties. The Company owns office buildings and
operating facilities in Middletown, Spring Valley, Blooming Grove and West
Nyack, New York, and other structures at different locations within the
Company's service territory which are used as offices, service buildings,
store houses and garages. The Company leases its corporate headquarters in
Pearl River, New York, as well as office space at other locations. In
addition, the Company has lease agreements covering certain of its data
processing equipment, office equipment and vehicle fleet.
<PAGE>
Character of Ownership. The Company's electric and gas plants and its
major electric substations are located on land owned by the Company in fee,
except for the Grahamsville Plant and the Bowline Point Plant. The greater
portion of the Grahamsville Plant is located on land leased from the City of
New York and the Bowline Point Plant is located on land in which the Company
has a one-third undivided interest, with the remainder being owned by Con Ed.
Water power and flowage rights for the operation of its Mongaup River Hydro
Plants are controlled by the Company either through ownership of the
necessary land in fee or through easements which are, in practically all
cases, perpetual. In the case of the Grahamsville Plant, however, water is
obtained under contract with the City of New York.
Electric transmission facilities of the Company and its utility
subsidiaries (including substations) are, with minor exceptions, located on
land owned in fee or occupied pursuant to perpetual easements. Electric
distribution lines and gas mains are located in, on or under public highways
or private lands pursuant to lease, easement, permit, municipal consent,
agreement or license, express or implied through use by the Company or its
utility subsidiaries without objection by the owners. In the case of
distribution lines, the Company owns approximately 60% of the poles upon
which its wires are installed and has a joint right of use in the remaining
poles on which its wires are installed, which poles are owned, in most cases,
by telephone companies.
The Company's electric and gas plants are owned by the Company except
for the gas turbines at Hillburn and Shoemaker which are leased and the
Bowline Point Plant which is jointly owned with Con Ed and operated by the
Company.
Substantially all of the utility plant and other physical property owned
by the Company and its utility subsidiaries are subject to the liens of the
respective indentures securing the first mortgage bonds of the Company and
its utility subsidiaries.
Investments in securities of the utility subsidiaries costing $11.8
million which have been eliminated from the Consolidated Balance Sheet are
pledged under the Company's First Mortgage Indenture, as amended and
supplemented.
<PAGE>
Item 3. Legal Proceedings
Investigation and Related Litigation:
On August 16, 1993, Linda Winikow, then a Vice President of the
Company, was arrested by the Rockland County (New York) District
Attorney (the "District Attorney") and charged with grand larceny,
commercial bribery and making campaign contributions under a false name.
In essence, the District Attorney alleged that Ms. Winikow (1) had been
coercing or inducing certain vendors of goods or services to the Company
to make contributions to political candidates or causes, while arranging
for some of those contributions to be, in effect, reimbursed by means of
false or inflated invoices paid by the Company, and (2) had used
advertising contracts to try to influence news reports about the
Company. Two other former employees who reported to Ms. Winikow were
charged with grand larceny. Ms. Winikow was immediately placed on leave
of absence by the Company. The District Attorney also announced that he
would commence an investigation of the Company and the Company announced
that it would undertake its own investigation into the matters cited by
the District Attorney. On August 26, 1993, the Board of Directors
terminated Ms. Winikow's employment. On the same day, the Company filed
Orange and Rockland Utilities, Inc. v. Winikow in the United States
District Court, Southern District of New York, against Ms. Winikow,
three other former Company employees and two vendors. In its suit,
filed under the Federal Racketeer Influenced and Corrupt Organizations
Act ("RICO"), the Company alleges that the defendants had engaged in a
conspiracy to divert monies from the Company through the submission of
false and fraudulent invoices totaling approximately $155,000 in order
to pay personal expenses of and/or to provide personal services to the
defendants. In addition, the Company alleges that the defendants made
various contributions to political candidates consisting of money and
services diverted from the Company. Accordingly, the Company seeks
treble damages as called for by the RICO statute, punitive damages,
attorney's fees, interest and court costs.
On October 5, 1993, the independent Directors determined to
terminate for cause the employment of James F. Smith as Chief Executive
Officer of the Company and to remove him as Chairman of the Board. On
October 7, 1993, notice of such termination was delivered to Mr. Smith
and he was suspended from all duties effective immediately. On the same
day, the Board of Directors appointed Victor J. Blanchet, Jr. to serve
as Acting Chief Executive Officer. Mr. Smith had certain rights under
his employment agreement with the Company to take corrective action with
respect to his termination for cause which lapsed, without such action
being taken, on December 6, 1993. Mr. Smith also has the right to
contest his termination for cause in an arbitration proceeding.
On February 7, 1994, the Company commenced Orange and Rockland
Utilities, Inc. v. James F. Smith, in New York State Supreme Court by
the filing of a Summons with Notice. The Summons put Mr. Smith on
notice of claims for breach of his fiduciary duties of loyalty and care,
waste, conversion, fraud, and unjust enrichment based on allegations
that Mr. Smith misused Company assets and personnel and misappropriated
Company funds for his own benefit or for other improper purposes, and
failed to maintain proper management controls or to properly supervise
<PAGE>
corporate affairs and subordinate employees. The Company seeks an
accounting by Mr. Smith of certain Company funds and property,
restitution of all amounts misappropriated, misused, or unaccounted for,
forfeiture of compensation paid or awarded by the Company to Mr. Smith
during the period in which breaches of fiduciary duties occurred, and
compensatory and punitive damages. The Company seeks recovery in an
amount not less than $5,000,000. On February 25, 1994, Mr. Smith served
a Notice of Appearance upon the Company, which required the Company to
file a complaint in the action no later than March 17, 1994.
The Company served a complaint in this action on March 16, 1994.
Unless otherwise extended, Mr. Smith's answer will be due 20 days after
the complaint was served. The complaint alleges, among-other-things,
that (i) Mr. Smith intentionally misappropriated and converted Company
funds, assets and services to his own use by causing the Company to pay,
through the submission of false and inaccurate expense reports, for
personal expenses associated with his travel, entertainment, purchases
of merchandise, use of Company vendors and use of the Company's
conference center facilities; (ii) Mr. Smith engaged in a pattern of
excessive and extravagant expenditures of Company funds in connection
with purported business travel, entertainment and Company-sponsored
events that had no legitimate business purpose or conferred little or no
benefit to the Company's business, and constituted waste of corporate
assets; and (iii) Mr. Smith failed to institute and maintain adequate
internal controls, and knowingly permitted, induced and authorized the
personal use of Company funds, assets and services by other Company
officers.
On October 6, 1993, Ms. Winikow pleaded guilty in the Supreme Court
of the State of New York, County of Rockland, to grand larceny (a class
D felony), commercial bribery (a class A misdemeanor), and making a
campaign contribution under a false name (an unclassified misdemeanor)
and, on November 10, 1993, the two former employees pleaded guilty to
grand larceny (a class D felony). In pleading guilty to the felony
count, Ms. Winikow stated she had been acting on behalf of the Company.
The presiding judge informed Ms. Winikow that her sentence would be
based on her assistance to the prosecution in its investigation. Ms.
Winikow's sentencing on these pleas is currently scheduled for April 7,
1994.
On March 22, 1994, a Rockland County Grand Jury indictment was
returned charging Mr. Smith with eight felony counts of grand larceny
and two misdemeanor counts of petit larceny. According to the press
release issued by the Rockland County District Attorney on March 22,
1994, the ten count indictment charges Mr. Smith with stealing from the
Company by charging personal expenses to the Company, including (i)
approximately $7,300 to rent four vans and a panel truck that were used
by Mr. Smith's son's film production company, including approximately
$780 worth of parking summonses issued to the rental van and a Company
car that was being used by Mr. Smith's son; (ii) approximately $3,037 in
moving costs to have Mr. Smith's daughter's belongings moved to
Westchester County on two separate occasions and to have other
belongings moved to Mr. Smith's summer home in Kennebunkport, Maine;
(iii) approximately $4,600 for assorted graphic printing, consisting of
engagement invitations for both of his children, a hand-colored wedding
<PAGE>
program for his daughter, as well as printed directions to his
Kennebunkport, Maine summer home; (iv) approximately $7,000 for holidays
baskets for Mr. Smith's family members, friends and his Maine Realtor;
(v) approximately $1,100 for assorted holiday plants delivered to Mr.
Smith's home; (vi) approximately $1,760 to have Mr. Smith's home cleaned
following a boiler replacement; (vii) approximately $1,098 for printed
materials associated with Mr. Smith's wife's election campaign for
village trustee (which Mr. Smith subsequently repaid to the Company
after Ms. Winikow's arrest); (viii) approximately $2,000 for a surprise
50th birthday party for Mr. Smith's wife at the Company's conference
center facilities; (ix) approximately $300 worth of auto repairs made to
Mr. Smith's son-in-law's automobile; and (x) approximately $600 worth of
watches given by Mr. Smith to his children and their spouses. Mr. Smith
was arraigned in Rockland County Supreme Court on March 22, 1994, and
entered a plea of not guilty.
On November 3, 1993, the Company and the District Attorney executed
a Joint Cooperation Agreement (the "Joint Cooperation Agreement"). As
part of the Joint Cooperation Agreement, the District Attorney confirmed
that, in light of the Company's cooperation, as reflected by its
undertakings in the Joint Cooperation Agreement, and in light of the
clear demonstration by the Company's Board of Directors of its
determination to uncover all past improper activities of the types being
investigated by the District Attorney and the NYPSC, no criminal charge
of any kind will be filed by the District Attorney against the Company
or any of its affiliates or subsidiaries in connection with the District
Attorney's investigation. For its part, pursuant to the Joint
Cooperation Agreement the Company has agreed to cooperate fully and
completely with the District Attorney by undertaking to: (1) permit the
District Attorney complete access to any Company documents, records or
files relating to the District Attorney's investigation; (2) permit full
access to all evidence and analyses collected and/or prepared by the
attorneys hired by the Company's Board of Directors (the "Board's
attorneys") in connection with its independent investigation of the
misuse of Company assets; (3) provide the District Attorney with
information uncovered by the Company separately from the Board of
Directors' independent investigation of criminal conduct of any sort on
the part of the Company's officers and employees; (4) provide the
District Attorney with direct contact with the independent accountants
currently involved in reviewing a certain Company account and furnish
the District Attorney with a copy of the final report of such
accountants regarding such account; (5) authorize the Board's attorneys
to satisfy any request of the District Attorney for further
investigation of matters related to the independent investigation, and
to charge the costs of satisfying such requests (along with the cost of
the independent investigation) to the Company's shareholders and not to
its ratepayers; and (6) continue the Company's cooperation with the
NYPSC, and cooperate on the same terms with other public agencies having
jurisdiction over the Company's activities. In addition, the Company
agreed to accept and implement the following remedial actions: (1) to
refund to ratepayers, in a manner to be determined by the NYPSC and
satisfactory to the District Attorney, all Company funds ascertained to
have been misappropriated or found to have been improperly charged to
ratepayers by Company officers and employees as determined by the <PAGE>
independent investigation, by the District Attorney, or by the NYPSC,
whichever is greater. Additionally, the Company agreed not to seek
recovery from ratepayers of any of the outstanding direct or indirect
costs of the investigations related to these matters; (2) to require
that all Company expenditures be subject to proper internal accounting
controls; (3) to prohibit the giving or receipt of gifts by Company
officers or employees except as permitted by law and applicable
corporate policies; (4) to discontinue for five years all political
contributions or in kind service and the activities of all Political
Action Committees associated with the Company; and (5) to establish,
independent from the Company, the position of "Inspector General", for a
period of seven years, to be assigned the authority and resources
necessary, including staff, to investigate and report on improper or
unethical conduct by Company officers or employees, the cost of such
Inspector General to be borne by the shareholders of the Company and not
by its ratepayers. The Joint Cooperation Agreement provides that the
duration of the Inspector General's appointment may be modified by the
parties as the circumstances may warrant.
The Joint Cooperation Agreement is also discussed under the caption
"Events Affecting the Company" in the "Review of the Company's Results
of Operations and Financial Condition" on page 15 of the 1993 Annual
Report to Shareholders, which material is incorporated by reference in
this Form 10-K Annual Report.
On January 29, 1993, the Company filed an electric rate increase
application with the NYPSC (Case 93-E-0082) requesting a $17.1 million
(4.8%) annual increase in electric revenues to be effective January 1,
1994. Following Ms. Winikow's arrest and the commencement of the
District Attorney's investigation, on August 26, 1993, the New York
State Department of Law ("DOL") filed a motion (the "DOL Motion") with
the NYPSC requesting that the NYPSC declare the Company's present
electric and gas rates temporary to the extent necessary to assure
refunds to ratepayers of any monies improperly collected from them. The
DOL Motion would subject to refund any inappropriate expenditures which
were collected in rates pursuant to the Company's previous electric
(Case 89-E-175) and gas (Case 92-G-0050) rate cases. On August 31,
1993, the NYPSC Staff filed a similar motion (the "NYPSC Staff Motion")
requesting that the Company's present electric rates remain temporary
pending the conclusion of the NYPSC Staff's review of the Company's
financial records to determine whether the Company expended funds for
inappropriate purposes. The NYPSC Staff Motion also requested the NYPSC
not to implement any increase in electric rates requested by the Company
in Case 93-E-0082 until the NYPSC Staff's investigation is completed.
Prior to the filing of the DOL and NYPSC Staff Motions, the Company
announced that it would refund to ratepayers any charges related to
illegal expenditures. The Company will also adjust its request for rate
relief in Case 93-E-0082 to delete any such inappropriate expenditures.
Citing these commitments and the fact that the amount associated with
the wrongful acts committed by Ms. Winikow appears to be a small
fraction of the rate relief sought by the Company, on September 7, 1993,
the Company filed a response to the DOL and NYPSC Staff Motions opposing
the extraordinary relief requested in both these Motions. On October 4,
<PAGE>
1993, in response to the DOL and NYPSC Staff Motions, the NYPSC issued
an Order stating that the Company's current electric rate case
(Case 93-E-0082) would be terminated unless the Company agreed to an
extension of the rate cases's statutory suspension period to and
including June 30, 1994, and to (1) a two month rate reduction of
$115,000 per month in November and December 1993 (the Company
voluntarily extended this temporary rate reduction for a third month,
through January 1994, bringing the total amount refunded to New York
ratepayers to $345,000), (2) make $3 million of its existing annual
revenues ($2.25 million of electric revenues and $.75 million of gas
revenues) temporary and subject to refund, (3) continue to cooperate
fully and in a timely fashion with the NYPSC Staff's investigation, (4)
pre-file with the NYPSC a complete and detailed analysis of the results
of the Company's own internal investigation, (5) agree that further
hearings are appropriate for evaluation of the Company's analysis and
evidence, as well as those of other parties, including the NYPSC Staff,
(6) continue existing ratemaking mechanisms for the duration of the
further suspension period, including the revenue decoupling mechanism,
demand-side management and customer service incentives, the cap on
earnings and sharing mechanism, and the reconciliations/reforecasts of
expenses, and (7) agree that, if by June 30, 1994 the NYPSC Staff's
investigation is not completed, then temporary rates may be set. On
October 14, 1993, in response to the NYPSC's October 4, 1993 Order, the
Company agreed to the six-month extension of the statutory suspension
period in the Company's current electric rate case and accepted the
NYPSC's other conditions. On December 16, 1993, the NYPSC issued an
Order accepting the six-month extension period.
On December 17, 1993, the Company reported to the Administrative
Law Judge presiding over Case 93-E-0082 that the Company's analysis of
the results of the Special Committee's investigation will be available
no later than May 31, 1994, and proposed an additional six-month
extension to December 31, 1994, (the "additional six-month extension")
of both the statutory suspension period and the existing electric
ratemaking mechanisms.
On January 19, 1994, the NYPSC Staff filed its comments to the
Company's December 17 extension proposal. The NYPSC Staff argued that
the proposed additional six-month extension should be subject to certain
conditions, including the setting of the authorized return on common
equity for 1994 at 10.6%, with earnings in excess of that amount to be
passed back to ratepayers.
On January 28, 1994, the Company filed a motion with the NYPSC
seeking approval of the additional six-month extension or, in the
alternative, to establish an expedited procedural schedule in
Case 93-E-0082. The Administrative Law Judge's ruling on the Company's
proposal is expected shortly.
On November 3, 1993, the NJBRC commenced its periodic management
audit of RECO. As a result of the events and investigations described
above, the NJBRC audit includes, in addition to a standard review of
operating procedures, policies and practices, a review of the posture of
RECO management regarding business ethics and a determination regarding
the effect of such events on RECO ratepayers. In addition, under an
agreement with the NJBRC to return to customers funds misappropriated by
<PAGE>
employees, RECO 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.
On August 18, 1993, Feiner v. Orange and Rockland Utilities, Inc.,
et al. ("Feiner"), a purported ratepayer class action complaint against
the Company, RECO, Ms. Winikow and others, was filed in the United
States District Court, Southern District of New York. The complaint
names a number of "John Does" who are described as officers and
directors of the Company but does not identify any current or former
officer or director by name except Ms. Winikow. The Feiner complaint
alleges that the defendants violated RICO and New York common law by
using false and misleading testimony to obtain rate increases from the
NYPSC and used funds obtained from ratepayers in furtherance of an
alleged scheme to make illegal campaign contributions and other illegal
payments. Plaintiffs seek damages in the amount of $900 million (which
they seek to treble pursuant to the RICO statute). The Company intends
to vigorously contest these claims and filed a motion to dismiss them on
February 18, 1994.
On August 31, 1993, Patents Management Corporation v. Orange and
Rockland Utilities, Inc., et al. ("Patents Management"), a purported
shareholder derivative complaint, was filed in the Supreme Court of the
State of New York, County of New York, against the Company, all but one
of the Directors and several other named defendants by an alleged
shareholder of the Company. Plaintiff claims that the named Directors
breached their fiduciary duties by condoning the alleged wrongful acts
of Ms. Winikow or failing to exercise appropriate supervisory control
over Ms. Winikow. Plaintiff requests that the Court require each
Director to indemnify the Company against all losses sustained by the
Company as a result of these alleged wrongful acts of Ms. Winikow. The
defendants intend to vigorously contest these claims.
On November 23, 1993, Gross v. Orange and Rockland Utilities, Inc.
("Gross"), a purported shareholder class action complaint, was filed
in the United States District Court, Southern District of New York.
Plaintiff alleges that various Securities and Exchange Commission
filings of the Company during the period between March 2, and
November 4, 1993, contained false and misleading information, and
thereby violated Sections 11 and 12(2) of the Securities Act of 1933, by
failing to disclose what the plaintiff alleges was a "scheme" by the
Company to make illegal political payments and campaign contributions to
various public officials and politicians. As a result, plaintiff
claims, during such period persons who purchased the Company's stock
through the Company's Dividend Reinvestment and Stock Purchase Plan did
so at artificially inflated prices. The complaint seeks unspecified
money damages. The Company intends to vigorously contest these claims.
On January 14, 1994, at a status conference held before Judge
Brieant, April 8, 1994, was set as the date by which all answers and
motions must be filed in the Feiner and Gross suits. Plaintiff's
attorney in Patents Management has agreed to proceed in this litigation
according to the schedule set forth by Judge Brieant with regard to the
Feiner and Gross suits. Thus, all answers and motions with regard to
the Patents Management suit must be filed by April 8, 1994.
<PAGE>
Other Litigation:
On May 11, 1993, an action was commenced against the Company by
Hudson Riverkeeper Fund, Inc. ("Riverkeeper") in the United States
District Court for the Southern District of New York. In its complaint,
Riverkeeper alleged that the Company has violated and continues to
violate its SPDES Permit for its Lovett Generating Station ("Lovett") by
failing to maintain cooling water intake structures that reflect the
best technology available for minimizing adverse environmental impact.
In addition, the complaint alleged that the Company failed to submit a
scope of work for entrainment studies required by its SPDES permit (the
"entrainment studies"). The original complaint requested that the Court
assess civil penalties aggregating $22 million and order the Company to
take steps to insure that the cooling water intake structures at Lovett
reflect the best technology available for minimizing adverse
environmental impact. On May 18, 1993, Riverkeeper amended its
complaint against the Company by withdrawing its entrainment studies
allegation and reducing the amount of civil penalties sought to
approximately $11 million. On June 30, 1993, the Company filed its
answer to Riverkeeper's amended complaint. In its answer the Company
denied Riverkeeper's allegations and thereafter, reflecting the
Company's belief that Riverkeeper's allegations have no legal merit, on
July 20, 1993 the Company filed a Motion for Summary Judgment seeking
the dismissal of this action. On October 21, 1993, the Court issued a
Memorandum and Order denying the Company's Motion for Summary Judgment
and ruling that the New York State Department of Environmental
Conservation ("DEC") should be included as a party to this action. On
January 14, 1994, a conference was held before Judge Brieant during
which the DEC intervened in this litigation as a designated plaintiff.
Discovery is proceeding in this matter.
Additional information regarding the Company's SPDES Permits is
contained under the caption "Water Quality" of "Environmental Matters"
in Item 1 of this Form 10-K.
On January 15, 1993, the Company was served with a complaint naming
the Company as one of several defendants in Warwick Administrative
Group, et al. v. Avon Products, Inc. et al., which case was filed in the
United States District Court for the Southern District of New York. The
allegations in this case stem from an Administrative Order for Remedial
Design and Remedial Action issued on February 28, 1992 by the United
States Environmental Protection Agency pursuant to Superfund laws which
impose liability upon entities who are identified as having contributed
hazardous wastes to a particular site requiring clean-up, including
generators and transporters of such wastes. The Order directs certain
members of the Warwick plaintiff group to implement a plan for the
clean-up of the Warwick Landfill site in Greenwood Lake, New York. The
Warwick plaintiff group now alleges that some defendants, including the
Company, arranged to have hazardous substances disposed of at the
Warwick site and thus seek to recover from the defendants costs incurred
and damages suffered in connection with the clean-up of the Warwick
Landfill site. An answer to the complaint, as amended, was filed by the
Company on February 23, 1993, denying all of the allegations in the
amended complaint and setting forth a number of affirmative defenses.
<PAGE>
On May 3, 1993, Judge Goettel of the United States District Court,
Southern District of New York, dismissed the plaintiffs' amended
complaint for failure to state a claim for which relief could be granted
and granted plaintiffs leave to replead. Thereafter, the plaintiffs
filed a second amended complaint which was superseded by a third amended
complaint served on June 3, 1993. On June 23, 1993, the Company filed
an answer to the third amended complaint, denying all of the plaintiffs'
allegations and setting forth a number of affirmative defenses. As it
is presently unclear if any hazardous waste generated by the Company was
transported to the Warwick Landfill site, and because the nature and
quantities of hazardous waste sent by others to such site are
undetermined, the Company is unable to determine its liability, if any,
with regard to this proceeding.
On September 25, 1991, the Company was named as one of several
hundred third party defendants in the United States v. Kramer, et al.
and State of New Jersey Dep't of Environmental Protection v. Almo Anti-
Pollution Services, et al., which cases have been consolidated in the
United States District Court for the District of New Jersey, Camden
Vicinage. The allegations in this action concern the Helen Kramer
Landfill site in Mantua, New Jersey, which operated from 1963 to 1981.
Suit in this case was brought under Superfund laws. Additional
information concerning Superfund laws is contained under the subheading
"Environmental Matters" in Item 1 of this Form 10-K Annual Report.
While it is presently unclear if any hazardous waste generated by the
Company was transported to the Helen Kramer Landfill site, the total
cost of remediation and damages at the site, while not clearly
established, is reportedly estimated at $100 million or more, and the
Company is monitoring the situation. It appears reasonable to expect
the Company's relative contribution to the Helen Kramer site, if any, to
have been less than 1% of the total volume sent to the site, so that the
Company's exposure to liability would appear at the present time to be
an amount that is not material to the financial condition of the
Company.
On March 16, 1988, Hatzel and Buehler, Inc. v. Orange and Rockland
Utilities, Inc., a complaint brought by one of several prime contractors
employed by the Company as part of the Company's Lovett Coal
Reconversion Project, was filed in the United States Bankruptcy Court,
Wilmington, Delaware. Plaintiff claimed that the Company improperly
terminated its contract and sought damages in excess of $15 million. On
October 30, 1989, the United States District Court, Wilmington,
Delaware, granted the Company's motion to withdraw the case from the
United States Bankruptcy Court and to have the United States District
Court assume jurisdiction. On December 14, 1992, the United States
District Court issued a decision and order granting the Company's Motion
for Summary Judgment dismissing the plaintiff's non-contract claims and
punitive damage demands. On January 25, 1994, the parties settled the
remaining claims pursuant to a settlement agreement under which the
Company, without any admission of liability, paid to the plaintiff the
sum of $660,000 and the plaintiff delivered to the Company a release of
all outstanding claims against the Company.
On July 31, 1992, State Line Power Associates Limited Partnership
v. Orange and Rockland Utilities, Inc., a complaint brought by a New
<PAGE>
Jersey partnership, was filed in the United States District Court,
Southern District of New York. The plaintiff had contracted, pursuant
to a Power Sales Agreement dated October 11, 1990 (the "Agreement"), to
build a gas-fired combined cycle generating facility in Ringwood, New
Jersey and sell 100 Mw of capacity and associated energy to the Company.
The Company terminated the Agreement following the plaintiff's failure
to meet certain deadlines and cure its related defaults under such
Agreement. In its complaint the plaintiff alleged that such termination
was improper. Based on this assertion, the complaint sought
compensatory damages in excess of $50 million and a declaratory judgment
to the effect that the Company remained obligated to purchase 100 Mw of
capacity and associated energy from the plaintiff. In its answer to the
complaint, the Company denied the plaintiff's allegations of wrongdoing
and asserted counterclaims against the plaintiff and various other
entities affiliated with the plaintiff ("Additional Counterclaim
Defendants") seeking damages in excess of $1.2 million. On October 22,
1992, the Additional Counterclaim Defendants filed a motion to dismiss
the counterclaims against them and the plaintiff filed its answer to the
counterclaims. Thereafter, on January 26, 1993, the Company submitted a
Motion for Summary Judgment requesting that the Court rule as a matter
of law that the plaintiff could not prevail on any of its causes of
action. The plaintiff filed its brief opposing the Company's motion on
March 10, 1993. On January 7, 1994, the parties entered into a
settlement agreement pursuant to which the Company, without any
admission of liability, paid to the plaintiff an amount that is not
material to the financial condition of the Company and the plaintiff,
the Additional Counterclaim Defendants and the Company delivered to each
other releases from all outstanding claims.
The Company has been named as a defendant or third-party defendant
in a number of proceedings involving alleged personal injuries,
primarily to construction workers, as a result of exposure to asbestos
at facilities owned and operated by the Company. Discovery with regard
to these cases will determine, among other things, if the plaintiffs in
each of these cases worked at Company facilities. The Company
anticipates that similar asbestos-related claims may be asserted against
the Company from time to time in the future. However, at this time the
Company does not believe that the asbestos-related lawsuits currently
outstanding, nor those which may be brought in the future, will,
individually or in the aggregate, have a material effect on the business
or financial condition of the Company.
Regulatory Matters:
Information regarding the Company's involvement in, and the effect
on the Company of, pipeline take-or-pay proceedings before the FERC is
contained under the caption "Gas Energy Costs" in the "Review of the
Company's Results of Operations and Financial Condition" and in Note 12
of the Notes to Consolidated Financial Statements - "Gas Supply and
Storage Contracts" on pages 17 and 33, respectively, of the 1993 Annual
Report to Shareholders, which material is incorporated by reference in
this Form 10-K Annual Report. Reference is also made to the information
contained under the caption "Take-or-Pay Surcharge Costs and FERC Order
636 Transition Costs" of "Gas Operations" in Item 1 of this Form 10-K
Annual Report.
<PAGE>
On November 1, 1990, the FERC issued Order No. 528 which set forth
new guidelines for allocating and recovering take-or-pay costs.
Pursuant to Order No. 528, the Company's interstate pipeline suppliers
submitted rate and tariff filings for the allocation and recovery of
take-or-pay costs from the Company and other local distribution
companies. Based on these rate and tariff sheets, the Company had
estimated its total take-or-pay liability to be approximately $17 to $18
million. However, on June 25, 1991, one of the Company's pipeline
suppliers, Tennessee Gas Pipeline Company ("Tennessee"), filed, in
proceedings under Docket Nos. RP86-119 et al., what has commonly become
known as the Tennessee "cosmic settlement". This settlement covered
virtually every major case pending on the Tennessee system, at that
time, including those cases dealing with the allocation and recovery of
take-or-pay costs. The cosmic settlement was approved by the FERC on
June 25, 1992. Based on the amended cosmic settlement, as it relates to
Tennessee's take-or-pay charges, as well as a revised estimate regarding
the anticipated level of take-or-pay billings the Company expects to
receive, the Company now estimates its total take-or-pay liability at
approximately $13.9 million.
At present the Company is a party to an ongoing proceeding
(Case 88-G-062) commenced by the NYPSC in April 1988, examining the
extent to which the Company will be permitted to recover from its
customers the take-or-pay costs billed to it by its pipeline suppliers.
Until a final order is rendered by the NYPSC in this Case, the Company
has received interim authority, effective April 1, 1989, to recover,
subject to refund, 65% of the take-or-pay charges actually billed to it
by its pipeline suppliers and to defer the balance, with interest, until
such order is issued.
Hearings in Case 88-G-062 were held in two phases. Phase I
addressed the proper allocation of take-or-pay liabilities to customers
and the mechanisms for recovery of these costs. The NYPSC issued its
Opinion (Opinion 89-41) with regard to Phase I on December 11, 1989,
holding that allocations of direct-billed take-or-pay costs are to be
made among firm sales, interdepartmental, interutility and
transportation customers.
Phase II of Case 88-G-062 involves an examination of the prudence
of the activities of New York's local distribution companies with
respect to their incurrence of take-or-pay liabilities and sharing of
take-or-pay costs between these local distribution companies and their
customers. Hearings on Phase II issues with respect to the Company were
concluded on May 21, 1990. The Company and NYPSC Staff filed initial
and reply briefs on generic and Company-specific issues during the
summer of 1990. In its Company-specific initial brief, NYPSC Staff
proposed an imprudence disallowance that would deny rate recovery of
$2 million of take-or-pay costs billed to the Company by its suppliers.
In response, on August 31, 1990, the Company filed a motion to strike
that portion of NYPSC Staff's brief pertaining to its proposed
disallowance on the ground that it was wholly lacking in record support.
While this motion was denied by Administrative Law Judge Harrison ("ALJ
Harrison"), he did defer substantive judgment on the NYPSC staff's
proposed $2 million imprudence disallowance and ruled that the issue of
such proposed disallowance will be given consideration in his
Recommended Decision on Company-specific issues.
<PAGE>
The generic aspect of Phase II of Case 88-G-062 examined NYPSC
Staff's proposal (called "equitable sharing") that would deny local
distribution companies, including the Company, recovery through rates of
between 25% and 50% of the take-or-pay costs billed to such companies by
their suppliers. On December 21, 1990, ALJ Harrison issued a
Recommended Decision on generic issues rejecting NYPSC Staff's proposal
calling for the equitable sharing of take-or pay costs, and recommending
instead that, with the exception of costs resulting from its own
imprudence, each utility be permitted to recover from its customers the
take-or-pay costs billed to such utility by its pipeline suppliers. ALJ
Harrison's recommendation, if adopted by the NYPSC, would be favorable
to the Company in that it would limit the Company's exposure solely to
NYPSC Staff's proposed $2 million imprudence disallowance which
disallowance the Company believes is not supported by the record
evidence. Briefs on exceptions to the Recommended Decision were
submitted on January 23, 1991 and reply briefs were filed on February
15, 1991. On November 24, 1992, a settlement conference was held
addressing Phase II issues affecting the Company. The Company was
unable to reach a settlement with NYPSC Staff with regard to these
issues at that time.
On April 8, 1992, FERC issued Order No. 636 requiring interstate
natural gas pipelines to unbundle their sales and transportation
services and to offer each of these services on a stand alone basis.
Information regarding the Company's involvement in, and effect on the
Company of, Order 636 and its related proceedings is contained under the
caption "Gas Energy Costs" in the "Review of the Company's Results of
Operations and Financial Condition" and in Note 12 of the Notes to
Consolidated Financial Statements under the caption "Gas Supply and
Storage Contracts" on pages 18 and 33, respectively, of the 1993 Annual
Report to Shareholders, which material is incorporated by reference in
this Form 10-K Annual Report. Reference is also made to the information
contained under the captions "Supply, Transportation and Storage" and
"Take-or-Pay Surcharge Costs and FERC Order 636 Transition Costs" of
"Gas Operations" in Item 1 of this Form 10-K Annual Report.
On December 30, 1992, in connection with RECO's 1991 electric rate
case (Docket No. ER910303565), the NJBRC issued a Decision and Order
dealing with the appropriateness of additional tax liability placed on
New Jersey utilities pursuant to New Jersey's June 1, 1991 tax
legislation. Pursuant to this legislation, RECO will be required to pay
a combined additional amount of approximately $16 million of gross
receipts and franchise taxes in 1993 and 1994. In its Decision and
Order the NJBRC allowed RECO to recover this amount over a ten year
period with interest on the unamortized balance at an annual rate of
7.5%. On February 26, 1993, Rate Counsel filed a Notice of Appeal from
the NJBRC 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 August 9, 1993, Rate Counsel filed its initial brief with
regard to its appeal. Thereafter, on October 12, 1993, RECO filed its
initial brief and on October 27, 1993, Rate Counsel filed its reply
brief with regard to this matter. Oral argument was held on March 7,
1994, and on March 21, 1994 the Superior Court affirmed the NJBRC's
December 30, 1992 Decision and Order.
<PAGE>
The Company is a party to a number of administrative proceedings
involving potential impact to the environment. Such proceedings arise
out of the operation and maintenance of facilities for the generation,
transmission and distribution of electricity and natural gas.
Information regarding the Company's involvement in these various
proceedings is included in Note 12 of the Notes to Consolidated
Financial Statements under the caption "Environmental" on page 35 of the
1993 Annual Report to Shareholders, which information is incorporated by
reference in Item 1 of this Form 10-K Annual Report, as well as under
the subheading, "Environmental Matters" of this Form 10-K Annual Report.
Such proceedings are not, in the aggregate, material to the business or
financial condition of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders
during the fourth quarter of the fiscal year ended December 31, 1993.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
All of the executive officers of the Company are appointed on an annual
basis at the first Board of Directors' meeting following the annual meeting.
Officers, Age, and Title Business Experience Past Five Years
Victor J. Blanchet, Jr., 52 Acting Chief Executive Officer since
Acting Chief Executive October 7, 1993. President and Chief
Officer, President and Operating Officer since January 1991.
Chief Operating Officer Executive Vice President from April
1990 until January 1991. Vice
President from 1977 to April 1990.
Patrick J. Chambers, Jr., 59 Senior Vice President since 1978
Senior Vice President and and Chief Financial Officer
Chief Financial Officer since 1979.
Robert J. Biederman, Jr., 41 Vice President since April 1990.
Vice President, Transmission Director of Operations from 1986 until
and Distribution April 1990.
Terry L. Dittrich, 48 Acting Controller since March 17,
Acting Controller 1994. Director of Accounting since
April 1990. Manager of Accounting
from 1985 to April 1990.
Frank E. Fischer, 60 Vice President since 1978.
Vice President, Engineering
and Production
Gerard A. Maher, 59 Assistant Secretary since April 1989.
Assistant Secretary and Assistant Treasurer since April 1990.
Assistant Treasurer Assistant General Counsel from April
1989 to August 1991. Partner, Nixon
Hargrave, Devans & Doyle from November
1986 to March 1989.
Robert J. McBennett, 51 Treasurer since 1984.
Treasurer
Victor A. Roque, 47 General Counsel since April 1989.
Vice President, General Counsel Vice President and Secretary since
and Secretary January 1987.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The Common Stock of the Company is listed on the New York Stock Exchange
under the ticker symbol ORU. The stock is listed in published stock tables as
"OranRk".
At December 31 1993, there were 24,328 holders of record of the Company's
common stock, $5.00 par value. During 1993 dividend payments were made to
holders of the Company's common stock on February 1, May 1, August 1 and
November 1.
Quarterly market price and dividend information on the Company's Common
Stock is as follows:
Quarter High Low Dividend
1993 1 $45 7/8 $40 1/4 $.615
2 47 1/2 43 3/8 .615
3 47 1/2 44 3/8 .63
4 45 3/8 38 5/8 .63
1992 1 39 5/8 32 3/8 .60
2 37 3/4 34 .60
3 40 37 1/4 .615
4 41 7/8 39 .615
Information regarding the restriction of retained earnings for dividend
payment is contained in Note 4 of the Notes to Consolidated Financial
Statements - "Retained Earnings" on page 28 of the 1993 Annual Report to
Shareholders, which material is incorporated by reference in this Form 10-K
Annual Report.
Item 6. Selected Financial Data
The information required by this Item is contained under the captions
"Financial Statistics - Common Stock Data", and "Financial Statistics -
Selected Financial Data" on page 40 of the 1993 Annual Report to Shareholders,
which material is incorporated by reference in this Form 10-K Annual Report.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this Item is contained under the caption
"Review of the Company's Results of Operations and Financial Condition" on
pages 14 through 20 of the 1993 Annual Report to Shareholders, which
material is incorporated by reference in this Form 10-K Annual Report.
<PAGE>
Item 8. Financial Statements and Supplementary Data
The financial statements and supplementary financial information
required by this Item are contained on pages 21 through 37 of the 1993
Annual Report to Shareholders, which material is incorporated by reference
in this Form 10-K Annual Report. Such information is listed in Item
l4(a)(1) "Financial Statements" of this Form 10-K Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On February 10, 1994, the Executive Committee of the Board of Directors of
the Company appointed the accounting firm of Arthur Andersen & Co. to audit the
books, records and accounts of the Company and its subsidiaries for the 1994
fiscal year. The appointment of Arthur Andersen & Co. is subject to the
approval of the shareholders at the Annual Meeting to be held on May 11, 1994.
The accounting firm of Grant Thornton audited the Company's consolidated
financial statements for 1993 and prior years. Upon recommendation of the
Audit Committee, the Board of Directors decided to solicit bids for the
performance of auditing services for the Company for 1994. Bids were received
from six public accounting firms, including Grant Thornton. Based on a review
of the competing bids, the Audit Committee believed that the selection of
Arthur Andersen & Co. would be in the best interests of the Company and
recommended such selection to the Board of Directors.
The reports of Grant Thornton on the Company's consolidated financial
statements for the past two fiscal years did not contain an adverse opinion or
a disclaimer of opinion and the reports were not qualified or modified as to
uncertainty, audit scope or accounting principles, except that the report for
1993 was modified by inclusion of an explanatory paragraph regarding the
uncertainty of the pending investigations of the Company and related litigation
described in the Company's Current Reports on Form 8-K dated August 16,
October 6, November 23 and December 16, 1993 and Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993. Since January 1, 1992, there have
been no disagreements with Grant Thornton on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which, if not resolved to the satisfaction of Grant Thornton, would
have caused Grant Thornton to make reference to the subject matter of such
disagreements in connection with its report.
PART III
The information required by Item 10 - Directors and Executive Officers
of the Registrant is contained on page 40 of this Form 10-K Annual Report
and in the Company's definitive Proxy Statement in connection with the 1994
Annual Meeting of Common Shareholders (the "Proxy Statement"), which material
is incorporated by reference in this Form 10-K Annual Report. The information
required by Item 11 - Executive Compensation, Item 12 - Security Ownership of
Certain Beneficial Owners and Management and Item 13 - Certain Relationships
and Related Transactions is contained in Section 1, "Election of Directors,"
of the Proxy Statement which material is incorporated by reference in this
Form 10-K Annual Report. With the exception of this information, the Proxy
Statement is not deemed filed as part of this Form 10-K Annual Report.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
The following consolidated financial statements of the Company and
its subsidiaries appearing on pages 21 through 37 of the 1993 Annual
Report to Shareholders are incorporated by reference in this Form 10-K
Annual Report. With the exception of these consolidated financial
statements and the information incorporated in Items 1, 3, 5, 6, 7 and 8,
herein, the 1993 Annual Report to Shareholders is not deemed filed as part
of this Form 10-K Annual Report.
Page*
Consolidated Statements of Income and Retained Earnings for the
years ended December 31, 1993, 1992 and 1991. 21
Consolidated Balance Sheets as of December 31, 1993 and 1992. 22
Consolidated Cash Flow Statements for the years ended
December 31, 1993, 1992 and 1991. 24
Notes to Consolidated Financial Statements. 25
Report of Independent Certified Public Accountants. 37
*Page number reference is to the 1993 Annual Report
to Shareholders
(a)(2) Financial Statement Schedules Page**
Property, Plant and Equipment and Non-utility Property for the
years ended December 31, 1993, 1992 and 1991 (Schedule V). 53
Accumulated Depreciation, Depletion and Amortization of Property,
Plant and Equipment and Non-utility Property for the years ended
December 31, 1993, 1992 and 1991 (Schedule VI). 56
Valuation and Qualifying Accounts and Reserves for the years
ended December 31, 1993, 1992 and 1991 (Schedule VIII). 59
**Page number reference is to this Form 10-K Annual Report
The information required by Schedule IX - Short-Term Borrowings is
included under the caption "Liquidity and Capital Resources" of the
"Review of the Company's Results of Operations and Financial Condition"
and in Note 8 of Notes to Consolidated Financial Statements, "Cash and
Short-Term Debt" on pages 18 and 30, respectively of the 1993 Annual
Report to Shareholders, which material is incorporated by reference in
this Form 10-K Annual Report. All other schedules are omitted because
they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
The information required by Rule 5-04, Schedule III - Condensed Financial
Information of Registrant has been omitted since Consolidated Financial State-
ments of the Registrant and its subsidiaries are contained in the Company's
1993 Annual Report to Shareholders and the test prescribed was not met.
<PAGE>
(a)(3) Exhibits
* 3.1 Restated Certificate of Incorporation, as amended through
April 14, 1988. (Exhibit 4.1 to Registration Statement
33-25359).
* 3.2 By-Laws, as amended through April 11, 1990. (Exhibit 3.2 to Form
10-K for the fiscal year ended December 31, 1990, File No. 1-4315).
* 4.1 Composite First Mortgage of the Company as Supplemented and
Modified by Twenty-six Supplemental Indentures. (Exhibit 4.1
to Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
* 4.2 Twenty-seventh Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1980. (Exhibit 4.2 to Form 10-K for
the fiscal year ended December 31, 1990, File No. 1-4315).
* 4.3 Mortgage Trust Indenture of Rockland Electric Company, dated as
of July 1, 1954. (Exhibit 2.16 to Registration Statement
No. 2-14159).
* 4.6 Third Supplemental Indenture of Rockland Electric Company, dated
as of August 15, 1965. (Exhibit 4.23 to Registration Statement
No. 2-24682).
* 4.11 Mortgage Trust Indenture of Pike County Light & Power Company, dated
as of July 15, 1971. (Exhibit 4.31 to Registration Statement
No. 2-45632).
* 4.12 Twenty-eighth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1982. (Exhibit 4.12 to Form 10-K for the
fiscal year ended December 31, 1992, File No. 1-4315).
* 4.17 Twenty-ninth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1984. (Exhibit 4.17 to Form 10-K
for the fiscal year ended December 31, 1989, File No. 1-4315).
* 4.20 Thirtieth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1986. (Exhibit 4.20 to Form 10-K
for the fiscal year ended December 31, 1991, File No. 1-4315).
