SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
(x) Quarterly Report Pursuant to Section 13 OR 15 (d)
of The Securities Exchange Act of 1934
For Quarter ended June 30, 1995
( ) Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission Registrant; State of Incorporation; IRS Employer
File No. Address; and Telephone No. Identification No.
1-9760 Atlantic Energy, Inc. 22-2871471
(New Jersey)
6801 Black Horse Pike
Egg Harbor Township, NJ 08234
(609) 645-4500
1-3559 Atlantic City Electric Company 21-0398280
(New Jersey)
P.O. Box 1264
6801 Black Horse Pike
Pleasantville, NJ 08232
(609) 645-4100
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
Indicate the number of shares outstanding of each of the issuers'
classes of common stock, as of the latest practicable date:
Atlantic Energy, Inc. 52,598,078 (as of August 10, 1995)
All of the outstanding shares of Common Stock of Atlantic City
Electric Company are owned by Atlantic Energy, Inc.
Part I. Financial Information
Item I. Financial Statements
CONSOLIDATED STATEMENT OF INCOME
Thousands of Dollars
Quarter Ended June 30
1995 1994
(unaudited)
Operating Revenues-Electric $206,232 $205,822
Operating Expenses:
Energy 37,167 35,434
Purchased Capacity 46,839 36,811
Operations 35,959 39,688
Maintenance 7,914 8,956
Depreciation and Amortization 19,462 18,445
State Excise Taxes 22,600 24,695
Federal Income Taxes 6,142 9,354
Other Taxes 2,378 2,012
Total Operating Expenses 178,461 175,395
Operating Income 27,771 30,427
Other Income:
Allowance for Equity Funds Used During
Construction 175 813
Other-Net 2,315 2,449
Total Other Income 2,490 3,262
Interest Charges:
Interest on Long Term Debt 14,549 12,741
Other Interest Expense 1,705 454
Total Interest Charges 16,254 13,195
Allowance for Borrowed Funds Used
During Construction (348) (613)
Net Interest Charges 15,906 12,582
Less Preferred Stock Dividend
Requirements of Subsidiary 3,787 4,309
Net Income $ 10,568 $ 16,798
Average Number of Shares of Common 52,717 54,144
Stock Outstanding (in thousands)
Per Common Share:
Earnings $ .20 $ .31
Dividends Declared $ .385 $ .385
Dividends Paid $ .385 $ .385
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<PAGE>
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Thousands of Dollars
Year-to-Date June 30,
1995 1994
(unaudited)
Operating Revenues-Electric $424,834 $437,920
Operating Expenses:
Energy 84,392 90,867
Purchased Capacity 92,984 67,669
Operations 73,554 75,222
Maintenance 14,731 18,048
Depreciation and Amortization 38,919 36,766
State Excise Taxes 47,360 51,091
Federal Income Taxes 12,339 21,994
Other Taxes 5,175 6,124
Total Operating Expenses 369,454 367,781
Operating Income 55,380 70,139
Other Income:
Allowance for Equity Funds Used During
Construction 659 1,722
Other-Net 3,902 4,179
Total Other Income 4,561 5,901
Interest Charges:
Interest on Long Term Debt 29,146 28,619
Other Interest Expense 1,908 380
Total Interest Charges 31,054 28,999
Allowance for Borrowed Funds Used
During Construction (725) (1,238)
Net Interest Charges 30,329 27,761
Less Preferred Stock Dividend
Requirements of Subsidiary 7,575 8,619
Net Income 22,037 39,660
Retained Earnings at Beginning of 249,181 256,549
Period
271,218 296,209
Dividends Declared on Common Stock (40,773) (41,652)
Retained Earnings at End of Period $230,445 $254,557
Average Number of Shares of Common 53,094 53,944
Stock Outstanding (in thousands)
Per Common Share:
Earnings $ .42 $ .74
Dividends Declared $ .77 $ .77
Dividends Paid $ .77 $ .77
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Thousands of Dollars
Year-to-Date June 30,
1995 1994
(unaudited)
Cash Flows Of Operating Activities:
Net Income $ 22,037 $ 39,660
Deferred Purchased Power Costs 7,852 7,290
Deferred Energy Costs (5,901) (22,802)
Depreciation and Amortization 38,919 36,766
Deferred Income Taxes-Net 4,101 24,143
Prepaid State Excise Taxes (51,358) (86,419)
Employee Separation Costs (11,176) -
Net Increase in Other Working Capital (7,041) (30,060)
Preferred Stock Dividend Requirements
of Subsidiary 7,575 8,619
Other-Net 2,602 (686)
Net Cash Provided (Used) by Operating
Activities 7,610 (23,489)
Cash Flows Of Investing Activities:
Utility Cash Construction Expenditures (43,575) (53,052)
Leased Property (3,986) (2,473)
Nuclear Decommissioning Trust Fund
Deposits (3,212) (3,212)
Utility Plant Removal Costs (2,360) (1,504)
Other-Net 1,474 (4,495)
Net Cash Used by Investing Activities (51,659) (64,736)
Cash Flows Of Financing Activities:
Proceeds from Long Term Debt 43,367 22,693
Retirement and Maturity of Long Term Debt - (24,994)
Increase in Short Term Debt 75,400 64,100
Proceeds from Common Stock Issued - 9,837
Purchases of Common Stock (28,421) -
Dividends Declared on Preferred Stock (7,575) (8,619)
Dividends Declared on Common Stock (40,635) (34,130)
Other-Net 3,324 2,360
Net Cash Provided by Financing
Activities 45,460 31,247
Net Increase (Decrease) in Cash and
Temporary Investments 1,411 (56,978)
Cash and Temporary Investments,
beginning of period 5,114 73,635
Cash and Temporary Investments,
end of period $ 6,525 $ 16,657
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
Thousands of Dollars
June 30, December 31,
1995 1994
(unaudited)
ASSETS
Electric Utility Plant:
In Service $2,385,780 $2,348,873
Less Accumulated Depreciation 760,264 725,999
Net 1,625,516 1,622,874
Construction Work in Progress 112,469 110,078
Land Held for Future Use 6,941 6,941
Leased Property-Net 38,353 42,030
Electric Utility Plant-Net 1,783,279 1,781,923
Investments and Nonutility Property:
Investment in Leveraged Leases 78,619 78,216
Nuclear Decommissioning Trust Fund 56,659 52,004
Nonutility Property and Equipment-Net 19,526 18,163
Other Investments and Funds 31,387 28,940
Total Investments and Non-
Utility Property 186,191 177,323
Current Assets:
Cash and Temporary Investments 6,525 5,114
Accounts Receivable:
Utility Service 53,596 54,554
Miscellaneous 12,324 14,067
Allowance for Doubtful Accounts (3,300) (3,300)
Unbilled Revenues 35,436 32,070
Fuel (at average cost) 23,874 28,030
Materials and Supplies (at average cost) 26,488 27,823
Working Funds 14,666 14,475
Deferred Energy Costs 16,900 10,999
Deferred Income Taxes 9,354 12,264
Prepaid State Excise Taxes 61,425 5,287
Other 7,089 6,596
Total Current Assets 264,377 207,979
Deferred Debits:
Unrecovered Purchased Power Costs 107,686 115,538
Recoverable Future Federal Income Taxes 85,854 85,854
Unrecovered State Excise Taxes 69,054 73,834
Unamortized Debt Costs 36,538 38,184
Other Regulatory Assets 52,720 47,055
Other 15,542 17,865
Total Deferred Debits 367,394 378,330
Total Assets $2,601,241 $2,545,555
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS<PAGE>
CONSOLIDATED BALANCE SHEET
Thousands of Dollars
June 30, December 31,
1995 1994
(unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Shareholders' Equity:
Common Stock $ 564,975 $ 593,475
Retained Earnings 230,445 249,181
Total Common Shareholders' Equity 795,420 842,656
Preferred Stock of Atlantic Electric:
Not Subject to Mandatory Redemption 40,000 40,000
Subject to Mandatory Redemption 149,250 149,250
Long Term Debt 791,100 778,288
Total Capitalization
(excluding current portion) 1,775,770 1,810,194
Current Liabilities:
Cumulative Preferred Stock Redemption
Requirement 12,250 12,250
Long Term Debt-Current Portion 31,747 1,000
Short Term Debt 84,000 8,600
Accounts Payable 53,301 66,080
Taxes Accrued 16,152 10,409
Interest Accrued 19,806 19,168
Dividends Declared 24,037 24,681
Accrued Employee Separation Costs 15,424 26,600
Other 15,371 19,813
Total Current Liabilities 272,088 188,601
Deferred Credits and Other Liabilities:
Deferred Income Taxes 414,790 412,574
Deferred Investment Tax Credits 50,379 51,646
Capital Lease Obligations 37,727 41,111
Other 50,487 41,429
Total Deferred Credits and
Other Liabilities 553,383 546,760
Total Liabilities and Capitalization $2,601,241 $2,545,555
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Atlantic Energy, Inc. (the Company or AEI) is a public
utility holding company. Its principal subsidiary is
Atlantic City Electric Company (ACE), an electric utility.
On January 1, 1995, AEI transferred direct ownership of its
nonutility companies to a new subsidiary, Atlantic Energy
Enterprises, Inc. (AEE). AEE serves as the holding company
for the following nonutility companies: Atlantic
Generation, Inc. (AGI), ATE Investment, Inc. (ATE), Atlantic
Southern Properties, Inc. (ASP), Atlantic Energy Technology,
Inc. (AET), and Atlantic Thermal Systems, Inc. (ATS). The
consolidated financial statements include the accounts of
the Company and its subsidiaries, all of which are wholly-
owned. All significant intercompany accounts and
transactions have been eliminated in consolidation. The
results of operations of the nonutility companies are not
significant and are classified under Other Income in the
Consolidated Statement of Income. These consolidated
financial statements reflect all normal, recurring
adjustments and accruals which, in the opinion of
management, are necessary for a fair presentation of the
consolidated financial statements presented. The notes to
the consolidated financial statements accompanying the
Company's 1994 Annual Report to Shareholders and Form 10-K
filed with the Securities and Exchange Commission should be
read in conjunction with this report. Note 1 of these
annual reports specifically identifies the significant
accounting policies of the Company. The consolidated
balance sheet contained in the financial statements
presented herein that is labeled December 31, 1994 was
derived from the audited consolidated balance sheet
presented in the 1994 Annual Report to Shareholders and Form
10-K. Certain prior year amounts have been reclassified to
conform to the current year reporting.
2. The components of Federal Income Tax expense are as follows
(in thousands of dollars):
Quarter Ended June 30,
1995 1994
(unaudited)
Current $ 3,126 $ 1,918
Deferred 2,460 8,112
Total Federal Income Tax Expense 5,586 10,030
Less Amounts Included in Other Income (556) 676
Federal Income Taxes Included
in Operating Expenses $ 6,142 $ 9,354
A reconciliation of the expected Federal income taxes
compared to the reported Federal Income Tax expense computed
by applying the statutory rate follows:
Tax Computed at the Statutory Rate
of 35% $ 6,979 $10,898
Utility Plant Basis Differences 431 1,181
Investment Tax Credits (641) (633)
Other-Net (1,183) (1,416)
Total Federal Income Tax Expense $ 5,586 $10,030
Effective Federal Income Tax Rate 28% 32%
Year-to-Date June 30,
1995 1994
(unaudited)
Current $ 8,278 $(1,206)
Deferred 3,993 24,199
Total Federal Income Tax Expense 12,271 22,993
Less Amounts Included in Other Income (68) 999
Federal Income Taxes Included
in Operating Expenses $12,339 $21,994
Tax Computed at the Statutory Rate
of 35% $14,659 $24,945
Utility Plant Basis Differences 793 1,508
Investment Tax Credits (1,275) (1,267)
Other-Net (1,906) (2,193)
Total Federal Income Tax Expense $12,271 $22,993
Effective Federal Income Tax Rate 29% 32%
The Internal Revenue Service has proposed certain adjustments in
taxes for 1984 through 1986 which would increase the Federal
income tax liability by approximately $5 million. The Company is
protesting certain of the proposed adjustments, and in the
opinion of management, the ultimate outcome will not have a
material effect on the Company's consolidated financial
statements.
