<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-4315
ORANGE AND ROCKLAND UTILITIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
New York 13-1727729
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<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices) (Zip code)
</TABLE>
(914) 352-6000
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (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
Consolidated Edison, Inc. ("CEI") owns all issued and outstanding shares of
registrant. On July 8, 1999, registrant became a wholly-owned subsidiary of CEI
pursuant to an Agreement and Plan of Merger, dated May 10, 1998, by and among
registrant, CEI and a subsidiary of CEI.
<PAGE> 2
TABLE OF CONTENTS
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PAGE
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PART I. FINANCIAL INFORMATION
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ITEM 1. Financial Statements
Consolidated Balance Sheets (Unaudited) at
June 30, 1999 and December 31, 1998 3
Consolidated Statements of Income (Unaudited)
for the three months and six months ended
June 30, 1999 and June 30, 1998 4
Consolidated Cash Flow Statements (Unaudited)
for the six months ended June 30, 1999
and June 30, 1998 5
Notes to Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 23
ITEM 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
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(THOUSANDS OF DOLLARS)
<S> <C> <C>
UTILITY PLANT:
Electric $ 639,867 $1,065,912
Gas 254,378 246,845
Common 104,149 103,064
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Utility Plant in Service 998,394 1,415,821
Less accumulated depreciation 335,769 498,652
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Net Utility Plant in Service 662,625 917,169
Construction work in progress 30,047 34,401
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Net Utility Plant 692,672 951,570
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NON-UTILITY PROPERTY:
Non-utility property 6,790 7,780
Less accumulated depreciation, depletion
and amortization 3,338 252
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Net Non-utility Property 3,452 7,528
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CURRENT ASSETS:
Cash and cash equivalents 65,151 5,643
Temporary cash investments 217,268 500
Customer accounts receivable, less allowance for
uncollectible accounts of $6,700 and $3,686 59,526 57,095
Accrued utility revenue 27,767 28,489
Other accounts receivable, less allowance for
uncollectible accounts of $1,348 and $286 19,766 16,173
Materials and supplies (at average cost) 11,256 34,161
Prepaid property taxes 6,968 22,768
Prepayments and other current assets 38,364 30,019
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Total Current Assets 446,066 194,848
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DEFERRED DEBITS:
Income tax recoverable in future rates 42,212 79,966
Deferred revenue taxes 10,947 11,915
Deferred pension and other postretirement benefits 45,971 4,097
IPP settlement costs 639 5,330
Unamortized debt expense (amortized over term
of securities) 11,179 10,840
Other deferred debits 38,330 52,748
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Total Deferred Debits 149,278 164,896
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TOTAL $1,291,468 $1,318,842
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 4
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
CAPITALIZATION AND LIABILITIES
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<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
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(THOUSANDS OF DOLLARS)
<S> <C> <C>
CAPITALIZATION:
Common stock (13,529,931 & 13,519,988 shares
outstanding) $ 67,650 $ 67,599
Premium on capital stock 132,221 132,321
Capital stock expense (5,392) (6,045)
Retained earnings 160,298 186,520
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Total 354,777 380,395
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Long-term debt 301,476 357,156
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Total Capitalization 656,253 737,551
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NON-CURRENT LIABILITIES:
Reserve for claims and damages 5,501 4,078
Provision for rate refunds 26,830 1,223
Postretirement benefits 43,617 9,759
Pension costs 31,186 47,481
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Total Non-current Liabilities 107,134 62,541
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CURRENT LIABILITIES:
Notes payable and obligations due within one year 165,204 150,740
Preferred and Preference stock to be redeemed
within one year 0 43,516
Accounts payable 77,110 60,573
Accrued Federal income and other taxes 72,064 22
Deferred fuel costs 14,878 6,609
Refunds to customers 7,131 4,838
Other current liabilities 19,023 18,055
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Total Current Liabilities 355,410 284,353
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DEFERRED TAXES AND OTHER:
Deferred Federal income taxes 109,204 197,698
Deferred investment tax credits 7,571 13,654
Other deferred credits 55,896 23,045
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Total Deferred Taxes and Other 172,671 234,397
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TOTAL $ 1,291,468 $ 1,318,842
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</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 5
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
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(THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Electric $ 115,409 $ 115,748 $ 224,323 $ 221,844
Gas 26,485 23,602 100,553 82,428
--------- --------- --------- ---------
Total Utility Revenues 141,894 139,350 324,876 304,272
Diversified Activities 543 199 616 358
--------- --------- --------- ---------
Total Operating Revenues 142,437 139,549 325,492 304,630
--------- --------- --------- ---------
OPERATING EXPENSES:
Operations:
Fuel used in electric production 23,960 25,875 43,589 42,149
Electricity purchased for resale 10,384 10,183 23,064 26,170
Gas purchased for resale 14,981 12,510 57,044 43,465
Other expenses of operation 66,109 34,146 103,732 68,371
Maintenance 9,653 10,737 18,610 18,029
Depreciation and amortization 9,733 8,740 19,221 17,301
Taxes other than income taxes 21,458 21,532 46,255 45,336
Federal income taxes (4,712) 3,114 2,493 9,615
--------- --------- --------- ---------
Total Operating Expenses 151,566 126,837 314,008 270,436
--------- --------- --------- ---------
INCOME FROM OPERATIONS (9,129) 12,712 11,484 34,194
--------- --------- --------- ---------
OTHER INCOME AND (DEDUCTIONS):
Allowance for other funds used during construction 6 6 15 3
Other - net (1,789) 27 (1,954) 648
Taxes other than income taxes (201) (68) (158) (138)
Federal income taxes _188 143 330 92
--------- --------- --------- ---------
Total Other Income and(Deductions) (1,796) 108 (1,767) 605
--------- --------- --------- ---------
INCOME BEFORE INTEREST CHARGES (10,925) 12,820 9,717 34,799
--------- --------- --------- ---------
INTEREST CHARGES:
Interest on long-term debt 6,734 6,016 12,801 11,961
Other interest 1,832 1,927 3,945 4,484
Amortization of debt premium, expense-net 304 285 599 568
Allowance for borrowed funds used
during construction (70) (484) (118) (1,094)
--------- --------- --------- ---------
Total Interest Charges 8,800 7,744 17,227 15,919
--------- --------- --------- ---------
NET INCOME (LOSS) (19,725) 5,076 (7,510) 18,880
Preferred and preference stock requirements 187 699 886 1,399
--------- --------- --------- ---------
Earnings (Loss) applicable to common stock $ (19,912) $ 4,377 $ (8,396) $ 17,481