* 4.21 Thirty-first Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1988. (Exhibit 4.21 to Form 10-K for
the fiscal year ended December 31, 1988, File No. 1-4315).
* 4.22 Thirty-second Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1990. (Exhibit 4.22 to Form 10-K for
the fiscal year ended December 31, 1990, File No. 1-4315).
* 4.25 Indenture between the Company and The Bank of New York as Trustee
regarding unsecured debt, dated March 1, 1990. (Exhibit 4.25 to Form
10-K for the fiscal year ended December 31, 1990, File No. 1-4315).
<PAGE>
* 4.26 First Supplemental Indenture between the Company and The Bank of
New York as Trustee regarding unsecured debt, dated March 7, 1990.
(Exhibit 4.26 to Form 10-K for the fiscal year ended December 31,
1990, File No. 1-4315).
* 4.27 Second Supplemental Indenture between the Company and the Bank of
New York as Trustee regarding unsecured debt, dated October 15, 1992.
(Exhibit 4.27 to Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-4315).
* 4.28 Thirty-third Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1992. (Exhibit 4.28 to Form 10-K for
the fiscal year ended December 3, 1992, File No. 1-4315).
* 4.29 Third Supplemental Indenture between the Company and The Bank of
New York as Trustee regarding unsecured debt, dated as of March 1,
1993. (Exhibit 4.29 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
* 4.30 Ninth Supplemental Indenture of Rockland Electric Company, dated as
of March 1, 1993. (Exhibit 4.30 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
*10.1 General Agreement: Bowline Point Generating Plant, dated as of
October 10, 1969. (Exhibit 5(b) to Registration Statement No. 2-42156).
*10.2 Financing Agreements, dated as of February 1, 1971. (Exhibit 5(a) to
Registration Statement No. 2-42156).
*10.7 New York Power Pool Agreement, dated July 16, 1985. (Exhibit 10.7
to Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
*10.8 Agreement governing the supply of residual fuel oil by Con Edison to
Bowline Point Generating Station dated August 31, 1983. (Exhibit 10.18
to Form 10-K for fiscal year ended December 31, 1991, File No. 1-4315).
*10.10 PJM Facilities Agreement, dated May 1, 1970, as amended
December 12, 1972. (Exhibit 10.10 to Form 10-K for the fiscal year
ended December 31, 1992, File No. 1-4315).
+10.11 Officers' Supplemental Retirement Plan, as amended April 1, 1993.
*10.12 Incentive Compensation Plan, amended January 3, 1991. (Exhibit 10.12
to Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
*10.13 Severance Pay Plan, as amended January 3, 1991. (Exhibit 10.13 to
Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
*10.14 Management Long-Term Disability Plan. (Exhibit 10.14 to Form 10-K for
the fiscal year ended December 31, 1991, File No. 1-4315).
<PAGE>
*10.15 New York Power Authority Firm Purchase Contract, dated July 28, 1975.
(Exhibit 10.15 to Form 10-K for the fiscal year ended December 31,
1992, File No. 1-4315).
*10.17 Coal Purchase and Sale Agreement among Orange and Rockland Utilities,
Inc., Rawl Sales and Processing Company, and Massey Coal Sales, Inc.,
dated March 9, 1984, as amended through July 1, 1991. (Exhibit 10.17
to Form 10-K for the fiscal year ended December 31, 1991, File
No. 1-4315).
*10.18 Agreement between Orange and Rockland Utilities, Inc., and Pittston
Coal Sales Company, dated March 14, 1984 as amended through December 1,
1986. (Exhibit 10.18 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
10.18A Amendment to the Agreement between Orange and Rockland Utilities, Inc.,
and Pittston Coal Sales Company, dated July 1, 1991 and executed May 5,
1993.
+*10.19 Employment contract between Orange and Rockland Utilities, Inc. and
James F. Smith as amended December 1, 1990. (Exhibit 10.19 to
Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
10.20 Orange and Rockland Utilities, Inc. Post Director Service Retainer
Continuation Program, as amended April 14, 1993.
*10.21 Electric Contract for the Sale of Firm Power and Energy by the
Power Authority of the State of New York to Orange and Rockland
Utilities, Inc., dated April 26, 1989, including Application dated
April 20, 1989. (Exhibit 10.21 to Form 10-K for the fiscal year
ended December 31, 1989, File No. 1-4315).
+*10.22 Form of Severance Agreement for Company Officers effective
January 3, 1991. (Exhibit 10.22 to Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-4315).
+*10.23 Performance Unit Incentive Plan effective December 3, 1992. (Exhibit
10.23 to Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-4315).
+*10.24 Award Agreement under the Performance Unit Incentive Plan
applicable to P. J. Chambers, Jr., dated December 3, 1992.
(Exhibit 10.24 to Form 10-K for the fiscal year ended December 31,
1992, File No. 1-4315).
+*10.25 Award Agreement under the Performance Unit Incentive Plan applicable to
J. F. Smith dated December 3, 1992. (Exhibit 10.25 to Form 10-K for
the fiscal year ended December 31, 1992, File No. 1-4315).
13 The Company's 1993 Annual Report to Shareholders to the extent
identified in this Form 10-K Annual Report for the fiscal year
ended December 31, 1993.
*16 Letter from Grant Thornton (Exhibit 16 to Form 8-K/A dated
February 22, 1994, File No. 1-4315).
<PAGE>
*21 Subsidiaries of the Company. (Exhibit 22 to Form 10-K for the fiscal
year ended December 31, 1992, File No. 1-4315).
24 Powers of Attorney.
*99.1 Joint Cooperation Agreement between the Office of the Rockland County
District Attorney and Orange and Rockland Utilities, Inc., dated
November 3, 1993 (Exhibit 99.1 to Form 10-Q for the quarter ended
September 30, 1993, File No. 1-4315).
99.2 Complaint against James F. Smith dated March 16, 1994.
99.3 Form 11-K for the Company's Management Employees' Savings Plan for
the year ended December 31, 1993.
99.4 Form 11-K for the Company's Hourly Group Savings Plan for the year
ended December 31, 1993.
+ Denotes executive compensation plans and arrangements.
* Incorporated by reference to the indicated filings.
The securities issued relevant to each of the following agreements were
not registered with the Securities and Exchange Commission and the total amount
of securities authorized under each agreement does not exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated basis. Therefore,
as provided in Item 601 of Regulation S-K, the following agreements are not
filed as exhibits. The Company agrees, however, to furnish to the Commission a
copy of each agreement upon request:
- Participation Agreement between NYSERDA and Orange and Rockland
Utilities, Inc., dated as of July 1, 1982.
- Indenture of Trust between NYSERDA and The Bank of New York, as
Trustee, relating to the Pollution Control Revenue Bonds (Orange and
Rockland Utilities, Inc. Project) dated as of July 1, 1982.
- First Supplemental Participation Agreement between NYSERDA and Orange
and Rockland Utilities, Inc., dated as of October 1, 1984.
- First Supplemental Indenture of Trust between NYSERDA and The Bank of
New York, as Trustee, relating to the 10 1/4% Pollution Control Revenue
Bonds (Orange and Rockland Utilities, Inc. Projects), 1984 Series.
- Second Supplemental Indenture of Trust between NYSERDA and the Bank of
New York, as Trustee, relating to the 9% Pollution Control Revenue
Bonds (Orange and Rockland Utilities, Inc. Projects), 1985 Series.
- Second Supplemental Participation Agreement between NYSERDA and Orange
and Rockland Utilities, Inc., dated as of August 1, 1985.
- First Supplemental Indenture, dated August 15, 1990, to the Indenture
of Mortgage and Deed of Trust of Pike County Light & Power Company.
- Eighth Supplemental Indenture of Rockland Electric Company, dated as of
August 15, 1990.
<PAGE>
(b) Reports on Form 8-K
On February 18, 1993, the Company filed a Current Report on
Form 8-K, dated February 18, 1993, pertaining to the Warwick suit and
the fact that the Company was in receipt of a letter dated January 29,
1993, sent on behalf of the Riverkeeper, which purported to give a
60-day notice of intent to initiate a civil suit against the Company for
alleged violations of its SPDES Permit for the Lovett Generating Station
at Tomkins Cove, New York. Reference is made to Item 3, "Legal
Proceedings" of this Form 10-K Annual Report for further descriptions of
the aforementioned events. In addition, a press release dated January
21, 1993 which announced the Company's earnings for the year ended
December 31, 1992 was filed under Item 5, "Other Events" of the Form 8-K
dated February 18, 1993.
On March 8, 1993, the Company filed a Current Report on
Form 8-K, dated March 4, 1993, pertaining to the Series C and Series D
Debentures which were issued by the Company on March 10, 1993. Through
this Form 8-K, the Company filed, under Item 7 (Financial Statements and
Exhibits), certain exhibits relating to the Company's Registration
Statement No. 33-53256 registering up to $115 million in aggregate
principal amount of unsecured debt securities, the related Prospectus
dated October 21, 1992, and the Prospectus Supplement dated February 23,
1993, with respect to the Series C and Series D Debentures.
On September 10, 1993, the Company filed a Current Report on
Form 8-K, dated August 16, 1993, pertaining to (a) the arrest and
termination of employment of former Company Vice President Linda
Winikow; (b) the Feiner suit; (c) the creation by the Board of Directors
of the Special Committee; (d) the Company's RICO suit against Ms.
Winikow et al.; (e) the DOL and NYPSC Staff Motions; and (f) the Patents
Management suit. Reference is made to information contained under the
caption "Events Affecting the Company" in Item 1 and in Item 3, "Legal
Proceedings" of this Form 10-K Annual Report for further descriptions of
the aforementioned actions and events.
On October 21, 1993, the Company filed a Current Report on
Form 8-K, dated October 6, 1993, pertaining to (a) the delivery to
James F. Smith of notice of termination of his employment for cause as
Chief Executive Officer of the Company and the suspension of Mr. Smith
from all duties and responsibilities as an officer of the Company and
Chairman of the Board; (b) the investigation being conducted by the
Special Committee; (c) Ms. Winikow pleading guilty to charges of grand
larceny in the third degree, commercial bribe receiving in the second
degree and making a campaign contribution other than in the true name of
the contributor; and (d) the Order of the NYPSC issued in response to
the DOL and NYPSC Staff Motions. Reference is made to Item 3, "Legal
Proceedings" of this Form 10-K Annual Report for further descriptions of
the aforementioned actions and events.
On December 8, 1993, the Company filed a Current Report on
Form 8-K, dated November 23, 1993, disclosing the filing of the Gross
suit. Reference is made to Item 3, "Legal Proceedings" of this
Form 10-K Annual Report for further description of this suit.
<PAGE>
On December 22, 1993, the Company filed a Current Report on
Form 8-K, dated December 16, 1993, pertaining to (i) the NYPSC's
December 16, 1993 Order accepting the six-month extension of the
statutory suspension period in the Company's current electric rate case
(Case 93-E-0082), and (ii) the Company's estimate that in connection
with the ongoing investigations of the Company's operations which were
commenced following the arrest of Ms. Winikow, the Company will incur
$6.0 million of costs during 1993, of which $1.1 million was reflected
in the Company's third quarter results. Reference is made to Item 3,
"Legal Proceedings" of this Form 10-K Annual Report for further
description of Case 93-E-0082.
On February 17, 1994, the Company filed a Current Report on
Form 8-K, dated February 10, 1994, reporting, under Item 4. "Changes in
Registrant's Certifying Accountant", the appointment by the Executive
Committee of the Board of Directors of the accounting firm of Arthur
Andersen & Co. to audit the books, records and accounts of the Company
and its subsidiaries for the 1994 fiscal year.
On February 22, 1994, the Company filed a Form 8-K/A dated
February 22, 1994, amending the February 10, 1994 Form 8-K to include as
Exhibit 16, a letter from the accounting firm of Grant Thornton, which
firm audited the Company's consolidated financial statements for the
1993 fiscal year and prior years.
On March 15, 1994, the Company filed a Form 8-K dated March 14,
1994, reporting under Item 5, "Other Events", the dismissal of two
officers from the Company's employ.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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)
By VICTOR J. BLANCHET, JR.
(Victor J. Blanchet, Jr.
Acting Chief Executive Officer,
President, Chief Operating
Officer and Director)
Date: March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature and Title Capacity in Which Signing
VICTOR J. BLANCHET, JR.* Acting Chief Executive
(Victor J. Blanchet, Jr., Officer; Director
Acting Chief Executive
Officer, President and Chief
Operating Officer)
PATRICK J. CHAMBERS, JR.* Principal Financial
(Patrick J. Chambers, Jr., Officer; Director
Senior Vice President and
Chief Financial Officer)
TERRY L. DITTRICH* Acting Principal
(Terry L. Dittrich, Acting Accounting Officer
Controller)
H. KENT VANDERHOEF* Acting Chairman of the
(H. Kent Vanderhoef) Board of Directors
RALPH M. BARUCH* Director
(Ralph M. Baruch)
J. FLETCHER CREAMER* Director
(J. Fletcher Creamer)
<PAGE>
Signature and Title Capacity in Which Signing
MICHAEL J. DEL GIUDICE* Director
(Michael J. Del Giudice)
FRANK A. McDERMOTT, JR.* Director
(Frank A. McDermott, Jr.)
KENNETH D. McPHERSON* Director
(Kenneth D. McPherson)
JAMES F. O'GRADY, JR.* Director
(James F. O'Grady, Jr.)
Director
(James F. Smith)
LINDA C. TALIAFERRO* Director
(Linda C. Taliaferro)
JOHN F. WHITE* Director
(John F. White)
*By VICTOR A. ROQUE
(Victor A. Roque,
Attorney-in-fact)
Date: March 25, 1994
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
Board of Directors and Shareholders of
Orange and Rockland Utilities, Inc.
In connection with our audit of the consolidated financial
statements of Orange and Rockland Utilities, Inc. and Subsidiaries
referred to in our report dated February 16, 1994, which report included
an explanatory paragraph that described the investigations and
litigation discussed in Note 12 (Legal Proceedings) of those statements,
which is included in the 1993 Annual Report to Shareholders and
incorporated by reference in this Form 10-K, we have also audited the
schedules listed in the Index at Item 14(a)(2). In our opinion, these
schedules present fairly, in all material respects, the information
required to be set forth therein.
GRANT THORNTON
New York, New York
February 16, 1994
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated February 16, 1994, accompanying
the consolidated financial statements and schedules incorporated by
reference or included in the Annual Report of Orange and Rockland
Utilities, Inc. and Subsidiaries on Form 10-K for the year ended
December 31, 1993. We hereby consent to the incorporation by
reference of said reports in the Registration Statements of Orange
and Rockland Utilities, Inc. and Subsidiaries on Forms S-8
(No. 33-25358, No. 33-25359 and No. 33-22129) and on Forms S-3
(No. 33-22130 and No. 33-63872).
GRANT THORNTON
New York, New York
March 25, 1994
<PAGE>
<TABLE>
SCHEDULE V
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Property, Plant and Equipment and Non-utility Property
For the Year Ended December 31, 1993
(Thousands of Dollars)
<CAPTION>
Column A Column F
Utility Plant Non-utility
Electric Gas Common Property Total
<S> <C> <C> <C> <C> <C>
Plant in Service:
Production $377,778 $ 4,066 $ - $ - $ 381,844
Transmission 132,483 - - - 132,483
Distribution 383,821 178,141 - - 561,962
General 29,999 6,674 52,153 - 88,826
Gas Production
Properties - - - 9,781 9,781
Future Use 3,229 98 - - 3,327
Other 4,517 21 372 25,268 30,178
931,827 189,000 52,525 35,049 1,208,401
Construction Work
in Progress 22,124 4,018 4,765 - 30,907
Total $953,951 $193,018 $ 57,290 $ 35,049 $1,239,308
Neither the total additions nor the total deductions during the year ended
December 31, 1993 amounted to more than 10% of the closing balance of total
Utility Plant and Non-utility Property. The information required by Columns B,
C, D and E is, therefore, omitted. A summary of Columns C, D and E for the year
ended December 31, 1993 is as follows:
Column C - Additions at cost $54,308
Column D - Retirements 9,035
Column E - Other changes (3,124)*
Net Change $42,149
*Other changes include the following: $(3,124) adjustment of prior years additions
to correct vintage year records.
For information concerning depreciation procedures, see Note 1 of Notes to
Consolidated Financial Statements on page 26 of the 1993 Annual Report to
Shareholders.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE V
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Property, Plant and Equipment and Non-utility Property
For the Year Ended December 31, 1992
(Thousands of Dollars)
<CAPTION>
Column A Column F
Utility Plant Non-utility
Electric Gas Common Property Total
<S> <C> <C> <C> <C> <C>
Plant in Service:
Production $368,958 $ 4,017 $ - $ - $ 372,975
Transmission 131,692 - - - 131,692
Distribution 370,544 167,059 - - 537,603
General 28,716 6,583 50,242 - 85,541
Gas Production
Properties - - - 9,781 9,781
Future Use 3,594 98 - - 3,692
Other 4,517 21 21 24,377 28,936
908,021 177,778 50,263 34,158 1,170,220
Construction Work
in Progress 19,689 3,944 3,306 - 26,939
Total $927,710 $181,722 $ 53,569 $ 34,158 $1,197,159
Neither the total additions nor the total deductions during the year ended
December 31, 1992 amounted to more than 10% of the closing balance of total
Utility Plant and Non-utility Property. The information required by Columns B,
C, D and E is, therefore, omitted. A summary of Columns C, D and E for the year
ended December 31, 1992 is as follows:
Column C - Additions at cost $56,438
Column D - Retirements 10,791
Column E - Other changes (113)*
Net Change $45,534
*Other changes include the following: $(113) adjustment of prior years additions
to correct vintage year records.
For information concerning depreciation procedures, see Note 1 of Notes to
Consolidated Financial Statements on page 26 of the 1993 Annual Report to
Shareholders.
/TABLE
<PAGE>
<TABLE>
SCHEDULE V
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Property, Plant and Equipment and Non-utility Property
For the Year Ended December 31, 1991
(Thousands of Dollars)
<CAPTION>
Column A Column F
Utility Plant Non-utility
Electric Gas Common Property Total
<S> <C> <C> <C> <C> <C>
Plant in Service:
Production $361,210 $ 4,235 $ - $ - $ 365,445
Transmission 127,954 - - - 127,954
Distribution 349,091 156,686 - - 505,777
General 28,960 6,704 46,879 - 82,543
Gas Production
Properties - - - 9,781 9,781
Future Use 3,725 100 - - 3,825
Other 875 21 21 23,884 24,801
871,815 167,746 46,900 33,665 1,120,126
Construction Work
in Progress 25,529 2,875 3,095 - 31,499
Total $897,344 $170,621 $ 49,995 $ 33,665 $1,151,625
Neither the total additions nor the total deductions during the year ended
December 31, 1991 amounted to more than 10% of the closing balance of total
Utility Plant and Non-utility Property. The information required by Columns B,
C, D and E is, therefore, omitted. A summary of Columns C, D and E for the year
ended December 31, 1991 is as follows:
Column C - Additions at cost $70,726
Column D - Retirements 10,672
Column E - Other changes 153*
Net Change $60,207
*Other changes include the following: $153 adjustment of prior years additions
to correct vintage year records.
For information concerning depreciation procedures, see Note 1 of Notes to
Consolidated Financial Statements on page 26 of the 1993 Annual Report to
Shareholders.
/TABLE
<PAGE>
<TABLE>
SCHEDULE VI
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment and Non-utility Property
For the Year Ended December 31, 1993
(Thousands of Dollars)
<CAPTION>
Column A Column B Column C Column D Column E Column F
Additions Other Balance
Balance at charged to changes at
beginning costs and - add end of
Description of period expenses Retirements or (deduct) period
<S> <C> <C> <C> <C> <C>
Electric plant $266,902 $ 26,479 $ 6,864 $ (1,110) $285,407
Gas plant 63,667 4,348 812 93 67,296
Common plant 17,746 2,752 1,296 374 19,576
Total utility plant $348,315 $ 33,579 $ 8,972 $ (643)(A) $372,279
Gas Production
Properties $ 9,055 $ - $ - $ 168 $ 9,223
Other physical property 3,014 - - 804 3,818
Total non-utility
property $ 12,069 $ - $ - $ 972(B) $ 13,041
(A) Other changes include the following: Additions of $1,037 materials salvaged;
$1,897 charged to other income and clearing accounts and net miscellaneous
items of $(120); and deductions of $3,457 for removal costs.
(B) Other changes include the following: Additions of $972 charged to non-
operating expenses.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE VI
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment and Non-utility Property
For the Year Ended December 31, 1992
(Thousands of Dollars)
<CAPTION>
Column A Column B Column C Column D Column E Column F
Additions Other Balance
Balance at charged to changes at
beginning costs and - add end of
Description of period expenses Retirements or (deduct) period
<S> <C> <C> <C> <C> <C>
Electric plant $250,562 $ 25,461 $ 9,247 $ 126 $266,902
Gas plant 59,772 5,484 1,445 (144) 63,667
Common plant 15,213 2,535 859 857 17,746
Total utility plant $325,547 $ 33,480 $ 11,551 $ 839 (A) $348,315
Gas Production
Properties $ 8,912 $ - $ - $ 143 $ 9,055
Other physical property 2,342 - - 672 3,014
Total non-utility
property $ 11,254 $ - $ - $ 815(B) $ 12,069
(A) Other changes include the following: Additions of $3,016 materials salvaged;
$1,786 charged to other income and clearing accounts and net miscellaneous
items of $277; and deductions of $4,240 for removal costs.
(B) Other changes include the following: Additions of $815 charged to non-
operating expenses.
/TABLE
<PAGE>
<TABLE>
SCHEDULE VI
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Accumulated Depreciation, Depletion and Amortization
of Property, Plant and Equipment and Non-utility Property
For the Year Ended December 31, 1991
(Thousands of Dollars)
<CAPTION>
Column A Column B Column C Column D Column E Column F
Additions Other Balance
Balance at charged to changes at
beginning costs and - add end of
Description of period expenses Retirements or (deduct) period
<S> <C> <C> <C> <C> <C>
Electric plant $232,169 $ 24,462 $ 9,083 $ 3,014 $250,562
Gas plant 56,043 4,597 824 (44) 59,772
Common plant 13,238 2,344 602 233 15,213
Total utility plant $301,450 $ 31,403 $ 10,509 $ 3,203 (A) $325,547
Gas Production
Properties $ 8,782 $ - $ - $ 130 $ 8,912
Other physical property 1,508 - - 834 2,342
Total non-utility
property $ 10,290 $ - $ - $ 964(B) $ 11,254
(A) Other changes include the following: Additions of $5,539 materials salvaged;
$1,731 charged to other income and clearing accounts and net miscellaneous
items of $55; and deductions of $4,122 for removal costs.
(B) Other changes include the following: Additions of $1,030 charged to non-
operating expenses; $6 for materials salvaged and deductions for net
miscellaneous items of $72.
</TABLE>
<PAGE>
<TABLE>
SCHEDULE VIII
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 1993, 1992 and 1991
(Thousands of Dollars)
<CAPTION>
Column A Column B Column C Column D Column E
Additions
(1) (2) Balance
Balance at Charged to Charged at
beginning costs and to other end of
Description of period expenses accounts Deductions period
<S> <C> <C> <C> <C> <C>
December 31, 1993
Allowance for Uncollect-
ible accounts:
Customer accounts $1,651 $2,428 $400 $2,453 $2,026
Other accounts 61 129 4 134 60
$1,712 $2,557 $404(A) $2,587(B) $2,086
Reserve for Claims
and Damages $3,521 $1,895 $146 $1,732(C) $3,830
Gas Turbine Maintenance
Reserve $(2,532) $1,367 $ - $ 210(C) $(1,375)
December 31, 1992
Allowance for Uncollect-
ible accounts:
Customer accounts $1,670 $2,019 $393 $2,431 $ 1,651
Other accounts 61 56 1 57 61
$1,731 $2,075 $394(A) $2,488(B) $ 1,712
Reserve for Claims
and Damages $3,427 $2,043 $523 $2,472(C) $ 3,521
Gas Turbine Maintenance
Reserve $(2,889) $ 622 $ - $ 265(C) $(2,532)
December 31, 1991
Allowance for Uncollect-
ible accounts:
Customer accounts $1,874 $2,162 $328 $2,694 $1,670
Other accounts 63 35 14 51 61
$1,937 $2,197 $342(A) $2,745(B) $1,731
Reserve for Claims
and Damages $3,653 $1,631 $ - $1,857(C) $3,427
Gas Turbine Maintenance
Reserve $(2,138) $ 621 $ - $1,372(C) $(2,889)
(A) Includes collection of accounts previously written off of $404 in 1993, $394
in 1992, and $342 in 1991.
(B) Accounts considered uncollectible and charged off of $2,587 in 1993, $2,488
in 1992 and $2,745 in 1991.
(C) Payments of damage claims of $1,732 in 1993, $2,472 in 1992 and $1,857 in 1991
and maintenance expenses of $210 in 1993, $265 in 1992 and $1,372 in 1991.
/TABLE
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
__________________________
Fiscal Year Ended December 31, 1993 Commission File Number 1-4315
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of Registrant as Specified in its Charter)
EXHIBITS
<PAGE>
Orange and Rockland Utilities, Inc.
Index of Exhibits
1993 Form 10-K
* 3.1 Restated Certificate of Incorporation, as amended through
April 14, 1988. (Exhibit 4.1 to Registration Statement
33-25359).
* 3.2 By-Laws, as amended through April 11, 1990. (Exhibit 3.2 to Form
10-K for the fiscal year ended December 31, 1990, File No. 1-4315).
* 4.1 Composite First Mortgage of the Company as Supplemented and
Modified by Twenty-six Supplemental Indentures. (Exhibit 4.1
to Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
* 4.2 Twenty-seventh Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1980. (Exhibit 4.2 to Form 10-K for
the fiscal year ended December 31, 1990, File No. 1-4315).
* 4.3 Mortgage Trust Indenture of Rockland Electric Company, dated as
of July 1, 1954. (Exhibit 2.16 to Registration Statement
No. 2-14159).
* 4.6 Third Supplemental Indenture of Rockland Electric Company, dated
as of August 15, 1965. (Exhibit 4.23 to Registration Statement
No. 2-24682).
* 4.11 Mortgage Trust Indenture of Pike County Light & Power Company, dated
as of July 15, 1971. (Exhibit 4.31 to Registration Statement
No. 2-45632).
* 4.12 Twenty-eighth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1982. (Exhibit 4.12 to Form 10-K for the
fiscal year ended December 31, 1992, File No. 1-4315).
* 4.17 Twenty-ninth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1984. (Exhibit 4.17 to Form 10-K
for the fiscal year ended December 31, 1989, File No. 1-4315).
* 4.20 Thirtieth Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1986. (Exhibit 4.20 to Form 10-K
for the fiscal year ended December 31, 1991, File No. 1-4315).
* 4.21 Thirty-first Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1988. (Exhibit 4.21 to Form 10-K for
the fiscal year ended December 31, 1988, File No. 1-4315).
* 4.22 Thirty-second Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1990. (Exhibit 4.22 to Form 10-K for
the fiscal year ended December 31, 1990, File No. 1-4315).
* 4.25 Indenture between the Company and The Bank of New York as Trustee
regarding unsecured debt, dated March 1, 1990. (Exhibit 4.25 to Form
10-K for the fiscal year ended December 31, 1990, File No. 1-4315).
<PAGE>
* 4.26 First Supplemental Indenture between the Company and The Bank of
New York as Trustee regarding unsecured debt, dated March 7, 1990.
(Exhibit 4.26 to Form 10-K for the fiscal year ended December 31,
1990, File No. 1-4315).
* 4.27 Second Supplemental Indenture between the Company and the Bank of
New York as Trustee regarding unsecured debt, dated October 15, 1992.
(Exhibit 4.27 to Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-4315).
* 4.28 Thirty-third Supplemental Indenture to the First Mortgage of the
Company, dated as of April 1, 1992. (Exhibit 4.28 to Form 10-K for
the fiscal year ended December 3, 1992, File No. 1-4315).
* 4.29 Third Supplemental Indenture between the Company and The Bank of
New York as Trustee regarding unsecured debt, dated as of March 1,
1993. (Exhibit 4.29 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
* 4.30 Ninth Supplemental Indenture of Rockland Electric Company, dated as
of March 1, 1993. (Exhibit 4.30 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
*10.1 General Agreement: Bowline Point Generating Plant, dated as of
October 10, 1969. (Exhibit 5(b) to Registration Statement No. 2-42156).
*10.2 Financing Agreements, dated as of February 1, 1971. (Exhibit 5(a) to
Registration Statement No. 2-42156).
*10.7 New York Power Pool Agreement, dated July 16, 1985. (Exhibit 10.7
to Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
*10.8 Agreement governing the supply of residual fuel oil by Con Edison to
Bowline Point Generating Station dated August 31, 1983. (Exhibit 10.18
to Form 10-K for fiscal year ended December 31, 1991, File No. 1-4315).
*10.10 PJM Facilities Agreement, dated May 1, 1970, as amended
December 12, 1972. (Exhibit 10.10 to Form 10-K for the fiscal year
ended December 31, 1992, File No. 1-4315).
+10.11 Officers' Supplemental Retirement Plan, as amended April 1, 1993.
*10.12 Incentive Compensation Plan, amended January 3, 1991. (Exhibit 10.12
to Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
*10.13 Severance Pay Plan, as amended January 3, 1991. (Exhibit 10.13 to
Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
*10.14 Management Long-Term Disability Plan. (Exhibit 10.14 to Form 10-K for
the fiscal year ended December 31, 1991, File No. 1-4315).
<PAGE>
*10.15 New York Power Authority Firm Purchase Contract, dated July 28, 1975.
(Exhibit 10.15 to Form 10-K for the fiscal year ended December 31,
1992, File No. 1-4315).
*10.17 Coal Purchase and Sale Agreement among Orange and Rockland Utilities,
Inc., Rawl Sales and Processing Company, and Massey Coal Sales, Inc.,
dated March 9, 1984, as amended through July 1, 1991. (Exhibit 10.17
to Form 10-K for the fiscal year ended December 31, 1991, File
No. 1-4315).
*10.18 Agreement between Orange and Rockland Utilities, Inc., and Pittston
Coal Sales Company, dated March 14, 1984 as amended through December 1,
1986. (Exhibit 10.18 to Form 10-K for the fiscal year ended
December 31, 1992, File No. 1-4315).
10.18A Amendment to the Agreement between Orange and Rockland Utilities, Inc.,
and Pittston Coal Sales Company, dated July 1, 1991 and executed May 5,
1993.
+*10.19 Employment contract between Orange and Rockland Utilities, Inc. and
James F. Smith as amended December 1, 1990. (Exhibit 10.19 to
Form 10-K for the fiscal year ended December 31, 1990, File
No. 1-4315).
10.20 Orange and Rockland Utilities, Inc. Post Director Service Retainer
Continuation Program, as amended April 14, 1993.
*10.21 Electric Contract for the Sale of Firm Power and Energy by the
Power Authority of the State of New York to Orange and Rockland
Utilities, Inc., dated April 26, 1989, including Application dated
April 20, 1989. (Exhibit 10.21 to Form 10-K for the fiscal year
ended December 31, 1989, File No. 1-4315).
+*10.22 Form of Severance Agreement for Company Officers effective
January 3, 1991. (Exhibit 10.22 to Form 10-K for the fiscal year
ended December 31, 1990, File No. 1-4315).
+*10.23 Performance Unit Incentive Plan effective December 3, 1992. (Exhibit
10.23 to Form 10-K for the fiscal year ended December 31, 1992,
File No. 1-4315).
+*10.24 Award Agreement under the Performance Unit Incentive Plan
applicable to P. J. Chambers, Jr., dated December 3, 1992.
(Exhibit 10.24 to Form 10-K for the fiscal year ended December 31,
1992, File No. 1-4315).
+*10.25 Award Agreement under the Performance Unit Incentive Plan applicable to
J. F. Smith dated December 3, 1992. (Exhibit 10.25 to Form 10-K for
the fiscal year ended December 31, 1992, File No. 1-4315).
13 The Company's 1993 Annual Report to Shareholders to the extent
identified in this Form 10-K Annual Report for the fiscal year
ended December 31, 1993.
*16 Letter from Grant Thornton (Exhibit 16 to Form 8-K/A dated
February 22, 1994, File No. 1-4315).
<PAGE>
*21 Subsidiaries of the Company. (Exhibit 22 to Form 10-K for the fiscal
year ended December 31, 1992, File No. 1-4315).
24 Powers of Attorney.
*99.1 Joint Cooperation Agreement between the Office of the Rockland County
District Attorney and Orange and Rockland Utilities, Inc., dated
November 3, 1993 (Exhibit 99.1 to Form 10-Q for the quarter ended
September 30, 1993, File No. 1-4315).
99.2 Complaint against James F. Smith dated March 16, 1994.
99.3 Form 11-K for the Company's Management Employees' Savings Plan for
the year ended December 31, 1993.
99.4 Form 11-K for the Company's Hourly Group Savings Plan for the year
ended December 31, 1993.
+ Denotes executive compensation plans and arrangements.
* Incorporated by reference to the indicated filings.
The securities issued relevant to each of the following agreements were
not registered with the Securities and Exchange Commission and the total amount
of securities authorized under each agreement does not exceed 10% of the total
assets of the Company and its subsidiaries on a consolidated basis. Therefore,
as provided in Item 601 of Regulation S-K, the following agreements are not
filed as exhibits. The Company agrees, however, to furnish to the Commission a
copy of each agreement upon request:
- Participation Agreement between NYSERDA and Orange and Rockland
Utilities, Inc., dated as of July 1, 1982.
- Indenture of Trust between NYSERDA and The Bank of New York, as
Trustee, relating to the Pollution Control Revenue Bonds (Orange and
Rockland Utilities, Inc. Project) dated as of July 1, 1982.
- First Supplemental Participation Agreement between NYSERDA and Orange
and Rockland Utilities, Inc., dated as of October 1, 1984.
- First Supplemental Indenture of Trust between NYSERDA and The Bank of
New York, as Trustee, relating to the 10 1/4% Pollution Control Revenue
Bonds (Orange and Rockland Utilities, Inc. Projects), 1984 Series.
- Second Supplemental Indenture of Trust between NYSERDA and the Bank of
New York, as Trustee, relating to the 9% Pollution Control Revenue
Bonds (Orange and Rockland Utilities, Inc. Projects), 1985 Series.
- Second Supplemental Participation Agreement between NYSERDA and Orange
and Rockland Utilities, Inc., dated as of August 1, 1985.
- First Supplemental Indenture, dated August 15, 1990, to the Indenture
of Mortgage and Deed of Trust of Pike County Light & Power Company.
- Eighth Supplemental Indenture of Rockland Electric Company, dated as of
August 15, 1990.
OFFICERS' SUPPLEMENTAL RETIREMENT PLAN OF
ORANGE AND ROCKLAND UTILITIES, INC.
AS AMENDED AND RESTATED
EFFECTIVE NOVEMBER 3, 1988
AMENDED: JANUARY 3, 1991
DECEMBER 3, 1992
APRIL 1, 1993
<PAGE>
OFFICERS' SUPPLEMENTAL RETIREMENT PLAN OF
ORANGE AND ROCKLAND UTILITIES, INC.
Section 1. PURPOSE
The purpose of the Officers' Supplemental Retirement Plan of
Orange and Rockland Utilities, Inc. (the "Plan") is to provide
additional retirement benefits to Orange and Rockland Officers
above that which they might earn from the Employees' Retirement
Plan of Orange and Rockland Utilities, Inc. (the "Qualified
Plan"). The Plan has been intentionally structured to benefit
those Officers whose careers at Orange and Rockland have been too
short to accumulate appropriate retirement benefits from the
Qualified Plan. Benefits payable from the Plan will be offset by
payments from the Qualified Plan.
The Plan as amended and restated herein shall apply to Officers
terminating from service on or after November 3, 1988.
Section 2. DEFINITIONS
(1) "Affiliated Company" shall mean any corporation which is a
member of a controlled group of corporations (within the
meaning of Section 1563(a), determined without regard to
Section 1563(a)(4) and (e)(3)(C) of the Internal Revenue
Code of 1986, as amended) of which the Company is also a
member.
<PAGE>
(2) "Allowance" shall mean a monthly benefit computed in
accordance with Section 6.
(3) "Beneficiary" shall mean the person or persons designated by
the Member, in writing filed with the Committee, to receive
any Allowance payable hereunder to a Beneficiary. Without
the necessity of obtaining the consent of any person,
including specifically the then designated Beneficiary, a
designation of Beneficiary may be revoked or changed by
filing a new designation of Beneficiary with the Committee
prior to death. In the event of a failure to designate a
Beneficiary or if the designated Beneficiary dies prior to
receipt of payment, the Beneficiary shall be deemed to be
the Member's spouse; or if none, the Member's then living
issue, per stirpes; or if none, the estate of the Member or
Contingent Annuitant, whoever is the last to die. With
respect to any Allowance payable to a Contingent Annuitant
which has a guaranteed payment period, the Member, in
writing filed with the Committee, is permitted to authorize
the Contingent Annuitant to designate, or change the
designation of, the Beneficiary for the continued payments
which would be made in the event of the death of the
Contingent Annuitant prior to the expiration of the
guaranteed payment period.
(4) "Board" shall mean the Board of Directors of Orange and
Rockland Utilities, Inc.
<PAGE>
(5) "Change in Control" shall mean:
(A) either (A) receipt by the Company of a report on
Schedule 13D, or an amendment to such a report, filed with
the Securities and Exchange Commission pursuant to Section
13(d) of the Securities Exchange Act of 1934 (the "1934
Act") disclosing that any person, group, corporation or
other entity is the beneficial owner, directly or
indirectly, of twenty (20) percent or more of the
outstanding stock of the Company or (B) actual knowledge by
the Company of facts, on the basis of which any Person is
required to file such a report on Schedule 13D, or an
amendment to make such a report, with the SEC (or would be
required to file such a report or amendment upon the lapse
of the applicable period of time specified in Section 13(d)
of the 1934 Act) disclosing that such person is the
beneficial owner, directly or indirectly, of twenty (20)
percent or more of the outstanding stock of the Company;
(B) purchase by any person (as defined in Section 13(d) of
the 1934 Act), corporation or other entity, other than the
Company or a wholly-owned subsidiary of the Company, of
shares pursuant to a tender or exchange offer to acquire
any stock of the Company (or securities convertible into
stock) for cash, securities or any other consideration
provided that, after consummation of the offer, such
person, group, corporation or other entity is the
beneficial owner (as defined in Rule 13d-3 under the 1934
Act), directly or indirectly, of twenty (20) percent or
more of the outstanding stock of the Company (calculated as
provided in paragraph (d) of Rule 13d-3 under the 1934 Act
in the case of rights to acquire stock);
(C) approval by the stockholders of the Company of (a) any
consolidation or merger of the Company in which the Company
is not the continuing or surviving corporation or pursuant
to which shares of stock of the Company would be converted
into cash, securities or other property, other than a
consolidation or merger of the Company in which holders of
its stock immediately prior to the consolidation or merger
have substantially the same proportionate ownership of
common stock of the surviving corporation immediately after
the consolidation or merger as immediately before, or (b)
any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or
substantially all the assets of the Company; or
(D) a change in the majority of the members of the Board
within a 24-month period unless the election or nomination
for election by the Company's stockholders of each new
director was approved by the vote of two-thirds of the
directors then still in office who were in office at the
beginning of the 24-month period.
<PAGE>
(6) "Committee" shall mean the Retirement Committee of Orange
and Rockland Utilities, Inc.
(7) "Company" shall mean Orange and Rockland Utilities, Inc. and
any successor to its business or assets; and any other
company participating in the Plan as provided in Section 3
with respect to its Officers.
(8) "Compensation" shall mean the regular rate of remuneration
paid to an Officer by the Company, excluding any bonuses,
overtime or other special pay, and excluding the Company's
cost for any public or private employee benefit plan,
including the Plan, but including any amount of Compensation
reduction elected by the Officer and contributed or credited
by the Company under any such plan. Provided, however, that
for Officers who have completed at least 11 years of
Service, Compensation shall also include a portion of their
corporate performance based annual award declared under the
Annual Incentive Plan provisions of the Orange and Rockland
Utilities, Inc. Incentive Compensation Plan ("ICP"). For
purposes of this Plan and inclusion in Compensation
hereunder, such annual award for each calendar year shall be
deemed to be declared for each Officer and to be equal to a
percentage of that Officer's regular rate of remuneration
included in Compensation for such calendar year under the
first sentence of this definition. The percentage shall be
determined in accordance with Table I of the ICP's
Management Compensation Program Administration Guide, as
amended from time to time, on the basis of the highest grade
or percentage of the Officer for any part of such calendar
year. Percentages as of November 3, 1988 are set forth in
the following schedule for illustrative purposes only.
Officer in Grade: Percentage
25-26 20%
22-24 15%
19-21 10%
Such annual award will be deemed to have been paid ratably
over the calendar year for which it is deemed declared
(i.e., 1/12 for each month), and the portion includible in
Compensation for purposes hereof shall be determined in
accordance with the following schedule, on the basis of the
years of Service the Officer has completed as of the end of
the last month included in the period over which Final
Average Compensation is determined:
Percentage of Annual
Years of Service Award Included
11 10%
12 20%
13 30%
14 40%
15 50%
16 60%
17 70%
18 80%
19 90%
20 or more 100%
In all cases, Compensation shall be determined under rules
uniformly applicable to all Officers similarly situated.
<PAGE>
(9) "Contingent Annuitant" shall mean the person designated by
the Member, in writing filed with the Committee, to receive
any Allowance payable hereunder to a Contingent Annuitant.
Except as hereafter provided, without the necessity of
obtaining the consent of any person, including specifically
the then designated Contingent Annuitant, a designation of a
Contingent Annuitant may be revoked or changed by filing a
new written designation of a Contingent Annuitant with the
Committee prior to the earlier of the Member's death or
commencement of payment of the Member's Allowance.
Notwithstanding the foregoing, in order for a Member who is
married at the time of the designation of Contingent
Annuitant or change in a designation of Contingent Annuitant
to designate a Contingent Annuitant other than his or her
spouse, such designation of Contingent Annuitant must
include the signed, written consent of his or her spouse
(including specific consent to the Contingent Annuitant
designated). In the event of the failure to designate a
Contingent Annuitant as herein provided, the Contingent
Annuitant shall be deemed to be the Member's spouse, if any,
at the earlier of the Member's death or commencement of
payment of the Member's Allowance, if surviving.
(10) "Disability Retirement Allowance" shall mean an Allowance
computed in accordance with Section 6F.
<PAGE>
(11) "Early Retirement Allowance" shall mean an Allowance
computed in accordance with Section 6E.
(12) "Effective Date of the Plan" shall mean originally
December 3, 1981, and with respect to this amended and
restated Plan, November 3, 1988.
(13) "ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time.
(14) "Final Average Compensation" shall be computed by taking
the sum of a Member's Compensation on a monthly basis in
each of the three years of highest Compensation during the
10 years immediately preceding the earliest of (a) his or
her Retirement Date, (b) his or her termination date
pursuant to Section 6G, or (c) the date the Member ceases
to be an Officer, and dividing this sum by 36. For the
purpose of determining the three years of highest
Compensation, three years shall be 36 consecutive months.
(15) "Member" shall mean any person included in the membership of
the Plan as provided in Section 4.