3. On April 17, 1995, ACE filed a petition with the New Jersey
Board of Public Utilities (BPU) requesting a $37.0 million
increase in annual levelized energy clause (LEC) revenues.
The petition also requested that the proposed rates be
implemented on a provisional basis, for service rendered on
and after June 1, 1995. This request for provisional rates
was to avoid any further increase in the proposed rates that
would result from compression as the implementation of the
proposed rates are delayed beyond the June 1, 1995 date.
Compression is the result of the fact that a shorter
recovery period will require the increase in costs be
collected over a reduced level of sales. The requested LEC
increase is due primarily to increased costs associated with
the purchase of 569 megawatts of energy and capacity from
Independent Power Producers (IPP's). ACE has BPU approved
contracts with four IPP's. This LEC request represents the
first filing that includes a full year of contract costs for
all four IPP's. Though ACE's petition supports a $67.6
million increase in LEC revenues, ACE has voluntarily
reduced its request by $30.6 million in order to keep its
rates competitive. This reduction was accomplished by
offering to forego the recovery of $10 million in LEC
revenues under the Southern New Jersey Economic Initiative
tariff rider and to defer recovery of $20.6 million of LEC
costs. ACE will seek full recovery of the $20.6 million
deferred LEC costs, without carrying costs, in its next LEC
filing. On July 7, 1995 the BPU approved the provisional
$37 million increase in the annual LEC revenues effective
for service rendered to customers on and after July 7, 1995.
A final BPU decision is expected in the fourth quarter of
1995.
On November 1, 1994, ACE filed a Motion with the BPU for
reconsideration of its order in the matter of the Generic
Proceeding on the Double Recovery of Capacity Costs. By its
order the BPU found that the Ratepayer Advocate had reserved
its right to argue for an adjustment to the LEC rates
approved in the 1992, 1993 and 1994 LEC proceedings. ACE's
Motion argues that the Stipulation settling the 1992 LEC and
the BPU's order approving that Stipulation did not include
language granting such rights to the Ratepayer Advocate. On
March 22, 1995, ACE's Motion was denied by the BPU on the
grounds that this issue was previously addressed in its
initial order. At this time ACE has not determined if it
will appeal the BPU's decision in this matter. As to the
Generic Proceeding, evidentiary hearings are scheduled
throughout 1995 and a final decision is expected in 1996.
On June 23, 1995, ACE received testimony of the Ratepayer
Advocate's witnesses. However, that testimony did not
quantify the Ratepayer Advocate's position as related to
ACE. The Ratepayer Advocate has stated that the
quantification will be presented in supplemental testimony.
ACE cannot predict the outcome of the decision at this time.
4. In May 1995 ACE issued and sold $25 million principal amount
of First Mortgage Bonds Designated Secured Medium Term
Notes, Series C in the following increments: $10 million of
7.00% Series due 2001; $5 million of 7.04% Series due 2002;
$9 million of 7.15% Series due 2004; $1 million of 7.15%
Series due 2007. Net proceeds in the amount of $24.9 million
from these issuances were used for ACE's ongoing
construction program, the repayment of short term debt and
for other general corporate purposes.
ACE's Cumulative Preferred Stock and long term debt
securities are not widely held and generally trade
infrequently. Their estimated aggregate fair market values
at June 30,1995 are approximately $196 million and $788
million, respectively. At June 30, 1995, ATE had
outstanding $19.5 million from its revolving credit and term
loan facility. The estimated aggregate fair market value at
June 30, 1995 of ATE's Senior Notes was approximately $15.5
million.
At June 30, 1995, ACE had outstanding $64.0 million of short
term debt with maturities of one to four months. In June
1995, AEI established a non-secured short term debt facility
with maximum borrowing of up to $20 million. At June 30,
1995, AEI had $20 million outstanding from this facility.
Proceeds from this borrowing were used to repay funds
temporarily provided by subsidiary companies and for the
acquisition of the Company's common stock. As of June 30,
1995 AEI had $5.5 million outstanding in temporary funding
from subsidiaries.
5. As of June 30, 1995 and December 31, 1994, 52,598,078 and
54,155,245 shares of common stock were outstanding,
respectively. During the second quarter of 1995, the Company
reacquired and retired 541,400 shares of its common stock at
a cost of $10.0 million. Year-to-date ended June 30, 1995,
the Company reacquired and retired 1,560,000 shares of its
common stock at a total cost of $28.4 million. The prices
paid for these shares ranged from $17.625 to $18.875 per
share. Funding for the stock acquisition has been provided
in part by temporary funding from subsidiary companies and
the short term borrowing facility referred to above.
6. On May 16, 1995 and June 7, 1995 ACE, a 7.41% owner in the
Salem Nuclear Generating Station (Salem), was advised by
Public Service Electric & Gas Company (PS), operator of
Salem, that Salem Unit 1 and Unit 2, respectively, were
taken out of service on those respective dates. PS
subsequently informed the Nuclear Regulatory Commission that
the units would remain shutdown until there could be a
thorough review and resolution of certain equipment and
management issues that have affected Salem's operation. PS
estimates that Unit 1 and Unit 2 are expected to return to
service during the first and second quarter of 1996,
respectively, although no assurances have been given by PS.
Replacement power costs to be incurred by ACE while the
units are out of service are expected to approximate $1
million per month. PS has determined that restart
activities will cost approximately $40 million.
ACE is subject to a nuclear performance standard for all of
its jointly-owned nuclear units. ACE anticipates that the
1995 aggregate capacity factor of the five nuclear units in
which ACE owns a minority interest will be below the 65%
minimum annual standard established by the BPU primarily due
to the shutdown of the above mentioned units. As a result,
ACE currently estimates a performance penalty of
approximately $1.8 million.
ACE is evaluating the legal, regulatory and
administrative implications of these events. At this time,
it is impossible to predict what action may be taken, if
any, by participation in any regulatory, administrative or
civil proceedings which, if commenced, may affect the
outcome of these matters and the responsibility of all for
such costs and penalties.
<PAGE>
CONSOLIDATED STATEMENT OF INCOME
Thousands of Dollars
Quarter Ended June 30,
1995 1994
(unaudited)
Operating Revenues-Electric $206,246 $205,861
Operating Expenses:
Energy 37,167 35,434
Purchased Capacity 46,839 36,811
Operations 35,986 39,834
Maintenance 7,917 8,977
Depreciation and Amortization 19,462 18,445
State Excise Taxes 22,600 24,695
Federal Income Taxes 6,142 9,354
Other Taxes 2,378 2,012
Total Operating Expenses 178,491 175,562
Operating Income 27,755 30,299
Other Income:
Allowance for Equity Funds Used During
Construction 175 813
Miscellaneous Income-Net 3,087 2,105
Total Other Income 3,262 2,918
Interest Charges:
Interest on Long Term Debt 14,549 12,741
Other Interest Expense 1,705 454
Total Interest Charges 16,254 13,195
Allowance for Borrowed Funds Used
During Construction (348) (613)
Net Interest Charges 15,906 12,582
Net Income 15,111 20,635
Less Preferred Dividend Requirements 3,787 4,309
Balance Available for Common Shareholder $ 11,324 $ 16,326
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
CONSOLIDATED STATEMENT OF INCOME AND RETAINED EARNINGS
Thousands of Dollars
Year-to-Date June 30,
1995 1994
(unaudited)
Operating Revenues-Electric $424,912 $437,995
Operating Expenses:
Energy 84,392 90,867
Purchased Capacity 92,984 67,669
Operations 73,676 75,514
Maintenance 14,747 18,090
Depreciation and Amortization 38,919 36,766
State Excise Taxes 47,360 51,091
Federal Income Taxes 12,339 21,994
Other Taxes 5,175 6,124
Total Operating Expenses 369,592 368,115
Operating Income 55,320 69,880
Other Income:
Allowance for Equity Funds Used During
Construction 659 1,722
Miscellaneous Income-Net 5,240 3,925
Total Other Income 5,899 5,647
Interest Charges:
Interest on Long Term Debt 29,146 28,619
Other Interest Expense 1,908 380
Total Interest Charges 31,054 28,999
Allowance for Borrowed Funds Used
During Construction (725) (1,238)
Net Interest Charges 30,329 27,761
Net Income 30,890 47,766
Retained Earnings at Beginning of Period 249,767 256,961
280,657 304,727
Dividends Declared:
Cumulative Preferred Stock (7,575) (8,619)
Common Stock (40,786) (41,652)
Total Dividends Declared (48,361) (50,271)
Retained Earnings at End of Period $232,296 $254,456
Earnings for Common Stock:
Net Income $ 30,890 $ 47,766
Less Preferred Dividend Requirements 7,575 8,619
Balance Available for Common Shareholder $ 23,315 $ 39,147
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
Thousands of Dollars
Year-to-Date June 30,
1995 1994
(unaudited)
Cash Flows Of Operating Activities:
Net Income $ 30,890 $ 47,766
Deferred Purchased Power Costs 7,852 7,290
Deferred Energy Costs (5,901) (22,802)
Depreciation and Amortization 38,919 36,766
Deferred Federal Income Taxes-Net 2,612 23,179
Prepaid State Excise Taxes (51,358) (86,419)
Employee Separation Costs (11,176) -
Net Increase in Other Working Capital (3,736) (30,960)
Other-Net 4,816 (236)
Net Cash Provided (Used) in Operating
Activities 12,918 (25,416)
Cash Flows Of Investing Activities:
Cash Construction Expenditures (43,575) (53,052)
Leased Property (3,986) (2,473)
Nuclear Decommissioning Trust Fund
Deposits (3,212) (3,212)
Plant Removal Costs (2,360) (1,504)
Other-Net 4,511 (1,277)
Net Cash Used in Investing Activities (48,622) (61,518)
Cash Flows Of Financing Activities:
Proceeds from Long Term Debt 24,867 22,693
Retirement and Maturity of Long Term Debt - (24,994)
Increase in Short Term Debt 55,400 64,100
Proceeds from Capital Lease Obligations 3,986 2,473
Capital Contributions 313 26,430
Dividends Declared on Preferred Stock (7,575) (8,619)
Dividends Declared on Common Stock (40,786) (41,652)
Other-Net (447) (109)
Net Cash Provided by Financing
Activities 35,758 40,322
Net Increase (Decrease)in Cash and
Temporary Investments 54 (46,612)
Cash and Temporary Investments,
beginning of period 3,459 60,243
Cash and Temporary Investments,
end of period $ 3,513 $ 13,631
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEET
Thousands of Dollars
June 30, December 31,
1995 1994
(unaudited)
ASSETS
Electric Utility Plant:
In Service $2,385,780 $2,348,873
Less Accumulated Depreciation 760,264 725,999
Net 1,625,516 1,622,874
Construction Work in Progress 112,469 110,078
Land Held for Future Use 6,941 6,941
Leased Property-Net 38,353 42,030
Electric Utility Plant-Net 1,783,279 1,781,923
Investments and Nonutility Property
Nuclear Decommissioning Trust Fund 56,659 52,004
Other Property, Investments and Funds 1,982 3,139
Total Investments and Nonutility
Property 58,641 55,143
Current Assets:
Cash and Temporary Investments 3,513 3,459
Accounts Receivable:
Utility Service 53,596 54,554
Miscellaneous 13,890 15,804
Allowance for Doubtful Accounts (3,300) (3,300)
Unbilled Revenues 35,436 32,070
Fuel (at average cost) 23,874 28,030
Materials and Supplies (at average cost) 26,488 27,823
Working Funds 14,665 14,475
Deferred Energy Costs 16,900 10,999
Deferred Income Taxes 9,255 12,141