========= ========= ========= =========
Avg. number of common shares
outstanding (000's) 13,530 13,519 13,526 13,520
========= ========= ========= =========
Earnings (Loss) Per Average Common Share
Outstanding $ (1.47) $ .32 $ (.62) $ 1.29
========= ========= ========= =========
Dividends declared per common share outstanding $ 1.29 $ 1.29 $ 1.94 $ 1.94
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 6
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS (UNAUDITED)
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<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
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(THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOW FROM OPERATIONS:
Net income (loss) $ (7,510) $ 18,880
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 18,932 17,076
Deferred Federal income taxes (17,450) 776
Deferred investment tax credit (6,083) (385)
Deferred and refundable fuel and gas costs 11,688 (671)
Allowance for funds used during construction (133) (1,098)
Other non-cash charges 577 78
Changes in certain current assets and liabilities:
Accounts receivable (net) and accrued utility revenues (5,302) 20,612
Materials and supplies 5,721 7,566
Prepaid property taxes 15,800 9,108
Prepayments and other current assets (8,345) (16,841)
Operating accounts payable 16,537 (9,501)
Accrued Federal Income and other taxes (7,696) (867)
Accrued interest 1,606 185
Refunds to customers 2,293 627
Other current liabilities 10,908 (4,425)
Pension liability (14,311) 443
Other-net 41,326 508
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Net Cash Provided from Operations 58,558 42,071
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CASH FLOW FROM INVESTING ACTIVITIES:
Additions to plant (18,211) (21,740)
Net proceeds from the sale of the electric generating assets 339,272 --
Temporary cash investments -- --
Allowance for funds used during construction 133 1,098
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Net Cash Provided By (Used In) Investing Activities 321,194 (20,642)
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CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of long-term debt 45,000 --
Issuance of capital lease obligations -- --
Retirements of:
Common stock -- (3,225)
Preference and preferred stock (43,516) --
Long-term debt (2,341) (19)
Capital lease obligations (1,472) (79)
Net borrowings (repayments) under
short-term debt arrangements* (82,403) 4,285
Dividends on preferred and common stock (18,744) (18,857)
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Net Cash Used in Financing Activities (103,476) (17,895)
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NET CHANGE IN CASH AND CASH EQUIVALENTS 276,276 3,534
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,143 3,513
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CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 282,419 $ 7,047
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized $ 14,224 $ 15,729
Federal income taxes $ 11,000 $ 14,500
</TABLE>
*Debt with maturities of 90 days or less
The accompanying notes are an integral part of these statements.
<PAGE> 7
ORANGE AND ROCKLAND UTILITIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. On May 10, 1998, Orange and Rockland Utilities, Inc. (the "Company"),
Consolidated Edison, Inc. ("CEI") and C Acquisition Corp., a wholly owned
subsidiary of CEI ("Merger Sub"), entered into an Agreement and Plan of
Merger ("Merger Agreement") providing for a merger transaction among the
Company, CEI and the Merger Sub. The Merger became effective on July 8,
1999 when the Merger Sub merged with and into the Company (the "Merger")
and the Company became the surviving corporation and a wholly-owned
subsidiary of CEI. As provided in the Merger Agreement, all of the
Company's then outstanding Common Stock, $5 par value, was converted into
the right to receive the merger consideration and each of the 1,000 issued
and outstanding shares of the Merger Sub Common Stock, $.01 par value, was
converted into one share of the Company's Common Stock, $5 par value. For
accounting purposes, the Merger is being deemed by the Company to have been
effective July 1, 1999.
2. The consolidated balance sheet as of June 30, 1999, the consolidated
statements of income for the three month and six month periods ended June
30, 1999 and 1998, and the consolidated cash flow statements for the six
month periods then ended have been prepared by the Company without an
audit. In the opinion of management, all adjustments (which include normal
recurring adjustments and certain adjustments related to the Merger)
necessary to fairly present the financial position and results of
operations at June 30, 1999, and for all periods presented, have been made.
The amounts in the consolidated balance sheet as of December 31, 1998 have
been derived from audited financial statements.
3. Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. These unaudited consolidated financial
statements, notes to consolidated financial statements and management's
discussion and analysis of financial condition and results of operations
should be read in conjunction with the consolidated financial statements,
the review of the Company's results of operations and financial condition
and the notes to consolidated financial statements included in the
Company's December 31, 1998 Annual Report to Shareholders, which material
is incorporated by reference to the Company's Form 10-K Annual Report for
the year ended December 31, 1998. The results of operations for the period
ended June 30, 1999 are not necessarily indicative of the results of
operations for the full year.
4. 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 inter-company balances and transactions have been
eliminated.
<PAGE> 8
5. Contingencies at June 30, 1999 are substantially the same as the
contingencies described in the "Notes to Consolidated Financial Statements"
included in the Company's December 31, 1998 Annual Report to Shareholders,
which material is incorporated by reference to the Company's December 31,
1998 Form 10-K Annual Report, and in Item 3, Legal Proceedings of the
Company's Form 10-K Annual Report for the fiscal year ended December 31,
1998, except changes in the status of regulatory matters which are updated
in Part I, Item 2 under the caption "Regulatory Activities" and the status
of certain Legal Proceedings which are updated in Part II, Item 1, "Legal
Proceedings".
6. The Merger resulted in liabilities for contractual termination benefits,
workforce reductions and curtailment losses under employee benefit plans
triggered by the consummation of the business combination. Statement of
Financial Accounting Standards No. 88 ("SFAS No. 88"), "Employers'
Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits," applies to any employer that offers
benefits to employees in connection with their termination of employment.
In accordance with Emerging Issues Task Force 96-5, "Recognition of
Liabilities for Contractual Termination Benefits or Changing Benefit Plan
Assumptions in Anticipation of a Business Combination," the Company
recognized SFAS No. 88 costs as of June 30, 1999. At June 30, 1999 the
charge to income for these costs was approximately $20.9 million.
7. On November 24, 1998, the Company entered into four separate Asset Sales
Agreements ("ASAs") with subsidiaries of Southern Energy, Inc.
(collectively, with its subsidiaries, "Southern Energy"), a subsidiary of
The Southern Company, for the sale of all of the Company's electric
generating assets, including the two-thirds interest in the Bowline Point
generating facility owned by Consolidated Edison Company of New York, Inc.
The sales were completed on June 30, 1999.