(16) "Normal Retirement Allowance" shall mean an Allowance
computed in accordance with Section 6D.
<PAGE>
(17) "Normal Retirement Date" shall mean the first day of the
calendar month coincident with or next following the 65th
anniversary of a Member's birth.
(18) "Plan" shall mean the Officers' Supplemental Retirement Plan
of Orange and Rockland Utilities, Inc., as set forth herein
and as may be amended from time to time.
(19) "Plan Year" shall mean the calendar year.
(20) "Qualified Plan" shall mean the Employees' Retirement Plan
of Orange and Rockland Utilities, Inc. as in effect on
January 1, 1988, but, except as specifically otherwise
provided herein, as amended and as the actuarial
equivalencies thereunder may be revised from time to time.
(21) "Retired Member" shall mean a Member who has retired under
the Plan with entitlement to a Normal Retirement Allowance,
Early Retirement Allowance, or Disability Retirement Allowance.
(22) "Service" shall mean service credited under the Plan as
provided in Section 5.
(23) "Vested Member" shall mean a Member whose employment with
the Company or an Affiliated Company has been terminated for
reasons other than retirement or death after he or she met
the eligibility requirements for a Vested Retirement
Allowance pursuant to Section 6G.
(24) "Vested Retirement Allowance" shall mean an Allowance
computed in accordance with Section 6G.
Section 3. ELIGIBILITY
Only Officers of Orange and Rockland Utilities, Inc. and/or its
utility subsidiaries, Rockland Electric Company and Pike County
Light & Power Company, may be Members of the Plan.
Section 4. MEMBERSHIP
A person shall become a Member of the Plan on the day he or she is
elected an Officer by the Board, or by the board of the
participating utility subsidiary of which he or she is an Officer.
Section 5. SERVICE
Except as hereafter provided, a year of Service under the Plan
shall equal one year of Eligible Service under the Qualified Plan
(see Section 4 of the Qualified Plan) as determined on the basis
of the Plan Year measuring period only (i.e., 1,000 hours of
service in a calendar year is a year of Service). Years of
Service as an Officer shall only include those years of Service
<PAGE>
credited subsequent to a Member's election as an Officer and
during which he or she serves as an Officer, and shall include the
Plan Year in which the Officer is so elected.
Notwithstanding anything to the contrary in the foregoing, service
following the Member's ceasing to be an Officer shall not be
considered as years of Service for any purpose under the Plan,
(except as set forth in Section 15) and in particular shall not
entitle a Member to become eligible for a Vested or other
Retirement Allowance under the Plan even if as a result of such
service the Member becomes eligible for a Vested or other
Retirement Allowance from the Qualified Plan.
The Board, at its sole discretion, may award a Member additional
years of Service for purposes of determining Benefits under
Section 6 and eligibility therefor.
Section 6. BENEFITS
(A) Amount and Payments of Allowance
The Allowance determined under the Plan is equal to:
(i) the Benefit Formula Percentage multiplied by
the member's Final Average Compensation; less
(ii) the Qualified Plan Allowance payable.
The Allowance shall be payable for the life of the Member,
except as hereafter provided, and shall commence and be paid
in accordance with the provisions of the Plan describing the
Allowance to be paid. If for any month for which the
payment of any Allowance under the Plan is made to a Retired
or Vested Member there is no Qualified Plan Allowance
payable under the Qualified Plan to the Retired or Vested
Member, the Allowance provided for under the Plan shall be
paid without any offset by a Qualified Plan Allowance;
provided, however, that when the Qualified Plan Allowance
payable to or with respect to such Member commences, the
Allowance then payable under the plan shall be adjusted to
reflect the offset for the Qualified Plan Allowance then
payable.
(B) Benefit Formula Percentage
The Benefit Formula Percentage shall be the sum of the
percentages awarded for the Member's years of Service
according to the following schedule:
For each of the first ten years of Service: Four percent
For each of the second ten years of Service: Two percent
For each year of Service in excess of twenty: One-half percent
Example:
A Member with twenty-seven years of Service has a Benefit Formula
Percentage of 63.5% computed as follows:
First ten years of Service (10 x 4%) = 40%
Second ten years of Service (10 x 2%) = 20%
Remaining seven years of Service (7 x .5%) = 3.5%
Total 63.5%
<PAGE>
(C) Qualified Plan Allowance
For purposes of computing a Plan Allowance only, the
Member's Qualified Plan Allowance shall be computed as if he
or she had elected the Qualified Plan Section 6, Option 3
(Joint and 50% Survivor Annuity) and had named his or her
Contingent Annuitant as contingent annuitant thereunder.
(D) Normal Retirement Allowance
A Normal Retirement Allowance shall be paid to a Member
who has completed five years of Service as an Officer (or
was an Officer at the time of a Change in Control as set
forth in Section 15), and who retires on or after his or her
Normal Retirement Date. The Normal Retirement Allowance
shall be computed in accordance with 6A above and will
commence as of the first day of the calendar month
coincident with or next following the Member's retirement.
(E) Early Retirement Allowance
Any Early Retirement Allowance shall be paid to a Member
who has completed five years of Service as an Officer (or
was an Officer at the time of a Change in Control as set
forth in Section 15), and retires from employment on or
after attaining age 55. Such Early Retirement Allowance
shall be computed in accordance with Section 6A on the
basis of the Member's Final Average Compensation and years
of Service at his or her retirement. Payment of the Early
Retirement Allowance under the Plan will commence as of the
first day of the calendar month coincident with or following
the Member's retirement as is elected by the Member in
writing and filed with the Committee prior to the first day
of such calendar month. In the event payment of the Early
Retirement Allowance commences prior to the first day of the
calendar month coincident with or next following the 60th
anniversary of the Member's birth, in calculating the Early
Retirement Allowance the Section 6A(i) amount will be
reduced by 1/3 of 1% for each complete month by which the
commencement date precedes the first day of such calendar
month.
(F) Disability Retirement Allowance
(a) Upon written application to the Committee made by the
Member or by the Company, a Member in active service as
an Officer who has not reached his or her Normal
Retirement Date shall be retired on a Disability
Retirement Allowance, in lieu of retirement under any
other provision of the Plan, on the first day of a
calendar month (not less than 30 nor more than 90 days
next following the receipt by the Committee of such
written application) as designated by the Committee;
provided that one or more physicians designated by the
Committee shall certify their opinion, and the
Committee shall find, that such Member is totally
incapacitated, mentally or physically, from the further
performance of his or her regular duties or duties
comparable thereto, and that such incapacity is likely
to be permanent.
(b) The Disability Retirement Allowance shall be computed
in accordance with Section 6A on the basis of the
Member's Final Average Compensation and years of
Service at retirement. Payment of the Disability
Retirement Allowance shall commence upon the Member's
retirement and shall continue only so long as the
Member remains totally incapacitated as determined by
the Committee.
Once each year the Committee may require any Member
receiving a Disability Retirement Allowance who has not
reached his or her Normal Retirement Date to undergo a
medical examination by a physician or physicians
designated by the Committee. Such examination, to the
extent possible, will be made at the residence of the
Member or other place mutually agreed upon or otherwise
required under the circumstances. Should any Member
refuse to submit to such an examination, payment of his
or her Disability Retirement Allowance shall be
discontinued until his or her withdrawal of such
refusal. Should such refusal continue for a year, all
rights in and to the Disability Retirement Allowance
shall cease. If the Committee finds on the basis of a
medical examination or otherwise that a Member who is
receiving a Disability Retirement Allowance and who has
not reached his or her Normal Retirement Date is no
longer totally incapacitated and that the Member has
regained his or her earning capacity, in whole or in
part, the Member's Disability Retirement Allowance will
be discontinued or reduced proportionately; provided
that he or she shall be entitled to have the Disability
Retirement Allowance restored in whole or in part prior
to his or her Normal Retirement Date if, on the basis
of the certification of one or more physicians
designated by the Committee, the Committee finds the
Member is again totally incapacitated. In the event
the Member ceases to be totally and permanently
incapacitated and he or she does not return to Service,
his or her eligibility for any other Allowance under
the Plan shall be determined under the relevant terms
of the Plan.
(G) Vested Retirement Allowance
(a) A member who has completed five years of Service as an
officer (or was an Officer at the time of a Change in
Control as set forth in Section 15), and who, for
reasons other than retirement, approved leave of
absence, or death, ceases to be employed by the Company
or an Affiliated Company, shall be eligible for a
Vested Retirement Allowance on application therefor.
(b) The Vested Retirement Allowance shall be a deferred
allowance commencing on the Vested Member's Normal
Retirement Date and shall be computed and payable in
accordance with Section 6A on the basis of his or her
Final Average Compensation and years of Service at his
or her date of termination. The Vested Member may
elect to have payment of his or her Vested Retirement
Allowance commence as of the first day of any calendar
month coincident with or following his or her attaining
age 55 as is specified in his or her written election
filed with the Committee prior to the first day of such
calendar month. In the event payment of the Vested
Retirement Allowance commences prior to the first day
of the calendar month coincident with or next following
the 60th anniversary of the Member's birth, the Vested
Retirement Allowance shall be:
(i) the Allowance computed in accordance with Section
6A(i) on the basis of his or her Final Average
Compensation and years of Service at his or her date of
termination; reduced by
(ii) 1/3 of 1% for each complete month by which the
commencement of payment of the Vested Retirement
Allowance precedes the date 5 years prior to his or
her Normal Retirement Date; less
(iii) the Qualified Plan Allowance payable commencing
at the same time.
<PAGE>
(H) Death of Retired Member or of Vested Member Receiving
Payment of Allowance
(a) In the event of the death of a Retired Member, an
Allowance will be paid during the life of, and to, the
Retired Member's Contingent Annuitant. The Allowance
paid to the Contingent Annuitant will be equal to
(i) the Retired Member's Allowance as calculated in
accordance with Section 6A(i) at the time of the
Retired Member's retirement, subject to the age
differential reduction specified below, and subject to
any reduction for early commencement of payment as was
applied when payment of the Retired Member's Allowance
had commenced, or if the Retired Member's Allowance had
not commenced, as would have been applied to the
Retired Member's Allowance if payment to the Retired
Member had commenced when payment of the Allowance
hereunder commences; reduced by (ii) the Qualified Plan
Allowance then payable to the Contingent Annuitant
(under the Qualified Plan Allowance form of payment
specified in Section 6C). In the event the Retired
Member is more than fifteen years older than his or
her Contingent Annuitant, the Allowance to be paid
hereunder, as calculated prior to reduction by the
Qualified Plan Allowance, shall be reduced by three
percent for each full year in excess of fifteen years
by which the Retired Member's age exceeds the age of
the Contingent Annuitant; provided, that the reduction
percentage shall not exceed eighty-five percent.
If payment of the Retired Member's Allowance had
commenced prior to the Retired Member's death, payment
to the Contingent Annuitant as provided herein shall
commence with the payment for the month following the
month in which the Retired Member's death occurred. If
payment of the Retired Member's Allowance had not
commenced prior to the Retired Member's death, payment
to the Contingent Annuitant as provided herein shall
commence with the payment for the month following prior
election of commencement by the Contingent Annuitant.
In the event that the Contingent Annuitant dies after
the Retired Member and monthly payments of the
Allowance to the Retired Member and Contingent
Annuitant have not been made for a total period of
at least 120 months at the time of the death of the
Contingent Annuitant, the monthly payments being made
to the Contingent Annuitant will continue to be made
to the Beneficiary for the balance of the 120 monthly
payment period. In the event the Retired Member has no
Contingent Annuitant at the time of his or her death,
and dies prior to having received 120 monthly payments
of Allowance, monthly payments that would have been
made hereunder to the Contingent Annuitant will be made
to the Beneficiary for the balance of the 120 monthly
payment period. In addition, in either case, if the
Contingent Annuitant hereunder is also the Retired
Member's contingent annuitant under the Qualified Plan,
the benefit assumed to be paid to the contingent
annuitant under the Qualified Plan Allowance form of
payment specified in Section 6C shall be paid hereunder
to the Beneficiary for the balance of the 120 monthly
payment period.
(b) In the event of the death of a Vested Member receiving
payment of a Vested Retirement Allowance, an Allowance
will be paid during the life of, and to, the Vested
Member's Contingent Annuitant. The Allowance paid to
the Contingent Annuitant will be equal to (i) the
Vested Member's Vested Retirement Allowance computed in
accordance with Section 6G(b)(i) at the time of the
Vested Member's termination of employment, subject to
the age differential reduction specified in Section
6H(a) above and subject to any reduction for early
commencement under Section 6G(b)(ii) as was applied to
the Vested Member's Vested Retirement Allowance when
payment of that Vested Retirement Allowance commenced;
reduced by (ii) the Qualified Plan Allowance then
payable to the Contingent Annuitant (under the
Qualified Plan Allowance form of payment specified in
Section 6C.
Payments to the Contingent Annuitant as provided herein
shall commence with the payment for the month following
the month in which the Vested Member's death occurred.
(c) In any event where payments are to be made to the
Contingent Annuitant or Beneficiary, the Company, in
its sole discretion, may fully satisfy such payments by
making a lump sum cash payment of the present value of
the remaining payments to be made. In determining such
present value, the actuarial assumptions used to
calculate the Company's contributions under the
Qualified Plan shall be used.
(I) Death of Member in Active Service or of Vested Member Prior
to Commencement of Vested Retirement Allowance
(a) In the event of the death of a Member in active service
prior to or after his or her Normal Retirement Date and
after he or she has completed five years of Service as an
Officer (or was an Officer at the time of a Change in
Control as set forth in Section 15), an Allowance shall
be payable during the life of, and to, his or her
Contingent Annuitant. The Allowance payable to the
Contingent Annuitant in accordance with this Section
6(I)(a) shall commence with the payment for the month
following the month in which the Member's death
occurred and shall be equal to (i) the Member's
Allowance as calculated in accordance with Section
6(A)(i) as if the date of the Member's death had been
the 65th anniversary of the Member's birth, but on the
basis of the Member's Final Average Compensation and
years of Service at death, and subject to the age
differential reduction specified in Section 6H(a);
reduced by (ii) the Qualified Plan Allowance that would
then be payable to the Contingent Annuitant if the
Contingent Annuitant were the Member's spouse.
(b) In the event of the death of a Vested Member prior to
the commencement of the Vested Retirement Allowance, an
Allowance shall be payable during the life of, and to,
his or her Contingent Annuitant.
Payment of the Allowance in accordance with this
Section 6(I)(b) shall commence as of the first day of
the calendar month as is elected by the Vested Member's
Contingent Annuitant in writing filed with the
Committee prior to the first day of such calendar
month, which shall be no sooner than the first day of
the calendar month coincident with or next following
the later of the Vested Member's death or the 55th
anniversary of the Vested Member's birth and no later
than the first day of the calendar month coincident
with or next following the 65th anniversary of the
Vested Member's birth. The Allowance payable hereunder
shall be equal to the Vested Member's Vested Retirement
Allowance computed in accordance with Section 6(G)(b)(i)
at the time of the Vested Member's termination of
employment, subject to the age differential reduction
specified in Section 6(H)(a) and subject to any
reduction for early commencement under Section
6(G)(b)(ii) as would have been applied to the Vested
Member's Vested Retirement Allowance if payment of the
Vested Retirement Allowance had commenced to the Vested
Member when payment of the Allowance hereunder
commences, reduced by the Qualified Plan Allowance that
would then be payable to the Contingent Annuitant if
the Contingent Annuitant were the Vested Member's
spouse and had coverage by the Vested Member Spouse's
Allowance under the Qualified Plan.
(c) In any event where payments are to be made to the
Contingent Annuitant, the Company, in its sole
discretion, may fully satisfy such payments by making a
lump sum cash payment of the present value of the
remaining payments to be made. In determining such
present value, the actuarial assumptions used to
calculate the Company's contributions under the
Qualified Plan shall be used.
(J) Adjustments to Allowance as A Result of Increases in Cost of
Living
(a) Beginning as of July 1 of the year for which the
cumulative percentage change in the CPI-U (as defined
in (b) below) exceeds 20%, but not earlier than July 1,
1993, and as of each July 1 thereafter, the Allowance
then being paid to or with respect to a Member (other
than a Vested Member whose employment terminated prior
to January 1, 1993) shall be increased by an adjustment
amount, not less than zero, determined by multiplying
(i) (1) in the case of an Allowance being paid to the
Member, the amount of the Allowance
originally paid to the Member which is then
being paid, or
(2) in the case of an Allowance being paid with
respect to a Member:
(A) and if an Allowance had previously been
paid to that Member, the amount of the
Allowance originally paid to the Member
which is then being paid to the
Contingent Annuitant or Beneficiary; or
(B) and an Allowance had not previously been
paid to that Member, the amount of the
Allowance originally paid to the
Contingent Annuitant or Beneficiary
which is then being paid;
<PAGE>
by
(ii) a percentage (rounded to the nearest 1/100 of 1%)
equal to 75% of the cumulative percentage change
in the CPI-U for the year in excess of 20%, but
not more than the applicable cumulative maximum
percentage as each is defined in (b) below).
(b) The terms specified below which are used in (a) above
shall have the meanings set forth below, unless the
context clearly dictates another meaning.
(i) "CPI-U" means the annual average figure under the
Consumer Price Index for All Urban Consumers, U.S.
City Average of All Items (1982-1984=100), or its
successor, as published by the United States
Bureau of Labor Statistics.
(ii) "cumulative percentage change in the CPI-U" for a
year is calculated by dividing the difference
between the CPI-U for the prior year and the CPI-U
for the year prior to the year in which the
Allowance originally commenced by the CPI-U for the
year prior to the year in which the Allowance
originally commenced, and rounding to the nearest
1/100 of 1% (e.g., for purposes of determining the
cumulative percentage change in the CPI-U for 1993
for a Member whose Allowance commenced in 1990,
subtract the CPI-U for 1989 from the CPI-U for
1992, then divide the result by the CPI-U for 1989
and round to the nearest 1/100 of 1%). Notwithstanding
any provisions herein to the contrary, in all cases
when the Allowance commenced before January 1,
1989, the cumulative percentage change in the CPI-U
for a year shall be calculated by dividing the
difference between the CPI-U for the prior year and
the CPI-U for 1991 by the CPI-U for 1991, rounding
to the nearest 1/100 of 1%, and adding 20%.
(iii) "cumulative maximum percentage" is 3% for the first
year in which an adjustment is first made hereunder
and for each succeeding year is 3% plus 103% of the
prior year's cumulative maximum percentage, rounded
to the nearest 1/100 of 1% (e.g., 3% for the first
year adjustment, 6.09% for the second year, 9.27%
for the third year and so on).
(c) The provisions of this section 6(J) are intended to
operate and apply in the same manner and fashion as the
Pension Benefit Adjustments under the Qualified Plan.
<PAGE>
Section 7. ADMINISTRATION OF THE PLAN, POWER AND AUTHORITY
The Committee shall have full power and authority to construe,
interpret and administer the Plan. All decisions, actions, or
interpretations of the Committee shall be final, conclusive, and
binding upon all parties. If any person objects to any such
decision, action or interpretation, formally or informally, the
expenses of the Committee and its agents and counsel shall be
chargeable against any amounts otherwise payable under the Plan to
or on account of the Participant.
Section 8. NO LIABILITY OF COMMITTEE MEMBERS
No member of the Committee shall be personally liable by reason of
any contract or other instrument executed by him or on his or her
behalf in his or her capacity as a member of the Committee nor for
any mistake of judgment made in good faith, and the Company shall
indemnify and hold harmless each member of the Committee and each
other Officer, employee, or Director of the Company to whom any
duty or power relating to the administration or interpretation of
the Plan may be allocated or delegated against any cost or expense
(including counsel fees) or liability (including any sum paid with
the approval of the Board in settlement of a claim) arising out of
any act or omission to act in connection with the Plan, unless
arising out of such person's own fraud or bad faith.
<PAGE>
Section 9. RIGHT TO AMEND, SUSPEND, OR TERMINATE PLAN
The Board reserves the right at any time to amend, suspend, or
terminate the Plan, in whole or in part and for any reason, and
without the consent of any Member, Contingent Annuitant or
Beneficiary; provided that no such amendment, suspension or
termination shall adversely affect rights to receive any amount
to which Members, Contingent Annuitants or Beneficiaries have
become entitled prior to such amendment, suspension or
termination; further provided, that upon any such amendment,
suspension or termination after a Change in Control, any Member
who has not completed five years of Service shall become fully
vested in the Vested Retirement Benefit as though such Member had
completed five years of Service pursuant to Section 15.
Section 10. NO ALIENATION OF BENEFITS
Except insofar as may otherwise be required by law, no amount
payable at any time under the Plan shall be subject in any manner
to alienation by anticipation, sale, transfer, assignment,
bankruptcy, pledge, attachment, charge, or encumbrance of any kind
nor in any manner be subject to the debts or liabilities of any
person, and any attempt to so alienate or subject any such amount,
whether presently or thereafter payable, shall be void. If any
person shall attempt to, or shall, alienate, sell, transfer,
assign, pledge, attach, charge, or otherwise encumber any amount
payable under the Plan, or any part thereof, or if by reason of
<PAGE>
his or her bankruptcy or other event happening at any such time
such amount would be made subject to his or her debts or
liabilities or would otherwise not be enjoyed by him, then the
Committee, if it so elects, may direct that such amount be
withheld and that the same or any part thereof be paid or applied
to or for the benefit of such person, his or her spouse, children
or other dependents, or any of them, in such manner and proportion
as the Committee may deem proper. Any such payment or application
shall be in complete satisfaction of the payment which otherwise
would have been made to or with respect to the Member. Nothing in
the foregoing procedure shall preclude the Committee's having the
payment entitlement judicially settled.
Section 11. PERIODIC REVIEW OF PLAN
In order to assure the continued realization of the purposes of
the Plan, the Board and the Committee shall review the Plan, and
the Committee may suggest amendments to the Board, periodically.
Section 12. GENERAL LIMITATIONS AND PROVISION
Nothing contained in the Plan shall give any Officer the right to
be retained in the employment of the Company or affect the right
of the Company to dismiss any Officer. The adoption of the Plan
shall not constitute a contract of employment between the Company
and any Officer. No Officer shall receive any right to be granted
<PAGE>
an Allowance hereunder nor shall any such Allowance be considered
as compensation under any employee benefit plan of the Company,
except as otherwise determined by the Company.
Section 13. SOURCE OF PAYMENTS
All payments of Allowances provided for under the Plan shall be
paid in cash from the general funds of the Company; provided,
however, that such payments shall be reduced by the amount of any
payments made to the Member or his or her spouse, dependents,
Contingent Annuitant, Beneficiaries or estate from any trust or
special or separate fund established by the Company to assure such
payments. The Company shall not be required to establish a
special or separate fund or other segregation of assets
to assure such payments, and, if the Company shall make any
investments to aid it in meeting its obligations hereunder, the
Member shall have no right, title, or interest whatever in or to
any such investments except as may otherwise be expressly provided
in a separate written instrument relating to such investments.
Nothing contained in this Plan, and no action taken pursuant to
its provisions, shall create or be construed to create a trust of
any kind between the Company and any Members. To the extent that
any Member acquires a right to receive payments from the Company
hereunder, such right shall be no greater than the right of an
unsecured creditor of the Company.
<PAGE>
Section 14. UNFUNDED PLAN; GOVERNING LAW
The Plan is intended to constitute an unfunded deferred
compensation arrangement for a select group of management or
highly compensated personnel and all rights hereunder shall be
governed by and construed in accordance with the laws of New York.
Section 15. CHANGE IN CONTROL
Notwithstanding anything else herein to the contrary, if after a
Change in Control (i) the employment of a Member is terminated
(whether by the Company or for Good Reason), or (ii) a Member
ceases to be an Officer, then any such Member who has no Vested
Retirement Allowance shall be entitled to a Vested Retirement
Allowance as though such Member had completed five years of
Service as an Officer for purposes of Section 6(G).
"Good Reason" shall mean a determination by the Member in good
faith that there has been any (i) material change by the Company
of the Member's functions, duties or responsibilities which
change would cause the Member's position with the Company to
become of less dignity, responsibility, importance, prestige or
scope including, without limitation, the assignment to the Member
of duties and responsibilities inconsistent with his or her
positions; (ii) assignment or reassignment by the Company of the
Member without the Member's consent, to another place of
employment more than 50 miles from the Member's current place of
<PAGE>
employment; (iii) liquidation, dissolution, consolidation or
merger of the Company which has not been approved by a majority of
those members of the Board who were members of the Board prior to
the Change in Control, or transfer of all or substantially all of
its assets, other than a transaction or series of transactions in
which the resulting or surviving transferee entity has, in the
aggregate, a net worth at least equal to that of the Company and
assumes this Plan and all obligations and undertakings of the
Company hereunder; or (iv) reduction in the Member's total
compensation or any component thereof, by written notice to the
Company, specifying the event relied upon for such termination and
given at any time within 6 months after the occurrence of such
event.
Section 16. PAYMENT OF ALLOWANCE
If in the judgment of the Committee, any person entitled to the
payment of an Allowance hereunder is incapable of receiving and
legally receipting for such payment, payment of the Allowance may
be made to such other person, persons or institutions as, in the
judgment of the Committee, may then be maintaining or have custody
or legal responsibility for such person or his or her property.
The determination of the Committee as to the identity of the
proper payee in such situation shall be conclusive, and payment in
accordance with such determination shall be in complete
satisfaction of all rights and entitlements with respect to the
Allowance so paid.
<PAGE>
Section 17. SUCCESSORS
Any successor (whether direct or indirect by purchase, merger,
consolidation or otherwise) to all or substantially all of the
business or assets of the Company shall be bound by the terms and
conditions of the Plan.
3122H.doc
<PAGE>
<PAGE>
THIRD AMENDMENT
Executed on May 5, 1993 and dated
as of July 1, 1991, by and between ORANGE AND
ROCKLAND UTILITIES, INC., a New York
corporation ("Buyer"), and PITTSTON COAL
SALES CORP., a Virginia corporation
("Seller").
WHEREAS, Seller has succeeded to all the assets and business
of Pittston Coal Sales Company, formerly a division of The Pittston
Company, a Virginia corporation; and
WHEREAS, Seller and Buyer are parties to an Agreement dated
as of March 14, 1984, as amended by First Amendment dated as of
July 29, 1986, and Second Amendment dated as of December 1, 1986 (as
so amended, the "Agreement"), and desire further to amend the
Agreement as provided below. Terms used herein are used with the
meanings given to them in the Agreement. References to Sections and
Articles are to Sections and Articles of the Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Section 1.2 is hereby amended to read in its entirety
as follows:
"1.2 The Delivery Date shall mean May 1, 1987."
2. Section 2.1 is hereby amended in its entirety to read
as follows:
"2.1 (a) Seller shall sell to Buyer and Buyer shall
purchase from Seller during each Contract Year a minimum of 36 ninety-
five car unit trains of the Product, or 300,000 tons of the Product,
whichever is greater; except that during the Contract Year ending
April 30, 1993, Seller shall sell to Buyer and Buyer shall buy from
Seller a minimum of 30 ninety-five car unit trains of the Product or
250,000 tons of the Product, whichever is greater. Monthly deliveries
of the Product shall be made in accordance with Buyer's required
delivery dates in 3-ninety-five car unit trainload lots.
Seller accepts the responsibility of assuring that train cars,
once delivered to the Origins, are loaded to full capacity. To the
extent unit trains are delivered to the Origins but, according to
records maintained by Norfolk Southern, are not loaded to full
capacity, Buyer's minimum volume commitment shall be deemed to have
been met. To the extent sufficient trainload capacity is not
delivered to the Origins in any Contract Year to permit the shipment
of 341,521 tons of the Product (or in the Contract Year ending
April 30, 1993, 284,600 tons of the Product) for a reason other than a
force majeure event, Buyer agrees to make up any such deficit in the
following Contract Year. The existence of a deficit from a prior
Contract Year shall not affect Buyer's minimum volume commitment in
any succeeding Contract Year."
(b) Buyer's failure to establish delivery dates, other than due to a
force majeure event, shall not reduce Buyer's minimum volume
commitment.
Article II of the Agreement is hereby amended by adding the
following Section 2.3:
"2.3 In the event that Buyer should wish to purchase coal under a
contract having a term of more than twelve months ("Contract Coal"),
and provided such coal is in addition to the volumes to which Buyer
was contractually committed as of July 1, 1991 under this and any
other contracts extending more than 12 months then in effect, then
Buyer shall advise Seller and offer in writing to purchase the first
63,000 tons per year of such additional Contract Coal from Seller on
the terms specified in such offer. Buyer may, but is not required to,
solicit bids from others prior to making such offer to Seller. Within
20 days after receipt of such offer, Seller shall either (i) accept
such offer by written notice to Buyer, or (ii) offer in writing to
sell such Contract Coal to Buyer on other terms specified by Seller.
If Seller does not accept Buyer's offer and Buyer does not accept
Seller's offer, then Buyer may purchase such Contract Coal from
others."
3. Subsection (d) of Section 3.5 is hereby amended in its
entirety to read as follows:
"(d) 'year' or 'Contract Year' means, unless otherwise specified
or required by the context: the period of twelve months
commencing on July 1, 1991, and ending on June 30, 1992; the
period of ten months commencing on July 1, 1992, and ending
on April 30, 1993; and the period of twelve months
commencing on each May 1 thereafter."
4. Section 4.2 of Article IV of the Agreement is hereby amended
to read in its entirety as follows:
"4.2 (a) The typical quality of the Product delivered hereunder,
at the Lovett Plant, shall be as follows:
Typical Coal Specifications (as received basis)
Moisture 7.0%
Fixed Carbon 52.0% Approximate
Volatile Matter 33.0% Min.
Ash 7.0%
Hardgrove Grind (HGI) See Section 4.2 (b)
AST (Initial deformation
in reducing atmosphere) 2650oF
Sulfur (SO2) 1.0 lbs. S02 Mmbtu Max.
Btu/Lb. 13,000 Min.
Should Seller deliver product hereunder, at the Lovett
Plant, which fails to meet the following coal
specifications, then Buyer shall have the right to suspend
shipments from Seller in accordance with Section 4.3 hereof.
Individual Shipment Suspension Limits (as received basis)
Volatile Matter 30.0% Min.
AST (Initial deformation
in reducing atmosphere) 2450oF Min.
Sulfur (SO2) 1.0 lbs. S02 Mmbtu Max.
Moisture 8.0% Max.
Btu/Lb. 12,800 Min.
Hardgrove Grind See Section 4.2 (b)
30-Day Suspension Limits (as received basis)
Ash 10.0% Max.
90-Day Suspension Limits (as received basis)
Moisture 7.0% Max.
Btu/Lb. 12,800 Min.
Hardgrove Grind See Section 4.2 (b)
5. New Section 4.2 (b) is hereby added to Article IV:
"4.2 (b)
Individual Shipment Suspension Limits (as received basis)
Moisture Above 7% 7% and
(Maximum 8%) Below
or and
Heat Content Below 13,000 Btu/Lb. 13,000 Btu/Lb.
(Minimum 12,800 Btu/Lb.) and Above
then then
HGI 46 or Above 45 Minimum*
* This limit is subject to the exception that one shipment during
any 90-day period can have a HGI of 44 or above. The moisture
associated with this shipment must be 7% or lower and the Btu
content 13,000 Btu/Lb. or higher. If a shipment having a 44 HGI
is delivered, another shipment of 44 HGI may not be delivered for
another 90 days.
90-Day Suspension Limits (as received basis)
The following formula will apply:
Btu/Lb. x HGI Index greater than or equal to 600
1000
No variation in the minimum standards for Hardgrove Grind are
permitted due to error tolerances assumed by testing laboratories,
however, all HGI analyses shall be performed in duplicate with the
higher of the two results governing for contract administration
purposes. However, if the standards used by ASTM for evaluating
Hardgrove Grind are changed, the parties agree that the minimum
specifications herein set forth shall be adjusted to maintain a
comparable minimum specification using the new ASTM standards."
6. Buyer agrees that coal produced at the Holston (formerly,
GEX) preparation plant in Pike County, Kentucky, now operated by
Holston Mining, Inc., an affiliate of Seller, and mined from such
plant's feeder mines owned or controlled by affiliates of Seller is
acceptable substitute coal for all purposes of the Agreement as hereby
amended, provided that such coal shall be subject in all respects to
ARTICLE IV, Product Quality.
7. Effective July 1, 1991 the Base Price under the Agreement as
hereby amended shall be an amount per ton equal to (a) the Initial
Base Price set forth in Section 5.1 as adjusted from time to time
after March 31, 1983 to the end of such Pricing Period as provided in
Article VI less (b) $7.398 per ton. Adjustments of the Initial Base
Price from March 31, 1983 to July 1, 1991, in accordance with such
Article VI, are summarized on Schedule 6.4-51 annexed hereto. The
Base Price at July 1, 1991 is equal to $43.858 less $7.398 per ton, or
$36.46 per ton F.O.B. railcar at the Preparation Plant. Such Base
Price shall apply to coal produced at the Stone preparation plant and
the Holston preparation plant and shall be adjusted from time to time
in accordance with Article VI.
8. The parties hereby release all claims against each other
arising under or relating to Article I, Term; Article II, Product
Quantity, and Article IV, Product Quality, of this Agreement, as
amended, with respect to the period before the effective date of this
Third Amendment.
9. The Agreement, as hereby amended, represents the entire
agreement of the parties and supersedes all prior agreements and
understandings with respect to the same subject matter.
10. The Agreement, as hereby amended, is in all respects
ratified and confirmed, and all of its terms, provisions and
conditions, as so amended, shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed by their respective duly authorized representatives as
of the day and year first above written.
PITTSTON COAL SALES CORP.
By /s/ Larry D. Miller
Executive Vice President
ORANGE AND ROCKLAND UTILITIES, INC.
By /s/ Patrick J. Chambers, Jr.
Senior Vice President and
Chief Financial Officer
<PAGE>
Sch. 6.4-51
THE PITTSTON COMPANY
ESCALATION OF ORANGE & ROCKLAND
Summary of Price Components as of July 1, 1991
Cum.
Adj. To Adjusted
Base Base Price
UMWA Labor $ 8.721 $ 2.779 $11.500
Salaried Labor
& Benefits 2.873 .839 3.712
UMWA Pension
& Benefit 3.100 .480 3.580
Supplies 10.161 1.685 11.846
Payroll Taxes .826 .460 1.286
Depreciation 1.898 .426 2.324
Administrative
Expense 1.010 .330 1.340
Seller's Margin 1.567 .000 1.567
Workmen's Comp.
& Coal Worker's
Pneumoconiosis 1.807 .108 1.915
Excise Taxes and
Reclamation Fees 1.150 .100 1.250
Sub-Total $33.113 $ 7.207 $40.320
Coal Royalty and KY
Severance Taxes 2.887 .651 3.538
Sub-Total $36.000 $ 7.858 $43.858
Less: Price Adj.
for First Pricing
Period 7.398
Total $36.460
=======
ORANGE AND ROCKLAND UTILITIES, INC.
POST-DIRECTOR SERVICE
RETAINER CONTINUATION PROGRAM
Effective: April 8, 1987
Amended as of : April 12, 1989
June 1, 1989
April 5, 1990
April 14, 1993
**************
<PAGE>
ORANGE AND ROCKLAND UTILITIES, INC.
POST-DIRECTOR SERVICE
RETAINER CONTINUATION PROGRAM
In recognition of the added value of the continued
service of directors who are experienced with the operations of
Orange and Rockland Utilities, Inc. (the "Company") because of their
length of service on the Board and to provide a benefit for such
experience so as to encourage directors to continue to serve, the
following Company Post-Director Service Retainer Continuation
Program is hereby created:
1. Eligibility. Any director who is not otherwise
covered by any retirement plan or program sponsored by the Company
and who has served as a member of the Company's Board of Directors
for a period of at least five continuous years shall be an "Eligible
Director".
2. Retainer Continuation. Upon ceasing to be a member
of the Board of Directors, an Eligible Director shall be entitled to
the continuation of one hundred percent (100%) of the annual Board
and Committee service retainers as in effect and being paid to such
Eligible Director at the time the Eligible Director ceased to be a
member of the Board of Directors, subject to the limitations
contained in Paragraph 3 below.
3. Time and Manner of Payment. The retainer continuation
payments shall commence (i) if the Eligible Director is living, as of
the first day of the calendar month next following the later of the
Eligible Director's attaining age 65 or ceasing to be a member of the
Board of Directors or (ii) in the case of the death of an Eligible
Director prior to commencement of payments, as of the first day of
the calendar month next following the later of the 65th anniversary
of the Eligible Director's birth or the Eligible Director's date of
death; provided, however, if the Eligible Director has already
received an installment of the annual retainer for a period extending
beyond when the retainer continuation payments would otherwise begin
as provided herein, the retainer continuation payments will not
commence until the expiration of the period for which the retainer
has been paid. The retainer continuation payments shall be made in
nearly equal monthly installments equal to one-twelfth (1/12th) the
annual retainer specified in Paragraph 2 above. Such payments shall
be made as of the first day of each month and shall continue for a
period equal to the lesser of (a) the Eligible Director's full years
of service on the Board of Directors, or (b) 10 years. In the event
an Eligible Director dies, either while serving on the Board or after
retiring from the Board, and where payments remain to be made, the
remaining payments shall be made to the beneficiary last designated
by the Eligible Director in writing to the Retirement Committee, or
if none, to the Eligible Director's estate. In the event of the
death of a beneficiary to whom payments are due, the remaining
payments shall be made to such beneficiary's estate. In the event
<PAGE>
payments are to be made to a beneficiary or to the estate of an
Eligible Director or a beneficiary, the Retirement Committee, at its
sole discretion and at any time, may provide for the lump-sum payment
of the present value of the remaining payments, such present value to
be determined by using a discount factor equal to the interest rate
assumption used to calculate the Company's contribution under the
Employees' Retirement Plan of Orange and Rockland Utilities, Inc.
Beginning as of July 1 of the year for which the cumulative
percentage change in the CPI-U (as defined below) exceeds 20%, but
not earlier than July 1, 1993, and as of each July 1 thereafter, the
retainer continuation payments then being paid to or with respect to
an Eligible Director shall be increased by an adjustment amount, not
less than zero, determined by multiplying the original retainer
continuation payment amount, by a percentage (rounded to the nearest
1/100 of 1%) equal to 75% of the cumulative percentage change in the
CPI-U for the year in excess of 20%, but not more than the applicable
cumulative maximum percentage (as each is defined below).
The terms specified below which are used above shall have the
following meanings unless the context clearly dictates another
meaning:
(x) "CPI-U" means the annual average figure under the
Consumer Price Index for All Urban Consumers, U.S.
City Average of All Items (1982-1984=100), or its
successor, as published by the United States Bureau
of Labor Statistics.
(y) "cumulative percentage change in the CPI-U" for a
year is calculated by dividing the difference
between the CPI-U for the prior year and the CPI-U
for the year prior to the year in which the retainer
continuation payment originally commenced by the
CPI-U for the year prior to the year in which the
retainer continuation payment originally commenced,
and rounding to the nearest 1/100 of 1% (e.g., for
purposes of determining the cumulative percentage
change in the CPI-U for 1993 for an Eligible
Director whose retainer continuation payment
commenced in 1990, subtract the CPI-U for 1989 from
the CPI-U for 1992, then divide the result by the
CPI-U for 1989 and round to the nearest 1/100 of
1%). Notwithstanding any provisions herein to the
contrary, in all cases when the retainer continuation
payment commenced before January 1, 1989, the
cumulative percentage change in the CPI-U for a year
shall be calculated by dividing the difference
between the CPI-U for the prior year and the CPI-U
for 1991 by the CPI-U for 1991, rounding to the
nearest 1/100 of 1%, and adding 20%.
<PAGE>
(z) "cumulative maximum percentage" is 3% for the first
year in which an adjustment is first made hereunder
and for each succeeding year is 3% plus 103% of the
prior year's cumulative maximum percentage, rounded
to the nearest 1/100 of 1% (e.g., 3% for the first
year adjustment, 6.09% for the second year, 9.27%
for the third year and so on).
4. Nature of Payment. The retainer continuation
payments are purely personal to the Eligible Director and may not be
assigned, alienated, anticipated or encumbered. Any attempt to
assign, alienate, anticipate or encumber the payments shall result
in the Eligible Director's forfeiture of all rights to any retainer
continuation payments hereunder.
5. Source of Payments. All payments of awards
provided for under the Program shall be paid in cash from the
general funds of the Company; provided, however, that such payments
shall be reduced by the amount of any payments made to the director
or his or her dependents, beneficiaries or estate from any trust or
special or separate fund established by the Company to assure such
payments. The Company shall not be required to establish a special
or separate fund or other segregation of assets to assure such
payments, and, if the Company shall make any investments to aid it
in meeting its obligations hereunder, the director shall have no
right, title, or interest whatever in or to any such investments
except as may otherwise be expressly provided in a separate written
instrument relating to such investments. Nothing contained in this
Program and no action taken pursuant to its provisions, shall create
or be construed to create a trust of any kind between the Company
and any persons. To the extent that any person acquires a right to
receive payments from the Company hereunder, such right shall be no
greater than the right of an unsecured creditor of the Company.
6. Administration. This Program shall be
administered by the Retirement Committee of the Company which shall
have the full power and authority to construe, interpret and
administer the Program. All decisions, actions or interpretations
of the Retirement Committee shall be final, conclusive and binding
on all parties.
7. Amendment. The Board of Directors reserves the
right to amend the Program in whole or in part at any time without
the specific consent of any Eligible Director; provided, however,
that no such amendment shall adversely affect retainer continuation
payments then being made or the rights of any then Eligible Director
to receive retainer continuation payments earned prior to the
amendment, calculated on the basis of such Eligible Director's
continuous service as a director at the time of the amendment and
the annual retainer then in effect.
8. Termination. The Board of Directors reserves the
right to terminate the Program at any time. Termination of the
Program shall not affect the retainer continuation payments then
<PAGE>
being made. Such payments shall be continued in accordance with the
terms hereof. In addition, termination of the Program shall not
affect the right of any Eligible Director as of the date of
termination to receive retainer continuation payments which shall be
calculated on the basis of the continuous service of the Eligible
Director as of the time of termination of the Program and the annual
retainer then in effect. Such retainer continuation payments shall
commence and be paid in accordance with the otherwise applicable
provisions of the Program (Paragraph 3).
9. Change in Control. Notwithstanding anything else
herein to the contrary, in the event of the occurrence of a Change
in Control, if any, each Eligible Director shall have the right to
receive and shall be paid, as soon as practicable after such
occurrence becomes reasonably certain, a lump sum cash amount equal
to the present value of the retainer continuation payments that
would otherwise have been paid pursuant to Paragraph 3, on the
assumption that, (a) payments (including any payments already made)
would be made for a period equal to the lesser of the Eligible
Director's full years of service on the Board of Directors or 10
years, and (b) that, with respect to Eligible Directors who were not
yet receiving retainer continuation payments, such payments would
commence on the later of the Eligible Director's attaining age 65 or
the date of the Change in Control. Such present value shall be
determined by using a discount factor equal to the interest rate
assumption used to calculate the Company's contributions under the
Employees' Retirement Plan of Orange and Rockland Utilities, Inc. as
of the date of the Change in Control.