Prepaid State Excise Taxes 61,425 5,287
Prepayments 4,620 6,473
Total Current Assets 260,362 207,815
Deferred Debits:
Unrecovered Purchased Power Costs 107,686 115,538
Recoverable Future Federal Income Taxes 85,854 85,854
Unrecovered State Excise Taxes 69,054 73,834
Unamortized Debt Costs 36,448 38,083
Other Regulatory Assets 52,720 47,055
Other 14,193 16,071
Total Deferred Debits 365,955 376,435
Total Assets $2,468,237 $2,421,316
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
CONSOLIDATED BALANCE SHEET
Thousands of Dollars
June 30, December 31,
1995 1994
(unaudited)
LIABILITIES AND CAPITALIZATION
Capitalization:
Common Shareholder's Equity:
Common Stock $ 54,963 $ 54,963
Premium on Capital Stock 231,081 231,081
Contributed Capital 263,062 262,749
Capital Stock Expense (2,300) (2,300)
Retained Earnings 232,296 249,767
Total Common Shareholder's Equity 779,102 796,260
Cumulative Preferred Stock:
Not Subject to Mandatory Redemption 40,000 40,000
Subject to Mandatory Redemption 149,250 149,250
Long Term Debt 776,100 763,288
Total Capitalization
(excluding current portion) 1,744,452 1,748,798
Current Liabilities:
Cumulative Preferred Stock Redemption
Requirement 12,250 12,250
Long Term Debt-Current Portion 12,247 -
Short Term Debt 64,000 8,600
Accounts Payable 53,239 65,632
Federal Income Taxes Payable-Affiliate 15,582 9,537
Other Taxes Accrued 3,734 3,490
Interest Accrued 19,617 19,048
Dividends Declared 24,037 24,681
Accrued Employee Separation Costs 15,424 26,600
Other 14,614 19,134
Total Current Liabilities 234,744 188,972
Deferred Credits and Other Liabilities:
Deferred Income Taxes 351,691 350,697
Deferred Investment Tax Credits 50,379 51,646
Capital Lease Obligations 37,726 41,102
Other 49,245 40,101
Total Deferred Credits and
Other Liabilities 489,041 483,546
Total Liabilities and Capitalization $2,468,237 $2,421,316
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Atlantic City Electric Company (the Company) is a wholly-
owned subsidiary of Atlantic Energy, Inc. The consolidated
financial statements include the accounts of the Company and
its subsidiary, which is wholly-owned. All significant
intercompany accounts and transactions have been eliminated
in consolidation. These consolidated financial statements
reflect all normal, recurring adjustments and accruals
which, in the opinion of management, are necessary for a
fair presentation of the consolidated financial statements
presented. The notes to the consolidated financial
statements accompanying the Company's 1994 Annual Report on
Form 10-K filed with the Securities and Exchange Commission
should be read in conjunction with this report. Note 1 of
these annual reports specifically identifies the significant
accounting policies of the Company. The consolidated
balance sheet contained in the financial statements
presented herein that is labeled December 31, 1994 was
derived from the audited consolidated balance sheet
presented in the 1994 Form 10-K. Certain prior year amounts
have been reclassified to conform to the current year
reporting.
<PAGE>
2. The components of Federal Income Tax expense are as follows
(in thousands of dollars):
Quarter Ended June 30,
1995 1994
(unaudited)
Current $ 4,225 $ 2,353
Deferred 1,780 7,579
Total Federal Income Tax Expense 6,005 9,932
Less Amounts Included in Other Income (137) 578
Federal Income Taxes Included
in Operating Expenses $ 6,142 $ 9,354
A reconciliation of the expected Federal income taxes
compared to the reported Federal Income Tax expense computed
by applying the statutory rate follows:
Tax Computed at the Statutory Rate
of 35% $ 7,390 $10,699
Utility Plant Basis Differences 431 1,181
Investment Tax Credits (633) (633)
Other-Net (1,183) (1,315)
Total Federal Income Tax Expense $ 6,005 $ 9,932
Effective Federal Income Tax Rate 28% 32%
Year-to-Date June 30,
1995 1994
(unaudited)
Current $10,297 $ (187)
Deferred 2,612 23,179
Total Federal Income Tax Expense 12,909 22,992
Less Amounts Included in Other Income 570 998
Federal Income Taxes Included
in Operating Expenses $12,339 $21,994
Tax Computed at the Statutory Rate
of 35% $15,330 $24,765
Utility Plant Basis Differences 793 1,508
Investment Tax Credits (1,267) (1,267)
Other-Net (1,947) (2,014)
Total Federal Income Tax Expense $12,909 $22,992
Effective Federal Income Tax Rate 29% 32%
The Internal Revenue Service has proposed certain adjustments in
taxes for 1984 through 1986 which would increase the Federal
income tax liability by approximately $5 million. The Company is
protesting certain of the proposed adjustments, and in the
opinion of management, the ultimate outcome will not have a
material effect on the Company's consolidated financial
statements.
3. On April 17, 1995, the Company filed a petition with the New
Jersey Board of Public Utilities (BPU) requesting a $37.0
million increase in annual levelized energy clause (LEC)
revenues. The petition also requested that the proposed
rates be implemented on a provisional basis, for service
rendered on and after June 1, 1995. This request for
provisional rates was to avoid any further increase in the
proposed rates that would result from compression as the
implementation of the proposed rates are delayed beyond the
June 1, 1995 date. Compression is the result of the fact
that a shorter recovery period will require the increase in
costs be collected over a reduced level of sales. The
requested LEC increase is due primarily to increased costs
associated with the purchase of 569 megawatts of energy and
capacity from Independent Power Producers (IPP's). The
Company has BPU approved contracts with four IPP's. This
LEC request represents the first filing that includes a full
year of contract costs for all four IPP's. Though the
Company's petition supports a $67.6 million increase in LEC
revenues, the Company has voluntarily reduced its request by
$30.6 million in order to keep its rates competitive. This
reduction was accomplished by offering to forego the
recovery of $10 million in LEC revenues under the Southern
New Jersey Economic Initiative tariff rider and to defer
recovery of $20.6 million of LEC costs. The Company will
seek full recovery of the $20.6 million deferred LEC costs,
without carrying costs, in its next LEC filing. On July 7,
1995 the BPU approved the provisional $37 million increase
in the annual LEC Revenues effective for service rendered to
customers on and after July 7, 1995. A final BPU decision
is expected in the fourth quarter of 1995.
On November 1, 1994, the Company filed a Motion with the BPU
for reconsideration of its order in the matter of the
Generic Proceeding on the Double Recovery of Capacity Costs.
By its order the BPU found that the Ratepayer Advocate had
reserved its right to argue for an adjustment to the LEC
rates approved in the 1992, 1993 and 1994 LEC proceedings.
The Company's Motion argues that the Stipulation settling
the 1992 LEC and the BPU's order approving that Stipulation
did not include language granting such rights to the
Ratepayer Advocate. On March 22, 1995, the Company's Motion
was denied by the BPU on the grounds that this issue was
previously addressed in its initial order. At this time the
Company has not determined if it will appeal the BPU's
decision in this matter. As to the Generic Proceeding,
evidentiary hearings are scheduled throughout 1995 and a
final decision is expected in 1996. On June 23, 1995, the
Company received the testimony of the Ratepayer Advocate's
witnesses. However, that testimony did not quantify the
Ratepayer Advocate's position as related to the Company.
The Ratepayer Advocate has stated that the quantification
will be presented in supplemental testimony. The Company
cannot predict the outcome of the decision at this time.
4. In May 1995, the Company issued and sold $25 million of
First Mortgage Bonds, Designated Secured Medium Term Notes,
Series C in the following increments: $10 million of 7.00%
Series due 2001; $5 million of 7.04% Series due 2002; $9
million of 7.15% Series due 2004 and $1 million of 7.15%
Series due 2007. Net proceeds in the amount of $24.9 million
from these issuances were used for the Company's ongoing
construction program, repayment of short term debt and other
general corporate purposes. At June 30, 1995, the Company
had outstanding $64.0 million of short term debt which
consisted of notes payable to banks, with maturities of one
to four months. The Company's Cumulative Preferred Stock
and long term debt securities are not widely held and
generally trade infrequently. Their estimated aggregate
fair market values at June 30, 1995 are approximately $196
million and $788 million, respectively.
5. On May 16, 1995 and June 7, 1995 the Company, a 7.41% owner
in the Salem Nuclear Generating Station (Salem), was advised
by Public Service Electric & Gas Company (PS), operator of
Salem, that Salem Unit 1 and Unit 2, respectively, were
taken out of service on these respective dates. PS
subsequently informed the Nuclear Regulatory Commission that
the units would remain shutdown until there could be a
thorough review and resolution of certain equipment and
management issues that have affected Salem's operation. PS
estimates that Unit 1 and Unit 2 are expected to return to
service during the first and second quarter of 1996,
respectively, although no assurances have been given by PS.
Replacement power costs to be incurred by the Company while
the units are out of service are expected to approximate $1
million per month. PS has determined that restart
activities will cost $40 million.
The Company is subject to a nuclear performance standard for
all of its jointly-owned nuclear units. The Company
anticipates that the 1995 aggregate capacity factor of the
five nuclear units in which the Company owns a minority
interest will be below the 65% minimum annual standard
established by the BPU due primarily to the shutdown of the
above mentioned units. As a result, the Company currently
estimates a performance penalty of approximately $1.8
million.
The Company is evaluating the legal, regulatory and
administrative implications of these events. At this time,
it is impossible to predict what action may be taken, if
any, by participation in any regulatory, administrative or
civil proceedings which, if commenced, may affect the
outcome of these matters and the responsibility of all for
such costs and penalties.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited)
The following is management's discussion and analysis of
significant factors which affected the Company's interim
financial condition and results of operations. To properly
assess and evaluate the Company's performance one should read, in
conjunction with this report, the Management's Discussion and
Analysis of Financial Condition and Results of Operations
included in the Company's 1994 Annual Report on Form 10-K filed
with the Securities and Exchange Commission.
LIQUIDITY AND CAPITAL RESOURCES
In May 1995, the Company issued and sold $25 million of First
Mortgage Bonds Designated Secured Medium Term Notes, Series C in
the following increments: $10 million of 7.00% Series due 2001;
$5 million of 7.04% Series due 2002; $9 million of 7.15% Series
due 2004 and $1 million of 7.15% Series due 2007. Net proceeds
in the amount of $24.9 million from these issuances were used for
the Company's ongoing construction program, repayment of short
term debt and other general corporate purposes. At June 30,
1995, the Company had outstanding $64.0 million of short term
debt which consisted of notes payable to banks.
During the second quarter of 1995, the Company received payment
from its parent company for the temporary funding it had provided
to the parent.