<PAGE> 9
The total gross proceeds from the sale amounted to approximately $486.2 million,
of which approximately $349.3 million was attributable to the Company and
approximately $136.9 million was attributable to Con Edison for its two-thirds
ownership share of the Bowline Point Plant. The net book value of the Company's
generating facilities sold was approximately $258.2 million, and the value of
certain fuel and other plant inventory included in the sale was approximately
$17.2 million for a total combined net book value of assets sold of $275.4
million. After deducting approximately $7.1 million of direct selling costs and
approximately $11.3 million of employee retraining, retention and severance pay,
the pre-tax gain on the sale amounted to approximately $55.5 million. The
provision for income taxes-net amounted to approximately $40.8 million, and the
net gain on the sale was, therefore, approximately $14.7 million. As required by
regulatory orders approving the sale, the net gain from the sale was deferred
pending final review by the New York State Public Service Commission ("NYPSC"),
the New Jersey Board of Public Utility Commissioners ("NJBPU") and the
Pennsylvania Public Utility Commission ("PAPUC") of the calculation of the gain
as well as final disposition of the net gain, and did not, therefore, impact net
income. The Company's reported net income for the three months and the six
months ended June 30, 1999 were adversely impacted by approximately $3.6 million
(before tax) as a result of regulatory adjustments included as part of the NYPSC
order approving the sale. These amounts will either reduce previous deferred
regulatory assets or will be passed back to customers.
The divestiture triggered curtailment and special termination benefits
accounting as required by SFAS No. 88. The Company's Transition Program for its
generation employees contains special provisions that allow early vesting and
enhancements to the benefit plans for those employees not offered employment or
who are involuntarily terminated by the new owner within five years from the
date of transfer. The expected costs of these enhancements, together with
curtailment costs, is estimated to result in additional pension and
post-retirement benefit costs of $1.6 million and $0.8 million, respectively.
These estimates are included in the $11.3 million of employee costs in
determining the cost of the sale. The Company will retain the pension assets and
liabilities as well as the
<PAGE> 10
obligation relating to the employees which were employed by the Company
prior to the sale. The Company made a $10.0 million settlement payment
to Southern Engergy with respect to certain pension calculations and
reduced the Company's pension and other post-retirement benefit
liability by $10.0 million.
8. In accordance with the requirements of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," the Company defines
its principal business segments as utility (electric and gas) and
diversified activities. The diversified segment includes energy services
and land development.
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999 1998
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(THOUSANDS OF DOLLARS)
<S> <C> <C>
Operating Information:
Operating revenues:
Sales to unaffiliated customers:
Electric $ 115,406 $ 115,746
Gas 26,480 23,602
Other sales:
Electric 3 2
Gas 5 0
Total Utility Operating Revenues 141,894 139,350
Diversified activities 543 199
Total Operating Revenues $ 142,437 $ 139,549
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Operating income before income taxes:
Electric $ (7,264) $ 17,184
Gas (6,472) (928)
Diversified activities (105) (430)
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Total Operating Income Before
Income Taxes $ 13,841) $ 15,826
</TABLE>
9. Certain amounts reported for the prior year have been reclassified to
conform with the current year presentation.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company, upon the completion of the Merger on July 8, 1999, became a
wholly-owned subsidiary of CEI. This discussion and analysis relates to the June
30, 1999 interim consolidated financial statements of the Company and its
subsidiaries in Item I, Part 1 of this report and should be read in conjunction
with the discussion and analysis in Item 7 of the Company's 1998 Form 10-K.
Reference is also made to the Notes to Consolidated Financial Statements in Part
I, Item 1 of this report, which notes are incorporated herein by reference.
FINANCIAL CONDITION:
FINANCIAL PERFORMANCE
The Company's consolidated earnings per average common share outstanding for the
second quarter of 1999 were $(1.47) as compared to $0.32 for the second quarter
of 1998. The earnings for the six-month period ended June 30, 1999 and June 30,
1998 was $(0.62) and $1.29, respectively. Earnings for both the quarter and the
six month period were significantly impacted by the Merger. Fluctuations within
the components of earnings are discussed in the "Results of Operations". The
average number of common shares outstanding was 13.5 million for each of these
periods.
CAPITAL RESOURCES AND LIQUIDITY
At June 30, 1999, the Company and its utility subsidiaries had unsecured bank
lines of credit totaling $155.0 million. The Company borrows under the lines of
credit through the issuance of promissory notes to the banks. However, the
Company primarily utilizes such lines of credit to fully support commercial
paper borrowings. The aggregate amount of borrowings through the issuance of
promissory notes and commercial paper cannot exceed the aggregate lines of
credit. The average daily balance of short-term borrowings for the six months
ended June 30, 1999 amounted to $131.5 million at an effective interest rate of
5.1% as compared to $119.7 million at an effective interest rate of 5.9% for the
same period of 1998. The average daily balance of temporary cash investments for
the six months ended June 30, 1999 was $2.9 million with an effective interest
rate of 4.7% compared to $0.6 million at an effective interest rate of 5.2% for
the same period of 1998. The non-utility subsidiaries of the Company and of
Rockland Electric Company ("RECO"), a wholly owned utility subsidiary of the
Company, had no bank lines of credit at June 30, 1999.
<PAGE> 12
The Federal Energy Regulatory Commission ("FERC") regulates the issuance of
short-term debt by the Company and by RECO. The Company and RECO have received
authorization from FERC sufficient to issue up to $150 million and $15 million,
respectively, of short-term debt from time to time through 2001.
The Company's cash position was affected by the sale of the Company's electric
generating facilities, which was completed on June 30, 1999. The gross cash
proceeds from the sale amounted to $349.3 million. After making an
employee-benefit related payment to Southern Energy of
approximately $10.4 million and making tax payments related to the sale of
approximately $82 million, the Company paid all short-term debt outstanding, as
it became due and payable, while investing the proceeds in the interim. At July
31, 1999 the Company had no short-term debt outstanding and temporary cash
investments amounted to approximately $123 million.
The Merger Agreement required that the Company call for redemption all of its
outstanding Preference Stock and Preferred Stock. The Company's $1.52
Convertible Cumulative Preference Stock, Series A, no par value, the only
Preference Stock outstanding, was redeemed on April 6, 1999. All
outstanding series of the Company's Cumulative Preferred Stock, par value $100
per share, were redeemed on April 20, 1999. The aggregate redemption price of
the Preferred and Preference Stock, including call premiums was $43.5 million.
To fund the redemptions, the Company on March 9, 1999 issued $45 million of 7%
Debentures due 2029, Series G (the "Series G Debentures"). The Series G
Debentures were sold by means of competitive bid at a price of 98.458%.
<PAGE> 13
REGULATORY ACTIVITIES
MERGER WITH CEI
Reference is made to Item 1, Business, under the caption "Merger with
Consolidated Edison, Inc." in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998, for information regarding the various regulatory
bodies from which approval of the Merger was required.