As used in the Plan, "Change in Control" shall mean
the happening of any of the following:
(a) receipt by the Company of a report on Schedule l3D
filed with the Securities and Exchange Commission pursuant to
Section 13(d) of the Securities Exchange Act of 1934 (the "1934
Act") disclosing that any person, group, corporation or other
entity is the beneficial owner, directly or indirectly, of 20
percent or more of the outstanding stock of the Company;
(b) purchase by any person (as defined in Section 13(d) of
the 1934 Act), corporation or other entity, other than the
Company or a wholly-owned subsidiary of the Company, of shares
pursuant to a tender or exchange offer to acquire any stock of
the Company (or securities convertible into stock) for cash,
securities or any other consideration, provided that, after
consummation of the offer, such person, group, corporation or
other entity is the beneficial owner (as defined in Rule l3d-3
under the 1934 Act), directly or indirectly, of 20 percent or
more of the outstanding stock of the Company (calculated as
provided in paragraph (d) of Rule l3d-3 under the 1934 Act in
the case of rights to acquire stock);
(c) approval by the stockholders of the Company of any (i)
consolidation or merger of the Company in which the Company is
not the continuing or surviving corporation or pursuant to which
<PAGE>
shares of stock of the Company would be converted into cash,
securities or other property, other than a consolidation or
merger of the Company in which holders of its common stock
immediately prior to the consolidation or merger have
substantially the same proportionate ownership of common stock
of the surviving corporation immediately after the consolidation
or merger as immediately before, or (ii) sale, lease, exchange
or other transfer (in one transaction or a series of related
transactions) of all or substantially all the assets of the
Company; or
(d) a change in the majority of the members of the Board
of Directors within a 12-month period unless the election or
nomination for election by the Company's stockholders of each
new director was approved by the vote of two-thirds of the
directors then still in office who were in office at the
beginning of the 12-month period.
10. Effective Date. This Program shall be effective
on April 8, 1987.
DIR-RET.PRG
<PAGE>
Review of the Company's Results of Operations and Financial Condition
Orange and Rockland Utilities, Inc. and Subsidiaries
Financial Performance
Earnings per average common share for 1993 were $3.06, compared to
$3.15 in 1992 and $3.12 in 1991. The 1993 earnings were adversely
affected by the cost of the independent investigation described below
under "Events Affecting the Company". Despite the controversy
surrounding the Company during the second half of 1993, the core
utility business produced strong operating results for the year which
allowed the company to maintain its sound financial condition.
Dividends paid for the year increased to $2.49 per share from the
$2.43 paid in 1992 and the $2.37 paid in 1991. The Company has
maintained a stable capital structure of 47% long-term debt, 6%
preferred stock and 47% common equity.
Consolidated earnings available for common stock were $41.5 million in
1993, $42.3 million in 1992 and $41.3 million in 1991. Earnings per
average common share are summarized as follows:
1993 1992 1991
Utility operations $3.37 $3.12 $3.00
Investigation costs (.29) - -
Diversified activities (.02) .03 .12
Consolidated earnings
per share $3.06 $3.15 $3.12
As a result of the positive effects of the electric and gas rate
agreements in New York and New Jersey and the Company's successful cost
containment programs, earnings from utility operations increased $.25 in
1993, as compared with 1992. This increase was more than offset by the
cost of conducting the independent investigation described below. The
earnings attributable to the diversified activities decreased $.05 and
$.09 per share when comparing 1993 to 1992 and 1992 to 1991,
respectively. The decline in non-utility earnings is primarily a result
of continuing competitive pressure in the gas marketing business which
substantially limited the subsidiary's gross profit margin, as well as
by the disappointing results of operations by the communications
subsidiary.
The earned return on common equity was 11.2% in 1993, compared to
11.9% in 1992, and 12.1% in 1991. Book value per share at year-end 1993
was $27.79 compared to $27.22 and $26.33 in 1992 and 1991, respectively.
The Company continued to provide a fair and equitable return on
shareholders' investments by increasing the dividend paid on common
stock by $.06 in 1993, 1992 and 1991. This marks the eighteenth
consecutive year dividends paid to shareholders have been increased.
Events Affecting the Company
During the third quarter of 1993, the Rockland County (NY) District
Attorney charged a then Vice President of the Company with grand
larceny, commercial bribery and making illegal political contributions
and commenced a related investigation of the Company. Two other former
employees reporting to the Vice President were charged with grand
larceny. The Board of directors promptly formed a Special Committee of
outside directors (Special Committee), with authority to take any steps
deemed necessary or desirable, to conduct an independent investigation
into such matters, in order to determine to what extent there were any
other improprieties and to make recommendations as to any necessary
remedial measures. The Special Committee has retained investigative
counsel and an accounting firm to assist its inquiry.
The New York Public Service Commission (NYPSC) and New Jersey Board of
Regulatory Commissioners (NJBRC) also began investigations to determine
the impact of these events on the Company's ratepayers. The
Company is cooperating fully in the inquiries and has pledged to return
to customers any funds that are discovered to have been
misappropriated. Under agreements reached with the NYPSC and the NJBRC,
the Company agreed to refund $345,000 to its New York
ratepayers during the period November 1993 through January 1994 and
Rockland Electric Company (RECO) is refunding $94,100 to New Jersey
ratepayers in February and March 1994 through reductions in the
applicable fuel adjustment charges. Any misappropriated funds
identified with Pike County Light & Power Company's (Pike) electric and
gas operations in Pennsylvania will also be promptly refunded to
ratepayers in that state.
On November 4, 1993 the Company signed a Joint Cooperation Agreement
with the Rockland County District Attorney's office which creates an
Inspector General's office within the Company to monitor its efforts to
implement and maintain programs to ensure the highest ethical standards
of business conduct. The agreement also specified a number of other
steps the Company will undertake to aid in the ongoing investigation and
prevent any reoccurrence. As a result of the agreement and the
Company's continued cooperation with the inquiry, the District Attorney
has agreed not to file any criminal charges against the Company or any
of its subsidiaries in connection with the current investigation.
The former Company officer and two former employees charged by the
District Attorney subsequently pleaded guilty to all counts. The
District Attorney's Office has identified $374,124 as representing the
amount of funds misappropriated by these individuals. As part of their
plea, the two former employees agreed to a partial restitution agreement
pursuant to which they will reimburse to the Company a sum of $199,709
prior to their sentencing, scheduled for May 4, 1994.
The investigations being conducted by the Special Committee of the
Board of Directors and the District Attorney, along with those of the
NYPSC and the NJBRC, are still under way. The Company intends to take
all appropriate actions to protect the interests of its customers and
shareholders. It is not possible to predict at this time the extent of
additional refunds that may be required by the NYPSC, if any.
During 1993 the Company incurred expenses of $6.1 million for legal
counsel, accountants, and other consultants in connection with the
investigation and related matters. These activities are currently
anticipated to continue through the first half of 1994. It is currently
estimated that the Company will incur from $3.0 to $6.0 million of
expenses in 1994 to conclude the investigation. These expenditures are
not recoverable from ratepayers. The Company will attempt to offset
<PAGE>
these costs to the extent possible by achieving savings in the cost of
operations during the year.
During the fourth quarter, James F. Smith was terminated for cause as
Chief Executive Officer and removed as Chairman of the Board of
Directors, and Victor J. Blanchet, Jr. was appointed to serve as Acting
Chief Executive Officer.
In order to fully protect its interests, the Company has initiated
lawsuits in federal and state courts to recover misappropriated funds.
In related activities, two lawsuits have been brought by shareholders
and another by ratepayers seeking damages resulting from these events.
For more information on these legal proceedings, refer to Note 12 of
Notes to Consolidated Financial Statements.
Results of Operations
The discussion which follows identifies the principal causes of the
significant changes in the amounts of revenues and expenses affecting
income available for common stock by comparing 1993 to 1992 and 1992 to
1991. This discussion should be read in conjunction with the Notes
to Consolidated Financial Statements and other financial and statistical
information contained elsewhere in this report. The following is a
summary of the changes in earnings available for common stock:
Increase (Decrease) From Prior Year 1993 1992
(Millions of Dollars)
Utility Operations:
Operating revenues $39.8 $24.6
Energy costs 15.5 .4
Net revenues from utility operations 24.3 24.2
Other utility operating expenses and taxes 20.4 21.1
Diversified revenues 87.4 88.5
Diversified operating expenses and taxes 88.0 88.8
Income from operations 3.3 2.8
Other income and deductions (5.6) (.6)
Interest charges (1.3) 1.3
Net income (1.0) .9
Preferred dividends (.1) (.2)
Earnings available for common stock $ (.9) $ 1.1
Electric Operating Revenues and Sales
Electric operating revenues, net of fuel and purchased power costs,
increased by 6.1% or $20.0 million and 5.2% or $16.4 million in 1993
and 1992, respectively.
<PAGE>
The components of these changes are attributable to the following
factors:
Increase (Decrease) From Prior Year 1993 1992
(Millions of Dollars)
Change in rates, sales mix and other operating revenues $17.9 $14.3
Fuel cost recoveries 2.1 (3.7)
Sales volume changes 3.8 (1.4)
Subtotal 23.8 9.2
Sales for resale (.6) (2.6)
Total electric revenues 23.2 6.6
Electric energy costs 3.2 (9.8)
Net electric revenues $20.0 $16.4
The increase in electric revenue in 1993 was the result of rate
agreements in New York and New Jersey as well as higher sales volumes.
The increase in 1992 was the result of the rate agreements.
Electric sales to customers for the last five years are shown in the
accompanying table: [Graphics Chart; see Appendix A of Exhibit 13]
The changes in electric sales by class of customer from the prior
year are as follows:
1993 1992
Residential 5.1% (4.0%)
Commercial (.1%) (.4%)
Industrial 4.4% 3.7%
Public street lighting .6% 2.8%
Sales to public authorities 2.5% (4.4%)
Warmer summer weather in 1993, and an increase in the number of
customers compared to the previous year, resulted in increased
electric retail sales of 3.5% compared to a decrease of .4% in 1992.
The decrease during 1992 was principally the result of cooler summer
weather which was partially offset by the increased number of
customers when compared to 1991.
The Company is committed to continuing to meet the energy needs of
its customers by pursuing least-cost methods. Demand-Side Management
(DSM) programs, which are designed to reduce peak load, encourage
efficient energy usage and reduce the need for costly investments in
new generating capacity, continue to be a priority. These efforts
resulted in the Company fully achieving the DSM goals established by
the NYPSC in the 1990 electric rate case, producing an energy-
efficiency savings of approximately 126,400 Mwh in 1993 and
88,200 Mwh in 1992. As a result, the Company earned the maximum
allowable incentive provided by the NYPSC approved rate agreement, an
additional 100 basis points on the Company's return on equity
applicable to New York electric operations in 1993 and 90 additional
basis points in 1992. In addition to DSM, the Company continues to
actively seek cost effective energy supply options, such as
independent power producers and purchase power agreements with other
utilities.
An innovative rate-making procedure called Regulatory Decoupling
Mechanism (RDM), which became effective January 1, 1991, required
among other things, the reconciliation of actual electric sales
revenue based on usage in the Company's New York franchise territory
to the level allowed in rates, thereby minimizing the impact of future
sales volume changes on earnings. The Company's earnings from New
York electric operations under the RDM agreement are dependent on its
success in achieving its DSM and customer service incentive goals, as
well as controlling operation and maintenance costs within levels
provided for in rates. Under the agreement, New York electric revenue
targets, net of fuel and taxes, amounted to $223.2 and $213.5 million,
compared to actual sales revenues based upon usage of $230.1 and
$214.0 million, in 1993 and 1992, respectively, requiring the Company
to record revenue reductions of $6.9 million in 1993 and $.5 million
in 1992. The Company's success in achieving its DSM and customer
service goals allowed it to earn incentives amounting to $3.1 million
for DSM and $.5 million for customer service achievements in 1993,
compared to $2.7 million for DSM and $.5 million for customer service
achievements in 1992.
The RDM agreement was scheduled to expire in 1993. However, the
NYPSC has extended the agreement through June 30, 1994 and the Company
has requested a further extension through December 31, 1994. The
NYPSC has not as yet acted on the Company's request which would
maintain the reconciliation of electric sales to the amount provided
for in rates. If the RDM agreement is not extended past June 30, 1994
future electric earnings from the Company's New York operations, in
addition to its New Jersey and Pennsylvania operations, will be
affected by changes in sales volumes resulting from the strength of
the economy, weather conditions and the conservation efforts of
customers.
Sales for resale decreased by 7.3% in 1993 after decreasing by 15.0%
in 1992. Revenues from these sales are primarily a recovery of costs
and, under the applicable tariff regulations, have a minimal impact on
the Company's earnings.
Electric Energy Costs
The cost of fuel used in electric generation and purchased power
increased 2.4% or $3.2 million in 1993 after decreasing 6.8% or $9.8
million in 1992. The components of these changes in electric energy
costs are as follows:
Increase (Decrease) From Prior Year 1993 1992
(Millions of Dollars)
Prices paid for fuel and
purchased power $(1.8) $(2.0)
Changes in Kwh generated
or purchased 4.7 (2.3)
Deferred fuel charges .3 (5.5)
Total $ 3.2 $(9.8)
The price paid for fuel and purchased power per kilowatt hour over
the last five years is shown in the following table: [Graphics Chart,
see Appendix A of Exhibit 13]
<PAGE>
The Company's tariff schedules include adjustment clauses under
which fuel and certain purchased power costs are recovered. In New
York, an incentive-based mechanism associated with the electric fuel
adjustment clause provides for the sharing of up to a 20% variation
between actual costs and forecast fuel targets, to a maximum of
$1,762,000. In 1993, 1992, and 1991 pre-tax earnings were enhanced by
$755,000, $800,000 and $364,000, respectively, as a result of this
mechanism. The Company maintains an aggressive program of managing
its sources of fuel and energy purchases to provide its customers with
the lowest cost of energy available at any given time. The Company's
ability to burn coal and natural gas has enabled it to reduce its use
of fuel oil significantly. Energy is purchased from other utilities
whenever available at a price lower than the cost of production at the
Company's generating plants. The Company continues to use the least
costly fuel available for generating electricity.
The sources of electricity available for sale during the last three
years are as follows:
1993 1992 1991
Source of Electricity Sold:
Company generation:
Oil 5% 10% 14%
Natural gas 16 21 22
Coal 33 33 36
Hydro 4 3 3
Other supply:
Purchased power 42 33 25
Total 100% 100% 100%
Gas Operating Revenues and Sales
Net gas revenues increased 6.8%, or $4.3 million, and 14.1%, or $7.8
million, for 1993 and 1992, respectively.
These changes are attributable to the following factors:
Increase (Decrease) From Prior Year 1993 1992
(Millions of Dollars)
Change in rates, sales mix
and other operating revenues $ 5.2 $ 5.7
Gas cost recoveries 13.8 8.2
Sales volume changes .2 6.3
Subtotal 19.2 20.2
Sales to interruptible customers (.8) (2.1)
Sales for resale (1.8) (.1)
Total gas revenues 16.6 18.0
Gas energy costs 12.3 10.2
Net gas revenues $ 4.3 $ 7.8
The increase in gas revenues in 1993 was due to the recovery of
higher purchased gas costs than experienced in the previous year and
increased gas rates as a result of a September 30, 1992 gas rate
agreement. Under the 1992 rate agreement the level of firm gas sales
in New York is subject to a weather normalization adjustment. As a
result, fluctuations in future gas sales due to weather conditions
will have a minimal impact on earnings. The increase in 1992, prior
to the agreement, was primarily attributable to an increase in sales
reflecting a colder winter than experienced in 1991.
Gas sales to firm customers for the last five years are shown in the
accompanying table: [Graphics Chart; see Appendix A of Exhibit 13]
The changes in firm gas sales by class of customer from the prior
year are as follows:
1993 1992
Residential 1.0% 12.4%
Commercial and industrial (1.5%) 10.8%
Firm gas sales increased by less than 1% in 1993 after increasing
11.9% in 1992. Sales in 1993 were affected by the increased number of
customers, while 1992 was favorably affected by weather conditions
which were cooler than the preceding heating season.
Effective December 15, 1992, under the terms of a multi-year gas
rate agreement extending through 1996, the level of firm sales in New
York is subject to a weather normalization adjustment. The Company
will adjust firm gas sales revenues to the extent actual degree days
vary more than plus or minus 2.2% from the degree days utilized to
project sales. Therefore, weather conditions will have a minimal
impact on gas revenues through 1996.
Revenues from interruptible gas customers (customers with
alternative fuel sources) decreased 23.7% and 38.3% in 1993 and 1992,
respectively. These sales are dependent upon the availability and
price competitiveness of alternative fuel sources. As a result of
applicable tariff regulations, these sales do not have a substantial
impact on earnings.
Gas Energy Costs
Utility gas energy costs increased by 15.8%, or $12.3 million, and
15.2% or $10.2 million in 1993 and 1992, respectively.
The changes in utility gas energy costs for the years 1993 and 1992
are a result of the following:
Increase (Decrease) From Prior Year 1993 1992
(Millions of Dollars)
Prices paid to gas suppliers* $ 2.7 $14.6
Firm and interruptible Mcf sendout (2.1) 3.3
Deferred fuel charges 11.7 (7.7)
Total $12.3 $10.2
*Net of refunds received from gas suppliers.
The increases in 1993 and 1992 were attributable to the increase in
gas prices charged by the Company's pipeline suppliers and the
deferred fuel charges. The Company continues its policy of the
aggressive use of spot market purchases in order to provide price
flexibility, while assuring an adequate supply of gas with a variety
of long-term contracts with pipeline suppliers.
<PAGE>
The price paid for purchased gas per thousand cubic feet (Mcf) over
the last five years is shown in the accompanying table: [Graphics
Chart; see Appendix A of Exhibit 13]
Gas costs from gas suppliers were adversely affected by the actions
of the Federal Energy Regulatory Commission (FERC), which had
authorized pipeline suppliers to pass through take-or-pay costs
resulting from contract negotiations with gas producers to local
distribution companies, including the Company. The Company is
currently allowed by the NYPSC to pass through 65% of these costs
while deferring the remaining dollars until the NYPSC completes a
review of this matter. As of December 31, 1993, the Company had
deferred $3.7 million of these costs.
On April 8, 1992, the FERC issued Order No. 636. The rule requires
significant changes to the structure of the natural gas industry, and
more specifically, to the manner in which pipelines provide service.
Order No. 636 has changed the manner in which the Company obtains its
gas supplies by unbundling the transportation, storage and supply
services offered by interstate gas pipelines into separate components.
The Company has assumed direct responsibility for its gas
acquisition and transportation. The Company is well positioned to
manage the new gas supply environment created by Order No. 636 due to
its high load factors, geographic location and extensive gas
procurement experience. While the FERC's objective is to restructure
the industry to promote competition among gas suppliers to ensure
supply at the lowest reasonable cost, there are significant initial
costs associated with the implementation of the restructuring rule.
Specifically, Order No. 636 authorizes pipelines to recover from their
customers certain transition costs resulting from implementation of
the rulemaking. The Company's four principal pipeline suppliers made
filings with the FERC during 1993 for approval of a portion of their
restructuring transition costs and proposed allocation procedures to
flow the approved costs through to their customers. The Company
currently estimates that its obligation at December 31, 1993 for Order
No. 636 transition costs will be approximately $21.5 million. The
NYPSC has not as yet determined its policy with respect to recovery of
transition costs. However, on October 28, 1993 the NYPSC instituted a
generic proceeding to review the issues associated with Order No. 636
restructuring. Management believes that any transition costs
resulting from the FERC Order should be fully recoverable in gas rates
to the extent such costs were prudently incurred.
Other Utility Operating Expenses and Taxes
A comparison of other operating expenses and taxes for utility
operations is presented in the following table:
Increase (Decrease) From Prior Year 1993 1992
(Millions of Dollars)
Other operation expenses $12.5 $10.4
Maintenance .4 2.2
Depreciation & amortization (.1) 2.1
Taxes 7.6 6.4
Total $20.4 $21.1
The cost of DSM programs increased other operation expenses in 1993
and 1992 by $8.0 million and $5.2 million, respectively. These costs
are recovered in revenues on a current basis. The remaining increase
in 1993, as well as the 1992 increase, was the result of higher
operation expenses associated with inflationary increases in the cost
of labor, material and services.
Maintenance costs increased 1.0% and 5.5% in 1993 and 1992,
respectively. The 1993 increase was the result of slightly higher
maintenance costs in the production plants. The increase in 1992 was
primarily the result of the Company's intensive program of maintaining
its distribution facilities to ensure service reliability to its
customers.
Depreciation and amortization expenses decreased $.1 million in 1993
after increasing $2.1 million in 1992. The decrease in 1993 was the
result of the amortization of certain excess depreciation reserves
provided in the 1992 gas rate agreement. The increase in 1992 was the
result of normal additions to plant.
Taxes other than income taxes increased $3.5 million and $4.3
million in 1993 and 1992, respectively. The increase in each year was
primarily the result of taxes associated with increased revenues and
property taxes. Federal income tax expense increased $4.1 million in
1993 and $2.1 million in 1992. For a detailed analysis of income tax
components, see Note 2 of Notes to Consolidated Financial Statements.
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.
Diversified revenues increased $87.4 million and $88.5 million in
1993 and 1992, respectively. The increase in revenues over the last
two years are primarily the result of gas marketing revenues, which
were favorably affected by increased customers and higher sales
volumes.
Operating expenses, including cost of gas marketing sales,
depreciation and taxes, increased $88.0 million and $88.8 million in
1993 and 1992, respectively. These increases are directly related to
gas marketing purchases which were $85.9 and $86.7 million higher in
1993 and 1992, respectively. Other expenses of operation,
maintenance, depreciation and taxes increased $2.1 million in 1993 and
1992.
Operating income from diversified activities decreased by $.6
million and $.3 million in 1993 and 1992, respectively. The decline
was a result of lower gross profit margins realized by the gas
marketing subsidiary and operating losses sustained by the
communication subsidiary.
The Company will continue to look to its gas marketing activities to
make positive contributions to operating results in the future. The
Company's investment in real estate and communication ventures is
modest and not material to the consolidated operating results. The
health of the economy will have a significant impact on future
performance of these investments.
<PAGE>
Other Income and Deductions and Interest Charges
Other income and other deductions decreased by $5.6 million in 1993
when compared to 1992. The most significant reason for the decrease
was the cost of the investigation and related matters described under
"Events Affecting the Company" which amounted to $6.1 million.
Interest charges decreased $1.3 million or 3.6% in 1993 after
increasing $1.3 million, or 3.7%, in 1992. The 1993 decrease is the
result of refinancing certain of the Company's long-term issues,
taking advantage of the lower interest rates available. The 1992
increase is the result of the additional interest on short-term debt
and the change in allowance for borrowed funds used during
construction.
Liquidity and Capital Resources
At December 31, 1993, the Company estimated the cost of its
construction program and other capital requirements for 1994, 1995 and
1996 to be as follows:
1994 1995 1996
(Millions of Dollars)
Construction expenditures $71.3 $79.1 $78.2
Retirement of long-term debt and preferred stock 1.4 20.4 1.4
Total $72.7 $99.5 $79.6
It is currently expected that the Company's capital requirements
over the three-year period 1994 through 1996 will be met primarily
with funds from operations. The Company does, however, anticipate
that it may issue debentures during 1995, the amount, timing and terms
of which would be determined by market conditions at the time of
issuance. The proceeds of such debt issuance would be used to
refinance the Company's First Mortgage Bonds, Series H, which mature
during 1995 and to reduce short-term debt.
In response to the favorable interest rate environment, the Company
determined that it was economical to refinance certain series of its
first mortgage bonds. On February 23, 1993, the Company sold at face
value, $20 million of 6.14% Debentures due 2000 (Series C) and $35
million of 6.56% Debentures due 2003 (Series D), (together the
"Debentures"). The net proceeds to the Company from the sale of the
Debentures, together with cash provided by the Company, were used to
refund, on April 3, 1993, an aggregate of $58 million principal amount
of the Company's First Mortgage Bonds outstanding. The principal
amount and series of First Mortgage Bonds refunded were: $21 million
of 7 1/2% Bonds, Series K due 2001; $12 million of 8% Bonds, Series L
due 2001; and $25 million of 8 1/8% Bonds, Series M due 2003.
In addition, on February 25, 1993 RECO sold $20 million of First
Mortgage 6% Bonds, Series I due 2000 (Series I Bonds). The Series I
Bonds were sold at a discount to yield 6.11% to the public. The net
proceeds to RECO from the sale of the Series I Bonds were used to pay
the principal and redemption premium on an aggregate of $16,017,000 of
RECO's outstanding First Mortgage Bonds and for other corporate
purposes. The principal amount and series of First Mortgage Bonds
refunded on March 27, 1993 were: $5,000,000 of 9 1/8% Bonds, Series D
due 2000; $6,000,000 of 7 7/8% Bonds, Series E due 2001; $3,680,000 of
8.95% Bonds, Series F due 2004; and $1,337,000 of 10% Bonds, Series G
due 1997.
During 1992 the Company entered into a bond purchase agreement
relating to the issuance of $55 million pollution control variable
rate refunding revenue bonds in 1994 (the "1994 Bonds") through the
New York State Energy Research and Development Authority (NYSERDA).
The proceeds of the refunding will be utilized to redeem in 1994 the
$55 million NYSERDA 10 1/4% Pollution Control Revenue Bonds (Orange
and Rockland Utilities, Inc. Projects), 1984 Series (1984 Bonds) due
October 1, 2014. The 1984 Bonds were issued and sold by NYSERDA on
behalf of the Company in 1984 and can be called by the Company on or
after October 1, 1994.
Related to this action, the Company has entered into a forward
interest rate swap agreement (Swap Agreement). The Swap Agreement
anticipates the issuance of the 1994 Bonds by NYSERDA and the issuance
by the Company of a related variable rate promissory note in a like
amount to NYSERDA (1994 Company Note). Pursuant to the Swap
Agreement, the Company will pay interest at a fixed rate of 6.09% to a
swap counter party and will receive in return a variable rate of
interest. This variable rate will be identical to the variable rate
payment on the 1994 Company Note, resulting in the Company paying a
fixed rate of 6.09%.
The Company and its utility subsidiaries have available bank lines
of credit of $59 million and O&R Energy, Inc., a non-utility
subsidiary of RECO has a $15 million line of credit. Information
regarding short-term borrowings during the past three years is as
follows:
Year Ended December 31, 1993 1992 1991
(Millions of Dollars)
Weighted average interest rate at year-end 3.6% 3.7% 5.5%
Amount outstanding at year-end $46.2 $41.5 $30.0
Average amount outstanding for year $35.3 $23.9 $11.3
Daily weighted average interest rate during year 3.3% 3.8% 6.0%
Maximum amount outstanding at any month-end $46.2 $41.5 $30.0
The current designations by the rating services are as follows:
Duff and Phelps Fitch Moody's Standard
Credit Rating Investors Investors & Poor's
Company Service, Inc. Service, Inc. Corp.
Commercial paper D-1 F-1+ P-1 A-1
First mortgage bonds A+ AA- A2 A+
Unsecured debt A AA- A3 A+
Preferred stock A- AA- a2 A
Rate Activities
New York
On August 29, 1990, the NYPSC approved an electric rate agreement
which provided, among other things, for annual rate adjustments during
the three years covered by the agreement (1991-1993) as determined
through the application of the RDM procedures. 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
January 31, 1992, the Company filed with the NYPSC the first
adjustment to rates pursuant to the RDM. The total increase in annual
revenues of $7.4 million, or 2.4%, included the maximum allowable
incentive award of 1.06% on common equity. The adjustment was
approved by the NYPSC on April 22, 1992, with new rates effective May
1, 1992. On February 4, 1993 (revised April 8, 1993), the Company
filed with the NYPSC the second adjustment to electric rates pursuant
to the 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. The second adjustment was approved by the
NYPSC on April 21, 1993, with new rates effective May 1, 1993.
During the second quarter of 1992, the Company and the NYPSC Staff
entered into a settlement agreement regarding an application the
Company filed with the NYPSC on January 16, 1992, which requested an
annual increase in gas revenues of $8.0 million, based on a rate of
return on common equity of 12.75% and an overall rate of return of
10.68%. The agreement, approved by the NYPSC on September 30, 1992,
provides for an annual increase in gas revenues of $3.8 million, or
2.6%. The agreement also contains a weather adjustment clause that
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 base return
on common equity of 12.15% including incentives of 50 basis points.
On September 1, 1993, the Company filed with the NYPSC the first
adjustment to rates pursuant to the settlement agreement. The total
increase in annual revenues is $2.7 million or 1.8%. Although the
settlement provides for an effective date of this adjustment of
January 1, 1994, the Company has 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 Company has requested an additional extension until
December 31, 1994.
On January 29, 1993, the Company filed for an increase in electric
rates of $17.1 million to be effective January 1, 1994. The rate
application seeks a three-year (1994-1996) extension of the RDM
revenue reconciliation and operating cost adjustment procedures
currently in place. Continuation of a modified energy efficiency and
customer service incentive programs are also requested. In addition,
the Company is requesting implementation of a new power plant
efficiency incentive. The rate increase request includes a 12.25%
return on equity. On October 4, 1993, the NYPSC, as a result of the
investigation into alleged financial improprieties described under
"Events Affecting the Company", issued an Order in this case (the
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. The Company has agreed to the
extension of the suspension period and the associated conditions. A
<PAGE>
condition of the Order is that the Company continue existing rate-
making mechanisms, prescribed under the RDM procedure, for the
duration of the suspension period. In addition, the Order specified
that up to $3.0 million of revenue be made subject to refund pending
final resolution of the ongoing investigation. 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 has
submitted comments opposing some of the terms of the Company's
extension. At this time, the Company cannot predict the outcome of
this action.
The NYPSC has 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 has 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.
New Jersey
In January 1992, an increase in electric rates of $5.1 million was
granted by the NJBRC in response to Rockland Electric Company's (RECO)
March 18, 1991 petition requesting a $12.9 million increase in base
rates. This increase includes a 12% rate of return on equity. In
addition, the NJBRC initiated a Phase II proceeding in this case to
address the effect of tax legislation adopted June 1, 1991. That
legislation changed the procedure under which certain taxes are
collected from the State's utilities. Previously, RECO had been
subject to an effective gross receipts and franchise tax of 12.5%,
which the utilities paid in lieu of property taxes. 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 New Jersey 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 approved 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 unamortized
accelerated payments is included in Deferred Revenue Taxes in the
accompanying financial statements.
On February 26, 1993 the New Jersey Department of Public Advocate,
Division of Rate Counsel ("Rate Counsel") filed a Notice of Appeal
from the NJBRC 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. Rate Counsel's brief and RECO's brief in response
were filed in October 1993. The Company believes the suit is without
merit and the NJBRC decision in this case will prevail.
Under an agreement with the NJBRC to return to customers funds
misappropriated by employees, RECO has agreed to refund 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, the Company's Pennsylvania utility subsidiary,
Pike, filed with the Pennsylvania Public Utilities Commission (PPUC)
for a $497,000 increase in electric rates and a $36,300 increase in
gas rates. The proposed rates apply to all commercial, industrial,
municipal and residential customers. During April 1993, Pike and the
other parties involved in this proceeding signed a stipulated
agreement which provides 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 alleged financial improprieties, Pike has
pledged to return to ratepayers any funds discovered to have been
misappropriated.
Other Developments
SFAS No. 112
In November 1992 the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 112 "Employers'
Accounting for Postemployment Benefits" (SFAS No. 112), which requires
the recognition on an accrual basis of the cost of postemployment
benefits, such as salary continuation, severance pay, and disability
benefits, provided to former or inactive employees. The Company
currently recognizes the cost of such benefits as they are paid.
Adoption of SFAS No. 112 is mandatory for fiscal years beginning after
December 15, 1993. The Company anticipates adopting this accounting
standard in 1994; however, it does not expect adoption to have a
material adverse effect on the Company's results of operations.
Effects of Inflation
The Company's utility revenues are based on rate regulation, which
provides for recovery of operating costs and a return on rate base.
Inflation affects the Company's construction costs, operating expenses
and interest charges and can impact the Company's financial
performance if rate relief is not granted on a timely basis.
Financial statements, which are prepared in accordance with generally
accepted accounting principles, report operating results in terms of
historic costs and do not recognize the impact of inflation.
<PAGE>
<TABLE>
Consolidated Statements of Income and Retained Earnings
Orange and Rockland Utilities, Inc. and Subsidiaries
CAPTION
<PAGE>
Year Ended December 31,
1993 1992 1991
(Thousands of Dollars)
<S> <C> <C> <C>
Operating Revenues:
Electric (Note 1) $480,553 $456,768 $447,580
Gas (Note 1) 157,257 140,679 122,687
Electric sales to other utilities 6,414 6,965 9,575
Total Utility Revenues 644,224 604,412 579,842
Diversified activities (Note 1) 327,147 239,766 151,202
Total Operating Revenues 971,371 844,178 731,044
Operating Expenses:
Operations:
Fuel used in electric production 74,480 85,005 101,702
Electricity purchased for resale 62,969 49,245 42,402
Gas purchased for resale (Note 1) 89,984 77,700 67,470
Non-utility gas marketing purchases 310,467 224,579 137,848
Other expenses of operation (Note 1) 154,073 138,853 127,399
Maintenance 42,861 42,473 40,275
Depreciation and amortization (Note 1) 34,520 34,469 32,082
Taxes other than income tax(Note 14) 93,615 90,387 85,761
Federal income taxes (Notes 1 and 2) 25,869 22,232 19,717
Total Operating Expenses 888,838 764,943 654,656
Income from Operations 82,533 79,235 76,388
Other Income and Deductions:
Allowance for other funds used during construction (Note 1) 40 350 677
Investigation costs (Note 12) (6,139) - -
Other-net (Note 1) (937) 812 828
Taxes other than income taxes (Note 14) (94) (97) (105)
Federal income taxes (Notes 1 and 2) 3,525 895 1,188
Total Other Income and Deductions (3,605) 1,960 2,588
Income Before Interest Charges 78,928 81,195 78,976
Interest Charges:
Interest on long-term debt 30,384 32,238 32,518
Other interest 2,849 2,861 2,105
Amortization of debt premium and expense-net 1,116 364 320
Allowance for borrowed funds used during construction (Note 1) (236) (80) (835)
Total Interest Charges 34,113 35,383 34,108
Net Income 44,815 45,812 44,868
Dividends on preferred and preference stock, at required rates 3,364 3,478 3,591
Earnings applicable to common stock 41,451 42,334 41,277
Cash dividends on common stock: $2.49, $2.43 and $2.37 33,694 32,589 31,308
Balance to retained earnings 7,757 9,745 9,969
Retained earnings, beginning of year 176,422 166,677 156,708
Retained earnings, end of year $184,179 $176,422 $166,677
Average number of common shares outstanding (000's) 13,532 13,438 13,238
Earnings per average common share outstanding $ 3.06 $ 3.15 $ 3.12
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
Consolidated Balance Sheets
Orange and Rockland Utilities, Inc. and Subsidiaries
CAPTION
<PAGE>
December 31,
1993 1992
(Thousands of Dollars)
<S> <C> <C>
Assets:
Utility Plant:
Electric $ 931,827 $ 908,021
Gas 189,000 177,778
Common 52,525 50,263
Utility Plant in Service 1,173,352 1,136,062
Less accumulated depreciation 372,279 348,315
Net Utility Plant in Service 801,073 787,747
Construction work in progress 30,907 26,939
Net Utility Plant (Notes 1, 7, 11 and 12) 831,980 814,686
Non-utility Property:
Non-utility property 35,049 34,158
Less accumulated depreciation, depletion and amortization 13,041 12,069
Net Non-utility Property (Notes 1 and 7) 22,008 22,089
Current Assets:
Cash and cash equivalents (Notes 8 and 9) 14,256 15,378
Temporary cash investments (Note 9) 1,447 878
Customer accounts receivable, less allowance for uncollectible
accounts of $2,026 and $1,651 (Note 1) 60,289 50,525
Accrued utility revenue (Note 1) 23,017 25,791
Other accounts receivable, less allowance for uncollectible
accounts of $60 and $61 11,619 12,827
Gas marketing accounts receivable, less allowance for
uncollectible accounts of $513 and $75 49,206 37,702
Materials and supplies (at average cost):
Fuel for electric generation 8,951 10,865
Gas in storage 13,413 10,752
Construction and other supplies 16,698 16,708
Prepayments and other current assets 40,626 35,577
Total Current Assets 239,522 217,003
Deferred Debits:
Income tax recoverable in future rates (Notes 1 & 2) 75,468 -
Extraordinary property loss - Sterling Nuclear Project (Note 3) 15,481 19,879
Deferred Order No. 636 transition costs (Note 12) 21,500 -
Deferred revenue taxes (Note 1) 17,588 5,135
Deferred pension and other postretirement benefits (Note 10) 7,277 2,603
Deferred fuel costs (Note 1) - 1,753
Unamortized debt expense (amortized over term of securities) 8,565 6,991
Other deferred debits 41,584 37,362
Total Deferred Debits 187,463 73,723
Total $1,280,973 $1,127,501
<PAGE>
December 31,
1993 1992
Capitalization and Liabilities: (Thousands of Dollars)
Capitalization:
Common stock (Note 5) $ 67,660 $ 67,656
Premium on capital stock (Note 5) 130,313 130,298
Capital stock expense (6,108) (6,055)
Retained earnings (Note 4) 184,179 176,422
Total Common Stock Equity 376,044 368,321
Non-redeemable preferred stock 42,844 42,844
Non-redeemable cumulative preference stock 443 462
Total Non-redeemable Stock (Note 5) 43,287 43,306
Redeemable preferred stock (Note 6) 4,158 5,542
Long-term debt (Notes 7 and 9) 380,266 380,202
Total Capitalization 803,755 797,371
Non-current Liabilities:
Reserve for claims and damages (Note 1) 3,830 3,521
Postretirement benefits (Note 10) 6,719 -
Pension costs (Note 10) 34,275 28,126
Obligation under capital leases (Note 11) 793 1,272
Total Non-current Liabilities 45,617 32,919
Current Liabilities:
Lease obligation due within one year (Note 11) 479 443
Long-term debt due within one year (Notes 7 and 9) 984 1,341
Preferred stock to be redeemed within one year (Note 6) 1,384 1,384
Notes payable (Notes 8 and 9) 1,200 -
Commercial paper (Notes 8 and 9) 45,000 41,500
Accounts payable 57,359 47,554
Gas marketing accounts payable 54,247 44,645
Dividends payable 752 780
Customer deposits 5,807 5,057
Accrued Federal income and other taxes 9,586 4,675
Accrued interest 9,877 9,098
Refundable gas costs 8,967 7,323
Other current liabilities 17,114 14,775
Total Current Liabilities 212,756 178,575
Deferred Taxes and Other:
Deferred Federal income taxes (Notes 1 and 2) 172,672 97,124
Deferred investment tax credits (Notes 1 and 2) 18,004 18,967
Accrued Order No. 636 transition costs (Note 12) 21,500 -
Refundable fuel costs (Note 1) 4,405 -
Other deferred credits 2,264 2,545
Total Deferred Taxes and Other 218,845 118,636
Commitments and Contingencies (Notes 3 and 12) - -
Total $1,280,973 $1,127,501
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
Consolidated Cash Flow Statements
Orange and Rockland Utilities, Inc. and Subsidiaries
CAPTION
<PAGE>
Year Ended December 31,
1993 1992 1991
(Thousands of Dollars)
<S> <C> <C> <C>
Cash Flow from Operations:
Net Income $44,815 $45,812 $44,868
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 34,571 34,317 32,470
Deferred Federal income taxes 81 6,321 1,644
Deferred investment tax credit (963) (1,132) (1,172)
Deferred and refundable fuel and gas costs 7,802 (6,388) 6,622
Allowance for funds used during construction (276) (430) (1,512)
Changes in certain current assets and liabilities:
Temporary cash investments (569) (878) -
Accounts and gas marketing receivables, net and accrued utility revenue (17,286) (14,509) (14,663)
Materials and supplies (737) 743 1,782
Prepayments and other current assets (5,049) 1,368 (6,830)
Operating and gas marketing accounts payable 19,407 2,210 20,262
Accrued Federal and other taxes 4,911 1,506 (2,666)
Accrued interest 779 (1,108) 211
Other current liabilities 3,089 1,598 1,166
Other-net (3,361) (1,560) 2,137
Net Cash Provided from Operations 87,214 67,870 84,319
Cash Flow from Investing Activities:
Additions to plant (54,308) (56,438) (61,997)
Allowance for funds used during construction 276 430 1,512
Net Cash Used in Investing Activities (54,032) (56,008) (60,485)
Cash Flow from Financing Activities:
Proceeds from:
Issuance of common stock - 7,589 6,681
Issuance of long-term debt 75,000 55,000 719
Retirement of:
Preference and preferred stock (1,384) (1,384) (1,385)
Long-term debt (75,091) (51,159) (12,705)
Capital lease obligations - net (Note 11) (443) (410) (379)
Net borrowings (repayments) under short-term debt arrangements (Note 8) 4,700 11,500 17,250
Dividends on preferred and common stock (37,058) (36,067) (34,899)
Change in dividends payable (28) (26) (28)
Net Cash Used in Financing Activities (34,304) (14,957) (24,746)
Net Change in Cash and Cash Equivalents (1,122) (3,095) (912)
Cash and Cash Equivalents at Beginning of Year 15,378 18,473 19,385
Cash and Cash Equivalents at End of Year $14,256 $15,378 $18,473
Supplemental Disclosure of Cash Flow Information
Cash paid during the year for:
Interest, net of amounts capitalized $32,012 $35,497 $33,473
Federal income taxes $27,020 $14,450 $18,030
The accompanying notes are an integral part of these statements.
</TABLE>
Notes to Consolidated Financial Statements
Orange and Rockland Utilities, Inc. and Subsidiaries
<PAGE>
Note 1. Summary of Significant Accounting Policies.
General
Orange and Rockland Utilities, Inc. (the Company) and its wholly
owned utility subsidiaries, Rockland Electric Company (RECO) and Pike
County Light & Power Company (Pike), are subject to regulation by the
Federal Energy Regulatory Commission (FERC) and various state
regulatory authorities with respect to their rates and accounting.
Accounting policies conform to generally accepted accounting
principles, as applied in the case of regulated public utilities, and
are in accordance with the accounting requirements and rate-making
practices of the regulatory authority having jurisdiction. A
description of the significant accounting policies follows.
Principles of Consolidation
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 intercompany balances and
transactions have been eliminated.
The Company's non-utility subsidiaries are wholly owned land
development, communications, gas marketing and gas production
companies.
Utility Revenues
Utility revenues are recorded on the basis of cycle billings
rendered to certain customers monthly and others bimonthly. Unbilled
revenues are accrued at the end of each month for estimated energy
usage since the last meter reading.
Under the Company's Revenue Decoupling Mechanism agreement (the
"Agreement"), New York's electric revenues are recognized in the
accompanying financial statements based on targets which were
established in its most recent New York electric base rate case. Any
variation between actual revenues and the established targets are
deferred until recovered from or returned to customers. Demand-side
management and customer service performance incentives or penalties,
as detailed in the Agreement, are recognized as earned.
Effective December 1, 1992, the level of revenues from gas sales in
New York is subject to a weather normalization adjustment that
requires recovery from or refund to firm customers of shortfalls or
excesses of firm net revenues during a heating season due to variation
from normal weather, which is the basis for projecting base tariff
requirements.