RESULTS OF OPERATIONS
Net income decreased for the quarter and year-to-date periods
ended June 30, 1995 by 26.8% and 35.3% from the corresponding
periods of 1994. The decrease in net income for the current
quarter ended period is primarily due to increased purchased
capacity costs and interest expense, offset in part by lower
operations expenses and Federal income taxes. The decrease in net
income for the year-to-date period is primarily due to the
decline in Sales for Resale when compared to the same period of
1994. The Company's Southern New Jersey Economic Initiative
(SNJEI) has also contributed to the reduction in the current year
earnings because the recovery of otherwise eligible energy costs
were foregone.
Significant factors contributing to these changes are explained
below. Unless otherwise specified, changes are in terms of the
current year period compared to the corresponding prior year
period.
<PAGE>
Revenues
Changes in Operating Revenues-Electric are disclosed in the
following table:
Periods Ended June 30, 1995
(Thousands of Dollars)
Quarter Year-to-Date
Base Revenues $ (910) $ (2,169)
Levelized Energy Clause 11,658 25,179
Kilowatt-hour Sales (1,672) (21,037)
Unbilled Revenues (1,318) 4,336
Sales for Resale (7,172) (19,228)
Other Revenues (201) (164)
Total $ 385 $(13,083)
Levelized Energy Clause (LEC) Revenues for the period increased
due to a rate increase in July 1994 of $55 million on an annual
basis. Changes in Kilowatt-hour Sales are explained in the
following section 'Billed Sales to Ultimate Customers'. The
changes in Unbilled Revenues are a result of the amount of
kilowatt-hours consumed by, but not yet billed to, ultimate
customers at the end of the respective periods, which amounts are
affected by weather and economic conditions and the corresponding
price per kilowatt-hour in effect. The changes in Sales for
Resale to wholesale customers are a function of the Company's
energy mix strategy, which in turn is dependent upon its needs
for energy, the energy needs of other utilities participating in
the regional power pool of which the Company is a member, and the
sources and prices of energy available. The decline in Sales for
Resale for the quarter and year-to-date periods primarily reflect
a decrease in supplemental excess energy sources available to the
Company due to the expiration of a 200 megawatt capacity
arrangement in May 1994. The year-to-date decline also
recognizes a decrease in the demands of the regional power pool
in the current period due to the mild weather conditions during
the current year when compared to the extreme weather conditions
of 1994.
Billed Sales to Ultimate Customers
Changes in billed kilowatt-hour sales are generally due to
changes in the average number of customers and average customer
use, which is affected by economic and weather conditions.
Energy sales statistics, stated as percentage changes from the
corresponding period of the prior year, are shown below.
Periods Ended June 30, 1995
Quarter Year-to-Date
Average Average
Customer Class Sales Use Cust Sales Use Cust
Residential (2.4)% (3.7)% 1.4% (8.6)% (9.8)% 1.3%
Commercial 1.7 - 1.6 (.9) (2.6) 1.8
Industrial (4.6) (6.0) 1.5 (8.0) (9.4) 1.5
Total (1.0) (2.4) 1.4 (5.4) (6.7) 1.3
The decrease in Residential sales and average use for the quarter
is due to the unfavorable weather conditions experienced in the
current year as compared to the previous year. The year-to-date
decrease is due to the significantly below normal temperatures
experienced during the 1994 heating season as compared to the
above normal temperatures for the current period. Sales to the
Commercial sector increased in the current quarter due to
economic growth. The year-to-date growth in this sector is
mitigated by the significant decrease in sales due to weather
conditions during the first quarter of 1995.
Approximately one-half of the increase in the number of
Commercial customers is due to the continuing popularity of ACE's
night lighting programs. Industrial sales were lower primarily
as a result of a former customer taking energy service from an
independent power producer commencing in June 1994.
Expenses
Total Operating Expenses for quarter and year-to-date periods
ended June 30, 1995 increased by 1.7% and 0.4%, respectively.
Excluding depreciation and taxes, Total Operating Expenses
increased by 5.7% and 5.4%, respectively.
Energy expense reflects the amount of energy needed to meet load
requirements, as well as the various fuel and purchased energy
sources used and the operation of the LEC. Changes in costs
reflect the varying availability of low-cost generation from
Company-owned and purchased energy sources and in the unit prices
of the energy sources used, as well as changes in the needs of
other utilities participating in the regional power pool. The
cost of energy is recovered from customers primarily through the
operation of the LEC. Generally earnings are not affected by
Energy costs because these costs are adjusted to match the
associated LEC revenues. However, since July 1994 the Company
has voluntarily foregone recovery of certain amounts of otherwise
recoverable fuel costs, thereby reducing earnings. Such forgone
recoveries are discretionary by the Company, and are influenced
by competitive and economic factors. Otherwise, in any period the
actual amount of LEC revenue recovered from customers will be
greater or less than the actual amount of energy cost incurred
and eligible for recovery in that period. Such respective
overrecovery or underrecovery of energy costs is recorded on the
Consolidated Balance Sheet as a liability or asset as
appropriate. Amounts on the balance sheet are recognized in the
Consolidated Statement of Income within Energy expense during the
period in which they are subsequently recovered through the LEC.
The Company was underrecovered by $16.9 million at June 30, 1995
as compared to $11 million at December 31, 1994.
Energy expense for the quarter and year-to-date periods increased
by 4.9% and decreased by 7.1%, respectively. Excluding deferred
energy costs, Energy expense for the quarter and year-to-date
periods decreased by 17.5% and 20.0%, respectively. These
decreases are due to lower generation as a result of reduced
energy sales and a more favorable mix of energy supply sources
that reduced per energy costs. This decrease was offset in part
by the effects of the Company's SNJEI which forgoes recovery of
otherwise eligible energy costs. The SNJEI reduced after tax
income for the quarter and year-to-date periods by $3.9 million
and $8.9 million, respectively.
Purchased Capacity expense for the quarter and year-to-date
periods increased 27.2% and 37.4%, respectively. This increase
reflects the impact of capacity supplied by a nonutility
cogeneration facility as a replacement for utility contracted
capacity that expired in May 1994 and additional capacity
supplied by another cogeneration facility that became operational
in late 1994.
Sources of Energy by Fuel Source for the current period ended
June 30, 1995 are as follows:
Quarter Year-to-Date
Coal 35% 36%
Nuclear 26 25
Interchanged and Purchased 19 17
Nonutility Purchased 19 21
Oil and Natural Gas 1 1
100% 100%
Operations expense for the quarter and year-to-date periods
decreased by 9.7% and 2.4%, respectively, and Maintenance expense
for the quarter and year-to-date periods decreased 11.8% and
18.5%, respectively, due to cost reduction initiatives employed
by the Company in 1995.
Depreciation expense for the quarter and year-to-date periods
increased 5.5% and 5.9%, respectively, due to the increased
electric plant in service of the Company.
State Excise Tax expense for the quarter and year-to-date periods
decreased 8.5% and 7.3%, respectively, reflecting decreased
energy sales.
Federal Income Tax expense for the quarter and year-to-date
periods decreased 34.3% and 43.9%, respectively, due to reduced
taxable income.
Total Interest charges for the quarter and year-to-date periods
increased by 23.2% and 7.1%, respectively, reflecting the
increase in short and long term debt outstanding during the
periods.
In December 1994, the Company recorded the expected costs for a
voluntary employee separation program. A total of 319 of the
Company's employees volunteered for the separation package. A
majority of the employee separations occurred as of March 1,
1995, with the remaining separations to take place by December
31, 1995. The balance of the accrued separation costs on the
Consolidated Balance Sheet at June 30, 1995 is $15.4 million
compared to $26.6 million at December 31, 1994. The Company
expects settlement of this obligation to be substantially
completed by the end of 1996.
On May 16, 1995 and June 7, 1995 the Company, a 7.41% owner in
the Salem Nuclear Generating Station (Salem), was advised by
Public Service Electric & Gas Company (PS), operator of the Salem
station, that Salem Unit 1 and Unit 2, respectively, were taken
out of service. PS subsequently informed the Nuclear Regulatory
Commission that the units would remain shutdown until there could
be a thorough review and resolution of certain equipment and
management issues that have affected Salem's operation. PS
estimates that Unit 1 and Unit 2 are expected to return to
service during the first and second quarter of 1996,
respectively, although no assurances have been given by PS.
Replacement power costs to be incurred by the Company while the
units are out of service are expected to approximate $1 million
per month. PS has determined that restart activities will cost
approximately $40 million.
The Company is subject to a nuclear performance standard for all
of its jointly-owned nuclear units. The Company anticipates that
the 1995 aggregate capacity factor of the five nuclear units in
which the Company owns a minority interest will be below the 65%
minimum annual standard established by the BPU primarily due to
the shutdown of the above mentioned units. As a result, the
Company currently estimates a performance penalty of
approximately $1.8 million.
The Company is evaluating the legal, regulatory and
administrative implications of these events. At this time, it is
impossible to predict what action may be taken, if any, by
participation in any regulatory, administrative or civil
proceedings which, if commenced, may affect the outcome of these
matters and the responsibility of all for such costs and
penalties.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (unaudited)
The following is management's discussion and analysis of
significant factors which affected the Company's interim
financial condition and results of operations. To properly
assess and evaluate the Company's performance one should read, in
conjunction with this report, the Management's Discussion and
Analysis of Financial Condition and Results of Operations
included in the Company's 1994 Annual Report to Shareholders
(pages 25-33). ACE is the principal subsidiary of the Company
and the following discussion focuses primarily on ACE.
LIQUIDITY AND CAPITAL RESOURCES
The operating needs of the Company, representing those of the
consolidated group, are dependent upon the results of its
subsidiaries, principally those of ACE.
In May 1995, ACE issued and sold $25 million principal amount of
First Mortgage Bonds, Designated Secured Medium Term Notes,
Series C in the following increments: $10 million of 7.00%
Series due 2001; $5 million of 7.04% Series due 2002; $9 million
of 7.15% Series due 2004 and $1 million of 7.15% Series due 2007.
Net proceeds in the amount of $24.9 million from these issuances
were used for ACE's ongoing construction program, repayment of
short term debt and other general corporate purposes.
As of June 30, 1995, ACE had outstanding $64.0 million in short
term debt, which consisted of notes payable to banks.
In June 1995, AEI established a non-secured short term debt
facility with maximum borrowing of up to $20 million. At June
30, 1995 AEI had $20 million outstanding from this facility.
Proceeds from this borrowing were used to repay funds temporarily
provided by subsidiary companies and for acquisition of the
Company's common stock. As of June 30, 1995 notes payable by AEI
to subsidiaries amounted to $5.5 million. During the same period
ATE increased the debt outstanding from its revolving credit and
term loan facility by $4.6 million to $19.5 million. Proceeds
were used to support the activities of affiliated companies.
The Company reacquired and retired 541,400 shares of its common
stock during the second quarter of 1995 at a total cost of $10.0
million. Year-to-date ended June 30, 1995, the Company
reacquired and retired 1,560,000 shares of its common stock at a
total cost of $28.4 million. Funding for the stock acquisition
has been provided in part by temporary funding from subsidiary
companies and the short term borrowing facility referred to
above.
In July 1995, the Company's Board of Directors authorized up to
$88 million in construction expenditures for Atlantic Thermal
Systems (ATS), and other subsidiaries of Atlantic Energy
Enterprises, Inc. (AEE), to build a district heating and cooling
system designed to serve customers in Atlantic City's business
and casino district. The project is expected to be completed and
placed in-service by mid-1997.
Current year Dividends Declared on Common Stock as presented on
the Consolidated Statement of Cash Flows includes the effects of
market purchases of common stock with reinvested dividends as
instituted since July 1994. Prior to this, dividends reinvested
were applied towards the issuance of original shares.