On April 1, 1999, the NJBPU issued an order approving the Merger Agreement
subject to certain conditions, including the following: (1) the Company must
file a cost allocation manual with the NJBPU by January 1, 2000; (2) net merger
savings will be allocated between ratepayers and shareholders on a 75%/25%
basis; (3) costs to achieve the Merger will be amortized by RECO over a ten year
period effective upon consummation of the Merger; (4) upon consummation of the
Merger, RECO will reduce its electric base rates by $1.434 million or 1.05%,
which represents 75% of the average annual net merger savings allocated to RECO
over the first four years following the consummation of the Merger; (5) this
electric base rate decrease will be applied on an equal percentage basis across
all rate classes and shall be included in the percentage rate reduction required
by the restructuring legislation signed into law on February 9, 1999; and(6)
simultaneous with the merger related base rate decrease, RECO will increase its
deferred fuel balance recovery component of its Levelized Energy Adjustment
Charge ("LEAC") rate by a dollar amount equal to that of the base rate decrease.
The NJBPU also found that there will be no adverse impact on competition as a
result of the Merger. On April 15, 1999, RECO submitted a letter to the NJBPU
advising it of its plan to implement the NJBPU's Order by reducing the LEAC
deferred balance without the need to reduce rates. RECO has not received any
objection to its plan.
On March 8, 1999, the Company, CEI, the staff of the New York Department of
Public Service (the "NYPSC Staff") and several other parties submitted a
settlement agreement in the Merger proceeding to the NYPSC ("Settlement
Agreement"). The Settlement Agreement provides for the approval of the Merger
Agreement subject to certain conditions, including the following: (1) On
December 1, 1999, the Company will reduce its electric base rates by $5.8
million, or 1.9%; (2) The Company will not seek to effectuate an increase in its
base electric rates prior to January 1, 2003; (3) The Company's electric
operations will no longer be subject to an earnings sharing mechanism which
currently requires sharing with electric customers equity
<PAGE> 14
returns in excess of 11.4%; (4) the Company will reduce its gas base rates by
$1.0 million, or 0.7%, effective in the month following consummation of the
Merger; and (5) The Company will withdraw its December 1998 gas rate filing upon
consummation of the Merger and may not file to increase its gas rates prior to
December 1, 1999.
On April 2 and April 14, 1999, the NYPSC issued orders authorizing the Merger
and adopting the Settlement Agreement.
The Company has also received approval to complete the Merger from the PAPUC.
The PAPUC settlement agreement, which was approved by an Administrative Law
Judge ("ALJ") and the PAPUC, allows the Company to retain all merger savings,
net of costs to achieve, until its next electric and gas rate case at which time
the treatment of net merger savings will be determined.
On May 13, 1999 the Securities and Exchange Commission issued an order
authorizing the completion of the Merger. On July 2, 1999 the Department of
Justice announced the resolution of antitrust concerns regarding the Merger.
On July 8, 1999 the Merger was completed.
NEW YORK COMPETITIVE OPPORTUNITIES PROCEEDING
Reference is made to Item 3, Legal Proceedings, under the caption "New York
Competitive Opportunities Proceeding" in the Company's Annual Report on Form
10-K for the year ended December 31, 1998 for a description of the NYPSC's
Competitive Opportunities Proceeding.
On August 13, 1998, the Company, NYPSC Staff and interested parties reached an
agreement to establish production related revenue requirements for the purposes
of unbundling the Company's electric tariffs in the revenue requirement phase of
the New York Unbundling proceeding. On September 18, 1998, a settlement
concerning the rate design and all other issues had been reached as well. The
settlements were submitted to an ALJ for review. The NYPSC approved the
settlement agreements by Order issued February 4, 1999. As a result, unbundled
rates became effective on May 1, 1999.
As provided for in the Settlement Agreement in Case 96-E-0900, the Company has
divested its generating assets. See Note 7 of Notes To Consolidated Financial
Statements in Item I, Part 1 of this report.
NEW JERSEY ENERGY MASTER PLAN
Reference is made to Item 3, Legal Proceedings, under the caption "New Jersey -
Energy Master Plan" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, for information regarding the NJBPU order "Adopting and
Releasing Final Report in its
<PAGE> 15
Energy Master Plan Phase II Proceeding to Investigate the Future Structure of
the Electric Power Industry (Docket No. EX 94120585Y)." The Order required RECO
and other New Jersey investor owned electric utilities each to file unbundled
rates, a stranded cost proposal and a restructuring plan.
In July 1997, RECO made such filings and hearings on RECO's unbundled rates and
stranded cost filings were held before an ALJ while hearings on the
restructuring filing were held before the NJBPU. Legislation was passed in New
Jersey on February 9, 1999 which provides the NJBPU the requisite authority to
make generation a competitive service. The legislation provides for (1) the
implementation of full retail access for all customers by August 1, 1999, and
(2) a reduction in aggregate rate levels for each customer class of at least 10%
relative to the aggregate level of bundled rates in effect as of April 30, 1997.
The NJBPU may allow the 10% reduction to be phased in over 36 months, provided
that the electric utility shall implement a reduction in rates of at least 5%
effective with the implementation of customer choice. The maximum level of
reduction must be maintained at least until the 48th month following the
starting date for implementation of full retail access. On July 13, 1999, RECO
filed a proposed Plan for Resolution of Proceedings for the Board's
consideration in full and final resolution of all issues involved in RECO's
fillings. On July 20, 1999, RECO filed a Stipulation of Settlement
("Settlement") by and among RECO and New Jersey Transit which incorporates the
Plan for Resolution of Proceedings in its entirety. As required by the
legislation, the Settlement provides for a 5% reduction in overall rates
effective August 1, 1999 and an additional 6.6% reduction effective August 1,
2002. The additional reduction of 6.6% reflects a reduction of 11.6% from
current rates and 10% from rates effective at April 30, 1997 as required by the
legislation. The Settlement also separates RECO's rates into the following
unbundled charges: a Basic Generation Service Charge/Shopping Credit
("BGS/Shopping Credit"), an Energy Cost Adjustment ("ECA"), a Market Transition
Charge ("MTC"), a Delivery Charge and a Societal Benefits Charge ("SBC")for each
class of customers served.
On July 28, 1999, the NJBPU issued a Summary Order approving the Settlement with
modifications. The rate reductions were modified to provide reductions of 5%
effective August 1, 1999, 7% effective January 1, 2001 and 11.6% effective
August 1, 2002. Moreover, the residential BGS/Shopping Credit was increased to
the fourth year level included in the Settlement with an offsetting reduction in
the residential ECA. The additional 2% reduction effective January 1, 2001 will
consist in part of an additional permanent reduction to Delivery Charges of $1
million (0.7%) and in part from the implementation of a temporary rate refund
consisting of RECO customers' pro-rata share of net divestiture proceeds.