Fuel Costs
The tariff schedules for electric and gas services in New York
include adjustment clauses under which fuel, purchased gas and certain
purchased power costs, above or below levels allowed in approved rate
schedules, are billed or credited to customers up to approximately 60
days after the costs are incurred. In accordance with regulatory
<PAGE>
commission policy, such costs, along with the related income tax
effects, are deferred until billed to customers.
A reconciliation of recoverable gas costs with billed gas revenues
is done annually, as of August 31, and the excess or deficiency is
refunded to or recovered from the customers during a subsequent
twelve-month period. The New York Public Service Commission (NYPSC)
provides for a modified electric fuel adjustment clause requiring a
sharing of up to 20% of variations between actual and forecasted fuel
costs annually. The sharing of fluctuations from forecasted costs is
limited to a maximum of $1,762,000 annually. The fuel costs targets
are approved by the NYPSC for each calendar year following the
Company's filing of forecasted fuel costs. Tariffs for electric and
gas service in Pennsylvania and electric service in New Jersey contain
adjustment clauses which utilize estimated prospective energy costs on
an annual basis. The recovery of such estimated costs is made through
equal monthly charges over the year of projection. Any over or under
recoveries are deferred and refunded or charged to customers during
the subsequent twelve-month period.
Utility Plant
Utility plant is stated at original cost. The cost of additions
to, and replacements of, utility plant include contracted work, direct
labor and material, allocable overhead, allowance for funds used
during construction and indirect charges for engineering and
supervision. Replacement of minor items of property and the cost of
repairs is charged to maintenance expense. At the time depreciable
plant is retired or otherwise disposed of, the original cost, together
with removal cost, less salvage, is charged to the accumulated
provision for depreciation.
Depreciation
For financial reporting purposes, depreciation is computed on the
straight-line method based on the estimated useful lives of the
various classes of property. Provisions for depreciation are
equivalent to the following composite rates based on the average
depreciable plant balances at the beginning and end of the year:
Year Ended December 31, 1993 1992 1991
Plant Classification:
Electric 3.04% 3.04% 3.08%
Gas 2.68% 3.59% 3.27%
Common 6.07% 5.88% 5.80%
The composite gas depreciation rate, excluding the effect of the
amortization procedure as provided for in a 1992 gas rate agreement
with the NYPSC, amounted to 3.01% in 1993.
Jointly Owned Utility Plant
The Company has a one-third interest in the 1,200 megawatt Bowline
Point generating facility, which it owns jointly with Consolidated
Edison Company of New York, Inc. The Company is the operator of the
joint venture. Each participant is entitled to its proportionate
share of the energy produced. The operation and maintenance expenses
of the facility are shared proportionately, based on the energy
received from the plant by the partners.
Under this agreement, each co-owner has an undivided interest in the
facility and is responsible for its own financing. The Company's
interest in this jointly owned plant consists primarily of the
following:
Year Ended December 31, 1993 1992
(Thousands of Dollars)
Electric Utility Plant in Service $97,753 $96,712
Construction Work in Progress $ 1,124 $ 946
Federal Income Taxes
The Company and its subsidiaries file a consolidated Federal income
tax return, and income taxes are allocated to its subsidiaries based
on the taxable income or loss of each.
Investment tax credits, which were available prior to the Tax Reform
Act of 1986, have been fully normalized and are being amortized over
the remaining useful life of the related property for financial
statement reporting purposes.
The Company adopted Statement of Financial Accounting Standards No.
109 (SFAS No. 109) "Accounting for Income Taxes" on January 1, 1993,
which requires a change from the deferred method to the asset and
liability method of accounting for income taxes. SFAS No. 109 retains
the requirement to record deferred income taxes for temporary
differences that are reported in different years for financial
reporting and tax purposes. The statement also requires that deferred
tax liabilities or assets be adjusted for the future effects of any
changes in tax laws or rates and that regulated enterprises recognize
an offsetting regulatory asset representing the probable future rate
recoveries for additional deferred tax liabilities. The probable
future rate recoveries (revenues) to be recorded take into
consideration the additional future taxes which will be generated by
that revenue. Deferred taxes are also provided on temporary
differences of the Company's non-regulated subsidiaries, which are
charged to expense rather than offset by regulatory assets.
Deferred Revenue Taxes
Deferred revenue taxes represent the unamortized balance of an
accelerated payment of New Jersey Gross Receipts and Franchise Tax
required by legislation enacted effective June 1, 1991. In accordance
with an order by the New Jersey Board of Regulatory Commissioners
(NJBRC) the expenditure has been deferred and is being recovered in
rates, with a carrying charge of 7.5% on the unamortized balance, over
a ten-year period. In addition, certain New York State revenue taxes
included in rate base are deferred and amortized over a twelve-month
period following payment in accordance with the requirements of the
NYPSC.
<PAGE>
Allowance for Funds Used During Construction
Allowance for funds used during construction (AFDC) is a non-cash
income item and is defined in the Uniform System of Accounts as the
net cost, during the period of construction, of borrowed funds used
for construction purposes and a reasonable rate upon other funds, when
so used. AFDC is considered a cost of utility plant. In accordance
with an order issued by the FERC, AFDC is segregated in the
accompanying financial statements into two components related to the
source of funds from which the credits are derived.
The annual rates used by Orange and Rockland Utilities, Inc. (ORU)
and RECO to record AFDC are as follows:
ORU RECO
Year Ended Borrowed Other Borrowed Other
Dec.31: Funds Funds Funds Funds
1993 3.23% -% 4.23% 5.55%
1992 3.92% .46% 4.42% 5.54%
1991 5.01% 3.29% 8.06% 3.17%
AFDC amounted to .7%, 1.0% and 3.7% of earnings applicable to common
stock for the years 1993, 1992 and 1991, respectively.
Reserve for Claims and Damages
Costs arising from workers' compensation claims, property damage,
general liability and unusual production plant repair costs are
partially self-funded. Provisions for the reserves are based on
experience, risk of loss and the rate-making practices of regulatory
authorities.
Reclassifications
Certain amounts from prior years have been reclassified to conform
with the current year presentation.
Note 2. Federal Income Taxes.
The Internal Revenue Service (IRS) concluded its audit of the
Company's tax returns through 1987. Presently, the IRS is examining
tax returns for 1988 and 1989. Notification of their findings for
these years has not yet been received.
<PAGE>
The components of Federal income taxes are as follows:
Year Ended December 31, 1993 1992 1991
(Thousands of Dollars)
Charged to operations:
Current $25,972 $16,069 $17,823
Deferred-net 90 6,435 2,037
Deferred investment tax credit (193) (272) (143)
25,869 22,232 19,717
Charged to other income:
Current (2,630) (244) (198)
Deferred-net (125) 209 39
Deferred investment tax credit (770) (860) (1,029)
(3,525) (895) (1,188)
Total $22,344 $21,337 $18,529
Effective January 1, 1993, the Company adopted the provisions of
SFAS No. 109, which required the recording of an additional deferred
tax liability of approximately $69.6 million. The adoption of SFAS
No. 109 did not have a significant impact on the results of current
operations because of the recording of offsetting regulatory assets
for utility operations and the relatively minor impact from
diversified operations. The resultant cumulative effect of a change
in accounting principle of $(.1) million is included in current
operations.
The fiscal years 1992 and 1991 were not restated to apply the
provisions of SFAS No. 109.
The tax effect of temporary differences which gave rise to deferred
tax assets and liabilities as of December 31, 1993 are as follows:
(Thousands of Dollars)
Liabilities:
Accelerated depreciation $172,815
Other 30,216
Total liabilities 203,031
Assets:
Employee benefits (14,417)
Deferred fuel costs ( 2,707)
Other (13,235)
Total assets (30,359)
Total $172,672
<PAGE>
Reconciliation of the difference between Federal income tax expenses
and the amount computed by applying the prevailing statutory income
tax rate to income before income taxes is as follows:
Year Ended December 31, 1993 1992 1991
(% of Pre-tax Income)
Statutory tax rate 35% 34% 34%
Reduction in computed taxes resulting from:
Allowance for funds used during
construction - - (1)
Amortization of investment tax credits (1) (2) (2)
Cost of removal (2) (3) (3)
Additional depreciation deducted for
book purposes 4 3 3
Other (3) - (2)
Effective Tax Rate 33% 32% 29%
On August 10, 1993, the Budget Reconciliation Act of 1993 was signed
into law. Among other things, the Act increased the corporate federal
income tax rate to 35% from 34% retroactive to January 1, 1993.
Pursuant to the provisions of SFAS No. 109, the Company adjusted its
deferred tax and regulatory asset balances during 1993 to reflect the
higher rate. The impact of this rate change was to increase the
deferred tax liability by $7.6 million; however, because of the
recording of offsetting regulatory assets, the increase in income tax
expense was $.1 million.
<PAGE>
Note 3. Sterling Nuclear Project.
Costs associated with the Sterling Nuclear Project, which was
abandoned in 1980, and in which the Company was a 33% participant, are
recorded in Deferred Debits-Extraordinary Property Loss.
The Company has been authorized by the NYPSC to recover all costs
associated with the Sterling Nuclear Project. An annual amortization
has been approved which includes a return on investment equal to the
Company's current overall rate of return. Amortization of project
costs applicable to New York operations will be completed in
approximately two years. The NJBRC has approved a twenty-year
amortization, which commenced June 23, 1982, of costs (excluding a
return on the unamortized balance) attributable to the Company's
subsidiary, RECO.
At December 31, 1993 and 1992, the unamortized Sterling Project
costs which have been approved for amortization and recovery, before
reduction for deferred taxes, amounted to $16.5 million and $21.2
million, respectively. Approximately $5.6 million and $5.9 million of
such recoverable costs at December 31, 1993 and December 31, 1992,
respectively, are attributable to RECO and are not subject to an
earned return on the unamortized balance.
Note 4. Retained Earnings.
Various restrictions on the availability of retained earnings of
RECO for cash dividends are contained in, or result from, covenants in
indentures supplemental to that company's Mortgage Trust Indenture.
Approximately $7,501,600 at December 31, 1993 and 1992 was so
restricted.
<PAGE>
<TABLE>
Note 5. Capital Stock Other Than Redeemable Preferred Stock.
The table below summarizes the changes in Capital Stock, issued and outstanding, for the years 1991, 1992 and 1993.
<CAPTION>
(B) (C)
Non-Redeemable Non-Redeemable
(A) Cumulative Cumulative
Common Preferred Preference Capital
Stock Stock Stock Stock
($5 par value) ($100 par value) (no par value) Premium
Shares Amount* Shares Amount* Shares Amount* Amount*
<S> <C> <C> <C> <C> <C> <C> <C>
Balance 1/1/91: 13,132,038 $65,660 428,443 $42,844 15,996 $521 $117,966
Sales 194,045 970 5,711
Conversions 1,387 7 (955) (31) 24
Balance 1/1/92: 13,327,470 66,637 428,443 42,844 15,041 490 123,701
Sales 202,488 1,013 6,575
Conversions 1,233 6 (852) (28) 22
Balance 1/1/93: 13,531,191 67,656 428,443 42,844 14,189 462 130,298
Conversions 864 4 (599) (19) 15
Balance 12/31/93: 13,532,055 $67,660 428,443 $42,844 13,590 $443 $130,313
Shares
Authorized 15,000,000 820,000 1,500,000
*(in thousands)
(A) At December 31, 1993, 19,977 shares of common stock were reserved for conversion of preference stock.
(B) Non-Redeemable Preferred Stock (cumulative):
/TABLE
<PAGE>
Par Value Callable
Shares December 31, Redemption
Series Outstanding 1991, 1992 and 1993 Price Per Share
(Thousands of Dollars)
A, 4.65% 50,000 $ 5,000 $104.25 at any time.
B, 4.75% 40,000 4,000 $102.00 at any time.
D, 4.00% 3,443 344 $100.00 at any time.
F, 4.68% 75,000 7,500 $102.00 at any time.
G, 7.10% 110,000 11,000 $101.00 at any time.
H, 8.08% 150,000 15,000 $102.43 at any time.
428,443 $42,844
This stock is not subject to mandatory redemption, but rather is
subject to redemption solely at the option of the Company on 30 days'
minimum notice upon payment of the redemption price plus accrued and
unpaid dividends to the date fixed for redemption. Furthermore, the
preferred stock is superior to cumulative preference stock and common
stock with respect to dividends and liquidation rights.
(C) The Non-Redeemable $1.52 Convertible Cumulative Preference
Stock, Series A, is redeemable at the option of the Company on 30
days' minimum notice upon payment of the redemption price, plus
accrued and unpaid dividends. The redemption price per share is $32.50
plus accrued and unpaid dividends to the date fixed for redemption.
This stock ranks junior to cumulative preferred stock and superior to
common stock as to dividends and liquidation rights. Furthermore, this
stock is convertible, at the option of the shareholder, into common
stock at the ratio of 1.47 shares of common stock for each share of
preference stock, subject to adjustment.
Note 6. Redeemable Preferred Stock.
The table below summarizes the changes in Redeemable Cumulative
Preferred Stock ($100 par value), issued and outstanding, for the
years 1991, 1992 and 1993.
Shares Amount
(Thousands of Dollars)
Balance 12/31/90: 96,948 $ 9,695
Redemptions (13,842) (1,385)
Balance 12/31/91: 83,106 8,310
Redemptions (13,842) (1,384)
Balance 12/31/92: 69,264 6,926
Redemptions (13,842) (1,384)
Balance 12/31/93: 55,422 $ 5,542
Shares Authorized 180,000
The Redeemable Cumulative Preferred Stock, Series I 8 1/8% is
redeemable in whole or in part at the option of the Company on 30
days' minimum notice at the redemption price plus accrued and unpaid
dividends to the date fixed for redemption. The redemption price per
share is $101 through January 1, 1997, and $100 thereafter.
The preferred stock is superior to the cumulative preference stock
and common stock with respect to dividends and liquidation rights. A
sinking fund provision requires that the Company, on each December 31,
call for the redemption and retirement of 13,842 shares at $100 per
share; provided, however, that the Company will call for redemption
and retire on December 31, 1997, the remaining shares outstanding at
the redemption price of $100 per share plus accrued and unpaid
dividends to the date fixed for redemption. The redemption requirement
for each of the four years following 1993 is as follows: $1,384,200
annually from 1994 through 1996 and $1,389,600 at maturity in 1997.
Note 7. Long-Term Debt.
Under the terms of the Company's First Mortgage Indenture and the
indentures supplemental thereto, and relative to all series of First
Mortgage Bonds, ORU on May 1 of each year is required to make annual
sinking fund payments equal to 1% of the maximum amount of bonds
outstanding during the preceding calendar year. ORU has satisfied
such requirements through the year 1993 by allocating an amount of
additional property and expects to continue such practice in
succeeding years. RECO was required under the terms of its Sixth
Supplemental Indenture to make an annual sinking fund payment on June
14 of each year of $240,000 with respect to its Series "F" Bonds and,
pursuant to its Seventh Supplemental Indenture, to make sinking fund
payments of $333,000 on January 31 of each year with respect to its
Series "G" Bonds. In March 1993 both the Series F and G Bonds were
redeemed. Cash payments totaling $333,000 were made to satisfy the
Series G sinking fund requirement of RECO in 1993. Pike is required,
pursuant to its First Mortgage Indenture, to make annual sinking fund
payments in the amount of $9,500 on July 15 of each year, with respect
to its Series "A" Bonds. The sinking fund requirements of Pike for
1993 were satisfied by the allocation of an amount of additional
property.
During 1993, both ORU and RECO issued long-term debt and redeemed
certain issues of First Mortgage Bonds. ORU issued $20 million of
6.14% Debentures due 2000 (Series C) and $35 million of 6.56%
Debentures due 2003 (Series D). The net proceeds from the sale of the
Series C and Series D Debentures, together with cash provided by ORU,
were used to refund ORU's First Mortgage Bonds Series K, L and M in
the aggregate principal amount of $58 million. RECO sold $20 million
of First Mortgage 6% Bonds, Series I due 2000. The net proceeds to
RECO from the sale of the Series I Bonds were used to refund RECO's
First Mortgage Bonds Series D, E, F and G in the aggregate principal
amount of $16,017,000, and for other corporate purposes.
In addition ORU has entered into a bond purchase agreement and a
forward interest rate swap agreement which anticipate the refunding of
ORU's $55 million 10 1/4% Promissory Note due October 1, 2014 to the
New York State Energy Research and Development Authority at its first
call date in 1994. Pursuant to the swap agreement, ORU will pay
interest at a fixed rate of 6.09% to a swap counter party and will
receive a variable rate of interest in return. This variable rate
will be identical to the variable rate payment made pursuant to the
bond purchases agreement, resulting in ORU paying a fixed rate of
6.09%.
Details of long-term debt at December 31, 1993 and 1992 are as
follows:
December 31, 1993 1992
(Thousands of Dollars)
Orange and Rockland Utilities, Inc.:
First Mortgage Bonds:
Series H, 4 7/8% due Aug. 15, 1995 $ 17,000 $ 17,000
Series I, 6 1/2% due Oct. 1, 1997 23,000 23,000
Series K, 7 1/2% due Apr. 1, 2001 - 21,000
Series L, 8 % due Dec. 1, 2001 - 12,000
Series M, 8 1/8% due May 15, 2003 - 25,000
Promissory Notes (unsecured)
12.9% due through Feb. 15, 1996 42 68
10 1/4% due Oct. 1, 2014 55,000 55,000
9 % due Aug. 1, 2015 44,000 44,000
Debentures:
Series A, 9 3/8% due Mar. 15, 2000 80,000 80,000
Series B, 6 1/2% due Oct. 15, 1997 55,000 55,000
Series C, 6.14% due Mar. 1, 2000 20,000 -
Series D, 6.56% due Mar. 1, 2003 35,000 -
Rockland Electric Company:
First Mortgage Bonds:
Series C, 4 5/8% due Aug. 15, 1995 2,000 2,000
Series D, 9 1/8% due Feb. 15, 2000 - 5,000
Series E, 7 7/8% due Apr. 15, 2001 - 6,000
Series F, 8.95 % due June 15, 2004 - 3,680
Series G, 10 % due Feb. 1, 1997 - 1,670
Series H, 9.59 % due July 1, 2020 20,000 20,000
Series I, 6 % due July 1, 2000 20,000 -
Pike County Light & Power Company:
First Mortgage Bonds:
Series A, 9% due July 15, 2001 884 884
Series B, 9.95% due Aug. 15, 2020 1,800 1,800
Diversified Operations:
Mortgage (secured)
8 1/2% due through June 18, 1999 5,654 5,727
Secured Notes
6-7% due through Aug. 31, 1996 2,868 3,510
382,248 382,339
Less: Amount due within one year 984 1,341
381,264 380,998
Unamortized discount on long-term debt (998) (796)
Total Long-Term Debt $380,266 $380,202
The aggregate amount of debt maturities-all of which will be
satisfied by cash payments and the allocation of additional property,
for each of the five years following 1993 is as follows: 1994-
$1,397,000; 1995-$20,310,000; 1996-$1,432,000; 1997-$78,194,000; 1998-
$203,000.
Substantially all of the utility plant and other physical property
is subject to the liens of the respective indentures securing the
First Mortgage Bonds of the Company and its utility subsidiaries.
Investments in the Company's wholly owned utility subsidiaries,
costing $11,828,700, which have been eliminated from the consolidated
balance sheet, are pledged under the Second Supplemental Indenture to
the Company's First Mortgage Indenture.
Note 8. Cash and Short-Term Debt.
The Company considers all cash and highly liquid debt instruments
purchased with a maturity date of three months or less to be cash and
cash equivalents for the purposes of the Consolidated Statements of
Cash Flows.
At December 31, 1993, the Company and its utility subsidiaries had
unsecured bank lines of credit with ten commercial banks aggregating
$59.0 million. In most cases the annual fees equal to one-eighth of
1% are paid to the banks for such lines of credit. The Company may
borrow under the lines of credit through the issuance of promissory
notes to the banks at their prevailing interest rate for prime
commercial borrowers. The Company, however, utilizes such lines of
credit to fully support commercial paper borrowings, which are issued
through dealers at the prevailing interest rate for prime commercial
paper. The aggregate amount of borrowings through the issuance of
promissory notes and commercial paper cannot exceed the aggregate
lines of credit. In addition, O&R Energy, Inc., a non-utility
subsidiary of RECO, maintains a $15.0 million line of credit with one
commercial bank. There are no fees associated with this line, and
borrowing, which is made at a rate of prime plus one-half percent,
amounted to $1.2 million at December 31, 1993. There were no
borrowings outstanding under this line at December 31, 1992 or 1991.
All borrowings for 1993, 1992 and 1991 had maturity dates of three
months or less.
Information regarding short-term borrowings during the past three
years is as follows:
Year Ended December 31, 1993 1992 1991
(Millions of Dollars)
Weighted average interest rate
at year-end 3.6% 3.7% 5.5%
Amount outstanding at year-end $46.2 $41.5 $30.0
Average amount outstanding
for the year $35.3 $23.9 $11.3
Daily weighted average interest rate
during the year 3.3% 3.8% 6.0%
Maximum amount outstanding at
any month-end $46.2 $41.5 $30.0
Note 9. Fair Value of Financial Instruments.
Statement of Financial Accounting Standards No. 107 (SFAS No. 107),
"Fair Value of Financial Instruments", requires disclosure of the
estimated fair value of an entity's financial instrument assets and
liabilities. For the Company, financial instruments consist
principally of cash and cash equivalents, short-term debt, commercial
paper and long-term debt.
<PAGE>
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and cash equivalents and Temporary cash investments-
The carrying amount reasonably approximates fair value because of the
short maturity of those instruments.
Long-term debt-The fair value of the Company's long-term debt is
estimated based on the quoted market prices for the same or similar
issues.
Notes payable and commercial paper-The carrying amount reasonably
approximates fair value because of the short maturity of those
instruments.
Year Ended December 31, 1993 1992
Carrying Fair Carrying Fair
Amount Amount Amount Amount
(Thousands of Dollars)
Cash and cash equivalents $ 14,256 $ 14,256 $ 15,378 $ 15,378
Temporary cash investments 1,447 1,447 878 878
Long-term debt 382,248 408,497 382,339 405,888
Notes Payable and
Commercial paper 46,200 46,200 41,500 41,500
In addition, off balance sheet financial instruments, which consist
of non-utility natural gas futures contracts used to hedge firm and
anticipated gas sales commitments, had a fair value of $3,856,000 at
December 31, 1993 compared to an acquisition cost of $3,944,000.
Note 10. Pension and Postretirement Benefits.
Pension Benefits
The Company maintains a non-contributory defined benefit retirement
plan, covering substantially all employees. The plan calls for
benefits, based primarily on years of service and average career
compensation, to be paid to eligible employees at retirement. For
financial reporting purposes, pension costs are accounted for in
accordance with the requirements of Statement of Financial Accounting
Standards No. 87 (SFAS No. 87), "Employers' Accounting for Pensions".
SFAS No. 87 results in a difference in the method of determining
pension costs for financial reporting and funding purposes. Plan
valuation for funding and income tax purposes is prepared on the unit
credit method, which makes no assumptions as to future compensation
levels. In contrast, the projected unit of credit cost method
required for accounting purposes by SFAS No. 87 reflects assumptions
as to future compensation levels. The Company's policy is to fund the
pension costs determined by the unit credit method subject to the IRS
funding limitation rules. For rate-making purposes, pension expense
determined under SFAS No. 87 is reconciled with the amount provided in
rates for pensions. Any difference is deferred for subsequent
recovery or refund.
<PAGE>
Net periodic pension expense calculated pursuant to the requirements
of SFAS No. 87 for the years 1993, 1992 and 1991 includes the
following components:
December 31, 1993 1992 1991
(Thousands of Dollars)
Service cost-benefits earned during year $ 5,690 $ 5,896 $ 5,114
Interest cost on projected
benefit obligation 12,915 10,301 9,396
Actual return on plan assets (19,383) (15,135) (32,839)
Net deferred and capitalized 5,014 4,397 22,635
Net Pension Expense $ 4,236 $ 5,459 $ 4,306
The following table sets forth, pursuant to the requirements of SFAS
No. 87, the plan's funded status and amounts recognized in the
Consolidated Balance Sheets at December 31, 1993 and 1992. Plan
assets are stated at fair market value and are composed primarily of
common stocks and investment grade debt securities.
December 31, 1993 1992
(Thousands of Dollars)
Actuarial present value of benefit obligations:
Vested $(153,730) $(128,611)
Nonvested (9,758) (16,281)
Accumulated benefit obligation $(163,488) $(144,892)
Projected benefit obligation $(180,176) $(162,371)
Plan assets at fair market value 182,810 169,842
Excess of plan assets over projected
benefit obligation 2,634 7,471
Unamortized net transition asset at adoption of
SFAS No. 87 being amortized over 15 years (8,909) (10,022)
Unrecognized prior service costs 28,528 8,514
Unrecognized net gain (47,960) (27,434)
Accrued Pension Cost $( 25,707) $ (21,471)
The expected long-term rate of return on plan assets, the weighted
average discount rate and the annual rate of increase in future
compensation assumed in determining the projected benefit obligation
were 8%, 7.75% and 4%, respectively for 1993. For the year 1992, the
expected long-term rate of return on plan assets, the discount rate
and the annual rate of increase in future compensation assumed in
determining the projected benefit obligation were 7.5%, 7% and 5%,
respectively.
Postretirement Benefits
In addition to providing pension benefits, the Company and its
subsidiaries provide certain health care and life insurance benefits
for retired employees. Employees retiring from the Company on or
after having attained age 55 who have rendered at least 5 years of
service are entitled to postretirement health care coverage. Prior to
January 1, 1993 the Company recognized the cost of providing these
benefits by expensing the annual insurance premiums, which amounted to
$2.4 million and $1.9 million for retiree benefits during 1992 and
1991, respectively.
Effective January 1, 1993 the Company adopted the provisions of
Statement of Financial Accounting Standards No. 106 (SFAS No. 106),
"Employers' Accounting for Postretirement Benefits Other Than
Pensions", which established revised accounting and financial
reporting standards for postretirement benefits other than pensions.
SFAS No. 106 requires the Company to accrue the estimated future cost
of postretirement health and non-pension benefits during the years
that the employee renders the necessary service, rather than
recognizing the cost of such benefits after the employee has retired
and when the benefits are actually paid. Deferred accounting for any
difference between the expense charge required under SFAS No. 106 and
the current rate allowance has been authorized by the NYPSC for the
Company's New York electric and gas operations. A similar procedure
has been adopted by the NJBRC for the operations in that state. The
NYPSC has adopted a rate-making procedure for utilities under its
jurisdiction whereby SFAS No. 106 costs will be fully reflected in
rates over a period not to exceed five years. Any deferred costs in
rates will accrue a carrying charge equal to the Company's authorized
overall rate of return until recovery is completed. The Company has
proposed that SFAS No. 106 costs begin to be reflected in the price of
electric and gas service in New York effective with the NYPSC
decisions in the Company's pending electric base rate increase and gas
base rate adjustment requests. Rate recovery of SFAS No. 106 costs
applicable to the Company's New Jersey operations will be addressed in
the next rate filing in that state. The Emerging Issues Task Force
(EITF) Committee of the FASB addressed implementation issues of SFAS
No. 106 for regulated industries in EITF Issue No. 92-12. A consensus
was reached that deferral of the difference between SFAS No. 106 costs
and amounts allowed in rates was proper so long as the subsequent
recovery period was within approximately 20 years. Accordingly, this
change in accounting did not have a material impact on the Company's
results of operations in that the Company was able to record a
regulatory asset relating to the difference between SFAS No. 106 costs
and amounts allowed in rates in each of its service jurisdictions.
In order to provide funding for active employees' postretirement
benefits as well as benefits paid to current retirees, the Company has
established Voluntary Employees' Beneficiary Association (VEBA) trusts
for collectively bargained employees and management employees.
Contributions to the VEBA trusts are tax deductible, subject to
limitations contained in the Internal Revenue Code. No contributions
to the trusts have been made as of December 31, 1993. The Company's
policy is to fund the SFAS 106 postretirement health and life
insurance costs to the extent of rate recoveries realized for these
costs.
As permitted by SFAS No. 106, the Company has elected to amortize
the accumulated postretirement benefit obligation at the date of
adoption of the accounting standard, January 1, 1993, over a 20-year
period. This transition obligation totaled $57.2 million. The
following table sets forth the plan's funded status, reconciled with
amounts recognized in the Company's financial statements at December
31, 1993:
(Thousands of Dollars)
Accumulated postretirement benefit obligation:
Fully eligible active employees $(18,386)
Other active employees (27,073)
Retirees (20,337)
Total benefit obligation (65,796)
Plan assets at fair value -
Accumulated postretirement obligation in
excess of plan asset (65,796)
Unrecognized experience net (gain) loss 4,694
Unrecognized transition obligation 54,383
Accrued postretirement benefit cost $( 6,719)
The components of net periodic postretirement benefit cost for the
year ended December 31, 1993 are as follows:
(Thousands of Dollars)
Service Cost $ 1,535
Interest Cost 4,598
Return on plan assets -
Amortization of transition obligation 2,861
Deferred and Capitalized (6,719)
Net Expense $ 2,275
The calculation of the actuarial present value of benefit
obligations at December 31, 1993 assumes a discount rate of 7.75% and
health care cost trend rates of 9% for medical costs and 14% for
prescription drugs in 1994, decreasing through 2003 to a rate of 5%.
If the health care trend rate assumptions were increased by 1 percent,
the accumulated postretirement benefit obligation would be increased
by approximately $7.2 million. The effect of this change on the sum
of the service cost and interest cost would be an increase of $.8
million.
Other
In addition to the plans described above, the Company sponsors a
401(k) savings plan (Savings Plan) for its employees. Eligible
employees may contribute up to a combined 20% of their compensation,
subject to IRS restrictions, on a before-tax and after-tax basis. The
Company makes no contributions to the Savings Plan. The Company also
has an unfunded non-contributory supplemental retirement plan covering
certain management employees. As of December 31, 1993, the Company's
obligation under this plan is fully provided for.
The Company and two of its wholly owned non-utility subsidiaries
have established a Subsidiary Equity Incentive Plan in which plan
participants are entitled to certain rights measured as Performance
Units. Each Performance Unit gives the plan participant the
opportunity to receive an incentive award of up to 1% of the net gain,
subject to certain restrictions, in the value of the Company's
investment in the participating subsidiaries over its initial
<PAGE>
investment. As of December 31, 1993 no incentive awards have been
granted under the plan.
In November 1992, the FASB issued Statement of Financial Accounting
Standards No. 112 "Employers' Accounting for Postemployment Benefits",
(SFAS No. 112), which requires the recognition of postemployment
benefits, including health and welfare benefits, provided to former or
inactive employees on an accrual basis. The Company currently
recognizes the cost of such benefits as they are paid. As of
December 31, 1993, the effect of adopting SFAS No. 112 will require
the recognition of a liability of approximately $.8 million. SFAS No.
112 will not have a material adverse impact on the Company's results
of operations because the Company expects to record an offsetting
regulatory asset. The Company adopted SFAS No. 112 on
January 1, 1994.
Note 11. Leases.
The Company maintains leases for certain property and equipment
which meet the accounting criteria for capitalization. As required by
Statement of Financial Accounting Standards No. 71 (SFAS No. 71),
"Accounting for the Effects of Certain Types of Regulation", the
Company has recorded such leases on its balance sheets. The amount of
leased property included in the accompanying Consolidated Balance
Sheets, and the obligation associated with such leases at December 31,
1993 and 1992 are as follows:
December 31, 1993 1992
(Thousands of Dollars)
Utility plant-Electric $4,245 $4,245
Less accumulated amortization 2,973 2,530
Net assets under capital lease $1,272 $1,715
Non-current liabilities $ 793 $1,272
Current liabilities 479 443
Total liabilities $1,272 $1,715
Although current rate-making practices treat all leases as operating
leases, SFAS No. 71 provides that regulated utilities shall recognize
as a charge against income an amount equal to the rental expense
allowed for rate-making purposes. Therefore, the rental payments on
these leases have no impact on the Company's Consolidated Statements
of Income.
<PAGE>
The future minimum rental commitments under the Company's capital
leases and noncancelable operating leases are as follows:
Noncancelable
Capital Operating
Leases Leases
(Thousands of Dollars)
1994 $ 571 $ 6,535
1995 572 4,362
1996 286 3,354
1997 - 3,187
1998 - 3,125
All years thereafter - 33,284
Total 1,429 $53,847
Less amount representing interest 157
Present value of net
minimum lease payments $1,272
Rental expense for 1993, 1992 and 1991 was $6.0 million, $6.3
million and $5.6 million, respectively.
Note 12. Commitments and Contingencies.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk, as defined by Statement of Financial
Accounting Standards No. 105 "Financial Instruments with
Concentrations of Credit Risk", consist principally of temporary cash
investments, accounts receivable, gas marketing accounts receivables
and the forward interest rate swap agreement. The Company places its
temporary cash investments with high quality financial institutions.
Concentrations of credit risk with respect to accounts receivable are
limited due to the Company's large, diverse customer base within its
service territory. With respect to gas marketing operations, the
customer base consists of a large diverse group of users of natural
gas across the United States, with the Company's credit risk being
dependent on overall economic conditions. As of December 31, 1993,
the Company had no significant concentrations of credit risk.
Construction Program
Under the construction program of the Company and its subsidiaries,
it is estimated that expenditures (excluding AFDC) of approximately
$377,185,000 will be incurred during the years 1994 through 1998. The
estimated amounts by year are: $71,325,000 in 1994; $79,085,000 in
<PAGE>
1995; $78,160,000 in 1996; $73,295,000 in 1997; and $75,320,000 in
1998.
As a requirement of the Clean Air Act of 1990, capital expenditures
of $8.2 million, $12.0 million and $6.0 million for the years 1994,
1995 and 1996, respectively, are included in the amounts above.
Gas Supply and Storage Contracts
The Company currently has seven firm gas supply contracts. The
Company has a long-term firm Canadian gas supply contract which
represents 32% of the Company's annual supply. This contract is due
to expire in 2002. Of the remaining domestic producer and gas
marketing firm supply contracts, 8% are due to expire in 1994, 22% in
1995 and 38% in 2004.
The Company also has four long-term storage and associated
transportation agreements. The storage facilities are located on the
pipelines of Tennessee Gas Pipeline, Columbia Gas Transmission and
Texas Eastern Transmission. The earliest expiration date is 1995.
The Company's gas purchase obligation for the five years following
1993 is as follows: 1994-$78,019,000; 1995-$70,870,000; 1996-
$69,582,000; 1997-$71,500,000 and 1998-$73,242,000.
All of the above gas supply transportation and storage contracts
have provisions to extend the term of the contract.
On August 7, 1987, the FERC issued an order authorizing pipeline
suppliers to pass through to local distribution companies (LDC's)
take-or-pay costs resulting from contract negotiations with gas
producers. The Company estimates that its take-or-pay liability will
total approximately $13.9 million. The Company has been allowed by
the NYPSC to pass through 65% of these costs while deferring the
remaining dollars until the NYPSC concludes its review of each company
in its jurisdiction. As of December 31, 1993, the Company has
deferred $3.7 million of these costs.
On April 8, 1992, the FERC issued Order No. 636. The rule requires
significant changes to the structure of the natural gas industry, and
more specifically, to the manner in which pipelines provide service.
Order No. 636 has changed the manner in which the Company obtains its
gas supplies by unbundling the transportation, storage and supply
services offered by interstate gas pipelines into separate components.
The Company has assumed direct responsibility for its gas acquisition
and transportation. The Company is well positioned to manage the new
gas supply environment created by Order No. 636 due to its high load
factors, geographic location and extensive gas procurement experience.
While the FERC's objective is to restructure the industry to promote
competition among gas suppliers to ensure supply at the lowest
reasonable cost, there are significant initial costs associated with
the implementation of the restructuring rule. Specifically, Order No.
636 authorizes pipelines to recover from their customers certain
transition costs resulting from implementation of the rulemaking. The
Company's four principal pipeline suppliers made filings with FERC
during 1993 for approval of a portion of their restructuring
transition costs and allocation procedures to flow the approved costs
through to their customers. Through December 31, 1993 the Company has
paid $1.5 million of transition costs. The Company currently
estimates that its remaining obligation for Order No. 636 transition
costs will be approximately $21.5 million. This estimate was
determined from information provided in Order No. 636 FERC compliance
filings by the Company's pipeline suppliers. This estimate is subject
to adjustment by FERC in their deliberations on these filings and any
future filings by the suppliers and the outcome of bankruptcy
proceedings involving one of the Company's suppliers. The Company has
provided for the unpaid liability as of December 31, 1993 with an
offsetting charge to Deferred Transition Costs. The NYPSC has not as
yet determined its policy with respect to recovery of transition
costs. However, on October 28, 1993 the NYPSC instituted a generic
proceeding to review the issues associated with Order No. 636
restructuring. Management believes that any transition costs
resulting from the FERC order should be fully recoverable in gas rates
to the extent such costs were prudently incurred.
In addition, O&R Energy, Inc., a non-utility subsidiary of RECO, has
entered into futures contracts that have been designated as hedges
against firm fixed-price, fixed-quantity and anticipated sales
commitments. The gain and losses on futures contracts are included in
the cost of gas sold when the physical delivery of the gas occurs.
The aggregate amount of these commitments is approximately $4.7
million.
Coal Supply Contracts
With the completion of the Lovett Coal Reconversion Project in 1987,
the Company entered into two long-term contracts for the supply of
coal and two long-term contracts for the transportation of coal. The
Company has the right under the coal purchase contracts to suspend the
purchase of coal if an alternative fuel source becomes less expensive.
On January 7, 1994, the Company suspended the contract with one of the
suppliers. Under the terms of the agreement the vendor has 30 days to
respond. At this time a response has not been received from the
vendor.
The Company's aggregate contract obligation for the four vendors,
for each of the five years following 1993 is as follows:
1994-$34,787,000; 1995-$35,396,000; 1996-$35,390,000; 1997-
$37,891,000; 1998-$38,332,000.
Power Purchase Agreements
The Company has three long-term contracts with other utilities for
the purchase of electric generating capacity and energy. The
contracts expire in 1995, 1998 and 2015, respectively. Total payments
under these contracts were $20.8 million, $14.9 million and $9.2
million during 1993, 1992 and 1991, respectively. At December 31,
1993, the estimated future payments for capacity that the Company is
<PAGE>
obligated to buy under these contracts for the five years following
1993 are as follows:
Capacity
Year (Mw) Dollars
1994 250 $4,591,000
1995 300 3,915,000
1996 300 4,453,000
1997 325 5,048,000
1998 300 2,050,000
The purchase capacities shown in the above table are based on
contracts currently in effect and are exclusive of applicable energy
charges.
Additionally, the Company has entered into two long-term contracts
with proposed Independent Power Producers (IPP) for the purchase of a
total of 152 Mw of capacity, of which the earliest expiration date is
2016. The IPP facilities are scheduled for operation in 1996 and 1997,
respectively. Neither of the proposed IPP facilities has yet been
constructed. The developers have, or are in the process of applying
for, the required construction permits. The final outcome of their
efforts cannot be determined at this time. The contracts can be
cancelled for failure to meet specific contract terms. Should the
facilities become operational, the estimated fixed payments for these
contracts are $20.4 million in 1996, $42.1 million in 1997 and $42.7
million in 1998.
In January 1994, the Company entered into an agreement with State
Line Power Associates, Limited Partnership to terminate a long-term
power purchase agreement for 100 Mw of capacity and associated energy.
Changes in the Company's energy supply requirements and market
conditions for purchased energy made the agreement not economical.
The Company has requested NYPSC approval of deferred accounting of all
associated termination costs pending recovery of those costs in rates.
Legal Proceedings
On August 18, 1993, Feiner v. Orange and Rockland Utilities, Inc., a
purported ratepayer class action complaint against the Company, RECO,
former Company Vice President Linda Winikow and others, was filed in
the United States District Court, Southern District of New York.
Plaintiffs allege that the defendants violated the Federal Racketeer
Influenced and Corrupt Organizations Act (RICO) and New York common
law by using false and misleading testimony to obtain rate increases
from the NYPSC and used funds obtained from ratepayers in furtherance
of an alleged scheme to make illegal campaign contributions and other
illegal payments. Plaintiffs seek damages in the amount of $900
million (which they seek to treble pursuant to the RICO statute). The
Company intends to vigorously contest these claims.
On August 31, 1993, Patents Management Corp. v. Orange and Rockland
Utilities, Inc., a purported shareholder derivative complaint, was
filed in the Supreme Court of the State of New York, County of New
York, against the Company, all but one of the Company's Directors and
several other named defendants by an alleged shareholder of the
Company. Plaintiff claims that the Company's Directors breached their
fiduciary duties by condoning the alleged wrongful acts of
Mrs. Winikow or failing to exercise appropriate supervisory control
over Mrs. Winikow. Plaintiff requests that the Court require each
Director to indemnify the Company against all losses sustained by the
Company as a result of these alleged wrongful acts of Mrs. Winikow.
The Company intends to vigorously contest these claims.
On November 23, 1993, Gross v. Orange and Rockland Utilities, Inc.,
a purported shareholder class action complaint, was filed in the
United States District Court, Southern District of New York.
Plaintiff alleges that various Securities and Exchange Commission
filings of the Company during the period between March 2, 1993 and
November 4, 1993, contained false and misleading information, and
thereby violated Sections 11 and 12(2) of the Securities Act of 1933,
by failing to disclose what the plaintiff alleges was a "scheme" by
the Company to make illegal political payments and campaign
contributions to various public officials and politicians. As a
result, plaintiff claims, during such period persons who purchased the
Company's stock through the Company's Dividend Reinvestment Plan did
so at artificially inflated prices. The complaint seeks unspecified
money damages. The Company intends to vigorously contest these
claims.
The costs of outside professional and consultant firms associated
with the investigation of the misuse of Company funds by former
employees amounted to $6.1 million for the year ending December 31,
1993. These investigations are currently anticipated to continue
through the first half of 1994. The Company currently estimates it
will incur from $3.0 to $6.0 million of expenses in 1994 to conclude
the investigation. These expenditures are not recoverable from
ratepayers. The Company will attempt to offset these costs to the
extent possible by achieving savings in the cost of operations during
the year.
On October 14, 1993, in response to an Order of the NYPSC, the
Company agreed to a six-month extension of the NYPSC's statutory
suspension period for its pending electric rate case (Case 93-E-0082)
to and including June 30, 1994 and to (i) make $3 million of its
existing annual revenues ($2.25 million of electric revenues and $.75
million of gas revenues) temporary and subject to refund, (ii)
continue existing rate-making mechanisms, prescribed under the RDM
procedure, for the duration of the suspension period, and (iii) agree
to certain other procedural conditions. 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 has
submitted comments opposing some of the terms of the Company's
extension. At this time, the Company cannot predict the outcome of
this action. In addition, the NYPSC has 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 has
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.
On March 16, 1988, Hatzel and Buehler, Inc. v. Orange and Rockland
Utilities, Inc., a complaint brought by one of several prime
contractors employed by the Company as part of the Company's Lovett
Coal Reconversion Project, was filed in the United States Bankruptcy
Court, Wilmington, Delaware. Plaintiff claimed that the Company
improperly terminated its contract and sought damages in excess of $15
million. On October 30, 1989, the United States District Court,
Wilmington, Delaware, granted the Company's motion to withdraw the
case from the United States Bankruptcy Court and to have the United
States District Court assume jurisdiction. On December 14, 1992, the
United States District Court issued a decision and order granting the
Company's Motion for Summary Judgment dismissing the plaintiff's non-
contract claims and punitive damage demands. On January 25, 1994, the
parties settled the remaining claims pursuant to a settlement
agreement under which the Company, without any admission of liability,
paid to the plaintiff the sum of $660,000 and the plaintiff delivered
to the Company a release of all outstanding claims against the
Company.