RESULTS OF OPERATIONS
Net income decreased for the quarter and year-to-date periods
ended June 30, 1995 by 37.1% and 44.4%, respectively, when
compared to the corresponding prior year periods. Earnings per
share for the quarter and year-to-date periods ended June 30,
1995 reflect a decrease of 35.5% and 43.2%, respectively, when
compared to the previous year.
The decrease in net income for the current quarter ended period
is primarily due to increased purchased capacity costs and
interest expense, offset in part by lower operations expense and
Federal income taxes. The decrease in net income for the year-to-
date period is primarily due to the decline in Sales for Resale
when compared to the same period of 1994. ACE's Southern New
Jersey Economic Initiative (SNJEI) has also contributed to the
reduction in the current year earnings because recovery of
otherwise eligible energy costs were foregone.
Significant factors contributing to these changes are explained
below. Unless otherwise specified, changes are in terms of the
current year period compared to the corresponding prior year
period.
Utility Revenues
Changes in Operating Revenues-Electric are disclosed in the
following table:
Periods Ended June 30, 1995
(Thousands of Dollars)
Quarter Year-to-Date
Base Revenues $ (885) $ (2,172)
Levelized Energy Clause 11,658 25,179
Kilowatt-hour Sales (1,672) (21,037)
Unbilled Revenues (1,318) 4,336
Sales for Resale (7,172) (19,228)
Other Revenues (201) (164)
Total $ 410 $(13,086)
Levelized Energy Clause (LEC) Revenues for the period increased
due to a rate increase in July 1994 of $55 million on an annual
basis. Changes in Kilowatt-hour Sales are explained in the
following section 'Billed Sales to Ultimate Utility Customers'.
The changes in Unbilled Revenues are a result of the amount of
kilowatt-hours consumed by, but not yet billed to, ultimate
customers at the end of the respective periods, which amounts are
affected by weather and economic conditions and the corresponding
price per kilowatt-hour. The changes in Sales for Resale to
wholesale customers are a function of ACE's energy mix strategy,
which in turn is dependent upon ACE's needs for energy, the
energy needs of other utilities participating in the regional
power pool of which ACE is a member, and the sources and prices
of energy available. The decline in Sales for Resale for the
quarter and year-to-date periods primarily reflects a decrease in
supplemental energy sources available to ACE due to the
expiration of a 200 megawatt capacity arrangement in May 1994.
The year-to-date decline also recognizes a decrease in the
demands of the regional power pool in the current period due to
the mild weather conditions during the current year when compared
to the extreme weather conditions of 1994.
Billed Sales to Ultimate Utility Customers
Changes in billed kilowatt-hour sales are generally due to
changes in the average number of customers and average customer
use, which is affected by economic and weather conditions.
Energy sales statistics, stated as percentage changes from the
corresponding periods of the prior year, are shown below.
Periods Ended June 30, 1995
Quarter Year-to-Date
Average Average
Customer Class Sales Use Cust Sales Use Cust
Residential (2.4)% (3.7)% 1.4% (8.6)% (9.8)% 1.3%
Commercial 1.7 - 1.6 (.9) (2.6) 1.8
Industrial (4.6) (6.0) 1.5 (8.0) (9.4) 1.5
Total (1.0) (2.4) 1.4 (5.4) (6.7) 1.3
The decrease in Residential sales and average use for the quarter
is due to the unfavorable weather conditions experienced in the
current year as compared to the previous year. The year-to-date
decrease is due to the significantly below normal temperatures
experienced during the 1994 heating season as compared to the
above normal temperatures for the current period. Sales to the
Commercial sector increased in the current quarter due to
economic growth. The year-to-date growth in this sector is
mitigated by the significant decrease in sales due to weather
conditions during the first quarter of 1995. Approximately one-
half of the increase in the number of Commercial customers is due
to the continuing popularity of ACE's night lighting programs.
Industrial sales were lower primarily as a result of a former
customer taking energy service from an independent power producer
commencing in June 1994.
Expenses
Total Operating Expenses for quarter and year-to-date periods
ended June 30, 1995 increased by 1.7% and 0.5%, respectively.
Excluding depreciation and taxes, Total Operating Expenses
increased by 5.8% and 5.5%, respectively.
Energy expense reflects the amount of energy needed to meet load
requirements, as well as the various fuel and purchased energy
sources used and the operation of the LEC. Changes in costs
reflect the varying availability of low-cost generation from ACE-
owned and purchased energy sources and in the unit prices of the
energy sources used, as well as changes in the needs of other
utilities participating in the regional power pool. The cost of
energy is recovered from customers primarily through the
operation of the LEC. Generally, earnings are not affected by
Energy costs because these costs are adjusted to match the
associated LEC revenues. However, since July 1994 ACE has
voluntarily foregone recovery of certain amounts of otherwise
recoverable fuel costs, thereby reducing earnings. Such forgone
recoveries are discretionary by ACE, and are influenced by
competitive and economic factors. Otherwise, in any period the
actual amount of LEC revenue recovered from customers will be
greater or less than the actual amount of energy cost incurred
and eligible for recovery in that period. Such respective
overrecovery or underrecovery of energy costs is recorded on the
Consolidated Balance Sheet as a liability or asset as
appropriate. Amounts on the balance sheet are recognized in the
Consolidated Statement of Income within Energy expense during the
period in which they are subsequently recovered through the LEC.
ACE was underrecovered by $16.9 million at June 30, 1995 as
compared to $11 million at December 31, 1994.
Energy expense for the quarter and year-to-date periods increased
by 4.9% and decreased 7.1%, respectively. Excluding deferred
energy costs, Energy expense for the quarter and year-to-date
periods decreased by 17.5% and 20.0%, respectively. These
decreases are due to lower generation as a result of reduced
energy sales and a more favorable mix in energy supply sources
that reduced unit energy costs. This decrease was offset in part
by the effects of ACE's SNJEI which forgoes recovery of otherwise
eligible energy costs. The SNJEI reduced after tax income for
the quarter and year-to-date periods by $3.9 million and $8.9
million, respectively.
Purchased Capacity expense for the quarter and year-to-date
periods increased 27.2% and 37.4%, respectively. This increase
reflects the combination of capacity supplied by a nonutility
cogeneration facility as a replacement for utility contracted
capacity that expired in May 1994, and additional capacity
supplied by another cogeneration facility that became operational
in late 1994.
<PAGE>
Sources of Energy by Fuel Source for the periods ended June 30,
1995 are as follows:
Quarter Year-To-Date
Coal 35% 36%
Nuclear 26 25
Interchanged and Purchased 19 17
Nonutility Purchased 19 21
Oil and Natural Gas 1 1
Total 100% 100%
Operations expense for the quarter and year-to-date periods
decreased 9.4% and 2.2%, respectively, and Maintenance expense
for the quarter and year-to-date periods decreased 11.6% and
18.4%, respectively, due to cost reduction initiatives employed
by ACE in 1995.
Depreciation expense for the quarter and year-to-date periods
increased 5.5% and 5.9%, respectively, due to the increased
electric plant in service of ACE.
State Excise Tax expense for the quarter and year-to-date periods
decreased 8.5% and 7.3%, respectively, reflecting decreased
energy sales.
Federal Income Tax expense for the quarter and year-to-date
periods decreased 34.3% and 43.9%, respectively, due to reduced
taxable income.
Total Interest charges for the quarter and year-to-date periods
increased by 23.2% and 7.1%, respectively, reflecting the
increase in short and long term debt outstanding during the
periods.
Preferred Stock Dividend Requirements decreased 12.1% for both
the quarter and year-to-date periods as a result of mandatory and
optional redemptions in November of 1994.
In December 1994, ACE recorded the expected costs for a voluntary
employee separation program. A total of 319 ACE employees
volunteered for the separation package. A majority of the
employee separations occurred as of March 1, 1995, with the
remaining separations to take place by December 1995. The
balance of the accrued separation costs on the Consolidated
Balance Sheet at June 30, 1995 is $15.4 million compared to $26.6
million at December 31, 1994. ACE expects settlement of this
obligation to be substantially completed by the end of 1996.
On May 16, 1995 and June 7, 1995 ACE, a 7.41% owner in the Salem
Nuclear Generating Station (Salem), was advised by Public Service
Electric & Gas Company (PS), operator of the Salem station, that
Salem Unit 1 and Unit 2, respectively, were taken out of service.
PS subsequently informed the Nuclear Regulatory Commission that
the units would remain shutdown until there could be a thorough
review and resolution of certain equipment and management issues
that have affected Salem's operation. PS estimates that Unit 1
and Unit 2 are expected to return to service during the first and
second quarter of 1996, respectively, although no assurances have
been given by ACE. Replacement power costs to be incurred by ACE
while the units are out of service are expected to approximate $1
million per month. PS has determined that restart activities
will cost approximately $40 million.
ACE is subject to a nuclear performance standard for all of its
jointly-owned nuclear units. ACE anticipates that the 1995
aggregate capacity factor of the five nuclear units in which ACE
owns a minority interest will be below the 65% minimum annual
standard established by the BPU primarily due to the shutdown of
the above mentioned units. As a result, ACE currently estimates a
performance penalty of approximately $1.8 million.
ACE is evaluating the legal, regulatory and administrative
implications of these events. At this time, it is impossible to
predict what action may be taken, if any, by participation in any
regulatory, administrative or civil proceedings which, if
commenced, may affect the outcome of these matters and the
responsibility of all for such costs and penalties.
NONUTILITY ACTIVITIES
Nonutility operations, which include AEI parent, for the quarter
and year-to-date June 30, 1995 resulted in a net loss of $756
thousand and $1.3 million, respectively, compared to the same
periods of the prior year which resulted in net income of $473
thousand and $514 thousand, respectively. Of these amounts,
operations of AEE and subsidiaries for the quarter and year-to-
date ended June 30, 1995 resulted in a net loss of $298 thousand
and $494 thousand, respectively, when compared to the same
periods of the prior year which resulted in net income of $602
thousand and $700 thousand, respectively. The 1995 loss is
largely due to administrative and general costs incurred in the
development of various new businesses, offset in part by
increased earnings from a partnership interest in cogeneration
facilities that experienced increased revenues.
In July 1995, Atlantic Jersey Thermal System Inc., a special
purpose wholly-owned subsidiary of ATS, organized a limited
partnership, Thermal Energy Limited Partnership I, to develop,
construct, own and operate a district heating and cooling system
to serve customers in Atlantic City's business and casino
district. In July 1995, ATS commenced operation and maintenance
of an existing heating and cooling facility at a casino in
Atlantic City.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
Certain developments have occurred in connection with matters
previously reported under Part I, Item 1-Business in the Annual
Report on Form 10-K for the fiscal year ended December 31, 1994
for Atlantic Energy, Inc. (AEI) and Atlantic City Electric
Company (ACE); Part II, Other Information in the Quarterly Report
on Form 10-Q for the quarter ended March 31, 1994; and Part II,
Item 5 in the Current Reports on Form 8-K dated June 15, 1995 and
July 21, 1995. In addition, certain new information is contained
herein.
Rate Matters
ACE's rates for electric service at retail are subject to the
approval of the New Jersey Board of Public Utilities (BPU).
Reference is made to Note 3 of the Notes to Financial Statements
for AEI and ACE filed herewith for information pertaining to the
petition filed with the BPU for changes in the Levelized Energy
Clause (LEC) revenues, and the issue of the double recovery of
capacity costs.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders of Atlantic
Energy, Inc. was held on April 27, 1995. Proxies for the meeting
were solicited pursuant to Regulation 14 under the Securities
Exchange Act of 1934, there was no solicitation in opposition to
the management's nominees as listed in the proxy statement and
all of the nominees were elected. Details of other matters voted
upon at the meeting are as follows:
Proposal #2 - To ratify the appointment of Deloitte & Touche LLP
as independent auditors for the year ending December 31, 1995.