<PAGE> 16
PENNSYLVANIA - COMPETITIVE LEGISLATION
Reference is made to Item 3, Legal Proceedings, under the caption "Pennsylvania
- - Competition Legislation" in the Company's Annual Report on Form 10-K for the
year ended December 31, 1998 for a description of the "Electricity Generation
Customer Choice and Competition Act". The Company's subsidiary, Pike County
Light & Power Company ("Pike") is a Pennsylvania electric and gas utility
company.
On July 23, 1998 the PAPUC issued an Order approving the Joint Petition for
Complete Settlement of Pike's Proposed Restructuring Plan. This Joint Petition,
dated May 15, 1998, was supported by all parties in Pike's electric
restructuring proceeding and provides for full retail access for all customers
as of May 1, 1999. The settlement provides for the recovery, through a
competitive transition charge, of stranded costs relating to non-utility
generator ("NUG") contract, other postemployment benefit costs, NUG contract
buyout costs previously incurred and deferred fuel costs incurred to May 1,
1999. Pike's share of any net gains from the divestiture of the Company's
electric generating facilities will be used to offset stranded costs.
The settlement does not provide for any rate reductions.
YEAR 2000 UPDATE
Since 1996, the Company has been working to address Year 2000 ("Y2K") issues.
Y2K issues arise as a result of a computer programming standard that
traditionally recorded a year as two digits (e.g., 99) rather than four digits
(e.g., 1999). With the change in the century, software and embedded chip
technology that use a two-digit field to record a year may malfunction or
provide inaccurate results.
Overall responsibility for the Company's Y2K efforts resides with an Executive
Sponsorship Committee ("Committee") which includes several members of senior
management and which monitors the Company's Y2K progress and is responsible for
ensuring that appropriate plans are implemented and adequate resources are
available.
The Company has developed a Y2K Plan ("Y2K Plan")which details the actions the
Company is taking to mitigate the impact of the century change. The Company
believes that with the full implementation of its Y2K Plan, the possibility of
significant Y2K problems will be greatly reduced, if not eliminated. However,
the failure of the Company, or one or more of the Company's key suppliers or
vendors, to correct a material Y2K problem could result in the interruption of
service to customers
<PAGE> 17
or the failure of certain normal business operations. Accordingly, the Company
is unable to determine at this time whether Y2K issues will have a material
adverse effect on the Company's results of operations, liquidity or financial
condition.
In accordance with its Y2K Plan, the Company has completed an inventory and
assessment of its information technology and embedded technology and prioritized
such inventoried technology as either Mission Critical or Business Critical.
Pursuant to the definitions adopted by the Company, the malfunction of a Mission
Critical system or device could directly contribute to the interruption of
electric or gas service or could adversely affect the safety of the general
population and/or employees. Similarly, the malfunction of a Business Critical
system or device could directly contribute to the loss of a department's
capability to perform its function (e.g., customer service, accounting).
Consistent with the target date established for the energy industry, the
Company's Mission Critical systems/devices were Y2K ready as of July 1, 1999,
and its Business Critical systems/devices will be Y2K ready by October 1, 1999.
The Company has evaluated and replaced various computer applications, including
its electric and gas Energy Management Systems, Customer Information Management
System, Fixed Asset System and other core accounting and management systems.
This effort was undertaken to provide additional functionality, automated
processing, and improved access to information, as well as to address Y2K
issues. The Company's remaining computer applications and hardware have been
remedied and approximately 64% of the integrated testing has been completed as
of June 30, 1999.
As noted above, an inventory and assessment of embedded technology throughout
the Company has been completed. The assessment indicates that a relatively small
number of critical systems require further testing or remediation. These
embedded chips have been substantially remediated and the Company has met the
targeted completion dates of July 1, 1999 and will meet the October 1, 1999 for
Mission and Business Critical systems, respectively.
The Company's systems may be vulnerable to its critical suppliers should such
suppliers themselves not be Y2K ready. The Company has identified and contacted
its critical suppliers. Each such supplier has provided assurances that they are
taking appropriate steps to address Y2K issues.
The Company is working with the New York Power Pool("NYPP") and the North
American Electric Reliability Council to ensure that
<PAGE> 18
appropriate steps are being taken to address the reliability of the power grid.
The Company successfully participated in a nationwide drill designed to test
contingency communication networks on April 9, 1999 and will participate in a
second drill on September 9, 1999. The drill will simulate the partial loss of
voice and data communications between the NYPP, the Company's Energy Control
Center, power plants and critical substations and require participants to
utilize two-way radios and cellular and satellite telephones to transmit
readings which ordinarily are transmitted instantaneously via computers.
The Company has procedures in place should a system failure occur. The Company
has developed contingency plans based on the results of its testing and critical
supplier assessments and has reviewed existing emergency plans and procedures
which were modified as appropriate to address Y2K-specific issues. Contingency
plans for Mission Critical systems and suppliers were completed as of July 1,
1999, and will be completed for Business Critical systems by October 1, 1999.
The total estimated cost to execute the Company's Y2K Plan is approximately $7.5
million, of which approximately $6.5 million has been incurred through June 30,
1999. These expenditures include costs related to the replacement of certain
core accounting systems so as to provide enhanced functionality while also
addressing Y2K issues; however, such expenditures do not include costs related
to other systems that were replaced in the normal course of business for
operating reasons, even though such replacement also addressed Y2K issues. The
Company has and will continue to fund these costs from the operations of the
Company.
QUARTERLY COMPARISON
RESULTS OF OPERATIONS
The Company's total consolidated earnings per average common share outstanding
for the second quarter of 1999 were $(1.47) as compared to earnings of $0.32 for
the second quarter of 1998. This decline is primarily the result of costs
associated with the Merger and the divestiture of the Company's generating
assets and costs associated with the Company's customer information system,
offset by lower taxes compared with the same period a year ago.
<PAGE> 19
ELECTRIC AND GAS REVENUES
Electric and gas operating revenues, including fuel cost and purchased gas cost
recoveries, increased by $2.5 million during the second quarter of 1999 as
compared to the same quarter of 1998, primarily as a result of increased retail
electric and gas sales, offset by regulatory adjustments and lower sales to
other utilities.
Electric operating revenues during the current quarter were $115.4 million as
compared to $115.7 million for the second quarter of 1998, an decrease of $0.3
million.