On July 31, 1992, State Line Power Associates, Limited Partnership
v. Orange and Rockland Utilities, Inc., a complaint brought by a New
Jersey partnership, was filed in the United States District Court,
Southern District of New York. The plaintiff had, pursuant to an
Agreement dated October 11, 1990 (the Agreement), agreed to build a
gas-fired combined cycle generating facility in Ringwood, New Jersey
and sell 100 Mw of capacity and associated energy to the Company. The
complaint, which alleged that the Company had improperly terminated
the Agreement, sought compensatory damages in excess of $50 million
and a declaratory judgment to the effect that the Company remained
obligated to purchase 100 Mw of capacity and associated energy from
the plaintiff pursuant to the terms of the Agreement. In its answer
to the complaint, the Company denied the plaintiff's allegations. On
January 7, 1994, the parties entered into a settlement agreement
pursuant to which the Company, without any admission of liability,
paid to the plaintiff an amount that is not material to the financial
condition of the Company, and the plaintiff delivered to the Company a
release of all outstanding claims against the Company.
Environmental
The Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 and certain similar state statutes authorize
various governmental authorities to issue orders compelling
responsible parties to take cleanup action at sites determined to
present an imminent and substantial danger to the public and to the
environment because of an actual or threatened release of hazardous
substances. The Company is a party to a number of administrative
proceedings involving potential impact on the environment. Such
proceedings arise out of, without limitation, the operation and
maintenance of facilities for the generation, transmission and
distribution of electricity and natural gas. Such proceedings are
not, in the aggregate, material to the business or financial condition
of the Company.
Pursuant to the Clean Air Act Amendments of 1990, which became law
on November 15, 1990, a permanent nationwide reduction of 10 million
tons in sulfur dioxide emissions from 1980 levels, as well as a
permanent reduction of 2 million tons of nitrogen oxide emissions from
1980 levels must be achieved by January 1, 2000. In addition,
continuous emission monitoring systems will be required at all
affected facilities. The Company has two base load generating
stations that burn fossil fuels that will be impacted by the
legislation in the year 2000. These generating facilities already
burn low sulfur fuels, so additional capital costs are not anticipated
for compliance with the sulfur dioxide emission requirements.
However, installation of low nitrogen oxide burners at Lovett Plant
and operational modifications at Bowline Plant are expected to be
required. Additional emission monitoring systems will be installed at
both facilities. The Company's construction expenditures for this
work is estimated to be approximately $28.2 million from 1993 to 1996.
Beginning with calendar year 1994, Title V sources (Bowline Point and
Lovett) will be required to pay an emission fee. Each facility's fee
will be based upon actual air emissions reported to NYSDEC at a rate
of approximately $25 per ton of air emissions. (If this fee was in
effect in 1992, the Company's obligation would have been approximately
$.5 million). The Company will continue to assess the impact of the
Clean Air Act Amendments of 1990 on its power generating operations as
the regulations implementing these Amendments are promulgated.
The NYPSC has commenced a proceeding to consider the most economical
method of compliance with the Clean Air Act Amendments of 1990 by
electric utilities in New York State.
Note 13. Segments of Business.
The Company defines its principal business segments as utility
(electric and gas) and diversified activities. The diversified
segment includes the gas marketing, gas production, land development
and communications businesses.
Total utility revenue as reported in the Consolidated Statements of
Income include both sales to unaffiliated customers and intersegment
sales which are billed at tariff rates. Income from operations is
total revenue less operating expenses. General corporate expenses
were allocated in the manner used in the rate-making process.
Identifiable assets by segment are those assets that are used in the
production, distribution and sales operations in each segment.
Allocations were made in a manner consistent with the rate-making
process. Corporate assets are principally property, cash, sundry
receivables and unamortized debt expense.
<PAGE>
Segments of Business
Year Ended December 31, 1993 1992 1991
(Thousands of Dollars)
Operating Information:
Operating revenues:
Sales to unaffiliated customers:
Electric $ 486,836 $ 463,601 $ 457,019
Gas 157,185 140,630 122,627
Intersegment sales:
Electric 131 132 136
Gas 72 49 60
Total Utility
Operating Revenues 644,224 604,412 579,842
Diversified activities 327,147 239,766 151,202
Total Operating Revenues $ 971,371 $ 844,178 $ 731,044
Operating income before
income taxes:
Electric $ 89,243 $ 83,824 $ 81,664
Gas 19,147 16,539 13,564
Diversified activities 12 1,104 877
Total Operating Income
Before Income Taxes 108,402 101,467 96,105
Income Taxes:
Electric 21,380 18,596 17,384
Gas 4,679 3,403 2,585
Diversified activities (190) 233 (252)
Total Income Taxes 25,869 22,232 19,717
Total Income From
Operations $ 82,533 $ 79,235 $ 76,388
Other Information:
Identifiable assets:
Electric $ 944,903 $ 839,122 $ 818,679
Gas 219,508 182,943 166,849
Diversified activities 84,401 73,275 70,635
Total Identifiable Assets 1,248,812 1,095,340 1,056,163
Corporate assets 32,161 32,161 31,683
Total Assets $1,280,973 $1,127,501 $1,087,846
Depreciation expense:
Electric $ 28,049 $ 27,076 $ 25,955
Gas 5,349 6,404 5,447
Diversified activities 1,122 989 680
Total $ 34,520 $ 34,469 $ 32,082
Capital expenditures:
Electric $ 39,441 $ 42,133 $ 44,207
Gas 13,955 13,799 14,651
Diversified activities 912 506 3,139
Total $ 54,308 $ 56,438 $ 61,997
<PAGE>
Note 14.
Supplementary Income Statement Information.
Year Ended December 31, 1993 1992 1991
(Thousands of Dollars)
1. Maintenance $ 42,861 $ 42,473 $ 40,275
2. Taxes other than income taxes:
Miscellaneous Federal taxes $ 8,186 $ 8,190 $ 7,875
Municipal property taxes 41,171 38,066 37,387
Other Municipal taxes 1,639 1,404 1,334
State gross earnings (franchise) 10,819 10,233 9,988
State excess dividends 1,284 1,212 1,143
State utility gross receipts 31,792 30,164 27,076
State sales, use and other 2,547 2,393 2,057
New York State 15% Surtax 3,135 3,110 3,165
100,573 94,772 90,025
Less-Charged to deferred debits
and work in progress accounts 6,864 4,288 4,159
Total $ 93,709 $ 90,484 $ 85,866
Note 15.
Summary of Quarterly Results of Operations (Unaudited).
Earnings Earnings
Income Applicable Per Average
Operating From Net To Common Common
Revenues Operations Income Stock Share
Quarter Ended (Thousands of Dollars)
1993
March 31 $264,030 $ 23,731 $ 15,084 $ 14,243 $1.05
June 30 215,113 14,976 6,601 5,760 .43
September 30 237,548 26,454 17,312 16,471 1.22
December 31 254,680 17,372 5,818 4,977 .36
1992
March 31 $240,112 $ 19,974 $ 12,046 $ 11,176 $ .84
June 30 183,919 15,371 7,055 6,186 .46
September 30 191,046 25,922 17,240 16,371 1.22
December 31 229,101 17,968 9,471 8,601 .63
Report of Independent Certified Public Accountants
GRANT THORNTON
To the Board of Directors and Shareholders of
Orange and Rockland Utilities, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Orange and Rockland Utilities, Inc. and Subsidiaries as of December
31, 1993 and 1992, and the related consolidated statements of income
and retained earnings and cash flows for each of the three years in
the period ended December 31, 1993. These financial statements are
the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position
of Orange and Rockland Utilities, Inc. and Subsidiaries as of December
31, 1993 and 1992, and the consolidated results of their operations
and their consolidated cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As more fully discussed in Note 12 (Legal Proceedings) to the
Consolidated Financial Statements, the Company and various state
regulatory authorities are currently investigating misappropriations
of Company funds by certain former employees and the impact on
ratepayers. As a result of these improprieties, several class action
and derivative complaints have been filed against the Company and
others. Although the Company has refunded certain amounts to
ratepayers as of December 31, 1993, the ultimate outcome of the
investigations and litigation cannot presently be determined.
Accordingly, no provision for any additional liability that may result
from these matters has been made in the accompanying financial
statements.
As discussed in Notes 2 and 10 of the Consolidated Financial
Statements, the Company changed its method of accounting for income
taxes and postretirement benefits in 1993.
Grant Thornton
New York, New York
February 16, 1994
<PAGE>
<TABLE>
Operating Statistics: Electric
Orange and Rockland Utilities, Inc. and Subsidiaries
CAPTION
<PAGE>
Year Ended December 31,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Source of Electricity (Mwh):
Generation - net
Steam 2,720,897 3,083,852 3,506,037 3,805,705 3,906,623
Hydro 164,378 143,871 172,752 201,115 145,457
Gas Turbine 7,557 3,938 15,217 23,446 15,846
Total Net Generation 2,892,832 3,231,661 3,694,006 4,030,266 4,067,926
Purchases 2,054,253 1,532,105 1,150,460 891,313 737,808
Company Use and Unaccounted For (354,806) (298,806) (316,748) (329,181) (344,803)
Net Energy Sold 4,592,279 4,464,960 4,527,718 4,592,398 4,460,931
Sales (Mwh):
Residential 1,611,602 1,532,915 1,597,571 1,496,284 1,483,007
Commercial 1,073,492 1,074,780 1,079,430 1,037,931 1,024,370
Industrial 1,572,692 1,506,180 1,452,467 1,421,746 1,386,017
Public Street Lighting 27,705 27,538 26,780 26,488 26,200
Public Authorities 72,037 70,257 73,455 71,221 68,094
Total Sales to Customers 4,357,528 4,211,670 4,229,703 4,053,670 3,987,688
Other Utilities for Resale 234,751 253,290 298,015 538,728 473,243
Total Sales of Electricity 4,592,279 4,464,960 4,527,718 4,592,398 4,460,931
Revenues (000's)
Residential $ 211,082 $ 193,124 $ 196,031 $ 179,554 $ 169,478
Commercial 128,246 124,825 123,281 116,171 108,739
Industrial 134,977 124,826 117,852 115,086 105,027
Public Street Lighting 4,967 4,880 4,732 4,686 4,453
Public Authorities 4,344 4,212 4,419 4,242 3,986
Total Revenues from
Sales to Customers 483,616 451,867 446,315 419,739 391,683
Other Utilities for Resale 6,414 6,965 9,575 19,292 16,349
Total Revenues from Sales of
Electricity 490,030 458,832 455,890 439,031 408,032
Other Electric Operating Revenues (3,063) 4,901 1,265 2,506 379
Total Electric Operating Revenues $ 486,967 $ 463,733 $ 457,155 $ 441,537 $ 408,411
System Net Capacity and Peak (Kw):
Net Installed Capability at Time of Peak 1,014,000 1,011,000 1,008,700 1,005,000 1,020,100
Firm Purchases - net 250,000 200,000 175,000 152,000 131,400
Total System Net Capacity 1,264,000 1,211,000 1,183,700 1,157,000 1,151,500
Net Peak Load 1,037,000 943,000 1,001,000 922,000 941,000
Load Factor .51 .53 .51 .54 .52
Heat Rate -- Btu of Fuel per
Kwh Generated 10,683 10,600 10,441 10,486 10,362
Electric Customers -- Year End 256,897 254,192 251,724 248,758 245,685
Residential Customer Statistics:
Average Annual Kwh Use 7,214 6,928 7,286 6,893 6,922
Average Annual Revenue per Kwh (cents) 13.10 12.60 12.27 12.00 11.43
Average Annual Bill Including Fuel $ 944.82 $ 872.77 $ 894.11 $ 827.20 $ 791.01
Average Annual Fuel Cost Recovery $ 194.90 $ 192.76 $ 207.01 $ 209.92 $ 166.90
</TABLE>
<TABLE>
Operating Statistics: Gas
Orange and Rockland Utilities, Inc. and Subsidiaries
CAPTION
<PAGE>
Year Ended December 31,
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Source of Gas (Mmcf):
Purchased 41,983 47,070 46,438 52,013 51,299
Manufactured 21 22 15 14 76
Storage--net 1,077 (450) 1,490 (565) (2,960)
Used in Electric Production (21,234) (24,141) (26,444) (30,741) (24,832)
Company Use and Unaccounted For ( 630) (549) (1,176) (634) (1,809)
Net Energy Sold 21,217 21,952 20,323 20,087 21,774
Sales (Mmcf):
Residential 14,349 14,208 12,646 12,611 13,919
Commercial and Industrial 6,207 6,299 5,684 5,751 6,132
Total Firm Sales 20,556 20,507 18,330 18,362 20,051
Interruptible 653 889 1,325 889 1,032
Other Utilities for Resale 8 556 668 836 691
Total Sales of Gas 21,217 21,952 20,323 20,087 21,774
Revenues (000's)
Residential $ 106,335 $ 91,538 $ 76,932 $ 76,739 $ 83,813
Commercial and Industrial 43,488 38,649 33,077 33,249 35,337
Total Revenues from Firm Sales 149,823 130,187 110,009 109,988 119,150
Interruptible 2,605 3,414 5,536 3,683 4,011
Other Utilities for Resale 105 1,950 1,999 2,404 2,207
Total Revenues from Sales of Gas 152,533 135,551 117,544 116,075 125,368
Other Gas Revenues 4,724 5,128 5,143 1,636 2,415
Total Gas Operating Revenues $ 157,257 $140,679 $122,687 $117,711 $127,783
Maximum Daily Capacity at
Dec. 31 (Mmcf):
Pipeline Suppliers 194.6 195.9 195.9 194.7 172.3
Propane Plants 30.6 30.6 30.6 30.6 30.6
Total Maximum Daily Capacity 225.2 226.5 226.5 225.3 202.9
Maximum 24-hour Sendout (Mmcf) 191.3 160.0 167.0 165.2 183.9
Heating Degree Days 5,791 5,771 5,106 4,918 5,733
Gas Customers -- Year End 109,464 108,168 106,854 105,528 104,189
Residential Customer Statistics:
Average Annual Mcf Use 145.2 145.4 131.0 131.9 147.6
Average Annual Revenue per Mcf $ 7.41 $ 6.44 $ 6.08 $ 6.09 $ 6.02
Average Annual Bill Including Fuel $1,075.86 $ 936.63 $ 797.09 $ 802.61 $ 888.84
Average Annual Fuel Cost Recovery $ 595.94 $ 500.42 $ 446.11 $ 458.11 $ 515.34
/TABLE
<PAGE>
<TABLE>
Financial Statistics
Orange and Rockland Utilities, Inc. and Subsidiaries
CAPTION
<PAGE>
Year Ended December 31,
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
Common Stock Data:
Earnings Per Average
Common Share $ 3.06 $ 3.15 $ 3.12 $ 3.54* $ 3.14 $ 3.18
Dividends Declared
Per Share $ 2.49 $ 2.43 $ 2.37 $ 2.32 $ 2.28 $ 2.24
Book Value Per Share
(Year End) $ 27.79 $ 27.22 $ 26.33 $ 25.46 $ 24.17 $ 23.23
Market Price Range Per Share:
High $ 47 1/2 $ 41 7/8 $ 39 $ 32 3/8 $ 32 $ 33 1/2
Low $ 38 5/8 $ 32 3/8 $ 30 7/8 $ 26 1/8 $ 27 1/4 $ 27 7/8
Year End $ 40 5/8 $ 41 5/8 $ 38 5/8 $ 31 3/8 $ 31 7/8 $ 29 1/4
Price Earnings Ratio 13.28 13.21 12.38 8.86 10.15 9.20
Dividend Payout Ratio 81.37% 77.14% 75.96% 65.54% 72.61% 70.44%
Common Shareholders at
Year-End 24,328 25,696 25,989 26,424 27,233 28,025
Average Number of
Common Shares
Outstanding (000's) 13,532 13,438 13,238 13,040 12,840 12,659
Total Common Shares
Outstanding at
Year-End (000's) 13,532 13,531 13,327 13,132 12,932 12,728
Return on Average
Common Equity 11.16% 11.88% 12.13% 14.49% 13.43% 14.06%
Capitalization Data (000's):
Common Stock Equity $ 376,044 $ 368,321 $ 350,947 $ 334,317 $312,548 $295,634
Non-Redeemable
Preferred Stock 43,287 43,306 43,334 43,365 43,389 43,582
Redeemable Preferred Stock 4,158 5,542 6,926 8,311 13,715 15,279
Long-Term Debt 380,266 380,202 376,839 371,660 290,230 287,563
Total Capitalization $ 803,755 $ 797,371 $ 778,046 $ 757,653 $659,882 $642,058
Capitalization Ratios:
Common Equity 46.79% 46.19% 45.11% 44.13% 47.36% 46.04%
Non-Redeemable
Preferred Stock 5.38% 5.43% 5.57% 5.72% 6.58% 6.79%
Redeemable Preferred Stock 0.52% 0.70% 0.89% 1.10% 2.08% 2.38%
Long-Term Debt 47.31% 47.68% 48.43% 49.05% 43.98% 44.79%
Selected Financial Data (000's):
Operating Revenues $ 971,371 $ 844,178 $ 731,044 $ 656,252 $576,180 $506,966
Operating Expenses $ 888,838 $ 764,943 $ 654,656 $ 574,846 $501,496 $434,823
Operating Income $ 82,533 $ 79,235 $ 76,388 $ 81,406 $ 74,684 $ 72,144
Net Income $ 44,815 $ 45,812 $ 44,868 $ 49,839 $ 44,144 $ 44,238
Earnings Applicable to
Common Stock $ 41,451 $ 42,334 $ 41,277 $ 46,133 $ 40,321 $ 40,298
Net Utility Plant $ 831,980 $ 814,686 $ 792,413 $ 765,287 $721,891 $693,978
Total Assets $1,280,973 $1,127,501 $1,087,846 $1,039,006 $979,338 $922,242
Long-Term Debt Including
Redeemable Preferred Stock $ 384,424 $ 385,744 $ 383,765 $ 379,971 $303,945 $302,842
Ratio of Long-Term Debt to
Net Plant 46.0% 47.0% 48.0% 51.3% 40.7% 42.1%
Ratio of Accumulated
Depreciation to
Utility Plant in Service 31.7% 30.7% 30.0% 29.3% 29.8% 29.8%
*Includes non-recurring gain on sale of non-utility land of $0.55 per share.
/TABLE
<PAGE>
ORANGE AND ROCKLAND UTILITIES, INC.
APPENDIX A TO EXHIBIT 13
FORM 10-K - DECEMBER 31, 1993
The Review of the Company's Results of Operations and Financial Condition,
which is included in the Company's Annual Report to Shareholders and is
incorporated by reference in this Annual Report on Form 10-K, contains certain
graphic presentations of financial data which are presented in tabular format as
follows:
1) - Graph entitled "Electric Sales to Customers"
Year Millions of Mwh
1989 399
1990 405
1991 423
1992 421
1993 436
2) - Graph entitled "Costs per Kwh" shows the price paid for fuel and
purchased power on a per-kwh basis as follows:
Cost per Kwh of Fuel
Year and Purchased Power
1989 2.78 cents
1990 2.87 cents
1991 2.74 cents
1992 2.70 cents
1993 2.67 cents
3) - Graph entitled "Gas Firm Sales" shows gas firm sales to customers
as follows:
Year Millions of Mcf's
1989 20.1
1990 18.4
1991 18.3
1992 20.5
1993 20.6
4) - Graph entitled "Cost per Mcf" shows the price paid for purchased
gas as follows:
Cost per Mcf of
Year Gas Purchased
1989 $3.15
1990 $3.17
1991 $2.90
1992 $3.52
1993 $3.63
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer
and/or a director of Orange and Rockland Utilities, Inc., which
Company proposes to file with the Securities and Exchange Commission
an Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1993 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and appointed
and by these presents does hereby make, constitute and appoint H. KENT
VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of
them, her true and lawful attorneys, for her and in her name, place
and stead, and in her office and capacity as aforesaid, to sign and
file said Form 10-K and any and all other documents to be signed and
filed with the Securities and Exchange Commission in connection
therewith, hereby granting to said H. KENT VANDERHOEF, VICTOR J.
BLANCHET, JR. and VICTOR A. ROQUE and each of them, full power and
authority to do and perform each and every act as fully, to all
intents and purposes, as she might or could do if personally present,
hereby ratifying and confirming in all respects all that said H. KENT
VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of
them as said attorneys, may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set her hand and seal
this 3rd day of March 1994.
Signature /s/ Linda C. Taliaferro
Linda C. Taliaferro
Office Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer
and/or a director of Orange and Rockland Utilities, Inc., which
Company proposes to file with the Securities and Exchange Commission
an Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1993 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and appointed
and by these presents does hereby make, constitute and appoint H. KENT
VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of
them, his true and lawful attorneys, for him and in his name, place
and stead, and in his office and capacity as aforesaid, to sign and
file said Form 10-K and any and all other documents to be signed and
filed with the Securities and Exchange Commission in connection
therewith, hereby granting to said H. KENT VANDERHOEF, VICTOR J.
BLANCHET, JR. and VICTOR A. ROQUE and each of them, full power and
authority to do and perform each and every act as fully, to all
intents and purposes, as he might or could do if personally present,
hereby ratifying and confirming in all respects all that said H. KENT
VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of
them as said attorneys, may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and seal
this 3rd day of March 1994.
Signature /s/ Victor J. Blanchet, Jr.
Victor J. Blanchet, Jr.
Office Director, President,
Chief Operating Officer
and Acting Chief Executive
Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer
and/or a director of Orange and Rockland Utilities, Inc., which
Company proposes to file with the Securities and Exchange Commission
an Annual Report on Form 10-K for the Company's fiscal year ended
December 31, 1993 pursuant to the provisions of the Securities
Exchange Act of 1934, as amended, has made, constituted and appointed
and by these presents does hereby make, constitute and appoint H. KENT
VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each of
them, his true and lawful attorneys, for him and in his name, place
and stead, and in his office and capacity as aforesaid, to sign and
file said Form 10-K and any and all other documents to be signed and
filed with the Securities and Exchange Commission in connection
therewith, hereby granting to said H. KENT VANDERHOEF, VICTOR J.
BLANCHET, JR. and VICTOR A. ROQUE and each of them, full power and
authority to do and perform each and every act as fully, to all
intents and purposes, as he might or could do if personally present,
hereby ratifying and confirming in all respects all that said H. KENT
VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE, or any of
them as said attorneys, may or shall lawfully do or cause to be done
by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and seal
this 3rd day of March 1994.
Signature /s/ Patrick J. Chambers, Jr.
Patrick J. Chambers, Jr.
Office Director, Senior Vice President
and Chief Financial Officer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer
and/or a director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an Annual
Report on Form 10-K for the Company's fiscal year ended December 31,
1993 pursuant to the provisions of the Securities Exchange Act of 1934,
as amended, has made, constituted and appointed and by these presents
does hereby make, constitute and appoint H. KENT VANDERHOEF, VICTOR J.
BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful
attorneys, for him and in his name, place and stead, and in his office
and capacity as aforesaid, to sign and file said Form 10-K and any and
all other documents to be signed and filed with the Securities and
Exchange Commission in connection therewith, hereby granting to said
H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each
of them, full power and authority to do and perform each and every act
as fully, to all intents and purposes, as he might or could do if
personally present, hereby ratifying and confirming in all respects all
that said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A.
ROQUE, or any of them as said attorneys, may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and seal this
28th day of March 1994.
Signature /s/ Terry L. Dittrich
Terry L. Dittrich
Office Acting Controller
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer
and/or a director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an Annual
Report on Form 10-K for the Company's fiscal year ended December 31,
1993 pursuant to the provisions of the Securities Exchange Act of 1934,
as amended, has made, constituted and appointed and by these presents
does hereby make, constitute and appoint H. KENT VANDERHOEF, VICTOR J.
BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful
attorneys, for him and in his name, place and stead, and in his office
and capacity as aforesaid, to sign and file said Form 10-K and any and
all other documents to be signed and filed with the Securities and
Exchange Commission in connection therewith, hereby granting to said
H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each
of them, full power and authority to do and perform each and every act
as fully, to all intents and purposes, as he might or could do if
personally present, hereby ratifying and confirming in all respects all
that said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A.
ROQUE, or any of them as said attorneys, may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and seal
this 3rd day of March 1994.
Signature /s/ Ralph M. Baruch
Ralph M. Baruch
Office Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer
and/or a director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an Annual
Report on Form 10-K for the Company's fiscal year ended December 31,
1993 pursuant to the provisions of the Securities Exchange Act of 1934,
as amended, has made, constituted and appointed and by these presents
does hereby make, constitute and appoint H. KENT VANDERHOEF, VICTOR J.
BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful
attorneys, for him and in his name, place and stead, and in his office
and capacity as aforesaid, to sign and file said Form 10-K and any and
all other documents to be signed and filed with the Securities and
Exchange Commission in connection therewith, hereby granting to said
H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each
of them, full power and authority to do and perform each and every act
as fully, to all intents and purposes, as he might or could do if
personally present, hereby ratifying and confirming in all respects all
that said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A.
ROQUE, or any of them as said attorneys, may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and seal
this 3rd day of March 1994.
Signature /s/ Kenneth D. McPherson
Kenneth D. McPherson
Office Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer
and/or a director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an Annual
Report on Form 10-K for the Company's fiscal year ended December 31,
1993 pursuant to the provisions of the Securities Exchange Act of 1934,
as amended, has made, constituted and appointed and by these presents
does hereby make, constitute and appoint H. KENT VANDERHOEF, VICTOR J.
BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful
attorneys, for him and in his name, place and stead, and in his office
and capacity as aforesaid, to sign and file said Form 10-K and any and
all other documents to be signed and filed with the Securities and
Exchange Commission in connection therewith, hereby granting to said
H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each
of them, full power and authority to do and perform each and every act
as fully, to all intents and purposes, as he might or could do if
personally present, hereby ratifying and confirming in all respects all
that said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A.
ROQUE, or any of them as said attorneys, may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and seal
this 3rd day of March 1994.
Signature /s/ Frank A. McDermott, Jr.
Frank A. McDermott, Jr.
Office Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer
and/or a director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an Annual
Report on Form 10-K for the Company's fiscal year ended December 31,
1993 pursuant to the provisions of the Securities Exchange Act of 1934,
as amended, has made, constituted and appointed and by these presents
does hereby make, constitute and appoint H. KENT VANDERHOEF, VICTOR J.
BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful
attorneys, for him and in his name, place and stead, and in his office
and capacity as aforesaid, to sign and file said Form 10-K and any and
all other documents to be signed and filed with the Securities and
Exchange Commission in connection therewith, hereby granting to said
H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each
of them, full power and authority to do and perform each and every act
as fully, to all intents and purposes, as he might or could do if
personally present, hereby ratifying and confirming in all respects all
that said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A.
ROQUE, or any of them as said attorneys, may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and seal
this 3rd day of March 1994.
Signature /s/ James F. O'Grady, Jr.
James F. O'Grady, Jr.
Office Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer
and/or a director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an Annual
Report on Form 10-K for the Company's fiscal year ended December 31,
1993 pursuant to the provisions of the Securities Exchange Act of 1934,
as amended, has made, constituted and appointed and by these presents
does hereby make, constitute and appoint H. KENT VANDERHOEF, VICTOR J.
BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful
attorneys, for him and in his name, place and stead, and in his office
and capacity as aforesaid, to sign and file said Form 10-K and any and
all other documents to be signed and filed with the Securities and
Exchange Commission in connection therewith, hereby granting to said
H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each
of them, full power and authority to do and perform each and every act
as fully, to all intents and purposes, as he might or could do if
personally present, hereby ratifying and confirming in all respects all
that said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A.
ROQUE, or any of them as said attorneys, may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and seal
this 3rd day of March 1994.
Signature /s/ H. Kent Vanderhoef
H. Kent Vanderhoef
Office Director, Acting Chairman
of the Board of Directors
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer
and/or a director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an Annual
Report on Form 10-K for the Company's fiscal year ended December 31,
1993 pursuant to the provisions of the Securities Exchange Act of 1934,
as amended, has made, constituted and appointed and by these presents
does hereby make, constitute and appoint H. KENT VANDERHOEF, VICTOR J.
BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful
attorneys, for him and in his name, place and stead, and in his office
and capacity as aforesaid, to sign and file said Form 10-K and any and
all other documents to be signed and filed with the Securities and
Exchange Commission in connection therewith, hereby granting to said
H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each
of them, full power and authority to do and perform each and every act
as fully, to all intents and purposes, as he might or could do if
personally present, hereby ratifying and confirming in all respects all
that said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A.
ROQUE, or any of them as said attorneys, may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and seal
this 3rd day of March 1994.
Signature /s/ John F. White
John F. White
Office Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer
and/or a director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an Annual
Report on Form 10-K for the Company's fiscal year ended December 31,
1993 pursuant to the provisions of the Securities Exchange Act of 1934,
as amended, has made, constituted and appointed and by these presents
does hereby make, constitute and appoint H. KENT VANDERHOEF, VICTOR J.
BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful
attorneys, for him and in his name, place and stead, and in his office
and capacity as aforesaid, to sign and file said Form 10-K and any and
all other documents to be signed and filed with the Securities and
Exchange Commission in connection therewith, hereby granting to said
H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each
of them, full power and authority to do and perform each and every act
as fully, to all intents and purposes, as he might or could do if
personally present, hereby ratifying and confirming in all respects all
that said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A.
ROQUE, or any of them as said attorneys, may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and seal
this 3rd day of March 1994.
Signature /s/ J. Fletcher Creamer
J. Fletcher Creamer
Office Director
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned, an officer
and/or a director of Orange and Rockland Utilities, Inc., which Company
proposes to file with the Securities and Exchange Commission an Annual
Report on Form 10-K for the Company's fiscal year ended December 31,
1993 pursuant to the provisions of the Securities Exchange Act of 1934,
as amended, has made, constituted and appointed and by these presents
does hereby make, constitute and appoint H. KENT VANDERHOEF, VICTOR J.
BLANCHET, JR. and VICTOR A. ROQUE and each of them, his true and lawful
attorneys, for him and in his name, place and stead, and in his office
and capacity as aforesaid, to sign and file said Form 10-K and any and
all other documents to be signed and filed with the Securities and
Exchange Commission in connection therewith, hereby granting to said
H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A. ROQUE and each
of them, full power and authority to do and perform each and every act
as fully, to all intents and purposes, as he might or could do if
personally present, hereby ratifying and confirming in all respects all
that said H. KENT VANDERHOEF, VICTOR J. BLANCHET, JR. and VICTOR A.
ROQUE, or any of them as said attorneys, may or shall lawfully do or
cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has set his hand and seal
this 3rd day of March 1994.
Signature /s/ Michael J. Del Giudice
Michael J. Del Giudice
Office Director
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF ROCKLAND
- - - - - - - - - - - - - - - - - - - - - -x
ORANGE AND ROCKLAND UTILITIES, INC. :
Plaintiff, :
: Index No. 0623/94
-against- :
: COMPLAINT
JAMES F. SMITH, :
:
Defendant. :
:
- - - - - - - - - - - - - - - - - - - - - -x
Plaintiff, complaining of defendant, by and through its
attorneys, states the following upon knowledge with respect to
itself and its own acts, and upon information and belief as to
all other matters.
The Parties
1. Plaintiff Orange and Rockland Utilities, Inc.
("O&R" or the "Company") is a New York corporation with its
principal place of business at One Blue Hill Plaza, Pearl River,
New York. O&R is an investor-owned utility serving over 254,200
electric customers and 108,200 natural gas customers in southern
New York State, as well as in\adjacent sections of northern New
Jersey and northern Pennsylvania.
2. Defendant James F. Smith ("Smith") maintains his
principal residence in Tuxedo Park, New York. From 1979 until
1993, Smith was Chairman of the Board of Directors (the "Board")
and Chief Executive Officer of O&R.
3. At all relevant times, Smith owed to O&R fiduciary
duties, including the duty of loyalty, the duty of care, and the
duty of candor.
4. As described below, some of Smith's actions that
are the subject of this complaint took place within the State of
New York and County of Rockland, and all such acts caused injury
to property within the State of New York and County of Rockland.
Summary of Claims
5. In April 1979, Smith was appointed Chairman of the
Board and Chief Executive Officer of O&R. In 1978, Thomas A.
Griffin, Jr. ("Griffin"), now retired, had been appointed
President of the Company.
6. Upon assuming his new position and continuing
throughout his tenure as Chief Executive Officer, Smith engaged
in a continuing course of fraudulent and disloyal conduct
designed to advance his own pecuniary and personal interests, in
breach of his fiduciary duties to the Company, by systematically
misappropriating Company funds, assets, and services for the
personal benefit of himself, his family, his friends, and other
persons and organizations with which he had a private
relationship.
7. Smith, aided by Griffin and others, carried out an
ongoing scheme to defraud the Company by, inter alia, submitting
or authorizing the submission of expense-related documents that
failed to adequately document the use of Company funds or
falsely represented the true purpose of expenditures, by causing
services rendered on personal projects for himself, his
children, or his wife to be processed as business projects, by
causing or permitting false representations concerning officer
expense audits to be made to the Audit Committee of the Board,
by purporting to establish perquisites and policies for the
benefit of officers without authorization or knowledge of the
independent members of the Board, and by subverting the proper
operation of the Company's accounting controls and internal
auditing procedures.
8. In order to facilitate and conceal his illegal
activities, and to deter disclosure of them by others, Smith
knowingly permitted, induced, and authorized the personal use of
Company funds, assets, and services by other Company officers,
including but not limited to Griffin and former Vice President
Linda Winikow ("Winikow"), and used, or authorized the use of,
Company funds to provide gifts, entertainment, and cash payments
to certain lower-level employees who were in a position to know
of these activities.
9. In 1984, Smith recruited Winikow to join O&R in a
specially-created position of Vice President for Corporate
Policy and External Affairs, with responsibilities for corporate
contributions, public relations, and political activities.
Winikow was nominally assigned to report to the President of
O&R, but in practice was answerable directly to Smith.
10. Through Smith's acquiescence, or gross negligence
in supervising Winikow's activities, Winikow was permitted to
engage in illegal activities, including systematic abuse of her
expense budget and misappropriation of O&R funds and resources
for her own benefit, and violations of election and commercial
bribery laws.
11. On August 16, 1993, Winikow was arrested on
charges of grand larceny, commercial bribery, and election law
violations. On August\26, 1993, her employment was terminated
for cause.
12. Winikow was subsequently indicted, and on October
6, 1993, pleaded guilty to felony and other charges arising from
her activities at O&R. Two former subordinates in O&R's
Corporate Communications Department, headed by Winikow, were
also arrested and charged, and pleaded guilty to certain illegal
activities involving misuse or theft of O&R funds.
13. On August 20, 1993, the Board created a Special
Committee of the Board (the "Special Committee") to conduct an
independent investigation of improprieties by Winikow, the
Corporate Communications Department, and other officers or
employees.
14. As a result of that investigation, the Board
discovered Smith's pervasive pattern of misconduct and fiduciary
breaches described herein, which had been fraudulently concealed
from the Board. On October\7, 1993, the Board delivered to
Smith a Notice of Termination for Cause, which became fully
effective on December\6, 1993.
Subversion of Internal Controls
15. In 1976, O&R established a restricted
disbursements account (the "Restricted Account") for the purpose
of maintaining the confidentiality of certain corporate
expenditures.
16. As Chief Executive Officer, Smith permitted and
fostered a practice of using the Restricted Account for
confidential processing and payment of officers' travel,
entertainment, and other expenditures which were claimed to be
business expenses, many of which were not allowable expenditures
under the Company's expense policies.
17. From at least 1979 until 1993, Smith routinely
submitted or caused to be submitted in his behalf, and knowingly
authorized the submission by Griffin and other officers of,
check requests, credit card approval sheets, petty cash
reimbursement vouchers and other corporate records for
reimbursement or payment of purported business expenses
(hereinafter "expense reports") that failed to identify
individuals who benefited from such expenditures, and failed to
state, or falsely stated, a business purpose for such
expenditures.
18. In 1979, the Company's Manager of Internal
Auditing, William Hallinan, was assigned responsibility for
auditing expenditures that were processed through the Restricted
Account, including officers' expenses. In reports to the
Company Controller on his audits for the years 1979, 1980 and
1981, Hallinan noted an escalating pattern of deficiencies in
the reporting and documentation of officer travel and
entertainment expenses.
19. Hallinan's report for 1981 specifically noted a
lack of compliance with proper expense reporting procedures,
including failures to submit receipts or to identify individuals
entertained or the business purpose of travel and entertainment.
20. In May 1982, Hallinan notified Griffin and Smith
that he intended to send a copy of his 1981 audit report to the
Audit Committee of the Board of Directors (the "Audit
Committee"). Shortly thereafter Griffin informed Hallinan that
he was being summarily removed as Manager of Internal Auditing.
21. With Hallinan's removal from that position, Smith
and Griffin were able to prevent, and did prevent, the
communication to the Audit Committee of information about
improper officer expense account practices, and deterred others
in the Internal Audit Department, including Hallinan's
successor, from investigating and reporting such improprieties
in officers' expense accounts.
22. In late 1988, the Board decided that the Audit
Committee would review officer expenses at least annually.
23. By this time, unknown to the Board, Smith had
established a practice of charging and permitting other officers
to charge expenses that were not allowable under existing
Company policy and concealing and permitting others to conceal
the true nature of such expenses by improper or inadequate
documentation.
24. In February 1989, Smith caused to be submitted to
the Board for approval a new Company policy, which purported to
define allowable business expenses incurred by officers, and to
establish specific procedures for the reporting, authorization,
and payment of such expenses (the "Officer Expense Policy").
The Officer Expense Policy required, inter alia, that all
expenses be reasonable and necessary, and that they be described
in reasonable detail, with a statement of business purpose and
identity of each person entertained and accompanying receipts or
other appropriate proof of the expenditure. The Officer Expense
Policy also required the Internal Auditor to review officers'
expenses and report on them annually to the Audit Committee.
25. In February 1989, the Board approved the new
Officer Expense Policy.
26. Thereafter, in June 1989, a purported
"supplement", or exception, to the Officer Expense Policy was
issued at the direction of Smith. This purported supplement
allowed officers to be reimbursed for entertainment expenses
without submitting proper documentation of the persons
entertained or the business purpose of such expenditures. Smith
intentionally concealed from the independent members of the
Board and the Audit Committee the issuance of this purported
"supplement".
27. The purpose of this purported supplement, issued
at the direction of Smith, was to facilitate misleading
representations to the Audit Committee that officer expenses
were "properly recorded," when in fact such recording was not in
compliance with the Officer Expense Policy that the Board had
recently approved, and believed to be in effect. In particular,
this purported supplement was intended to permit Winikow to
continue to conceal the identities of political figures and
others upon whom she expended Company funds, without disclosing
to the Board that such information was being concealed.
28. Facilitated by this purported supplement and with
Smith's knowledge and approval, or through Smith's gross
negligence in failing to supervise Winikow, Winikow engaged in a
pattern of illegal contributions and political activities, and
fraudulent misappropriation of O&R funds and services, until her
arrest in August 1993.
29. From 1989 until 1993, Smith permitted deceptive
reports to be submitted to the Audit Committee, which stated
that officers' expenses, including his own, Griffin's and
Winikow's, were properly submitted, approved, recorded and
supported, knowing such reports to be false and misleading.
Improper Conference and Travel Expenses
30. Throughout his tenure as Chief Executive officer,
in violation of his fiduciary duties and Company policy, Smith
engaged in a pattern of extravagant and excessive expenditures
of Company funds in connection with outside business
conferences and Company-sponsored events, including, but not
limited to, expenditures for first-class airfare, luxurious
hotel accommodations, gift purchases, car rentals, and
extravagant dining and entertainment, for Smith, his wife, and
other officers and their spouses. Such lavish expenditures of
Company funds in connection with business conferences and
Company-sponsored events were neither necessary nor reasonable,
conferred little or no benefit to O&R's business, and
constituted waste of corporate assets.
31. Such expenditures included, for example,
approximately $20,000 paid by O&R in connection with costs for
a "People to People" tour of Russia and Eastern Europe by Smith
and his wife in November 1992 that had little or no
relationship to O&R's business.
32. Such expenditures also included, for example,
extravagant amounts expended to sponsor functions at annual
meetings for local officials, called the Association of Towns,
including at least $10,300 paid by O&R between 1990 and 1993
alone for Smith's own hotel, meal, and entertainment charges,
purportedly in connection with these meetings.
33. On numerous occasions, Smith failed to account
adequately for such expenses by failing to identify the
specific business purpose for expenses incurred in connection
with business conferences or the beneficiaries of such
expenditures, or by failing to submit receipts or proper
supporting documentation for such expenses.
34. In addition, on numerous occasions, Smith
intentionally misappropriated and converted Company funds to
his own use by causing O&R to pay personal expenses incurred
during vacations with his wife or other family members, or
during unnecessary travel preceding or following purported
business conferences.
35. Smith concealed the personal purpose of such
expenditures and caused them to be paid by O&R by intentionally
submitting, or causing to be submitted, expense reports that
falsely reported such expenses as business expenses incurred in
connection with his attendance at a business conference, when
in fact, they were incurred for the personal benefit of Smith,
his family, or their personal friends. The transactions set
forth in paragraphs 36 through 39 are examples of such
misconduct.
36. Smith caused O&R to pay personal expenses,
including first-class airfare, car rental, hotel and meal
expenses, incurred by him and his wife while on vacation in
France in October 1989, by falsely claiming on his expense
reports that such expenses, totaling over $9,000, were incurred
in connection with his attendance at a business conference.
37. Smith caused O&R to pay personal expenses
incurred by him and his wife during a three-day stay in Boston,
Massachusetts in May\1991, including hotel and meal expenses,
by falsely claiming on his expense reports that such expenses,
totaling over $2,800, were incurred in connection with his
attendance at a half-day financial conference.
38. Smith caused O&R to pay personal expenses
incurred by him and his wife, including airfare, car rental,
hotel and meal expenses, incurred during a vacation in Canada
in September and October of 1991, by falsely claiming on his
expense reports that such expenses, totaling approximately
$5,000, were incurred in connection with his attendance at the
Canadian Energy Research Institute's International Oil and Gas
Markets Conference in Calgary.
39. Smith caused O&R to pay personal expenses
incurred by him and members of his family during a 7 day trip
to Paris from February\18-24, 1993, including first-class
airfare, hotel and meal expenses, by falsely claiming on his
expense reports that such expenses, totaling over $15,000, were
incurred in connection with his attendance at a Liquified
Natural Gas Conference held in Paris on February\16-19, 1993.
40. As a result of Smith's fraudulent concealments
and misrepresentations, the full extent of personal
expenditures falsely claimed as conference-related business
expenses and charged to O&R is peculiarly within the knowledge
of Smith and known only to him at this time.
Personal Entertainment
41. Throughout his tenure as Chief Executive Officer,
in violation of his fiduciary duties and Company policy, Smith
engaged in, and authorized other officers to engage in, a
pattern of excessive and extravagant spending in connection
with purported business entertainment, including but not
limited to, hotel charges, dining expenses, theater and concert
tickets, and parties. Such lavish expenditures of Company
funds for "business" entertainment were neither reasonable nor
necessary, conferred little or no benefit on O&R, and
constituted waste of corporate assets.