Votes For 41,322,945
Votes Against 225,018
Votes Abstain 313,216
Item 5. Other Information
On July 15, 1995, ACE reached a new record for utility system
peak demand of 2,042 megawatts surpassing the previous record of
1,962 megawatts set on July 10, 1993.
As previously reported in the Company's report on Form 10-Q
for the quarter ended March 31, 1995, legislation was introduced
in the New Jersey Legislature that would permit natural gas and
electric utility companies to offer customers competitive rate
discounts and other non-traditional forms of rate making. In
June 1995, the New Jersey legislature enacted a regulatory reform
bill that authorizes the BPU to approve alternative forms of
economic regulation and to allow utilities to provide discounted
rates in order to retain large customers. The law provides for
the recovery of up to 50 percent of the value of the discount in
a subsequent base rate case if it can be adequately demonstrated
that the discount benefits all ratepayers. The new law is
designed to enhance utility competitiveness, encourage customer
retention and stimulate regional economic activity. Specific
off-tariff pricing arrangements with ACE's customers will be
limited by the resources available in the Company's business
plan.
Nuclear
Salem
ACE is a 7.41% owner of Salem Nuclear Generating Station
(Salem) operated by Public Service Electric and Gas Company (PS).
As previously reported in the Company's report on Form 10-Q for
the quarter ended March 31, 1995, ACE was advised by PS that
Salem Units 1 and 2 were taken out of service on May 16, 1995 and
June 7, 1995, respectively, and that PS subsequently informed the
NRC that PS had determined to keep the Salem units shut down
pending review and resolution of certain equipment and management
issues, and agreement by NRC that each unit is sufficiently
prepared to restart. ACE was advised that on June 9, 1995, the
NRC issued a Confirmatory Action Letter documenting these
commitments by PS.
ACE was further advised that also on June 9, 1995, the NRC
reported the results of an NRC special inspection team (SIT)
formed to assess how effectively Salem is currently performing
from a safety perspective in the areas of problem identification,
prioritizing and conducting work on plant equipment, and
management oversight of plant performance. While the SIT
identified some areas of strength at Salem as well as areas where
improvements are being made, including equipment problem
identification systems and some aspects of work control and root
cause analysis, the SIT also identified a number of findings that
reveal that the day-to-day focus on priority issues and trends
were not managed well from a safety perspective. In the report,
the NRC noted its concern that the SIT found that historically
poor performance in the areas of configuration control, operator
work-arounds and equipment operability determinations, have not
substantially improved and constitute a burden on the plant
operators to safely operate the Salem units, especially during
plant events.
As previously reported, ACE was advised that PS is engaged in
a thorough assessment of equipment issues that have affected
Salem's operation and the related management systems and will
keep the units off line until it is satisfied that they are ready
to return to service and operate reliably over the long term.
ACE has been advised that while PS has not yet finalized its
analysis and assessment activities, it currently estimates that
Unit 1 will be ready to return to service in the first quarter of
1996 and Unit 2 during the second quarter of 1996, although no
assurances have been given by PS. ACE has been advised that
during the outages, Unit 1 will undergo a previously scheduled
refueling and Unit 2 will undergo a partial refueling which will
allow PS to eliminate a full refueling outage for Unit 2
scheduled for 1996. ACE has been advised that PS's restart plan
is focused on improving equipment reliability and plant
operations.
ACE been advised that PS has developed and is implementing a
number of detailed action plans designed to improve performance
in a number of key areas. Before restarting the units, ACE has
been advised that PS will complete a thorough review of station
systems and gain concurrence from the NRC that management action
has positioned the plan for reliable and safe operation.
ACE has been advised that PS has recently undertaken a number
of senior nuclear management changes, including the hiring from
outside of PS of a Senior Vice President-Nuclear Operations, a
Senior Vice President-Nuclear Engineering, a General Manager-
Salem Operations, and a Director - Quality Assurance and Nuclear
Safety Review. PS has advised ACE that PS is committed to
achieving high standards of safety and operational performance
for its nuclear program. PS advised ACE that PS's objective is
to restart and run the Salem plants in accord with these
standards so as to assure long term reliability and reduce
overall production costs in order to provide customers serviced
by Salem with reliable and economic energy.
As a nonoperating minority owner, ACE believes that the safe
and expeditious restart of the Salem units is of utmost
importance to the customers of ACE and the shareholders of the
Company, and ACE continues to actively encourage PS to take
whatever steps are necessary and reasonable for PS to effectively
and properly respond to concerns expressed by the NRC and to
restart the units in a timely manner. The Company has conveyed
these concerns directly to the management of PS.
ACE has been advised by PS that estimates of PS's share of
additional operating and maintenance expenses associated with
restart activities will amount to approximately $17 million. If
expended in the amounts predicted by PS, ACE's share of restart
expenses will amount to approximately $2.9 million. Replacement
power costs to be incurred by ACE while the units are out of
service are expected to be approximately $1 million per month.
In addition, ACE currently anticipates that the 1995 aggregate
capacity factor of the five nuclear units in which ACE owns a
minority interest, will be below the 65% minimum annual standard
established by the BPU and, as a result, would result in
imposition of a performance penalty for 1995. ACE currently
estimates such aggregate capacity factor for 1995 will amount to
approximately 55.0%, assuming operation of the other three
nuclear units, as scheduled, which would result in a penalty to
ACE of approximately $1.8 million.
ACE is evaluating the legal, regulatory and administrative
implications of these events. At this time, it is impossible to
predict what action may be taken, if any, by participation in any
regulatory, administrative or civil proceedings which, if
commenced, may affect the outcome of these matters and the
responsibility of all for such costs and penalties.
ACE has been advised that on August 10, 1995, PS met with the
NRC concerning the Salem restart plan (Plan). ACE was advised
that PS presented an overview of the Plan and discussed
independent oversight and engineering performance issues to gain
alignment with the NRC's expectations for improvement at Salem.
ACE was also advised that a Salem NRC enforcement conference,
originally scheduled for June 1, 1995, was held on July 28, 1995.
Apparent violations discussed included valves that were
incorrectly positioned following a plant modification in May
1993, nonconservatisms in setpoints for a pressurizer
overpressure protection system and several examples of inadequate
root cause determination of events, leading to insufficient
corrective actions at Salem. ACE cannot predict what action, if
any, the NRC may take as a result of this meeting.
Hope Creek
ACE is a 5% owner of Hope Creek Nuclear Generating Station
(Hope Creek). As previously reported in the first quarter report
on Form 10-Q, a small amount of low-level radioactive material
was released into the atmosphere at Hope Creek on April 5, 1995.
PS, operator of Hope Creek, has advised ACE that an NRC
Enforcement Conference concerning the April 5 release was held on
June 16, 1995. The NRC identified four apparent violations of
Federal regulations surrounding the event. The apparent
violations involve control of operation plant equipment; adequacy
of radiological monitoring following the event; control of
equipment setpoints; and notification of workers of the release.
ACE has been advised that on July 20, 1995, the NRC issued a
Level III Violation with no associated civil penalty. The NRC
cited the quick response of the on site radiological control
organizations upon discovery of the situation as a mitigating
factor in its decision not to impose a penalty.
ACE has been further advised by PS that on June 29, 1995 the
NRC has issued its Systematic Assessment of Licensee Performance,
or SALP, Report for Hope Creek for the period of June 20, 1993
through April 22, 1995. The NRC assigned ratings of "1" in the
functional area of Plant Support and "2" in the areas of
Engineering, Operations and Maintenance. The NRC noted an
overall decline in performance in the Operations, Maintenance and
Engineering areas compared to the previous SALP period, and cited
weak root cause analysis as a dominant factor.
ACE has been advised that on July 8, 1995, during a manual
shutdown of Hope Creek, in order to repair control room
ventilation equipment, operators partially opened a valve for a
period of time and inadvertently reduced the effectiveness of the
shutdown cooling system. Although the impact of the event to
plant safety was minimal, the positioning of the valve and the
resulting temperature change violated plant procedures and
technical specifications. On July 31, 1995, NRC staff met with
plan management concerning this issue and subsequently determined
to assign a special inspection team to independently evaluate
this event as well as PS's response to it, including PS's
procedures and training for operator handling of abnormal
conditions. ACE cannot predict what the team's findings may be
nor what other actions, if any the NRC may take in this matter.
<PAGE>
Peach Bottom
ACE is a 7.51% owner of Peach Bottom Atomic Power Station
(Peach Bottom) which is operated by PECO Energy Company (PECO).
ACE has been advised by PECO that on August 2, 1995, the NRC held
an enforcement conference regarding three alleged violations
identified by the NRC at Peach Bottom. The NRC's findings
include alleged violations in control and design activities and
technical specification requirements regarding operability of the
emergency diesel generators. ACE cannot predict what action, if
any, the NRC may take as a result of the enforcement conference.
Item 6. Exhibits and Reports on 8-K
Exhibits: See Exhibit Index Attached
Reports on Form 8-K:
Current Reports on Form 8-K were filed, dated June 15, 1995
and July 21, 1995 relating to the shutdown of Salem Units 1 and 2
on May 16, 1995 and June 7, 1995, respectively. <PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned hereunto duly authorized.
Atlantic Energy, Inc.
Atlantic City Electric Company
(Registrant)
Date: August 14, 1995 By: /s/ L. M. Walters
L. M. Walters
Treasurer of Atlantic Energy, Inc.
and Vice President, Treasurer and
Assistant Secretary of Atlantic
City Electric Company
<PAGE>
EXHIBIT INDEX
3b(1) By-Laws of Atlantic Energy, Inc. as amended July 13,
1995.
27 Financial Data Schedules for Atlantic Energy, Inc. and
Atlantic City Electric Company for periods ended June
30, 1995.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000008192
<NAME> ATLANTIC CITY ELECTRIC COMPANY
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> jan-1-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,783,279
<OTHER-PROPERTY-AND-INVEST> 58,641
<TOTAL-CURRENT-ASSETS> 260,362
<TOTAL-DEFERRED-CHARGES> 365,955
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,468,237
<COMMON> 54,963
<CAPITAL-SURPLUS-PAID-IN> 491,843
<RETAINED-EARNINGS> 232,296
<TOTAL-COMMON-STOCKHOLDERS-EQ> 779,102
149,250
40,000
<LONG-TERM-DEBT-NET> 776,100
<SHORT-TERM-NOTES> 64,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 12,247
12,250
<CAPITAL-LEASE-OBLIGATIONS> 37,726
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 597,562
<TOT-CAPITALIZATION-AND-LIAB> 2,468,237
<GROSS-OPERATING-REVENUE> 424,912
<INCOME-TAX-EXPENSE> 12,339
<OTHER-OPERATING-EXPENSES> 357,253
<TOTAL-OPERATING-EXPENSES> 369,592
<OPERATING-INCOME-LOSS> 55,320
<OTHER-INCOME-NET> 6,624
<INCOME-BEFORE-INTEREST-EXPEN> 61,944
<TOTAL-INTEREST-EXPENSE> 31,054
<NET-INCOME> 30,890
7,575
<EARNINGS-AVAILABLE-FOR-COMM> 30,890
<COMMON-STOCK-DIVIDENDS> 40,786
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 12,918
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000806393
<NAME> ATLANTIC ENERGY, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> jan-1-1995
<PERIOD-END> JUN-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,783,279
<OTHER-PROPERTY-AND-INVEST> 186,191
<TOTAL-CURRENT-ASSETS> 264,377
<TOTAL-DEFERRED-CHARGES> 367,394
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,601,241
<COMMON> 564,975
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 230,445
<TOTAL-COMMON-STOCKHOLDERS-EQ> 795,420
149,250
40,000
<LONG-TERM-DEBT-NET> 791,100
<SHORT-TERM-NOTES> 84,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 31,747
12,250
<CAPITAL-LEASE-OBLIGATIONS> 37,727
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 659,747
<TOT-CAPITALIZATION-AND-LIAB> 2,601,241
<GROSS-OPERATING-REVENUE> 424,834
<INCOME-TAX-EXPENSE> 12,339
<OTHER-OPERATING-EXPENSES> 357,115
<TOTAL-OPERATING-EXPENSES> 369,454
<OPERATING-INCOME-LOSS> 55,380
<OTHER-INCOME-NET> 5,286
<INCOME-BEFORE-INTEREST-EXPEN> 60,666
<TOTAL-INTEREST-EXPENSE> 31,054
<NET-INCOME> 22,037
7,575
<EARNINGS-AVAILABLE-FOR-COMM> 22,037
<COMMON-STOCK-DIVIDENDS> 40,635
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 7,610
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0.42
</TABLE>
ATLANTIC ENERGY, INC.