Total sales of electric energy to retail customers during the second quarter of
1999 were 1,200,352 megawatt hours ("Mwh"), compared with 1,182,936 Mwh during
the comparable period a year ago, an increase of 1.5%. Revenues from these sales
were $116.0 million for the second quarter of 1999 compared with $110.4 million
for the same period in 1999. Sales to other utilities for the second quarter of
1999 amounted to 71,400 Mwh with revenues of $1.9 million compared to 198,585
Mwh and $4.7 million in 1998. Revenue from these sales are primarily a recovery
of costs, and under the applicable tariff regulations, have a minimal impact on
earnings.
Gas operating revenues during the second quarter of 1999 were $26.5 million
compared to $23.6 million for the second quarter of 1998, a increase of $2.9
million. This increase is primarily the result of a increase in the volume of
gas sold and the timing of fuel cost recoveries.
Sales to firm customers totaled 3,023 million cubic feet ("Mmcf"), compared with
2,878 Mmcf during the same period a year ago, an increase of 5%. Gas revenues
from firm customers were $23.1 million, compared with $20.3 million in the
second quarter of 1998. The level of revenues from gas sales in New York is
subject to a weather normalization clause that compares actual gas heating
season sales levels as measured by heating degree days to the number of
forecasted degree days used to establish gas base revenue requirements.
Interruptible gas sales were 1,178 Mmcf for the second quarter of 1999 compared
to 696 Mmcf for the same period of 1998. Revenues from interruptible customers
were $2.6 million in 1999 compared to $2.3 million in 1998.
FUEL, PURCHASED ELECTRICITY AND PURCHASED GAS COSTS
The cost of fuel used in the production of electricity and purchased electricity
costs amounted to $34.3 million for the
<PAGE> 20
second quarter of 1999 compared to $36.1 million for the second quarter of 1998,
a decrease of $1.8 million. This decrease reflects lower sales to other
utilities and lower fuel cost recoveries, offset by the change in fuel prices.
Purchased gas costs for utility operations were $15.0 million in the second
quarter of 1999 compared to $12.5 million in 1998, an increase of $2.5 million.
This increase in gas costs is attributable to the higher volume of gas purchased
for resale to satisfy the higher demand in the current period.
OTHER OPERATING AND MAINTENANCE EXPENSES
The Company's total operating and maintenance expenses excluding fuel, purchased
power and gas purchased for resale for the second quarter increased by $24.0
million compared with the same period in 1998. Utility operating expenses
increased $23.9 million of which $21.7 was attributable to the costs associated
with the Merger. Diversified operating expenses increased by $0.1 million.
The increase in utility operating expenses is the result of costs associated
with the Merger (includes employee severance, pension costs, etc.), higher
depreciation expense due to normal plant additions and the amortization of the
Company's customer accounting system, offset by a decrease in Federal income
tax.
DIVERSIFIED ACTIVITIES
The Company's diversified activities consist of energy services and land
development conducted through wholly owned non-utility subsidiaries.
Revenues from diversified activities were $543,407 for the second quarter of
1999 compared with approximately $199,000 a year ago. This increase is the
result of land sales within the current period.
OTHER INCOME, DEDUCTIONS AND INTEREST CHARGES - NET
Other income, net of interest charges and other deductions, decreased by $3.0
million during the second quarter of 1999 when compared to the same quarter of
1998 due primarily to the write-down of assets to fair market value in
diversified operations.
<PAGE> 21
YEAR TO DATE COMPARISON
RESULTS OF OPERATIONS
Earnings per average common share outstanding for the first half of 1999
amounted to $(0.62) per share as compared to $1.29 per share for the first six
months of 1998. The decrease in the first six months of 1999 when compared to
the same period of 1998 primarily reflects various valuations and regulatory
adjustments related to the Merger and the divestiture of the Company's
generating assets.
ELECTRIC AND GAS REVENUES
Electric and gas operating revenues, including fuel cost and purchased gas cost
recoveries, increased by $20.6 million in the first six months of 1999 as
compared to the same period of 1998.
Electric operating revenues during the current period were $224.3 million as
compared to $221.8 million for the first six months of 1998, an increase of $2.5
million.
Total sales of electric energy to retail customers during the first six months
of 1999 were 2,365,609 Mwh, compared to 2,312,447 Mwh during the comparable
period a year ago, an increase of 2.3%. This increase is attributable to warmer
than normal weather when compared to the same period a year ago. Revenues from
these sales during the first six months of 1999 were $222.3 as compared to
$212.0 for the same period in 1998. Sales to other utilities for the first six
months of 1999 amounted to 108,230 Mwh with revenues of $2.7 million compared to
319,563 Mwh and $8.1 million in 1998. Revenue from these sales are primarily a
recovery of costs and under the applicable tariff regulations, have a minimal
impact on earnings.
Gas operating revenues during the first six months of 1999 were $100.6 million
compared to $82.4 million for the first six months of 1998, an increase of $18.2
million. Revenues increased due to fuel cost recoveries and higher sales volumes
when compared to the same period a year ago.
Sales to firm customers during the first six months of 1999 totaled 12,484 Mmcf,
compared with 10,738 Mmcf during the same period a year ago, an increase of
16.3%. Gas revenues from firm customers were $92.3 million, compared with $74.9
million in the first six months of 1998. The level of revenues from gas sales in
New York is subject to a weather normalization clause that
<PAGE> 22
compares actual gas heating season sales levels as measured by heating degree
days to the number of forecasted degree days used to establish gas base revenue
requirements.
FUEL, PURCHASED ELECTRICITY AND PURCHASED GAS COSTS
The cost of fuel used in the production of electricity and purchased electricity
costs decreased by $1.7 million during the first six months of 1999 when
compared to the same period of 1998. This decrease reflects a decrease volume
requirements (including Sales for Resale) and the lower fuel cost recoveries,
offset by the increase in the cost of fuel and purchased power.
Purchased gas costs were $57.0 million in the first six months of 1999 compared
to $43.5 million in 1998, an increase of $13.6 million. This increase in gas
costs is attributable to a higher volume of gas purchased for resale and the
higher gas costs recoveries offset by lower price of gas purchases.
OTHER OPERATING AND MAINTENANCE EXPENSES
The Company's total operating and maintenance expenses, excluding fuel,
purchased power and gas purchased for resale for the first six months of 1999
increased by $31.7 million compared with the same period in 1998. The increase
in expenses associated with utility operating expenses amounted to $31.8
million. The change in diversified operation and maintenance expenses was a
decrease of $0.1 million.