42. On numerous occasions, Smith failed to account
adequately for his entertainment expenses, by failing to
identify the specific business purpose or the persons
entertained, or by failing to submit receipts or proper
supporting documentation for the expense.
43. In addition, on numerous occasions, Smith
intentionally misappropriated and converted Company funds to
his own use by causing O&R to pay entertainment expenses which
had no legitimate business purpose but were incurred for the
personal benefit of Smith, his family, friends, neighbors, and
associates.
44. Smith routinely concealed the personal nature of
such expenditures by intentionally submitting, or causing to be
submitted, expense reports that falsely reported that such
expenses were business-related, in many instances
characterizing such personal affairs as "business meetings,"
"community relations," or "community affairs." The
transactions set forth in paragraphs 45 through 69 are examples
of such misconduct.
45. On at least nineteen occasions between 1988 and
1992, Smith caused O&R to pay his cost of entertaining friends
during his month-long vacations in Maine, totaling at least
$4,000, by falsely describing such restaurant meals and
overnight accommodations for guests as "business meetings" on
his expense reports.
46. Throughout Smith's tenure as Chief Executive
Officer, Smith caused O&R to pay personal expenses for the
entertainment of Smith, his family, and friends at the Tuxedo
Club and the Metropolitan Club, including charges for meals,
bar bills, and recreation, by falsely representing such
expenditures as "business expenses." For the years 1988
through 1993, Smith caused O&R to pay at least $20,000 for
personal expenses incurred at his clubs.
47. On numerous occasions, Smith caused O&R to pay
for theater tickets for himself, his family, and friends, by
concealing the personal nature of such entertainment. For the
years 1990 through 1993, Smith caused O&R to pay at least
$6,800 for theater tickets for the personal benefit of himself,
his family, and personal friends.
48. On numerous other occasions throughout his tenure
as Chief Executive Officer, Smith caused O&R to pay for lavish
social outings with his wife and friends, by falsely describing
such social outings as "Business Meeting[s]" or otherwise
intentionally concealing the personal nature of such expenses,
as exemplified by the occasions described in paragraphs 49
through 62.
49. On December 13-14, 1989, Smith caused O&R to pay
$629.68 for hotel accommodations at the Mayfair Regent and
$949.45 for a dinner at Le Cirque in New York City with
friends, including Smith's personal physician, by falsely
describing this occasion as a "Business Meeting" on his expense
reports.
50. On December 12-13, 1991, Smith caused O&R to pay
$690.42 for hotel accommodations at the Mayfair Regent and
$1,012.91 for a dinner at Bouley in New York City with friends,
by falsely describing this occasion as a "Business Meeting" on
his expense reports.
51. Smith caused O&R to pay $547.46 for hotel
accommodations for himself and his wife in New York City on
December\1, 1992, and a meal, totaling $125.52, in New York
City the following day, by falsely claiming on his expense
reports that such expenses were incurred in connection with his
attendance at the Environmental Summit\'92, an event that took
place outside of New York City.
52. On December\18, 1987, Smith caused O&R to pay
$1,273.30 for a meal with friends at the "21 Club" in New York
City, by falsely representing the occasion as a "Business
Meeting."
53. On October\14, 1988, Smith caused O&R to pay
$649.40 for a meal at Le Cirque in New York City with friends
and fellow Tuxedo Club members, by falsely representing the
occasion as a "Business Meeting."
54. On December\15, 1988, Smith caused O&R to pay
$512.00 for a meal with friends and fellow Tuxedo Club members
at Montrachet in New York City, by falsely representing the
occasion as a "Business Meeting."
55. On April 8, 1989, Smith caused O&R to pay
$2,217.91 for a meal at the Rainbow Room in New York City with
friends and fellow Tuxedo Club members, by falsely representing
the occasion as a "Business Meeting."
56. On May 19, 1990, Smith caused O&R to pay $734.35
for a meal with friends and fellow Tuxedo Club members at
Aureole in New York City, by falsely representing the occasion
as a "Business Meeting."
57. On October\11, 1990, Smith caused O&R to pay
$974.05 for a meal with friends and fellow Tuxedo Club members
at Le Cirque in New York City, by falsely representing the
occasion as a business expense.
58. On April\20, 1991, Smith caused O&R to pay
$725.30 for a meal with friends and fellow Tuxedo Club members
at Aureole in New York City, by falsely representing the
occasion as a "Business Meeting."
59. On July\11, 1991, Smith caused O&R to pay $666.36
for a meal with friends and fellow Tuxedo Club members, who
were also members of Smith's wine club, at the 21 Club in New
York City, by falsely representing the occasion as a "Business
Meeting."
60. On May\8, 1992, Smith caused O&R to pay $728.25
for a meal with friends and fellow Tuxedo Club members at the
Buffet de la Gare in Hastings-on-Hudson, New York, by falsely
representing the occasion as a "Business Meeting."
61. On June\15, 1992, Smith caused O&R to pay $592.55
for a meal with friends and fellow Tuxedo Club members at Les
Bons Copains in Suffern, New York, by falsely representing the
occasion as a "Business Meeting."
62. On April\21, 1993, Smith caused O&R to pay
$416.28 for a meal with friends and fellow Tuxedo Club members
at the Gotham Bar & Grill in New York City, by falsely
representing the occasion as a "Business Meeting."
63. On various occasions, Smith caused O&R to pay for
purely social meals with an O&R employee and or his wife, who
were both personal friends of Smith and his wife, by falsely
describing such meals as a "Business Meeting". Examples of
such meals during 1990 alone included, but were not limited to,
the following:
(a) On April 23, 1990, Smith caused O&R to pay
$124.40 for a meal at Hana Restaurant, and an additional $35 in
drinks, by falsely representing the occasion as a "Business
Meeting";
(b) On June 6, 1990, Smith caused O&R to pay
$974.60 for a meal at Le Cirque in New York City, and an
additional $100 in drinks, to celebrate his friends' wedding
anniversary, by falsely describing the occasion as a "Business
Meeting";
(c) On June 15, 1990, Smith caused O&R to pay
$395.26 for a meal at Michael's in New York City, by falsely
describing the occasion as a "Business Meeting"; and
(d) On October 12, 1990, Smith caused O&R to pay
$473.00 for a meal at Chateau Hathorn in Warwick, New York, by
falsely describing the occasion as a "Business Meeting".
64. On numerous occasions, as exemplified in
paragraphs 65 through 69 below, Smith caused O&R to pay his
costs of entertaining friends and neighbors at private dinner
or cocktail parties, by falsely representing such occasions as
"Community Affairs" or otherwise concealing the personal nature
of such expenses.
65. For example, on or about June\11, 1988, Smith
caused O&R to pay at least $5,500.00 for hors d'oeuvres,
equipment rentals, flowers, and waiting staff, for a cocktail
party for friends, neighbors and fellow Tuxedo Club members, by
falsely representing this event as a reimbursable "Community
Affairs Gathering" on his expense reports.
66. On or about November\10, 1989, Smith caused O&R
to pay at least $1,012.56 for food, equipment rentals, and
flowers for a luncheon on a holiday weekend with friends and
fellow Tuxedo Club members, by falsely describing the occasion
as a "Business Meeting" on his expense reports.
67. On or about October\1, 1988 Smith caused O&R to
pay at least $325.00 for food and equipment rentals for a
tail-gate party at an Army football game at West Point, New
York, with friends and fellow Tuxedo Club members, by falsely
representing the occasion as a reimbursable "gathering" on his
expense reports.
68. On or about October 10, 1992, Smith caused O&R to
pay at least $735.50 for a Saturday party at his home for
friends and fellow Tuxedo Club members, by falsely representing
the occasion as a "Business Dinner Party" or a "Business Dinner
Meeting."
69. On or about May\17, 1993, Smith caused O&R to pay
at least $750.00 for food and waiting services for a party at
his home with friends and fellow Tuxedo Club members, by
falsely representing the occasion as a "Business Dinner."
70. As a result of Smith's fraudulent concealments
and misrepresentations, the full extent of personal
expenditures falsely claimed as business entertainment and
charged to O&R is peculiarly within the knowledge of Smith and
known only to him at this time.
Conference Center
71. O&R owns and maintains a lodge in Sullivan
County, New York for the purpose of providing facilities for
training sessions, seminars, business conferences and other
business meetings (the "Conference Center"). Officers of O&R
were permitted occasional use of the Conference Center
facilities on weekends for personal recreation at their own
expense.
72. On numerous occasions, Smith intentionally
misappropriated and converted Company funds to his own use by
causing the Company to pay expenses associated with his
personal use of the Conference Center to entertain family,
friends, and other personal associates, including members of
his wine club, and failed properly to account for such expenses.
73. Smith intentionally concealed the personal nature
of such usage by submitting, or causing to be submitted,
expense reports and Conference Center reservation forms that
failed to report that the use was for personal purposes, or by
affirmatively misrepresenting such use as a "Business meeting",
or by omitting the identities of guests.
74. Smith used the Conference Center for personal
entertainment of friends or relatives on the weekends of
January 21-22, 1989; January 19-21, 1990; February 9-11, 1990;
July 13-15, 1990; July 20-22, 1990; January 18-20, 1991;
February 8-10, 1991; July 12-14, 1991; October 11-13, 1991;
January 24-25, 1992; February 21-23; 1992; February 27-28,
1992; July 10-12, 1992; February 5-7, 1993; and July 9-11,
1993. On each such occasion, Smith failed to reimburse O&R for
the costs it incurred and caused O&R to bear such costs,
including a total of approximately $25,000 in food purchased
for the above-listed weekends, in addition to the costs of wine
and beverages consumed by guests and of staff to serve them.
75. For example, Smith's use of the Conference Center
on July 13-15, 1990, which was designated as a "Business
meeting" on his expense report, was in fact a fiftieth birthday
celebration for his wife, attended by friends and relatives.
Smith caused O&R to pay $2,375.46 in food costs, including
$1,060 in caviar, for this weekend birthday party, in addition
to the costs of wine, beverages, and staff.
76. Smith's use of the Conference Center the
following weekend of July 20-22, 1990, which was not designated
as personal on the Conference Center reservation form, was also
to celebrate his wife's birthday with additional friends and
relatives. Smith again caused O&R to pay $1,319.94 for food,
in addition to the costs of wine, beverages, and staff, for
this birthday party.
77. Company policy explicitly states that an officer
who sponsors and permits the use of the Conference Center by an
organizational group unaffiliated with the Company shall be
responsible for collection of a fee, set at $150 per day per
person as of 1992, for such usage. Smith violated this policy
and his fiduciary duties, by arranging for and authorizing the
free use of the Conference Center and its staff on a number of
occasions, including but not limited to August 24-27, 1990,
August 23-25, 1991, August 28-31, 1992, and August 27-30, 1993,
by a drama group with which Smith's son was or had been
affiliated, without requiring payment of approximately $20,000
in fees owing under Company policy.
78. As a result of Smith's fraudulent concealments
and misrepresentations, the full extent of his improper
Conference Center usage and associated expenditures is
peculiarly within the knowledge of Smith and known only to him
at this time.
Gifts and Purchases of Merchandise
79. Throughout his tenure as Chief Executive Officer,
in violation of his fiduciary duties and Company policy, Smith
regularly used and permitted others to use Company funds to
purchase excessive and extravagant gifts and merchandise for
outsiders, Company executives, and employees.
80. On numerous occasions, Smith failed to properly
account for such purchases, causing O&R to pay for such
purchases without indicating the business purpose for the
purchase, the quantity or unit price of such merchandise, the
recipient of the gift, or without submitting a receipt or
documentation supporting the purported purchase.
81. For example, from 1988 through 1993, Smith made
over 40 purchases, totaling at least $11,000, from such
establishments as Tiffany & Co., Waterford Crystal, Ferragamo
and D. Sokolin & Co., the business purpose of which was
described only as "Employee Welfare."
82. Smith violated his fiduciary duties and Company
policy by regularly using O&R funds to reward his secretaries,
drivers, and other employees who performed personal services
for him and his family with lavish gifts, theater tickets, and
other entertainment, and by making cash payments to such
employees totaling in excess of $1,000 in each of the years
1989 through 1992, and by authorizing Griffin to do the same.
83. In addition, on numerous occasions, Smith
intentionally misappropriated and converted Company funds to
his own use by causing O&R to pay for merchandise, including
watches, holiday baskets, fine china, flowers, clothing, books,
tapes, and electronic devices, which were purchased for the
personal use and benefit of Smith, his family, and their
personal associates.
84. Smith intentionally concealed the personal nature
of such expenses by submitting or causing to be submitted
expense reports that falsely represented that such merchandise
was purchased for business related reasons, when, in fact, the
merchandise was received by Smith, his family, or his personal
friends and associates.
85. In each of the years 1988 through 1992, during
the Christmas season, Smith caused O&R to pay for approximately
$500 worth of plants and flowers for the decoration of his and
his secretaries' homes, by falsely claiming that such purchases
were a business expense.
86. In 1991, Smith caused the Company to purchase
numerous sets of Wedgewood china for the stated purpose of
giving gifts to invitees to an annual Company-sponsored affair
for select executives, employees, and outsiders, commonly
referred to as the Tie Club. Smith distributed sets of such
china as personal gifts to family, friends, and other persons
who were not invited to the Tie Club affair, and numerous other
sets remain unaccounted for.
87. In 1992, Smith caused the Company to purchase
Movado watches for the stated purpose of giving them as gifts
to invitees to the annual Tie Club affair in that year. Smith
distributed at least five such Movado watches as personal gifts
to family members, and caused other Movado watches to be given
to other non-invitees. Numerous other watches remain
unaccounted for.
88. In each of the years 1985 through 1992, Smith
caused the Company to purchase numerous holiday gift baskets,
for the stated purpose of giving them as Company Christmas
gifts to officers, directors, and others with business
affiliations to O&R. During these years, Smith distributed
many of these baskets, worth approximately $30,000, as personal
gifts to family, friends, and other associates.
89. In September 1990, Smith caused the Company to
reimburse him for $1,750 assertedly spent to purchase paintings
from a gallery in Maine to be given as wedding presents by him
and his wife. Smith intentionally concealed the true purpose
of such purchases and failed to submit any receipt verifying or
identifying such purchases.
90. Smith misappropriated and converted to his own
use furniture owned by O&R, by causing O&R furniture stored in
a Company warehouse to be delivered to Smith's vacation home in
Kennebunkport, Maine, and to his son's home in New York City.
91. As a result of Smith's fraudulent concealments
and misrepresentations, the full extent of such improper use of
merchandise purchased with Company funds is peculiarly within
Smith's knowledge and known only to him at this time.
Personal Use of Company
Vendors, Employees, Assets, and Services
92. Throughout his tenure as Chief Executive Officer,
in violation of his fiduciary duties and Company policy, Smith
used O&R's employees, facilities, and outside vendors for the
personal benefit of himself, his wife and family, personal
associates, and organizations with which Smith had a personal
or private business relationship.
93. Smith intentionally caused O&R employees,
including Smith's secretaries and employees in the Corporate
Communications and Facilities Services Departments, as well as
non-employee drivers, to spend hundreds of hours processing and
carrying out numerous personal requests from Smith. O&R has
expended a substantial amount of money in compensation payments
to Company personnel and drivers, both for time during regular
business hours and for overtime work, for the handling of
personal work and errands on behalf of Smith and Smith's
family, or for services provided to organizations with which
Smith had a personal or private business relationship.
94. Smith knowingly authorized or permitted the
issuance of corporate credit cards to his secretary and
drivers, and improperly approved payment of any and all
expenditures incurred by them using such cards, including
expenses for the personal benefit of the card-holder, or for
the personal benefit of Smith, his family, and his personal
associates.
95. On numerous occasions, Smith intentionally
misappropriated and converted O&R funds to his own use by
causing O&R to contract with and pay outside vendors and other
third parties to provide goods and services for a variety of
personal purposes unrelated to legitimate O&R business.
96. Smith intentionally concealed the personal nature
of such expenditures, in many instances directing or knowingly
permitting invoices for such goods and services to be directed
to O&R for payment. The transactions set forth in paragraphs
97 through 108 are examples of such misconduct.
97. In or around February and March of 1991, Smith
caused O&R to pay approximately $1,000 to an outside vendor for
video reproduction work on a film produced by his son, for the
purpose of advancing his son's film-making and acting career.
98. In or around April 1993, for the same purpose,
Smith caused O&R employees to rent and transport vehicles used
by his son for the filming of a second movie, and caused O&R to
pay approximately $4,500 in rental costs for the vehicles,
approximately $2,000 for repair work for damages done to one of
the vehicles while in the possession of his son, and additional
amounts in parking violations incurred by his son while using
such vehicles. When confronted by an O&R officer with the
rental and repair charges, Smith reimbursed the Company for
approximately $2,500 in additional charges, but denied
responsibility for the remaining $6,500.
99. Smith also permitted his son to use O&R's
executive offices on a weekend in or around April 1993, for
filming parts of his movie, and caused the Company to pay
expenses associated with such use, including $1,317.57 for
special weekend security and freight elevator usage, and
approximately $350.00 to a vendor for supervising the filming.
100. In 1983, Smith directed an employee in the
Corporate Communications Department to arrange a summer job for
his daughter at one of the Company's outside printing vendors,
and caused O&R to reimburse the vendor for her salary.
101. On several occasions, between 1987 and 1989,
Smith caused O&R to pay an outside vendor for the printing of
personal social stationery for himself and his wife, at a cost
of at least $900.
102. In or around June of 1992, Smith caused O&R to
pay $1277.60 to an outside vendor for printing invitations to
his son's engagement party.
103. During 1990 and 1991, Smith caused O&R to pay
over $2,500 to two outside printing vendors for printing
services in connection with Smith's daughter's engagement and
wedding celebrations.
104. During 1991 and 1992, Smith caused O&R to pay
outside vendors almost $400 for printing services in connection
with events at the Tuxedo Park School with which Smith's wife
was affiliated.
105. Since at least as early as 1991, Smith has
regularly caused O&R to pay for photography services, including
film processing and development, for the personal benefit of
Smith, his family, and his personal associates.
106. From November 1992 until June 1993, Smith caused
O&R to provide a Company-owned automobile for personal use by
his son, and to pay $670 in New York City parking violations
incurred by Smith's son while in possession of this automobile,
and additional amounts for the use of the cellular phone in the
car.
107. On several occasions, from at least 1988 to 1993,
Smith caused O&R to pay thousands of dollars to outside law
firms for legal work done for the personal benefit of Smith,
his family, and associates, including legal work for a private
real estate partnership in which he and his wife were partners,
and authorized such personal legal work to be done for other
officers, including Griffin and Winikow, at Company expense,
without approval or authorization from the Board.
108. On several occasions, Smith made contributions of
O&R cash, goods, or services to outside groups in which he and
his family had personal or private business interests, without
complying with Company policy requiring approval of corporate
contributions, and in violation of legal and accounting
requirements for reporting of corporate donations. Examples of
outside groups to which Smith made such contributions included,
but were not limited to, the Tuxedo Park School, with which
Smith's wife was affiliated, the Drama League, with which
Smith's son was or had been affiliated, and Carnegie Hall,
which Smith and other O&R officers used primarily for personal
entertainment.
109. As a result of Smith's concealments and
misrepresentations, the full extent of Smith's use of Company
employees, services, and vendors for such personal projects is
peculiarly within Smith's knowledge and known only to him at
this time.
Wine
110. On numerous occasions, in violation of his
fiduciary duties and Company policy, Smith made or authorized
excessive and extravagant purchases of wine with Company funds,
purportedly for use at the Conference Center or at
Company-sponsored events. Such lavish expenditures for wine,
which totaled approximately $100,000 in 1990 through 1993
alone, were neither reasonable nor necessary, conferred little
or no benefit on O&R, and constituted waste of corporate assets.
111. Over $32,000 of such purchases made in the years
1990-1993 were made either without identifying the business
purpose of such purchases or without submitting receipts or
supporting documentation.
112. Despite the regularity and magnitude of such
purchases, Smith failed to require the maintenance of adequate
controls, including an inventory, of wine purchases and usage.
In consequence, much of the wine so purchased remains
unaccounted for.
113. On numerous occasions, Smith intentionally
misappropriated and converted Company-owned wines to his
personal use during personal outings at the Conference Centers
or private entertainment of personal friends and neighbors at
his home.
Obstruction of the Special Committee's Investigation
114. After Winikow's arrest on August 16, 1993, in
furtherance of his fraudulent scheme and in violation of his
duty of candor, Smith engaged in a pattern of conduct which was
intended to cover up his misappropriations from the Company and
to mislead the Company's investigators regarding his actions.
115. In or around May 1993, Smith caused O&R to pay
$1,298 for the printing of campaign literature for his wife and
her running mates in connection with her campaign for election
as a Trustee of Tuxedo Park. On or about August 20, 1993, in
an effort to create a false record of contemporaneous
reimbursement, Smith submitted a check, back-dated to July 29,
1993, for the cost of this literature.
116. In several instances, Smith sought to alter
evidence of his personal use of Company vendors by causing such
vendors to give credits to O&R on current bills for payments
that had been made for his benefit through prior billings. The
transactions set forth in paragraphs 117 through 119 are
examples of such acts of concealment.
117. In or around July 1992, Smith had caused O&R to
pay a vendor approximately $675 to transport furniture and
other items to his vacation home in Kennebunkport, Maine. In
or around May 1993, Smith had caused O&R to pay this vendor an
additional $925 to transport furniture and other items to his
vacation home in Maine. On or about September 30, 1993, Smith
caused the moving company to issue a credit to O&R in the
amount of $1,600, and to create and send a new bill to him.
118. In or around July 1992, Smith had caused O&R to
pay a cleaning contractor $1,763.64 for cleaning his home. On
or about September 30, 1993, Smith caused the cleaning
contractor to issue a credit to O&R in the amount of $1,763.64.
119. In May 1993, Smith had caused O&R to pay an
outside law firm $6,537.65 in legal fees for legal work done in
connection with a private real estate venture in which Smith,
his wife, and two personal friends were partners. In September
1993, Smith caused the law firm to be instructed to issue a
credit in the amount of $6,537.65 on its September 1993 bill to
O&R, and to prepare and send a new bill to Smith.
120. Smith also sought to conceal evidence of ongoing
misappropriations by halting the issuance of invoices for
personal work that were originally intended to be sent to O&R,
and causing such invoices to be sent directly to him. The
transactions set forth in paragraphs 121 through 123 are
examples of such acts of concealment.
121. On or about August 9, 1993, Smith had caused the
Company to order personal stationery for him and his wife from
a Company vendor at a cost of $1,161.35, intending that the
bill be sent to and paid by O&R. On or about August 25, 1993,
Smith caused the vendor to be instructed not to send the
invoice to O&R, as intended, but to direct it to Smith at his
home.
122. In or around July 1993, Smith had caused the
Company to order stationery design work at a cost of $115.00
for a Rockland County Garden Club in which his wife was a
member, intending that the bill be sent to and paid by O&R.
Shortly after Winikow's arrest on August 16, 1993, Smith caused
the vendor to be instructed not to send the invoice to O&R, as
intended, but to direct it to Smith's home.
123. In or around July 1993, Smith had caused the
Company to order graphic design work at a cost of $175.00, for
an event at the Tuxedo Park School, for the benefit of his
wife, intending that the bill be sent to and paid for by O&R.
Shortly after Winikow's arrest on August 16, 1993, Smith caused
the vendor to be instructed not to send the invoice to O&R, as
intended, but to direct it to Smith's home.
124. On or about July 13, 1993, Smith had caused the
Company to order printing work at a cost of $500.00 for the
benefit of his wife, for an event at the Tuxedo Park School,
intending that the bill be sent to and paid by O&R. On or
about September 1, 1993, Smith caused O&R employees to alter
the accounting designation to a charitable contribution account
number, and to reroute the invoice from the Corporate
Communications Department, where it was originally sent, to the
Corporate Contributions Department.
125. In or around July 1993, Smith had caused the
Company to order paper at a cost of $322.70 for the benefit of
his wife, for an event at the Tuxedo Park School, intending
that the bill be sent to and paid by O&R. On or about August
26, 1993, Smith caused O&R employees to alter the accounting
designation to a charitable contribution account number and to
reroute the invoices through the Corporate Contributions
Department.
126. In an interview on September 20, 1993 with
independent investigators retained by the Special Committee,
while Smith was still Chief Executive Officer of O&R, Smith
made numerous false or misleading statements designed to
obstruct the investigation.
127. In an effort to control the conduct of the
investigations and the Company's response to inquiries by
public authorities, Smith caused O&R to retain an outside law
firm with which he and other O&R officers had long-standing
personal and attorney-client relationships, to represent the
Company in connection with the investigation. Smith
intentionally misrepresented to the Board, and caused others to
misrepresent, the extent of such relationships, and concealed
and caused others to conceal potential conflicts of interest
that could jeopardize an independent investigation of officer
misconduct.
128. When these misrepresentations and concealments
were discovered, the Board was required to replace that law
firm, resulting in substantial costs, to insure the integrity
of the Special Committee's investigation.
Injury To Plaintiff
129. As a result of Smith's actions or failures to act
described herein, Smith has caused, and will cause, O&R to
suffer substantial losses and damages including but not limited
to (i)\the amounts of Company funds, goods, and services wasted
and misappropriated by Smith and other officers and employees;
(ii) the costs incurred by O&R in responding to public
authorities conducting civil and criminal investigations and
proceedings; (iii) the costs of defending private lawsuits
brought by shareholders and ratepayers and of any relief that
may be awarded in such actions; (iv)\the Company's cost of
investigating Smith's wrongdoing at O&R, including attorneys'
fees and accountants' fees; (v)\the costs of any penalties or
corrective action imposed or that may be imposed by the Public
Service Commission or other regulatory and law enforcement
authorities; and (vi)\the substantial adverse effect on O&R
arising from adverse publicity, loss of credibility with
regulatory authorities, loss of business reputation, and from
adverse effects on employee morale.
AS AND FOR A FIRST CAUSE OF ACTION
(For Breach of the Fiduciary Duty of Loyalty)
130. Plaintiff repeats and realleges each and every
allegation set forth in paragraphs\1 to 129 as though set forth
here in full.
131. Smith violated his duty of loyalty to O&R by
knowingly and wilfully misappropriating O&R funds and
authorizing misappropriations by others, through the submission
of false and inaccurate expense reports seeking reimbursement
for non-business expenses, and by the use of O&R personnel,
assets, and resources for the personal benefit of Smith, his
family, and his personal associates.
132. Smith violated his duty of loyalty to O&R by
knowingly and wilfully making, authorizing and approving
excessive and extravagant expenditures of O&R funds.
133. Smith violated his duties of loyalty to O&R by
knowingly and wilfully failing to institute and maintain proper
accounting and management controls and interfering with the
proper operation of existing accounting and management
controls, by knowingly and wilfully concealing material
information from the Board and its Committees, interfering with
and obstructing the Company's investigation, and by knowingly
and wilfully making or permitting others to make false or
misleading representations to the Board or its Committees.
AS AND FOR A SECOND CAUSE OF ACTION
(For Breach of the Fiduciary Duty of Care)
134. Plaintiff repeats and realleges each and every
allegation set forth in paragraphs 1 to 129 and 131 through
133, as though set forth here in full.
135. Smith violated his duty of care to O&R by failing
to institute and maintain proper controls over the Restricted
Account, failing to institute and maintain adequate management
and accounting controls, permitting the subversion of controls
approved by the Board, and failing to supervise subordinate
employees, including Winikow.
AS AND FOR A THIRD CAUSE OF ACTION
(For Breach of the Fiduciary Duty of Candor)
136. Plaintiff repeats and realleges each and every
allegation set forth in paragraphs 1 through 129, 131 through
133, and 135, as though set forth here in full.
137. Smith violated his duty of candor by knowingly
and wilfully submitting, causing the submission of, and
permitting or authorizing the submission of false and
misleading expense reports, and by otherwise concealing the
personal use by him and others of Company funds, goods,
services, employees, vendors, and services.
138. Smith violated his duty of candor to O&R by
knowingly and wilfully making, and causing or permitting to be
made, false and misleading representations to, and by otherwise
concealing or withholding accurate information from, the Board,
its committees, and representatives.
139. Smith violated his duty of candor by knowingly
and wilfully causing the alteration or creation of misleading
records concerning his use of Company funds and assets.
AS AND FOR A FOURTH CAUSE OF ACTION
(For Inducing Breach of Fiduciary Duty)
140. Plaintiff repeats and realleges each and every
allegation set forth in paragraphs 1 through 129, 131 through
133, 135, and 137 through 139, as though set forth here in full.
141. Smith knowingly and wilfully induced officers and
employees of O&R to violate their fiduciary duties of loyalty,
candor, and care, by inducing and authorizing such officers and
employees to engage in improper expenditures of O&R funds on
behalf of themselves or Smith, to conceal such expenditures,
and to fail to properly account for such expenditures, and by
causing or permitting such officers and employees to make false
and misleading representations to, or by otherwise concealing
or withholding accurate information from, the Board, its
committees, and representatives.
AS AND FOR A FIFTH CAUSE OF ACTION
(For Fraud)
142. Plaintiff repeats and realleges each and every
allegation set forth in paragraphs 1 to 129, 131 through 133,
135, 137 through 139, and 141, as though set forth here in full.
143. With intent to defraud O&R of money, services,
and other things of value, Smith knowingly and willfully
submitted, or caused to be submitted in his behalf, expense
reports and work orders which contained false and inaccurate
representations concerning the true nature and purpose of
expenditures and work by O&R, or which otherwise concealed
information necessary to make such reports accurate, as
specifically set forth above.
144. In furtherance of his scheme to defraud O&R,
Smith knowingly and willfully made and caused to be made to the
Board false representations, and concealed and caused to be
concealed from the Board truthful information concerning the
fraudulent and illegal expenditures and activities of Smith and
other officers, and the existence and efficacy of policies,
procedures, and controls which might have led to the detection
of such fraudulent and illegal activities, as also specifically
set forth above.
145. By such affirmative misrepresentations and
concealments, Smith was able to engage in a continuing pattern
of fraudulent conduct until 1993, when some of his activities
were discovered. Because of such affirmative
misrepresentations and concealments, the full extent of Smith's
fraudulent activities is peculiarly within his knowledge and is
yet to be discovered.
AS AND FOR A SIXTH CAUSE OF ACTION
(For Waste of O&R Funds and Assets)
146. Plaintiff repeats and realleges each and every
allegation set forth in paragraphs 1 to 129, 131 through 133,
135, 137 through 139, 141, and 143 through 145, as though set
forth here in full.
147. Throughout his tenure as Chief Executive Officer,
Smith wasted Company funds and assets by knowingly engaging in,
and knowingly authorizing other officers and employees to
engage in, a pattern of excessive and extravagant spending, in
connection with, inter alia, travel, dining, entertainment,
gift purchases, wine purchases, and Company-sponsored events,
which conferred little or no benefit to O&R.
AS AND FOR A SEVENTH CAUSE OF ACTION
(For Conversion of Property Belonging to O&R)
148. Plaintiff repeats and realleges each and every
allegation set forth in paragraphs 1 to 129, 131 through 133,
135, 137 through 139, 141, 143 through 145, and 147, as though
set forth here in full.
149. By reason of the acts set forth above, Smith
knowingly and wilfully diverted for his own use and benefit,
monies, property, and services rightfully belonging to O&R, to
the exclusion of O&R's exclusive rights of ownership to such
monies, properties, and services, thereby converting O&R's
property.
AS AND FOR AN EIGHTH CAUSE OF ACTION
(For an Accounting of O&R Property and Funds)
150. Plaintiff repeats and realleges each and every
allegation set forth in paragraphs 1 through 129, 131 through
133, 135, 137 through 139, 141, 143 through 145, 147 and 149,
as though set forth here in full.
151. At all relevant times, Smith was an officer and
director of O&R, and therefore had a duty to account for all
O&R funds and property entrusted to his use and care.
152. On numerous occasions, from 1979 through October
7, 1993, Smith expended or caused the expenditure of O&R funds
in connection with purchases of goods and services such as
wines, merchandise, flowers, supplies, printed materials,
books, electronic devices and equipment, airline tickets, hotel
accommodations, food, beverages, furnishings, and other items,
without adequately and properly accounting for the purchase,
consumption, or use of such goods and services.
153. Smith is required to render an accounting for all
such expenditures of Company funds, and use of Company property
and services, and is responsible to O&R for all amounts and
items which cannot be properly accounted for.
AS AND FOR A NINTH CAUSE OF ACTION
(For Unjust Enrichment)
154. Plaintiff repeats and realleges each and every
allegation set forth in paragraphs 1 to 129, 131 through 133,
135, 137 through 139, 141, 143 through 145, 147, 149, and 151
through 153, as though set forth here in full.
155. By reason of the acts set forth above, Smith,
through his fraudulent and improper conduct and breaches of
fiduciary duty, was unjustly enriched at the expense of O&R,
and equity and good conscience require that Smith make
restitution to O&R for the amount of any unjust enrichment.
WHEREFORE, O&R respectfully requests judgment against
Smith for the following relief:
(1) Compensatory damages in an amount not less than
$5 million including, but not limited to, the following:
(i) the amounts of Company funds, goods, and
services that were misappropriated, wasted, converted,
or obtained through fraudulent conduct by Smith;
(ii) the amounts of Company funds, goods, and
services that were misappropriated, wasted, converted,
or obtained through fraudulent conduct by O&R officers
or employees as a result of Smith's acts or failure to
act;
(iii) all costs incurred by O&R in responding to
authorities conducting civil and criminal
investigations and proceedings;
(iv) all costs of defending private lawsuits
brought by shareholders or ratepayers as a result of
Smith's acts or failures to act and any relief that
may be awarded in such actions;
(v) all costs of investigating Smith's
wrongdoing at O&R, including attorneys' fees and
accountants' fees; and
(vi) the costs of any penalties or corrective
action imposed or that may be imposed by the Public
Service Commission or other regulatory and law
enforcement authorities as a result of Smith's acts or
failures to act;
(2) Punitive damages;
(3) Forfeiture of Smith's compensation during the
period or periods of his disloyalty;
(4) An accounting by Smith;
(5) Restitution;
(6) The costs of this suit, including reasonable
attorneys' fees; and
(7) Such further and additional relief as this Court
shall deem just and proper.
Dated: March 16, 1994
HUGHES HUBBARD & REED
One Battery Park Plaza
New York, New York 10004
(212) 837-6000
Attorneys for Plaintiff
Orange and Rockland
Utilities, Inc.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year ended December 31, 1993
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _____________ to _________________
Commission file number __________________________________________________
ORANGE AND ROCKLAND UTILITIES, INC.
MANAGEMENT EMPLOYEES' SAVINGS PLAN
(Full title of the plan)
ORANGE AND ROCKLAND UTILITIES, INC.
(Name of issuer of the securities held pursuant to the plan)
ONE BLUE HILL PLAZA
PEARL RIVER, NEW YORK 10965
(Address of principal executive office)
<PAGE>
TABLE OF CONTENTS
Financial Statements and Schedules Page
Report of Independent Certified Public Accountants. F-1
Statements of Net Assets Available for Plan Benefits
as of December 31, 1993 and 1992. F-2
Statements of Changes in Net Assets Available for Plan
Benefits for the years ended December 31, 1993 and 1992. F-4
Notes to Financial Statements. F-6
Report of Independent Certified Public Accountants on
Supplementary Information. F-12
Schedules of Investments as of December 31, 1993 and 1992. F-13
Schedule of Investments - Master Trust Investment Account. F-15
Schedule of Transactions or Series of Transactions in
Excess of 5% of Prior Year's Total Market Value for the
year ended December 31, 1993. F-16
Exhibit
24 Consent of Independent Certified Public Accountants
to incorporation by reference in the Prospectus of
Registration Statement No. 33-25359 of their report
dated March 25, 1994.
-1- <PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ORANGE AND ROCKLAND UTILITIES, INC.
MANAGEMENT EMPLOYEES' SAVINGS PLAN
DECEMBER 31, 1993 AND 1992
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Orange and Rockland Utilities, Inc.
Retirement Committee
We have audited the statements of net assets available for plan benefits
of the Orange and Rockland Utilities, Inc. Management Employees' Savings Plan
as of December 31, 1993 and 1992, and the related statements of changes in net
assets available for plan benefits for each of the two years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance that the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the net assets available for plan benefits
of the Orange and Rockland Utilities, Inc. Management Employees' Savings Plan
as of December 31, 1993 and 1992, and the changes in net assets available for
plan benefits for each of the two years in the period ended December 31, 1993,
in conformity with generally accepted accounting principles.
GRANT THORNTON
New York, New York
March 25, 1994
F-1
<TABLE>
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1993
<CAPTION>
Vanguard/ Vanguard/ Calvert-
Stock Guaranteed Loan Windsor Morgan Ariel Combined
Fund Fund Account Fund Growth Fund Growth Fund Funds
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing cash $ 95 $ 91,951 $ - $ 1,982 $ 313 $ 493 $ 94,834
Loans to participants - - 1,012,576 - - - 1,012,576
Value of interest
in master trust - 20,643,126 - - - - 20,643,126
Common stock - Orange and
Rockland Utilities, Inc. 5,353,156 - - - - - 5,353,156
Value of interest in registered
investment companies - - - 6,275,510 1,143,753 1,097,464 8,516,727
Other assets 161,191 - - - - - 161,191
Total assets 5,514,442 20,735,077 1,012,576 6,277,492 1,144,066 1,097,957 35,781,610
Net assets available
for plan benefits $ 5,514,442 $20,735,077 $1,012,576 $6,277,492 $1,144,066 $1,097,957 $35,781,610
The accompanying notes are an integral part of this financial statement.
</TABLE>
<TABLE>
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1992
<CAPTION>
Vanguard/ Vanguard/ Calvert-
Stock Guaranteed Loan Windsor Morgan Ariel Combined
Fund Fund Account Fund Growth Fund Growth Fund Funds
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing cash $ 418 $ 43 $ - $ 9 $ 389 $ 1,021 $ 1,880
Loans to participants - - 960,715 - - - 960,715
Value of interest
in master trust - 18,353,054 - - - - 18,353,054
Common stock - Orange and
Rockland Utilities, Inc. 6,468,816 - - - - - 6,468,816
Value of interest in registered
investment companies - - - 3,616,495 850,310 758,660 5,225,465
Other assets 142,642 - - - - - 142,642
Total assets 6,611,876 18,353,097 960,715 3,616,504 850,699 759,681 31,152,572
Liabilities:
Other liabilities (375) - - - (388) (1,019) (1,782)
Total liabilities (375) - - - (388) (1,019) (1,782)
Net assets available
for plan benefits $6,611,501 $18,353,097 $960,715 $3,616,504 $ 850,311 $ 758,662 $31,150,790
The accompanying notes are an integral part of this financial statement.
</TABLE>
<TABLE>
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the Year Ended December 31, 1993
<CAPTION>
Vanguard/ Vanguard/ Calvert-
Stock Guaranteed Loan Windsor Morgan Ariel Combined
Fund Fund Account Fund Growth Fund Growth Fund Funds
<S> <C> <C> <C> <C> <C> <C> <C>
Additions:
Contributions:
Before-tax $ 156,249 $ 1,541,664 $ - $ 698,037 $ 163,239 $ 194,261 $ 2,753,450
After-tax 1,163 31,395 - 25,764 6,486 2,776 67,584
Rollovers - 56,954 - 1,001 - - 57,955
Total contributions 157,412 1,630,013 - 724,802 169,725 197,037 2,878,989
Earnings on investments:
Interest on interest-bearing cash 1,252 245 - 895 242 111 2,745
Interest on loans to participants - - 84,195 - - - 84,195
Interest on master trust - 1,309,424 - - - - 1,309,424
Dividend income 364,541 - - - - - 364,541
Gain on sale of assets 55,158 - - - - - 55,158
Unrealized depreciation of assets (162,908) - - - - - (162,908)
Gain from registered investment
companies - - - 838,067 73,271 89,549 1,000,887
Total earnings on investments 258,043 1,309,669 84,195 838,962 73,513 89,660 2,654,042
415,455 2,939,682 84,195 1,563,764 243,238 286,697 5,533,031
Deductions:
Benefit payments to participants (259,472) (650,000) (8,701) (9,978) (2,147) - (930,298)
(259,472) (650,000) (8,701) (9,978) (2,147) - (930,298)
Increase in net assets 155,983 2,289,682 75,494 1,553,786 241,091 286,697 4,602,733
Net transfers from other
Company plan 18,970 4,871 - 3,463 311 472 28,087
Fund transfers (1,272,012) 87,427 (23,633) 1,103,739 52,353 52,126 -
Changes in net assets (1,097,059) 2,381,980 51,861 2,660,988 293,755 339,295 4,630,820
Net assets available for plan
benefits at beginning of year 6,611,501 18,353,097 960,715 3,616,504 850,311 758,662 31,150,790
Net assets available for plan
benefits at end of year $ 5,514,442 $20,735,077 $1,012,576 $6,277,492 $1,144,066 $1,097,957 $35,781,610
The accompanying notes are an integral part of this financial statement.
</TABLE> F-4
<TABLE>
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the Year Ended December 31, 1992
<CAPTION>
Vanguard/ Vanguard/ Calvert-
Stock Guaranteed Loan Windsor Morgan Ariel Combined
Fund Fund Account Fund Growth Fund Growth Fund Funds
<S> <C> <C> <C> <C> <C> <C>
Additions:
Contributions:
Before-tax $ 128,048 $ 1,673,579 $ - $ 417,727 $128,928 $166,110 $ 2,514,392
After-tax 666 12,826 - 13,479 2,962 2,269 32,202
Rollovers 1,144 6,715 - - - - 7,859
Total contributions 129,858 1,693,120 - 431,206 131,890 168,379 2,554,453
Earnings on investments:
Interest on interest-bearing cash 883 155 - 1,150 369 398 2,955
Interest on loans to participants - - 81,382 - - - 81,382
Interest on unallocated insurance
contract - 213,112 - - - - 213,112
Interest on master trust - 1,109,720 - - - - 1,109,720
Dividend income 423,131 - - - - - 423,131
Gain on sale of assets 17,096 - - - - - 17,096
Unrealized appreciation of assets 479,699 - - - - - 479,699
Gain from registered investment
companies - - - 481,973 73,400 71,733 627,106
Total earnings on investments 920,809 1,322,987 81,382 483,123 73,769 72,131 2,954,201
1,050,667 3,016,107 81,382 914,329 205,659 240,510 5,508,654
Deductions:
Benefit payments to participants (346,474) (638,660) (1,766) (34,955) (33,631) (1,512) (1,056,998)
(346,474) (638,660) (1,766) (34,955) (33,631) (1,512) (1,056,998)
Increase in net assets 704,193 2,377,447 79,616 879,374 172,028 238,998 4,451,656
Net transfers from other
Company plan 6,696 137,358 - - - - 144,054
Fund transfers (870,024) 492,896 168,302 (9,165) 73,207 144,784 -
Changes in net assets (159,135) 3,007,701 247,918 870,209 245,235 383,782 4,595,710
Net assets available for plan
benefits at beginning of year 6,770,636 15,345,396 712,797 2,746,295 605,076 374,880 26,555,080
Net assets available for plan
benefits at end of year $6,611,501 $18,353,097 $960,715 $3,616,504 $850,311 $758,662 $31,150,790
The accompanying notes are an integral part of this financial statement.