BY-LAWS
(As amended July 13, 1995)
ARTICLE I
MEETING OF SHAREHOLDERS
SECTION 1. Annual Meetings. The annual meeting of the
shareholders to elect a Board of Directors and to transact such
other business as may properly come before the meeting in
accordance with these By-laws shall be held at such place, within
or without the State of New Jersey, as may be fixed by the Board
of Directors and stated in the notice of meeting, on the fourth
Wednesday of April in each year, at three o'clock in the
afternoon or at such other hour or on such other day stated in
the notice of meeting as the directors shall determine.
At any such annual meeting of shareholders, only such
business shall be conducted as shall have been brought before the
meeting (a) by or at the direction of the Board of Directors, or
(b) by any shareholder entitled to vote at such meeting who
complies with the procedures set forth in this Section 1. Any
shareholder entitled to vote at such meeting may propose business
to be included in the agenda of such meeting only if written
notice of such shareholder's intent is given to the Secretary of
the Corporation, either by personal delivery or by United States
mail, postage prepaid, not later than 90 days in advance of the
anniversary of the immediately preceding annual meeting or if the
date of the annual meeting of shareholders occurs more than 30
days before or 60 days after the anniversary of such immediately
preceding annual meeting, not later than the close of business on
the seventh day following the date on which notice of such
meeting is given to shareholders. A shareholder's notice to the
Secretary shall set forth in writing as to each matter such
shareholder proposes to bring before the annual meeting (a) a
brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business
at the annual meeting, (b) the name and address, as they appear
on the Corporation's books, of the shareholder proposing such
business, (c) the class and number of shares of the Corporation
which are beneficially owned by the shareholder and (d) any
material interest of the shareholder in such business.
Notwithstanding anything in these By-laws to the contrary, no
business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Section 1. The
officer of the Corporation or other person presiding at the
annual meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this
Section 1, and, if such officer or other person should so
determine, he or she shall so declare to the meeting and any such
business not properly brought before the meeting shall not be
transacted.
SECTION 2. Special Meetings. Special meetings of the
shareholders of the Corporation shall be held at such place,
within or without the State of New Jersey, as may be fixed by the
Board of Directors and stated in the notice of meeting, and shall
be called by the Chairman of the Board, the President or
Secretary upon direction of the Board of Directors. At any
special meeting of the shareholders, only such business shall be
conducted as shall have been brought before the meeting by or at
the direction of the Board of Directors and such business shall
be confined to the object or objects stated in the notice
thereof.
SECTION 3. Notice. The Secretary or officer
performing his duties shall give notice of every shareholders'
meeting to each shareholder of record on the books of the
Corporation entitled to vote at such meeting, by mailing written
notice to such shareholders' address appearing on the stock books
of the Corporation at least ten and not more than sixty days
before the date of such meeting.
SECTION 4. Officer to Preside. Meetings of the
shareholders shall be presided over by the Chairman of the Board,
or in his absence, by the President, or if neither of these
officers is present, by a Chairman to be elected at the meeting.
The Secretary of the Corporation shall act as Secretary of such
meetings, when present; otherwise a secretary shall be chosen at
the meeting.
SECTION 5. Inspectors. As soon as may be practicable
after their election in each year, the Board of Directors may
appoint two inspectors of shareholders' votes and elections, to
serve until the final adjournment of the next annual
shareholders' meeting. If they fail to make such appointment, or
if their appointees or either of them fails to appear at any
meeting of shareholders, the Chairman or other person presiding
at the meeting may appoint inspectors or an inspector to serve
with the one appearing for that meeting.
SECTION 6. Nominations of Directors. Nominations
for the election of Directors may be made by the Board of
Directors or a Committee appointed by the Board of Directors or,
in the manner hereinafter provided, by any shareholder entitled
to vote for the election of Directors. Any shareholder entitled
to vote for the election of Directors at a meeting or to express
a consent in writing without a meeting may nominate a person or
persons for election as a Director only if written notice of such
shareholder's intent to make such nomination is given to the
Secretary of the Corporation, either by personal delivery or by
United States mail, postage prepaid, not later than (a) with
respect to an election to be held at an annual meeting of
shareholders, 90 days in advance of the anniversary of the
immediately preceding annual meeting or if the date of the annual
meeting of shareholders occurs more than 30 days before or 60
days after the anniversary of such immediately preceding annual
meeting, not later than the close of business on the seventh day
following the date on which notice of such meeting is given to
shareholders, and (b) in the case of any shareholder who wishes
to nominate a person or persons for election as a Director
pursuant to consents in writing by shareholders without a meeting
(to the extent election by such consents is permitted under
applicable law and the Corporation's Certificate of
Incorporation), 60 days in advance of the date on which materials
soliciting such consents are first mailed to shareholders or, if
no such materials are required to be mailed under applicable law,
60 days in advance of the date on which the first such consent in
writing is executed. Each such notice shall set forth (a) the
name and address of the shareholder who intends to make the
nomination and of the person or persons to be nominated for
election as a Director; (b) a representation that the shareholder
is a holder of record of stock of the Corporation entitled to
vote at such meeting or to express such consent in writing and
intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice or to
execute such a consent in writing to elect such person or persons
as a Director; (c) a description of all arrangements or
understandings between the shareholder and each nominee and any
other person or persons (naming such person or persons) pursuant
to which the nomination or nominations for election as a Director
are to be made by the shareholder; (d) such other information
regarding each nominee proposed by such shareholder as would have
been required to be included in a proxy statement filed pursuant
to the proxy rules of the Securities and Exchange Commission if
such nominee had been nominated, or was intended to be nominated,
for election as a Director by the Board of Directors; and (e) the
consent of each nominee to serve as a Director of the Corporation
if so elected. The Board of Directors may refuse to acknowledge
the nomination of any person not made in compliance with the
foregoing procedures.
<PAGE>
ARTICLE II
DIRECTORS
SECTION 1. Number of Directors. The Board of
Directors shall consist of such number of directors, not less
than three nor more than twelve, as shall be fixed from time to
time by the Board of Directors.
SECTION 2. Vacancies. Vacancies on the Board of
Directors, including vacancies caused by reason of an increase in
the number of directors, may be filled until the next
shareholders' election only by a vote of a majority of all the
directors in office. However, if only two directors remain and
are able to meet at a meeting duly called for the purpose, then
by the action of those two at such a meeting, or if only one
director remains, by the act of that director, additional duly
qualified directors shall be elected so that there are at least
three directors holding office until the next annual meeting of
shareholders and until their successors shall be duly elected and
shall qualify.
SECTION 3. Quorum. A majority of directors holding
office at the time of any meeting shall constitute a quorum.
SECTION 4. Chairman and Committees. The Board of
Directors shall elect a Chairman of the Board from among their
own number and the Board may also elect an Vice Chairman of the
Board from among their own number. Meetings of the Board shall
be presided over by the Chairman of the Board, or if he be
absent, by the Vice Chairman, it there be one, or if the Chairman
and Vice Chairman, if there be one, are absent, by the President,
or if none of these persons are present, by a Chairman to be
elected at the meeting. The person serving as Chairman of the
meeting shall determine the agenda and decide all rules of order
and practice at all meetings over which he presides. The
Chairman, and the Vice Chairman, if there be one, may be replaced
at any time by a vote of a majority of all the directors in
office. The Board of Directors, by a majority vote, may appoint
from time to time from among their own number an executive
committee and such other committees having such powers as shall
be designated in the respective resolutions applicable thereto.
SECTION 5. Meetings. Meetings of the Board of
Directors shall be held upon the order of the Board, the Chairman
of the Board, the Vice Chairman of the Board, if there be one,
the President, or two directors. The Secretary or officer
performing his duties shall give reasonable notice of all
meetings to each director, but no notice need be given of the
meeting, immediately after the annual meeting of shareholders, at
the same place, or of any other regular meetings held at times
fixed by resolution of the Board. Meetings of the Board of
Directors may be held within or without the State of New Jersey.
ARTICLE III
OFFICERS
The Board of Directors shall elect, an officers of the
Corporation, a President, who shall at the time of such election
be a director of the Corporation, a Secretary, and a Treasurer,
and may elect one or more Vice Presidents and such other officers
as may be deemed useful. The chief executive officer of the
Corporation shall be the officer designated from time to time by
the Board as the chief executive officer. Any two or more
offices may be filled by the same person. All officers shall be
chosen by the Board of Directors and any officer may be removed
from office at any time by a vote of majority of all the
directors in office. The several officers of the Corporation
shall exercise the usual powers and duties pertaining to their
respective offices, subject to such limitations as may be adopted
by resolutions of the Board, and shall exercise such other powers
and duties as the Board of Directors may from time to time
determine.
ARTICLE IV
RECORD DATE FOR PAYMENTS
The Board of Directors of the Corporation shall have power
by resolution to close the stock transfer books of the
Corporation for a period not exceeding fifty days preceding the
date of any meeting of shareholders or the date for payment of
any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock
shall go into effect, provided, however, in lieu of closing the
stock transfer books as aforesaid, the Board of Directors of the
Corporation may by resolution fix in advance a date not exceeding
fifty days preceding the date of any meeting of shareholders or
the date for the payment of any dividend, or the date for the
allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, as a record date
for the determination of the shareholders entitled to notice of
and to vote at any such meeting or entitled to receive payment of
any such dividend, or any such allotment of rights, or to
exercise rights in respect of such change, conversion or exchange
of capital stock, and in such case only shareholders of record on
the date so fixed shall be entitled to such notice of, and to
vote at, such meeting, or to receive payment of such dividend, or
allotment of rights, or exercise of such rights, as the case may
be, and notwithstanding any transfer of any stock on the books of
the Corporation after any such record date fixed as aforesaid.
<PAGE>
ARTICLE V
STOCK CERTIFICATES
The Board of Directors of the Corporation may authorize the
issuance of duplicate stock certificates to replace stock
certificates lost, stolen or destroyed, upon such terms and
conditions as it may by resolution prescribe.