The increase in utility operating expenses is primarily the result of costs
associated with the Merger (includes employee severance, pension costs, etc.)
which resulted in a $21.7 million of the increase. The amortization of the
Company's customer accounting system and depreciation expense also contributed
to the increase which was offset by a reduction in taxes.
DIVERSIFIED ACTIVITIES
Revenues from diversified activities increased by $259,292 for the first six
months of 1999 as compared to the same period of 1998. This increase is the
result of land sales that took place in the second quarter of 1999.
OTHER INCOME, DEDUCTIONS AND INTEREST CHARGES - NET
Other income, net of interest charges and other deductions decreased by $3.7
million during the first six months of 1999 when compared to the same period of
1998, primarily as a result of the write-down of assets to fair market value in
diversified operations and lower investment revenues.
<PAGE> 23
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 25, 1999, five shareholders of the Company filed a purported class
action on behalf of all persons who owned the Company's common stock "at the
time [the Company] and Consolidated Edison, Inc. signed a definitive merger
agreement under which Consolidated Edison will acquire all of [the Company's]
common stock." The complaint asserts various claims against certain former as
well as then current directors and officers of the Company and certain other
defendants, alleging that the actions of the defendants resulted in a reduction
in the price paid by CEI for the Company's stock pursuant to the Merger
Agreement. Plaintiffs filed the action, entitled Suzanne Hennessy, et al. v. D.
Louis Peoples, et al., in the Supreme Court of the State of New York, County of
New York. The plaintiffs are seeking various types of relief, including
compensatory damages in the approximate amount of $81 million. In connection
with this action, the defendant officers and directors have requested
indemnification and advancement of expenses from the Company pursuant to the
provisions of the Company's By-laws. The Company cannot predict the ultimate
outcome of this proceeding.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
The Company has made forward-looking statements in this Form 10-Q Quarterly
Report with respect to the financial condition, results of operations and
business of the Company in the future, which involve certain risks and
uncertainties. Forward-looking statements are included in Item I of Part I in
the Notes to Consolidated Financial Statements and in Item 2 of Part I,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, under the captions "Capital Resources and Liquidity," "Regulatory
Activities," and "Year 2000 Update" and "Quarterly Comparison." Actual results
or developments might differ materially from those included in the
forward-looking statements because of factors such as competition and industry
restructuring, changes in economic conditions, changes in laws, regulations or
regulatory policies, uncertainties relating to the ultimate outcome of the
Merger and the sale of the Company's generating assets, the outcome of certain
assumptions made in regard to Year 2000 (Y2K) issues and other uncertainties.
For all of those statements, the Company claims the protections of the safe
harbor for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995.
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1.1 Certificate of Amendment of the Certificate of Incorporation of
the Company, dated July 14, 1999.
3.1.2 Restated Certificate of Incorporation of the Company, dated May 7,
1996. (Incorporated by reference to Exhibit 3.4 to the
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 1996 - File No. 1-4315.)
3.2 By Laws of the Company, as amended on July 8, 1999.
27 Financial Data Schedule
(b) Reports on Form 8-K
On July 13, 1999, the Company filed a report on Form 8-K dated July 8,
1999 regarding the completion of the Merger and the change in the Company's
certifying accountant.
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORANGE AND ROCKLAND UTILITIES, INC.
-----------------------------------
(Registrant)
Date: August 13, 1999 By ROBERT R. STELBEN
Robert P. Stelben
Vice President and Treasurer
and Duly Authorized
Officer
Date: August 13, 1999 By EDWARD RASMUSSEN
Edward Rasmussen
Acting Vice President and
Controller and Chief
Accounting Officer
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
ORANGE AND ROCKLAND UTILITIES, INC.
Under Section 805 of the Business Corporation Law
We, the undersigned KEVIN BURKE and PETER A. IRWIN, being, respectively,
the President and the Secretary of Orange and Rockland Utilities, Inc. a
corporation formed under the laws of the State of New York (hereinafter
sometimes called the "Company"), DO HEREBY CERTIFY as follows:
1. The name of the Company is Orange and Rockland Utilities, Inc. It was
originally incorporated under the name of Rockland Light and Power Company.
2. The Certificate of Incorporation of the Company (being the Certificate
of Consolidation dated February 8, 1926, pursuant to which it was organized) was
filed in the office of the Secretary of State of the State of New York on May
21, 1926. A Restated Certificate of Incorporation was filed in the office of the
Secretary of State of the State of New York on May 7, 1996 (hereinafter referred
to as the "Certificate of Incorporation").
3. The Certificate of Incorporation of the Company, is hereby amended in
the following respects:
(a) Article FIFTH of said Certificate of Incorporation which provides for
(i) the authorized number of directors, (ii) the classification of directors,
(iii) for the filling of vacancies on the Board of Directors, (iv) the removal
of directors, (v) factors the Board of Directors shall take into consideration
when evaluating certain business combination and (vi) for the amendment of
Article FIFTH is hereby amended to read in its entirety as follows:
"FIFTH: The number of Directors of the Company shall be no
less than three, the exact number of Directors shall be determined from time to
time solely by the affirmative vote of a majority of the total number of
Directors the Company would have if there were no vacancies in the Board of
Directors."
(b) Article EIGHTH of said Certificate of Incorporation, which provides
for a super-majority vote of shareholders for certain business combinations and
for the amendment of Article EIGHTH, is hereby eliminated in its entirety and
existing Article NINTH, is hereby renumbered as Article EIGHTH.
<PAGE>
4. This amendment of the Certificate of Incorporation was duly authorized
and approved, pursuant to sections 803(a) and 615(a) of the Business Corporation
Law, by the unanimous vote of the Directors present at a meeting of the Board of
Directors of the Company duly called and held on July 8, 1999, at which meeting
a quorum was present and acting throughout, followed by the unanimous written
consent of the sole shareholder of the Company.
IN WITNESS WHEREOF, the undersigned have subscribed this certificate this
14th day of July, 1999, and the undersigned affirm the statements contained in
this certificate as true under the penalties of perjury.
Kevin Burke
President
Peter Irwin
Secretary
One Blue Hill Plaza
Pearl River, New York 10965
BY-LAWS
of
ORANGE AND ROCKLAND UTILITIES, INC.
SECTION 1. ANNUAL MEETINGS. The annual meeting of shareholders of the
Corporation for the election of Directors and the transaction of other business
shall be held on the Tuesday following the third Monday in May at the hour and
place, within or without the State of New York, as may be designated by the
Board of Directors.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders of the
Corporation may be called by the Board of Directors, and shall be called upon
the request of shareholders holding a majority of the outstanding shares of
stock entitled to vote at such meeting.