</TABLE> F-5
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
NOTES TO FINANCIAL STATEMENTS
December 31, 1993 and 1992
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Orange and Rockland Utilities, Inc. Management
Employees' Savings Plan (the "Plan") have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting
principles as applied to employee benefit plans and in accordance with the
requirements of the Employee Retirement Income Security Act of 1974
("ERISA").
The investments in the Orange and Rockland Utilities, Inc. (the Company")
common stock and the registered investment companies are valued at quoted
market value. The investments in the Guaranteed Fund are valued at
contract value.
NOTE B - DESCRIPTION OF PLAN
The following is a brief description of the Plan and is provided for general
information purposes only.
PARTICIPANTS SHOULD REFER TO THE PLAN AND THE PLAN PROSPECTUS FOR MORE
COMPLETE INFORMATION.
General
The Plan is a qualified defined contribution employee profit-sharing plan,
effective January 1, 1985, for eligible management employees of the Company
(the "Participants").
Participating Employees
At December 31, 1993 and 1992, there were approximately 635 and 617
Participants in the Plan, respectively. The number of Participants in each
of the Plan's funds were as follows:
December 31, 1993 December 31, 1992
Stock Fund 329 342
Equity Funds:
Vanguard/Windsor Fund 377 303
Vanguard/Morgan Growth Fund 163 144
Calvert-Ariel Growth Fund 151 135
Guaranteed Fund 549 535
F-6
<PAGE>
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1993 and 1992
NOTE B (Continued)
The total number of Participants in the Plan is less than the sum of the
number of Participants shown above because Participants may participate in
more than one fund.
Contributions
No contributions to the Plan are made by the Company. Participants may
elect to make before-tax or after-tax contributions in accordance with the
terms of the Plan.
Transferred Hourly Plan Contributions
Any amounts held on behalf of Hourly Plan Participants who join Management
will be transferred to the Plan in accordance with the terms of the Plan.
The transferred Hourly Plan contributions will be treated in the same
manner as before-tax contributions except where otherwise specifically
provided in the Plan.
Rollover Contributions
Employees may elect to roll over into the Plan any cash received in any
distribution from a pension, profit sharing or stock bonus plan meeting the
requirements of Section 401(a) of the Internal Revenue Code of 1986, or
from any qualifying individual retirement account or annuity. Rollover
contributions are invested and otherwise treated in the same manner as
other contributions except where otherwise specifically provided in the
Plan.
Participant Accounts and Vesting
Separate accounts are maintained for each Participant's interest in the Plan.
Participant accounts are at all times fully vested and nonforfeitable.
Withdrawals and Distributions Upon Termination of Employment
A Participant may elect to withdraw, according to the Plan's rules governing
withdrawals, all or a portion of the Participant's after-tax contributions
and earnings, in accordance with the terms of the Plan. The earnings
portion of the withdrawal may be subject to an excise tax.
A Participant, in general, may withdraw before-tax contributions and earnings
only in the case of hardship and in accordance with the terms of the Plan.
The Participant may be subject to an excise tax on the taxable portion of
such withdrawal.
F-7<PAGE>
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1993 and 1992
NOTE B (Continued)
Upon termination of employment for any reason, a Participant's account
balance, if less than or equal to $3,500, will be distributed to the
Participant or designated beneficiary as soon as practicable, unless the
Participant elects to defer such distribution in accordance with the terms
of the Plan. However, if the value of a Participant's account is greater
than $3,500, the Participant's account will not be distributed until the
Participant elects in writing to receive such distribution, subject to
certain limitations, and in accordance with the terms of the Plan.
In addition, the taxable portion of the distribution may be subject to an
excise tax.
Administration of Plan
The Plan is administered by the Company's Retirement Committee, whose members
are appointed by the Company's Board of Directors. The Plan's investments
are held by Mellon Bank, N.A. (the "Trustee") in accordance with the terms
of a master trust agreement (the "Trust Agreement") between the Trustee and
the Company.
Amendment or Discontinuance of Plan
While the Company expects to continue the Plan indefinitely, it reserves the
right to amend or terminate the Plan at any time, in whole or in part, pro-
vided that no amendment may retroactively reduce the rights of
Participants.
NOTE C - INVESTMENT OF FUNDS
All contributions are invested, at the election of the Participant, in one or
a combination of funds. The following is a brief description of the funds
available:
Stock Fund
Contributions to the Stock Fund are invested exclusively in common stock of
the Company purchased by the Trustee on the open market, through the method
of purchase and sales which is used by the Trustee in the normal course of
its security transactions, or through enrollment in the Company's Dividend
Reinvestment and Stock Purchase Plan. The purchase price of such stock
includes brokerage commissions and any transfer taxes, if applicable. The
Stock Fund is valued at quoted market value.
F-8<PAGE>
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1993 and 1992
NOTE C (Continued)
Guaranteed Fund
Contributions to the Guaranteed Fund are invested primarily in fixed-income
assets issued by high-quality insurance companies and banks that have been
approved for investment by Morley Capital Management, the investment
manager selected to manage the fund by the Retirement Committee in January
1992.
Prior to March 1992, the assets of the Guaranteed Fund consisted of one
guaranteed investment contract issued by Connecticut General Life Insurance
Company. In March 1992, this contract and a similar contract held by the
Orange and Rockland Utilities, Inc. Hourly Group Savings Plan's Guaranteed
Fund were placed in a commingled master trust investment account, the
Orange and Rockland Savings GIC Trust.
The investment experience of the master trust investment account is allocated
monthly based on a weighted average of the account's assets based upon the
prior month-end contract value, plus contributions and transfers in and
less benefit payments and transfers out for the current month.
At December 31, 1993, the master trust investment account consisted of 12
individual guaranteed investment contracts maturing through May 1998, a
pooled fund investment and cash which were allocated as follows:
Guaranteed Fund - Management Plan $20,643,126
Guaranteed Fund - Hourly Plan 14,739,740
Total Master Trust $35,382,866
The "guarantee" of the Guaranteed Fund relates to the guarantee of an interest
rate for specified periods and the return of principal value upon maturity
by the issuing insurance companies. The guaranteed investment contracts
are included in the financial statements at contract value as reported to
the Trust by the insurance companies. Certain guaranteed investment
contracts are subject to withdrawal penalties upon a plan termination or
contract termination prior to the expiration date of the contract. The
amounts remitted to insurance companies for guaranteed investment contracts
generally become the assets of these companies, which in turn assume an
obligation to fulfill the contract terms. The ultimate ability to repay
principal and interest is dependent upon the financial stability of these
insurance companies.
Equity Funds
Contributions may be invested in one or more registered investment company
mutual funds ("Equity Funds") selected by the Company's Retirement
F-9<PAGE>
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1993 and 1992
NOTE C (Continued)
Committee. The following three Equity Funds have been selected:
Vanguard/Windsor Fund, Vanguard/Morgan Growth Fund and Calvert-Ariel Growth
Fund. Vanguard/Windsor and Vanguard/Morgan Growth Funds are members of the
Vanguard Group of Investment Companies. Vanguard/Windsor Fund is managed
by Wellington Management Company while Vanguard/Morgan Growth Fund is
managed by Wellington Management Company, Franklin Portfolio Associates,
Inc., Husic Capital Management and Vanguard's Core Management Group.
Calvert-Ariel Growth Fund is a member of the Calvert Group of Funds and is
managed by Ariel Capital Management. Interests in each Equity Fund are
represented by "units" of participation. The quoted market value of a unit
is determined by the terms and conditions of each Equity Fund.
NOTE D - LOANS TO PARTICIPANTS
A Participant may obtain a loan under the Plan in a minimum amount of $500 and
subject to a maximum amount as provided in the Plan. The interest rate on
loans granted prior to October 19, 1989 was the effective interest rate
paid on the Guaranteed Fund, plus one percent. The interest rate on loans
granted after October 18, 1989 is determined by the Retirement Committee on
at least a quarterly basis. The interest rate established for a loan will
not be changed during the term of the loan. Each loan will be evidenced by
a promissory note payable to the Trustee for the loan amount, including
interest, and secured by a lien on the Participant's account. The terms of
the loan generally require repayment within five years.
NOTE E - FEDERAL INCOME TAX STATUS
The Company has received a determination letter from the Internal Revenue
Service, dated March 19, 1986, that the Plan meets the requirements of
Section 401(a) and 401(k) of the Internal Revenue Code of 1954, as amended
(the "Code"), and that the Trust is exempt from federal income tax under
Code Section 501(a). The Company will file, as necessary, applications
with the Internal Revenue Service, in order to maintain the qualified
status of the Plan.
The following is intended only as a brief, general description of the federal
income tax consequences to Participants participating in the Plan.
Participants should refer to the prospectus for the Plan and consult a tax
advisor to determine the specific federal, state and local tax consequences
of participation in the Plan.
1. A Participant's after-tax contributions are fully taxable to the
Participant in the year contributed to the Plan; and, therefore, they are
not taxed again when distributed or withdrawn from the Plan.
2. A Participant's before-tax contributions are not taxable to the
Participant in the year contributed to the Plan; and, therefore, they are
taxable to the Participant when distributed or withdrawn from the Plan.
F-10<PAGE>
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1993 and 1992
NOTE E (Continued)
3. Dividends, interest, profits from the sale of securities by the
Plan's Trustee, and other investment earnings on after-tax or before-tax
contributions are not taxable to the Participant while held in the Plan's
Trust; and, therefore, they are taxable to the Participant when distributed
or withdrawn from the Plan.
4. Upon withdrawal from the Plan, a Participant will be subject to
income taxes on amounts deferred and may be subject to excise taxes on the
taxable portion of such withdrawals and distributions. However, the Parti-
cipant may be eligible for certain favorable tax treatment on such amounts.
NOTE F - EXPENSES OF THE PLAN
The costs of general administration of the Plan and Trustee fees are paid by
the Company. The expenses of the investment funds, including management
fees of the investment managers of the Equity Funds and the Guaranteed
Fund, are deducted from the earnings of those funds.
F-11<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY INFORMATION
Orange and Rockland Utilities, Inc.
Retirement Committee
Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole of the Orange and Rockland
Utilities, Inc. Management Employees' Savings Plan for each of the two
years in the period ended December 31, 1993. The supplementary Schedule of
Transactions or Series of Transactions in Excess of 5% of Prior Year's Total
Market Value and the Schedules of Investments are presented for purposes of
complying with the Department of Labor's Rules and Regulations for Reporting
and Disclosure under the Employee Retirement Income Security Act of 1974
and are not a required part of the basic financial statements. Such
supplementary schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our opinion,
are fairly stated in all material respects in relation to the basic financial
statements taken as a whole.
GRANT THORNTON
New York, New York
March 25, 1994
F-12<PAGE>
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
SCHEDULE OF INVESTMENTS
December 31, 1993
Quoted
Market
Common Stock Cost Value
Orange and Rockland Utilities, Inc.
131,770 shares $ 3,524,808 $ 5,353,156
Contract
Value of Interest in Master Trust Cost Value
Orange and Rockland Savings GIC Trust $20,643,126 $20,643,126
Quoted
Value of Interest in Registered Market
Investment Companies Cost Value
Vanguard/Windsor Fund
451,151 mutual fund shares $ 5,943,897 $ 6,275,510
Vanguard/Morgan Growth Fund
95,233 mutual fund shares 1,152,422 1,143,753
Calvert-Ariel Growth Fund
36,352 mutual fund shares 1,041,832 1,097,464
$ 8,138,151 $ 8,516,727
Cost Loan Value
Loans to Participants $ 1,012,576 $ 1,012,576
F-13<PAGE>
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
SCHEDULE OF INVESTMENTS
December 31, 1992
Quoted
Market
Common Stock Cost Value
Orange and Rockland Utilities, Inc.
155,407 shares $ 3,908,589 $ 6,468,816
Contract
Value of Interest in Master Trust Cost Value
Orange and Rockland Savings GIC Trust $18,353,054 $18,353,054
Quoted
Value of Interest in Registered Market
Investment Companies Cost Value
Vanguard/Windsor Fund
283,869 mutual fund shares $ 3,603,891 $ 3,616,495
Vanguard/Morgan Growth Fund
67,218 mutual fund shares 797,271 850,310
Calvert-Ariel Growth Fund
25,510 mutual fund shares 718,564 758,660
$ 5,119,726 $ 5,225,465
Cost Loan Value
Loans to Participants $ 960,715 $ 960,715
F-14<PAGE>
<TABLE>
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
SCHEDULE OF INVESTMENTS
MASTER TRUST INVESTMENT ACCOUNT
December 31, 1993
<CAPTION>
Amount Allocated to
Orange and Rockland Savings Guaranteed Guaranteed
GIC Trust Fund - Fund -
Contract Interest Maturity Contract / Management Hourly
Asset Type & Issue Number Rate Date Cost Fair Value Plan Plan
<S> <C> <C> <C> <C> <C> <C> <C>
Guaranteed Investment Contracts
Allstate Life Insurance Co. GA-5367 6.17% 9/30/97 $ 1,078,020 $ 1,078,020 $ 628,940 $ 449,080
Business Men's Life Assurance Co. 1097 6.05% 5/25/98 1,345,118 1,345,118 784,771 560,347
Connecticut General Life Insurance Co. IN-15498 8.00% - 10,033,402 10,033,402 5,853,703 4,179,699
Connecticut General Life Insurance Co. IN-15608 8.00% - 7,221,381 7,221,381 4,213,109 3,008,272
John Hancock Life Insurance Co. GAC-7032 5.23% 12/31/96 2,603,701 2,603,701 1,519,055 1,084,646
Metropolitan Life Insurance Co. GAC-14401 6.05% 12/01/97 800,769 800,769 467,186 333,583
Nationwide Insurance Group GAP-6062 7.20% 11/28/96 1,127,716 1,127,716 657,934 469,782
New York Life Insurance Co. GA-06710 6.48% 8/29/97 2,657,425 2,657,425 1,550,399 1,107,026
Ohio National Life Insurance Co. GA-5439 7.87% 3/31/97 570,319 570,319 332,736 237,583
Principal Mutual Life Insurance Co. GA4-2959-1 7.30% 3/31/97 1,130,408 1,130,408 659,504 470,904
Principal Mutual Life Insurance Co. GA4-2959-2 6.05% 4/23/98 1,051,493 1,051,493 613,464 438,029
Provident Mutual Life Insurance Co. GR-8194 6.70% 3/31/95 525,037 525,037 306,318 218,719
30,144,789 30,144,789 17,587,119 12,557,670
Pooled Fund Investment
Firstar Institutional Investors GIC Fun - 6.38% - 3,481,166 3,481,166 2,030,987 1,450,179
Cash Equivalent
EB Temporary Investment Fund - 3.33% - 1,756,911 1,756,911 1,025,020 731,891
$35,382,866 $35,382,866 $20,643,126 $14,739,740
</TABLE>
<TABLE>
Orange and Rockland Utilities, Inc.
Management Employees' Savings Plan
SCHEDULE OF
TRANSACTIONS OR SERIES OF TRANSACTIONS
IN EXCESS OF 5% OF PRIOR YEAR'S TOTAL MARKET VALUE
Year Ended December 31, 1993
<CAPTION>
Total Number Total Number Total Value Total Value
Description of Asset of Purchases of Sales of Purchases of Sales
<S> <C> <C> <C> <C>
Series of Transactions Attributable to
All Funds (Excluding the Guaranteed Fund):
EB Temporary Investment Fund 286 128 $ 2,537,481 $2,536,429
Orange and Rockland Utilities, Inc.
Common Stock 26 34 610,751 1,569,600
Vanguard/Windsor Fund 34 20 1,903,716 82,768
Orange and Rockland Participant Loans 11 12 464,228 340,672
Series of Transactions Attributable to
Aggregate Master Trust Investment Account:
EB Temporary Investment Fund 113 40 10,513,507 9,386,743
Connecticut General Life Insurance Co.
- Pooled Annuity Contract #IN15498 - 1 - 3,250,000
- Pooled Annuity Contract #IN15608 - 1 - 2,250,000
John Hancock Life Insurance Co. 1 - 2,500,000 -
- Group Annuity Contract #7032
New York Life Insurance Co.
- Group Annuity Contract #06710 1 - 2,500,000 -
Deposited at Interest in Mellon Bank 3 3 843,000 843,000
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year ended December 31, 1993
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _____________ to _________________
Commission file number __________________________________________________
ORANGE AND ROCKLAND UTILITIES, INC.
MANAGEMENT EMPLOYEES' SAVINGS PLAN
(Full title of the plan)
ORANGE AND ROCKLAND UTILITIES, INC.
(Name of issuer of the securities held pursuant to the plan)
ONE BLUE HILL PLAZA
PEARL RIVER, NEW YORK 10965
(Address of principal executive office)
EXHIBITS
VOLUME 1 OF 1
<PAGE>
EXHIBIT INDEX
Exhibit
Number
24 Consent of Independent Certified Public Accountants to
incorporation by reference in the Prospectus of Registration
Statement No. 33-25359 of their report dated March 25, 1994.
<PAGE>
EXHIBIT NO. 24
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 25, 1994, accompanying the
financial statements and schedules included in the Annual Report of
Orange and Rockland Utilities, Inc. Management Employees' Savings Plan
on Form 11-K for the year ended December 31, 1993. We hereby consent
to the incorporation by reference of said report in the Prospectus
constituting part of Registration Statement No. 33-25359 on Form S-8.
GRANT THORNTON
New York, New York
March 25, 1994
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year ended December 31, 1993
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _____________ to _________________
Commission file number __________________________________________________
ORANGE AND ROCKLAND UTILITIES, INC.
HOURLY GROUP SAVINGS PLAN
(Full title of the plan)
ORANGE AND ROCKLAND UTILITIES, INC.
(Name of issuer of the securities held pursuant to the plan)
ONE BLUE HILL PLAZA
PEARL RIVER, NEW YORK 10965
(Address of principal executive office)
<PAGE>
TABLE OF CONTENTS
Financial Statements and Schedules Page
Report of Independent Certified Public Accountants. F-1
Statements of Net Assets Available for Plan Benefits
as of December 31, 1993 and 1992. F-2
Statements of Changes in Net Assets Available for Plan
Benefits for the years ended December 31, 1993 and 1992. F-4
Notes to Financial Statements. F-6
Report of Independent Certified Public Accountants on
Supplementary Information. F-11
Schedules of Investments as of December 31, 1993 and 1992. F-12
Schedule of Investments - Master Trust Investment Account. F-14
Schedule of Transactions or Series of Transactions in
Excess of 5% of Prior Year's Total Market Value for the
year ended December 31, 1993. F-15
Exhibit
24 Consent of Independent Certified Public Accountants
to incorporation by reference in the Prospectus of
Registration Statement No. 33-25358 of their report
dated March 25, 1994.
-1-
<PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ORANGE AND ROCKLAND UTILITIES, INC.
HOURLY GROUP SAVINGS PLAN
DECEMBER 31, 1993 AND 1992
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Orange and Rockland Utilities, Inc.
Retirement Committee
We have audited the statements of net assets available for plan
benefits of the Orange and Rockland Utilities, Inc. Hourly Group Savings
Plan as of December 31, 1993 and 1992, and the related statements of
changes in net assets available for plan benefits for each of the two
years in the period ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the net assets available for
plan benefits of the Orange and Rockland Utilities, Inc. Hourly Group
Savings Plan as of December 31, 1993 and 1992, and the changes in net
assets available for plan benefits for each of the two years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles.
GRANT THORNTON
New York, New York
March 25, 1994
F-1<PAGE>
<TABLE>
Orange and Rockland Utilities, Inc.
Hourly Group Savings Plan
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1993
<CAPTION>
Vanguard/ Vanguard/ Calvert-
Stock Guaranteed Loan Windsor Morgan Ariel Combined
Fund Fund Account Fund Growth Fund Growth Fund Funds
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing cash $ 26,217 $ - $ - $ 4,750 $ 3,699 $ 2,773 $ 37,439
Loans to participants - - 555,632 - - - 555,632
Value of interest
in master trust - 14,739,740 - - - - 14,739,740
Common Stock - Orange
and Rockland Utilities, Inc. 2,606,988 - - - - - 2,606,988
Value of interest in registered
investment companies - - - 1,349,493 138,170 136,039 1,623,702
Other assets 11,998 - - 7,107 1,115 1,118 21,338
Total assets 2,645,203 14,739,740 555,632 1,361,350 142,984 139,930 19,584,839
Liabilities:
Other liabilities (12,365) - - (7,106) (1,114) (1,118) (21,703)
Total liabilities (12,365) - - (7,106) (1,114) (1,118) (21,703)
Net assets available
for plan benefits $2,632,838 $14,739,740 $555,632 $1,354,244 $ 141,870 $ 138,812 $19,563,136
The accompanying notes are an integral part of this financial statement.
</TABLE>
<TABLE>
Orange and Rockland Utilities, Inc.
Hourly Group Savings Plan
STATEMENT OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31, 1992
<CAPTION>
Vanguard/ Vanguard/ Calvert-
Stock Guaranteed Loan Windsor Morgan Ariel Combined
Fund Fund Account Fund Growth Fund Growth Fund Funds
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-bearing cash $ 12,650 $ - $ - $ 4,173 $ 2,216 $ 1,949 $ 20,988
Loans to participants - - 485,036 - - - 485,036
Value of interest
in master trust - 12,788,806 - - - - 12,788,806
Common Stock - Orange
and Rockland Utilities, Inc. 2,409,421 - - - - - 2,409,421
Value of interest in registered
investment companies - - - 198,396 69,222 85,530 353,148
Total assets 2,422,071 12,788,806 485,036 202,569 71,438 87,479 16,057,399
Liabilities:
Other liabilities (11,061) - - (4,170) (2,216) (1,949) (19,396)
Total liabilities (11,061) - - (4,170) (2,216) (1,949) (19,396)
Net assets available
for plan benefits $2,411,010 $12,788,806 $485,036 $198,399 $ 69,222 $ 85,530 $16,038,003
The accompanying notes are an integral part of this financial statement.
</TABLE>
<TABLE>
Orange and Rockland Utilities, Inc.
Hourly Group Savings Plan
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the Year Ended December 31, 1993
<CAPTION>
Vanguard/ Vanguard/ Calvert-
Stock Guaranteed Loan Windsor Morgan Ariel Combined
Fund Fund Account Fund Growth Fund Growth Fund Funds
<S> <C> <C> <C> <C> <C> <C> <C>
Additions:
Contributions:
Before-tax $ 336,565 $ 1,942,592 $ - $ 335,077 $ 66,707 $ 63,148 $ 2,744,089
Total contributions 336,565 1,942,592 - 335,077 66,707 63,148 2,744,089
Earnings on investments:
Interest on interest-bearing cash 766 169 - 472 80 46 1,533
Interest on loans to participants - - 39,668 - - - 39,668
Interest on master trust - 933,284 - - - - 933,284
Dividend income 149,798 - - - - - 149,798
Gain on sale of assets 11,701 - - - - - 11,701
Unrealized depreciation of assets (94,382) - - - - - (94,382)
Gain from registered investment
companies - - - 94,939 8,514 11,884 115,337
Total earnings on investments 67,883 933,453 39,668 95,411 8,594 11,930 1,156,939
404,448 2,876,045 39,668 430,488 75,301 75,078 3,901,028
Deductions:
Benefit payments to participants (24,013) (320,863) (2,932) - - - (347,808)
(24,013) (320,863) (2,932) - - - (347,808)
Increase in net assets 380,435 2,555,182 36,736 430,488 75,301 75,078 3,553,220
Net transfers to other
Company plan (18,970) 3,870 (8,741) (3,463) (311) (472) (28,087)
Fund transfers (139,637) (608,118) 42,601 728,820 (2,342) (21,324) -
Changes in net assets 221,828 1,950,934 70,596 1,155,845 72,648 53,282 3,525,133
Net assets available for plan
benefits at beginning of year 2,411,010 12,788,806 485,036 198,399 69,222 85,530 16,038,003
Net assets available for plan
benefits at end of year $2,632,838 $14,739,740 $555,632 $1,354,244 $ 141,870 $ 138,812 $19,563,136
The accompanying notes are an integral part of this financial statement.
</TABLE>
<TABLE>
Orange and Rockland Utilities, Inc.
Hourly Group Savings Plan
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the Year Ended December 31, 1992
<CAPTION>
Vanguard/ Vanguard/ Calvert-
Stock Guaranteed Loan Windsor Morgan Ariel Combined
Fund Fund Account Fund Growth Fund Growth Fund Funds
<S> <C> <C> <C> <C> <C> <C> <C>
Additions:
Contributions:
Before-tax $ 307,038 $ 2,107,308 $ - $ 91,686 $ 41,347 $ 36,390 $ 2,583,769
Rollovers - 26,786 - - - - 26,786
Total contributions 307,038 2,134,094 - 91,686 41,347 36,390 2,610,555
Earnings on investments:
Interest on interest-bearing cash 664 98 - 167 52 62 1,043
Interest on loans to participants - - 36,157 - - - 36,157
Interest on unallocated insurance
contract - 147,189 - - - - 147,189
Interest on master trust - 777,034 - - - - 777,034
Dividend income 133,120 - - - - - 133,120
Loss on sale of assets (3,909) - - - - - (3,909)
Unrealized appreciation of assets 183,472 - - - - - 183,472
Gain from registered investment
companies - - - 15,170 5,036 6,753 26,959
Total earnings on investments 313,347 924,321 36,157 15,337 5,088 6,815 1,301,065
620,385 3,058,415 36,157 107,023 46,435 43,205 3,911,620
Deductions:
Benefit payments to participants (72,156) (465,968) (33,685) - - - (571,809)
(72,156) (465,968) (33,685) - - - (571,809)
Increase in net assets 548,229 2,592,447 2,472 107,023 46,435 43,205 3,339,811
Net transfers to other
Company plan (6,876) (137,358) - - - - (144,234)
Fund transfers (152,260) (155,647) 151,419 91,376 22,787 42,325 -
Changes in net assets 389,093 2,299,442 153,891 198,399 69,222 85,530 3,195,577
Net assets available for plan
benefits at beginning of year 2,021,917 10,489,364 331,145 - - - 12,842,426
Net assets available for plan
benefits at end of year $2,411,010 $12,788,806 $485,036 $198,399 $ 69,222 $ 85,530 $16,038,003
The accompanying notes are an integral part of this financial statement.
</TABLE>
Orange and Rockland Utilities, Inc.
Hourly Group Savings Plan
NOTES TO FINANCIAL STATEMENTS
December 31, 1993 and 1992
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements of the Orange and Rockland Utilities, Inc. Hourly
Group Savings Plan (the "Plan") have been prepared on the accrual basis of
accounting in accordance with generally accepted accounting principles as
applied to employee benefit plans and in accordance with the requirements
of the Employee Retirement Income Security Act of 1974 ("ERISA").
The investments in the Orange and Rockland Utilities, Inc. (the "Company")
common stock and the registered investment companies are valued at quoted
market value. The investments in the Guaranteed Fund are valued at contract
value.
NOTE B - DESCRIPTION OF PLAN
The following is a brief description of the Plan and is provided for
general information purposes only.
PARTICIPANTS SHOULD REFER TO THE PLAN AND THE PLAN PROSPECTUS FOR MORE
COMPLETE INFORMATION.
General
The Plan is a qualified defined contribution employee profit-sharing plan,
effective January 1, 1986, for eligible collective bargaining unit
employees of the Company (the "Participants").
Participating Employees
At December 31, 1993 and 1992, there were approximately 725 and 720
Participants in the Plan, respectively. The number of Participants in each
of the Plan's funds were as follows:
December 31, 1993 December 31, 1992
Stock Fund 404 391
Equity Funds:
Vanguard/Windsor Fund 206 77
Vanguard/Morgan Growth Fund 81 55
Calvert-Ariel Growth Fund 78 52
Guaranteed Fund 633 635
The total number of Participants in the Plan is less than the sum of the
number of Participants shown above because Participants may participate in
more than one fund.
F-6<PAGE>
Orange and Rockland Utilities, Inc.
Hourly Group Savings Plan
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1993 and 1992
NOTE B (Continued)
Contributions
No contributions to the Plan are made by the Company. Participants may
elect to make before-tax contributions in accordance with the terms of the
Plan.
Rollover Contributions
Employees may elect to roll over into the Plan any cash received in any
distribution from a pension, profit sharing or stock bonus plan meeting the
requirements of Section 401(a) of the Internal Revenue Code of 1986, or
from any qualifying individual retirement account or annuity. Rollover
contributions are invested and otherwise treated in the same manner as
other contributions except where otherwise specifically provided in the
Plan.
Participant Accounts and Vesting
Separate accounts are maintained for each Participant's interest in the Plan.
The Participant accounts are at all times fully vested and nonforfeitable.
Withdrawals and Distributions Upon Termination of Employment
A Participant's contributions, and the earnings credited on these contri-
butions, in general, may not be withdrawn except in accordance with the
terms of the Plan. The taxable portion of such withdrawals may be subject
to an excise tax.
Upon termination of employment for any reason, a Participant's account
balance, if less than or equal to $3,500, will be distributed to the
Participant or designated beneficiary as soon as practicable, unless the
Participant elects to defer such distribution in accordance with the terms
of the Plan. However, if the value of a Participant's account is greater
than $3,500, the Participant's account will not be distributed until the
Participant elects in writing to receive such distribution, subject to
certain limitations and in accordance with the terms of the Plan.
In addition, the taxable portion of the distribution may be subject to an
excise tax.
Administration of Plan
The Plan is administered by the Company's Retirement Committee, whose
members are appointed by the Company's Board of Directors. The Plan's
investments are held by Mellon Bank, N.A. (the "Trustee") in accordance
with the terms of a master trust agreement (the "Trust Agreement") between
the Trustee and the Company.
F-7
<PAGE>
Orange and Rockland Utilities, Inc.
Hourly Group Savings Plan
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1993 and 1992
NOTE B (Continued)
Amendment or Discontinuance of Plan
While the Company expects to continue the Plan indefinitely, it reserves
the right to amend or terminate the Plan at any time, in whole or in part,
provided that no amendment may retroactively reduce the rights of
Participants.
NOTE C - INVESTMENT OF FUNDS
All contributions are invested, at the election of the Participant, in one or
a combination of funds. The following is a brief description of the funds
available:
Stock Fund
Contributions to the Stock Fund are invested exclusively in common stock
of the Company purchased by the Trustee on the open market, through the
method of purchase and sales which is used by the Trustee in the normal
course of its security transactions, or through enrollment in the Company's
Dividend Reinvestment and Stock Purchase Plan. The purchase price of such
stock includes brokerage commissions and any transfer taxes, if applicable.
The Stock Fund is valued at quoted market value.
Guaranteed Fund
Contributions to the Guaranteed Fund are invested primarily in fixed-
income assets issued by high-quality insurance companies and banks that
have been approved for investment by Morley Capital Management, the
investment manager selected to manage the fund by the Retirement Committee
in January 1992.
Prior to March 1992, the assets of the Guaranteed Fund consisted of one
guaranteed investment contract issued by Connecticut General Life Insurance
Company. In March 1992, this contract and a similar contract held by the
Orange and Rockland Utilities, Inc. Management Employees' Savings Plan's
Guaranteed Fund were placed in a commingled master trust investment
account, the Orange and Rockland Savings GIC Trust.
The investment experience of the master trust investment account is allocated
monthly based on a weighted average of the account's assets based upon the
prior month-end contract value, plus contributions and transfers in and
less benefit payments and transfers out for the current month.
At December 31, 1993, the master trust investment account consisted of 12
individual guaranteed investment contracts maturing through May 1998, a
pooled fund investment and cash, which were allocated as follows:
Guaranteed Fund - Management Plan $20,643,126
Guaranteed Fund - Hourly Plan 14,739,740
Total Master Trust $35,382,866
F-8<PAGE>
Orange and Rockland Utilities, Inc.
Hourly Group Savings Plan
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1993 and 1992
NOTE C (Continued)
The "guarantee" of the Guaranteed Fund relates to the guarantee of an
interest rate for specified periods and the return of principal value upon
maturity by the issuing insurance companies. The guaranteed investment
contracts are included in the financial statements at contract value as
reported to the Trust by the insurance companies. Certain guaranteed
investment contracts are subject to withdrawal penalties upon a plan
termination or contract termination prior to the expiration date of the
contract. The amounts remitted to insurance companies for guaranteed
investment contracts generally become the assets of these companies, which
in turn assume an obligation to fulfill the contract terms. The ultimate
ability to repay principal and interest is dependent upon the financial
stability of these insurance companies.
Equity Funds
Contributions may be invested in one or more registered investment company
mutual funds ("Equity Funds") selected by the Company's Retirement
Committee. The following three Equity Funds have been selected:
Vanguard/Windsor Fund, Vanguard/Morgan Growth Fund and Calvert-Ariel Growth
Fund. Vanguard/Windsor and Vanguard/Morgan Growth Funds are members of the
Vanguard Group of Investment Companies. Vanguard/Windsor Fund is managed
by Wellington Management Company while Vanguard/Morgan Growth Fund is
managed by Wellington Management Company, Franklin Portfolio Associates,
Inc., Husic Capital Management and Vanguard's Core Management Group.
Calvert-Ariel Growth Fund is a member of the Calvert Group of Funds and is
managed by Ariel Capital Management. Interests in each Equity Fund are
represented by "units" of participation. The quoted market value of a unit
is determined by the terms and conditions of each Equity Fund.
NOTE D - LOANS TO PARTICIPANTS
A Participant may obtain a loan under the Plan in a minimum amount of $500 and
subject to a maximum amount as provided in the Plan. The interest rate on
loans granted prior to October 19, 1989 was the effective interest rate
paid on the Guaranteed Fund, on the date the loan was made, plus one
percent. The interest rate for loans granted after October 18, 1989 is
determined by the Retirement Committee on at least a quarterly basis. The
interest rate established for a loan will not be changed during the term of
the loan. Each loan will be evidenced by a promissory note payable to the
Trustee for the loan amount, including interest, and secured by a lien on
the Participant's account. The terms of the loan generally require
repayment in not more than five years.
F-9
<PAGE>
Orange and Rockland Utilities, Inc.
Hourly Group Savings Plan
NOTES TO FINANCIAL STATEMENTS (Continued)
December 31, 1993 and 1992
NOTE E - FEDERAL INCOME TAX STATUS
The Company has received a determination letter from the Internal Revenue
Service, dated April 29, 1988, that the Plan meets the requirements of
Section 401(a) and 401(k) of the Internal Revenue Code of 1954, as amended
(the "Code"), and that the Trust is exempt from federal income tax under
Code Section 501(a). The Company will file, as necessary, applications
with the Internal Revenue Service, in order to maintain the qualified
status of the Plan.
The following is intended only as a brief, general description of the
federal income tax consequences to Participants of participation in the
Plan. Participants should refer to the prospectus for the Plan and consult
a tax advisor to determine the specific federal, state and local tax
consequences of participation in the Plan.
1. A Participant's before-tax contributions are not taxable to the
Participant in the year contributed to the Plan; and, therefore, they are
taxable to the Participant when distributed or withdrawn from the Plan.
2. Dividends, interest, profits from sale of securities by the
Plan's Trustee, and other investment earnings on contributions are not
taxable to the Participant while held in the Plan's Trust; and, therefore,
they are taxable to the Participant when withdrawn from the Plan.
3. Upon withdrawal from the Plan, a Participant will be subject to
income taxes on amounts deferred and may be subject to excise taxes on the
taxable portion of such withdrawals and distributions. However, the
Participant may be eligible for certain favorable tax treatment on such
amounts.
NOTE F - EXPENSES OF THE PLAN
The costs of general administration of the Plan and Trustee fees are paid
by the Company. The expenses of the investment funds, including management
fees of the investment managers of the Equity Funds and the Guaranteed
Fund, are deducted from the earnings of those funds.
F-10
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SUPPLEMENTARY INFORMATION
Orange and Rockland Utilities, Inc.
Retirement Committee
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole of the Orange and Rockland Utilities,
Inc. Hourly Group Savings Plan for each of the two years in the period ended
December 31, 1993. The supplementary Schedule of Transactions or Series of
Transactions in Excess of 5% of Prior Year's Total Market Value and the
Schedules of Investments are presented for purposes of complying with the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974 and are not a required
part of the basic financial statements. The supplementary schedules have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
GRANT THORNTON
New York, New York
March 25, 1994
F-11<PAGE>
Orange and Rockland Utilities, Inc.
Hourly Group Savings Plan
SCHEDULE OF INVESTMENTS
December 31, 1993
Quoted
Market
Common Stock Cost Value
Orange and Rockland Utilities, Inc.
64,172 shares $ 2,169,629 $ 2,606,988
Contract
Value of Interest in Master Trust Cost Value
Orange and Rockland Savings GIC Trust $14,739,740 $14,739,740
Quoted
Value of Interest in Registered Market
Investment Companies Cost Value
Vanguard/Windsor Fund
97,016 mutual fund shares $ 1,357,832 $ 1,349,493
Vanguard/Morgan Growth Fund
11,505 mutual fund shares 144,155 138,170
Calvert-Ariel Growth Fund
4,506 mutual fund shares 132,825 136,039
$ 1,634,812 $ 1,623,702
Cost Loan Value
Loans to Participants $ 555,632 $ 555,632
F-12<PAGE>
Orange and Rockland Utilities, Inc.
Hourly Group Savings Plan
SCHEDULE OF INVESTMENTS
December 31, 1992
Quoted
Market
Common Stock Cost Value
Orange and Rockland Utilities, Inc.
57,884 shares $ 1,813,496 $ 2,409,421
Contract
Value of Interest in Master Trust Cost Value
Orange and Rockland Savings GIC Trust $12,788,806 $12,788,806
Quoted
Value of Interest in Registered Market
Investment Companies Cost Value
Vanguard/Windsor Fund
15,573 mutual fund shares $ 193,535 $ 198,396
Vanguard/Morgan Growth Fund
5,472 mutual fund shares 67,625 69,222
Calvert-Ariel Growth Fund
2,876 mutual fund shares 85,095 85,530
$ 346,255 $ 353,148
Cost Loan Value
Loans to Participants $ 485,036 $ 485,036
F-13<PAGE>
<TABLE>
Orange and Rockland Utilities, Inc.
Hourly Group Savings Plan
SCHEDULE OF INVESTMENTS
MASTER TRUST INVESTMENT ACCOUNT
December 31, 1993
<CAPTION>
Amount Allocated
Orange and Rockland Savings Guaranteed Guaranteed
GIC Trust Fund - Fund -
Contract Interest Maturity Contract / Management Hourly
Asset Type & Issue Number Rate Date Cost Fair Value Plan Plan
<S> <C> <C> <C> <C> <C> <C> <C>
Guaranteed Investment Contracts
Allstate Life Insurance Co. GA-5367 6.17% 9/30/97 $ 1,078,020 $ 1,078,020 $ 628,940 $ 449,080
Business Men's Life Assurance Co. 1097 6.05% 5/25/98 1,345,118 1,345,118 784,771 560,347
Connecticut General Life Insurance Co. IN-15498 8.00% - 10,033,402 10,033,402 5,853,703 4,179,699
Connecticut General Life Insurance Co. IN-15608 8.00% - 7,221,381 7,221,381 4,213,109 3,008,272
John Hancock Life Insurance Co. GAC-7032 5.23% 12/31/96 2,603,701 2,603,701 1,519,055 1,084,646
Metropolitan Life Insurance Co. GAC-14401 6.05% 12/01/97 800,769 800,769 467,186 333,583
Nationwide Insurance Group GAP-6062 7.20% 11/28/96 1,127,716 1,127,716 657,934 469,782
New York Life Insurance Co. GA-06710 6.48% 8/29/97 2,657,425 2,657,425 1,550,399 1,107,026
Ohio National Life Insurance Co. GA-5439 7.87% 3/31/97 570,319 570,319 332,736 237,583
Principal Mutual Life Insurance Co. GA4-2959-1 7.30% 3/31/97 1,130,408 1,130,408 659,504 470,904
Principal Mutual Life Insurance Co. GA4-2959-2 6.05% 4/23/98 1,051,493 1,051,493 613,464 438,029
Provident Mutual Life Insurance Co. GR-8194 6.70% 3/31/95 525,037 525,037 306,318 218,719
30,144,789 30,144,789 17,587,119 12,557,670
Pooled Fund Investment
Firstar Institutional Investors GIC Fun - 6.38% - 3,481,166 3,481,166 2,030,987 1,450,179
Cash Equivalent
EB Temporary Investment Fund - 3.33% - 1,756,911 1,756,911 1,025,020 731,891
$35,382,866 $35,382,866 $20,643,126 $14,739,740
</TABLE>
<TABLE>
Orange and Rockland Utilities, Inc.
Hourly Group Savings Plan
SCHEDULE OF
TRANSACTIONS OR SERIES OF TRANSACTIONS
IN EXCESS OF 5% OF PRIOR YEAR'S TOTAL MARKET VALUE
Year Ended December 31, 1993
<CAPTION>
Total Number Total Number Total Value Total Value
Description of Asset of Purchases of Sales of Purchases of Sales
<S> <C> <C> <C> <C>
Series of Transactions Attributable to
All Funds (Excluding the Guaranteed Fund):
EB Temporary Investment Fund 289 202 $ 1,278,154 $1,260,952
Orange and Rockland Utilities, Inc.
Common Stock 71 34 594,698 302,844
Calvert-Ariel Growth Fund 58 20 104,901 66,275
Vanguard/Windsor Fund 69 17 1,125,371 69,213
Orange and Rockland Participant Loans 9 12 277,756 171,781
Series of Transactions Attributable to
Aggregate Master Trust Investment Account:*
EB Temporary Investment Fund 113 40 10,513,507 9,386,743
Connecticut General Life Insurance Co.
- Pooled Annuity Contract #IN15498 - 1 - 3,250,000
- Pooled Annuity Contract #IN15608 - 1 - 2,250,000
John Hancock Life Insurance Co. 1 - 2,500,000 -
- Group Annuity Contract #7032
New York Life Insurance Co.
- Group Annuity Contract #06710 1 - 2,500,000 -
Deposited at Interest in Mellon Bank 3 3 843,000 843,000
</TABLE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
FOR ANNUAL REPORTS OF EMPLOYEE STOCK PURCHASE, SAVINGS
AND SIMILAR PLANS PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year ended December 31, 1993
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required)
For the transition period from _____________ to _________________
Commission file number __________________________________________________
ORANGE AND ROCKLAND UTILITIES, INC.
HOURLY GROUP SAVINGS PLAN
(Full title of the plan)
ORANGE AND ROCKLAND UTILITIES, INC.
(Name of issuer of the securities held pursuant to the plan)
ONE BLUE HILL PLAZA
PEARL RIVER, NEW YORK 10965
(Address of principal executive office)
EXHIBITS
VOLUME 1 OF 1
<PAGE>
EXHIBIT INDEX
Exhibit
Number
24 Consent of Independent Certified Public Accountants to
incorporation by reference in the Prospectus of Registration
Statement No. 33-25358 of their report dated March 25, 1994.
<PAGE>
EXHIBIT NO. 24
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated March 25, 1994, accompanying the
financial statements and schedules included in the Annual Report of
Orange and Rockland Utilities, Inc. Hourly Group Savings Plan on Form
11-K for the year ended December 31, 1993. We hereby consent to the
incorporation by reference of said report in the Prospectus
constituting part of Registration Statement No. 33-25358 on Form S-8.
GRANT THORNTON
New York, New York
March 25, 1994