SECTION 3. NOTICE OF MEETINGS. Written notice of the place, date and hour
of every meeting of shareholders, the purpose of such meeting and, in case of a
special meeting, the person or persons by or at whose direction the meeting is
being called, shall be given, personally or by mail, or if permitted by
applicable law by electronic means, by the Secretary, or other officer
performing his or her duties, at least ten days, but not more than sixty days,
before the meeting to each shareholder entitled to vote at such meeting. If
mailed, such notice shall be directed to the shareholder at his or her address
as it appears on the record of shareholders or to such other address as the
shareholder shall have filed with the Secretary for such purpose; provided,
however, that if a shareholder be present at a meeting, in person or by proxy,
without protesting prior to the conclusion of the meeting the lack of notice of
the meeting, or in writing
<PAGE>
waives notice thereof before or after the meeting, the mailing to such
shareholder of notice of the meeting is unnecessary.
SECTION 4. QUORUM. At any meeting, the holders of a majority of the
outstanding shares of stock of the Corporation entitled to vote at the meeting,
present in person or by proxy, shall constitute a quorum, but less than a quorum
shall have power to adjourn.
SECTION 5. CHAIRMAN AND SECRETARY OF SHAREHOLDERS' MEETINGS. The Chairman
of the Board, or a Director or officer designated by the Chairman of the Board,
shall preside over all meetings of shareholders. The Secretary shall act as
secretary of the meeting, if present. In his or her or her absence, the chairman
of the meeting may appoint any person to act as secretary of the meeting.
SECTION 6. NUMBER OF DIRECTORS. The business of the Corporation shall be
managed under the direction of a Board consisting of three Directors, who shall
be elected annually by the shareholders and shall hold office until their
successors are elected and qualified. The number of Directors may be increased
or decreased by the Board of Directors; provided that no decrease shall shorten
the term of any incumbent Director. Vacancies occurring in the Board for any
reason except the removal of Directors without cause may be filled by the Board
of Directors.
SECTION 7. REMOVAL OF DIRECTORS. Any or all of the Directors may
be removed for cause by vote of the shareholders or by action of the
Board of Directors. Any or all of the Directors may be removed without
cause by vote of the shareholders.
<PAGE>
SECTION 8. MEETINGS OF DIRECTORS. Meetings of the Board of Directors shall
be held at the time and place fixed by the Board of Directors or upon call of
the Chairman of the Board or President. The Secretary, or officer performing his
or her duties, shall give 24 hours notice of all meetings of Directors; provided
that a meeting may be held without notice immediately after the annual election
of Directors, and notice need not be given of regular meetings held at times
fixed by the Board of Directors. Meetings may be held at any time without notice
if all the Directors are present and none protest the lack of notice either
prior to the meeting or at its commencement, or if those not present waive
notice either before or after the meeting. A majority of the entire Board shall
constitute a quorum, but less than a quorum shall have the power to adjourn. The
Chairman of the Board, or a Director designated by the Chairman of the Board,
shall preside at all meetings of the Board.
SECTION 9. COMMITTEES OF THE BOARD. The Board of Directors may designate
from among its members an Executive Committee and other committees, each
consisting of one or more Directors and each of which, to the extent provided in
such resolution, shall have all the authority of the Board, except as otherwise
provided by law.
SECTION 10. ACTION BY BOARD OF DIRECTORS WITHOUT A MEETING. Any action
required or permitted to be taken by the Board of Directors or any committee
thereof may be taken without a meeting if all the members of the Board or the
committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and written consents thereto shall be filed with the
minutes of the proceedings of the Board or the committee.
<PAGE>
SECTION 11. DIRECTOR AND COMMITTEE ACTION BY CONFERENCE TELEPHONE. Any one
or more of the members of Board of Directors or any committee thereof may
participate in a meeting of such Board or committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
SECTION 12. ELECTION OF CHAIRMAN OF THE BOARD AND OFFICERS. The Board of
Directors, promptly after the election of Directors in each year, shall elect
from among its members a Chairman of the Board, and shall elect a President and
a Secretary, and may from time to time elect one or more Vice Presidents and
such other officers as they may deem proper. Any two or more offices may be held
by the same person.
SECTION 13. TERM OF OFFICE AND VACANCIES. The term of office of all
officers shall be until the meeting of the Board of Directors following the next
annual meeting of shareholders and until their respective successors are chosen
and qualify, but any officer may be removed from office at any time by the Board
of Directors with or without cause. Vacancies among the officers may be filled
by the Board of Directors at any meeting.
SECTION 14. DUTIES OF OFFICERS. The President shall have such duties as
usually pertain to his or her office, except as otherwise directed by the Board
of Directors, and shall also have such powers and duties as may from time to
time be conferred upon him or her by the Board of Directors. The other officers
of the Corporation shall have such duties as usually pertain to their respective
offices, except as otherwise directed by the Board of Directors, and
<PAGE>
shall also have such powers and duties as may from time to time be conferred
upon them by the Board of Directors.
SECTION 15. ETHICS PROGRAM. The Board of Directors shall have
the following responsibilities and duties with regard to the
Corporation's ethics program:
(A) Provide oversight and direction with regard to the
Corporation's Ethics Program and to the ethics officer (the
"Ethics Officer") appointed pursuant thereto in a manner that
insures that the Corporation will operate in accordance with
ethical principles;
(B) Receive reports at least quarterly from the Ethics Officer
detailing the status of ethics initiatives, investigations,
disciplinary procedures, compliance efforts and other related
activities;
(C) Review and determine the actions, if any, beyond those
undertaken by the Ethics Officer, that are necessary to
satisfactorily resolve any reported violations of the
Corporation's Ethics Program;
(D) Be available, through the Ethics Officer, as an avenue for
employees, vendors and others to express concerns regarding
possible ethical transgressions involving senior management of
the Corporation.
SECTION 16. AMENDMENTS OF BY-LAWS. The Board of Directors or shareholders
may alter, amend or repeal any of these By-laws or adopt new By-laws at any
meeting duly held as above provided.
<PAGE>
SECTION 17. INDEMNIFICATION. (a) Any Director or officer of the
Corporation shall be indemnified by the Corporation to the full extent permitted
by the Law of the State of New York in connection with any proceeding involving
a Director or officer by reason of his or her being or having been a Director or
officer. (b) Any Director or officer may be insured by insurance purchased and
maintained by or for the Corporation against any expenses incurred in any
proceeding and any liabilities asserted against him or her in his or her
capacity as Director or officer, whether or not the Corporation would have the
power to indemnify him or her against such liability.
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