ARTICLE VI
INDEMNIFICATION AND INSURANCE
SECTION 1. Right to Indemnification. The Company
shall to the fullest extent permitted by applicable law as then
in effect indemnify any person (the "Indemnitee") who was or is
involved in any manner (including, without limitation, as a party
or a witness) or is threatened to be made so involved in any
threatened, pending or completed investigation, claim, action,
suit or proceeding, whether civil, criminal, administrative or
investigative (including without limitation, any action, suit or
proceeding by or in the right of the Company to procure a
judgment in its favor) (a "Proceeding") by reason of the fact
that he or she is or was a director, officer or employee of the
Company, or is or was serving at the request of the Company as a
director, officer or employee of another company, partnership,
joint venture, trust or other enterprise (including, without
limitation, any employee benefit plan) against all expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection
with such Proceeding. Such indemnification shall be a contract
right and shall include the right to receive payment of any
expenses incurred by the Indemnitee in connection with such
Proceeding in advance of its final disposition, consistent with
the provisions of applicable law as then in effect. Such
indemnification may be extended by the Board of Directors to any
other person who is a "corporate agent" as defined in R.S.
14:A:3-5(1)(a) of the New Jersey Business Corporation Act.
SECTION 2. Insurance, Contracts and Funding. The
company may purchase and maintain insurance to protect itself and
any Indemnitee against any expenses, judgments, fines and amounts
paid in settlement as specified in SECTION 1 of this Article VI
or incurred by any Indemnitee in connection with any Proceeding
referred to in SECTION I of this Article VI, to the fullest
extent permitted by applicable law as then in effect. The
Company may enter into contracts with any director, officer,
employee or agent of the Company in furtherance of the provisions
of this Article VI and may create a trust fund, grant a security
interest or use other means (including, without limitation, a
letter of credit) to ensure the payment of such amounts as may be
necessary to effect indemnification as provided in this Article
VI.
SECTION 3. Indemnification; Not Exclusive Right. The
right of indemnification provided in this Article VI shall not be
exclusive of any other rights to which those seeking
indemnification may otherwise be entitled, and the provisions of
this Article VI shall inure to the benefit of the heirs and legal
representatives of any person entitled to indemnity, or to whom
indemnification is extended, under this Article VI and shall be
applicable to Proceedings commenced or continuing after the
adoption of this Article VI, whether arising from acts or
omissions occurring before or after such adoption.
SECTION 4. Advancement of Expenses; Procedures;
Presumptions and Effect of Certain Proceedings; Remedies. In
furtherance, but not in limitation of the foregoing provisions,
the following procedures, presumptions and remedies shall apply
with respect to advancement of expenses and the right to
indemnification under this Article VI:
(1) Advancement of Expenses. All reasonable expenses
incurred by or on behalf of the Indemnitees in connection
with any Proceeding shall be advanced to the Indemnitee by
the Company within 20 days after the receipt by the Company
of a statement or statements from the Indemnitee requesting
such advance or advances from time to time, whether prior to
or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the
expenses incurred by the Indemnitee and, if required by law
at the time of such advance, shall include or be accompanied
by an undertaking by or on behalf of the Indemnitee to repay
the amounts advanced unless it is ultimately determined that
the Indemnitee is entitled to be indemnified against such
expenses pursuant to this Article VI.
(2) Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Article VI,
an Indemnitee shall submit to the Secretary of the Company a
written request, including such documentation and information as
is reasonably available to the Indemnitee and reasonably
necessary to determine whether and to what extent the Indemnitee
is entitled to indemnification (the "Supporting Documentation").
The determination of the Indemnitee's entitlement to
indemnification shall be made not later than 60 days after
receipt by the Company of the written request for indemnification
together with the Supporting Documentation. The Secretary of the
Company shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that,
the Indemnitee has requested indemnification.
(b) The Indemnitee's entitlement to indemnification
under this Article VI shall be determined in one of the following
ways: (i) by a majority vote of the Disinterested Directors (as
hereinafter defined), if they constitute a quorum of the Board of
Directors; (ii) by a written opinion of Independent Counsel (as
hereinafter defined) if (x) a Change of Control (as hereinafter
defined) shall have occurred and the Indemnitee so requests, or
(y) a quorum of the Board of Directors consisting of
Disinterested Directors is not obtainable or, even if obtainable,
a majority of such Disinterested Directors so directs; (iii) by
the stockholders of the Company (but only if a majority of the
Disinterested Directors, if they constitute a quorum of the Board
of Directors, presents the issue of entitlement to
indemnification to the stockholders for their determination); or
(iv) as provided in SECTION 4(3).
(c) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to
SECTION 4(2)(b), a majority of the Disinterested Directors shall
select the Independent Counsel, but only an Independent Counsel
to which the Indemnitee does not reasonably object; provided,
however, that if a Change of Control shall have occurred, the
Indemnitee shall select such Independent Counsel but only an
Independent Counsel to which the Board of Directors does not
reasonably object.
(d) The only basis upon which a finding of no
entitlement to indemnification may be made is that
indemnification is prohibited by law.
(3) Presumptions and Effect of Certain Proceedings.
Except as otherwise expressly provided in this Article VI, if a
Change of Control shall have occurred, the Indemnitee shall be
presumed to be entitled to indemnification under this Article VI
upon submission of a request for indemnification together with
the Supporting Documentation in accordance with SECTION 4 (2)
(a), and thereafter the Company shall have the burden of proof to
overcome that presumption in reaching a contrary determination.
In any event, if the person or persons empowered under SECTION
4(2) to determine entitlement to indemnification shall not have
been appointed or shall not have made a determination within 60
days after receipt by the Company of the request therefor
together with the Supporting Documentation, the Indemnitee shall
be deemed to be entitled to indemnification and the Indemnitee
shall be entitled to such indemnification unless (a) the
Indemnitee misrepresented or failed to disclose a material fact
in making the request for indemnification or in the Supporting
Documentation, or (b) such indemnification is prohibited by law.
The termination of any Proceeding described in SECTION 1, or of
any claim, issue or matter therein, by judgement, order,
settlement or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, adversely affect the right
of the Indemnitee to indemnification or create a presumption that
the indemnitee did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests
of the Company or, with respect to any criminal Proceedings, that
the Indemnitee had reasonable cause to believe that his conduct
was unlawful.
(4) Remedies of Indemnitee.
(a) In the event that a determination is made
pursuant to SECTION 4(2) that the Indemnitee is not entitled to
indemnification under this Article VI, (i) the Indemnitee shall
be entitled to seek an adjudication of his entitlement to such
lndemnification either, at the Indemnitee's sole option, in (x)
an appropriate court of the State of New Jersey or any other
court of competent jurisdiction or (y) an arbitration to be
conducted by a single arbitrator pursuant to the rules of the
American Arbitration Association; (ii) any such judicial
proceeding or arbitration shall be de novo and the Indemnitee
shall not be prejudiced by reason of such adverse determination;
and (iii) in any such judicial proceeding or arbitration the
Company shall have the burden of proving that the Indemnitee is
not entitled to indemnification under this Article VI.
(b) If a determination shall have been made or deemed
to have been made, pursuant to SECTION 4(2) or 4(3), that the
Indemnitee is entitled to indemnification, the Company shall be
obligated to pay the amounts constituting such indemnification
within five days after such determination has been made or deemed
to have been made and shall be conclusively bound by such
determination unless (i) the Indemnitee misrepresented or failed
to disclose a material fact in making the request for
indemnification or in the Supporting Documentation or (ii) such
indemnification is prohibited by law. In the event that
advancement of expenses is not timely made pursuant to SECTION
4(1), or payment of indemnification is not made within five days
after a determination of entitlement to indemnification has been
made or deemed to have been made pursuant to SECTION 4(2) or
4(3), the Indemnitee shall be entitled to seek judicial
enforcement of the Company's obligation to pay to the Indemnitee
such advancement of expenses or indemnification. Notwithstanding
the foregoing, the Company may bring an action, in an appropriate
court in the State of New Jersey or any other court of competent
jurisdiction, contesting the right of the Indemnitee to receive
indemnification hereunder due to the occurrence of an event
described in subclause (1) or (ii) of this clause (b) (a
"Disqualifying Event"), provided however, that in any such action
the Company shall have the burden of proving the occurrence of
such Disqualifying Event.
(c) The Company shall be precluded from asserting in
any judicial proceeding or arbitration commenced pursuant to this
SECTION 4(4) that the procedures and presumptions of this
Article VI are not valid, binding and enforceable and shall
stipulate in any such court or before any such arbitrator that
the Company is bound by all the provisions of this Article VI.
(d) In the event that the Indemnitee, pursuant to this
SECTION 4(4), seeks a judicial adjudication of or an award in
arbitration to enforce his rights under, or to recover damages
for breach of, this Article VI, the Indemnitee shall be entitled
to recover from the Company, and shall be indemnified by the
Company against, any expenses actually and reasonably incurred by
him if the Indemnitee prevails in such judicial adjudication or
arbitration. If it shall be determined in such judicial
adjudication or arbitration that the Indemnitee is entitled to
receive part but not all of the indemnification or advancement
of expenses sought, the expenses incurred by the Indemnitee in
connection with such judicial adjudication or arbitration shall
be prorated accordingly.
(5) Definitions. For purposes of this SECTION 4:
(a) "Change in Control" means
(i) so long as the Public Utility Holding
Company Act of 1935 is in effect, any "company"
becoming a "holding company" in respect to the
Company of any determination by the Securities and
Exchange Commission that any "person" should be
subject to the obligations, duties, and
liabilities if imposed by said Act by virtue of
his or its influence over the management or
policies of the Company, or
(ii) whether said Act is in effect a change
in control of the Company of a nature that would
be required to be reported in response to Item
5(f) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934 (the
"Act"), whether the Company is then subject to
such reporting requirement; provided that, without
limitation, such a change in control shall be
deemed to have occurred if (A) any "person" (as
such term is used in Section 13(d) and 14(d) of
the Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Act), directly or
indirectly, of securities of the Company
representing 10% or more of the combined voting
power of the Company's then outstanding securities
without the prior approval of at least two-thirds
of the members of the Board of Directors in office
immediately prior to such acquisition; (B) the
Company is a party to a merger, consolidation,
sale of assets or other reorganization, or a proxy
contact, as a consequence of which members of the
Board of Directors in office immediately prior to
such transaction or event constitute less than a
majority of the Board of Directors thereafter; or
(C) during any period of two consecutive years,
individuals who at the beginning of such period
constituted the Board of Directors (including for
this purpose any new director whose election or
nomination for election by the Company's
stockholders was approved by a vote of at least
two-thirds of the directors then still in office
who were directors at the beginning of such
period) cease for any reason to constitute at
least a majority of the Board of Directors.
(b) "Disinterested Director" means a
director of the Company who is not or was party to
the Proceeding in respect of which indemnification
is sought by the Indemnitee.
(c) "Independent Counsel" means a law firm
or a member of a law firm that neither presently
is, nor in the past five years has been, retained
to represent: (i) the Company or the Indemnitee in
any matter material to either such party or (ii)
any other party to the Proceeding giving rise to a
claim for indemnification under this Article VI.
Notwithstanding the foregoing, the term
"Independent Counsel" shall not include any person
who, under the applicable standards of
professional conduct then prevailing under the law
of the State of New Jersey, would have a conflict
of interest in representing either the Company or
the Indemnitee in an action to determine the
Indemnitee's rights under this Article VI.
SECTION 5. Severability. If any provision or
provisions of this Article VI shall be held to be invalid,
illegal or unenforceable for any reason whatsoever:
(1) the validity, legality and enforceability of
the remaining provisions of this Article VI (including,
without limitation, all portions of any paragraph of this
Article VI containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall not in any way be affected
or impaired thereby; and
(2) to the fullest extent possible, the
provisions of this Article VI (including, without
limitation, all portions of any paragraph of this Article VI
containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or
unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal
or unenforceable.
<PAGE>
SECTION 6. Successor Laws, Regulations and Agencies.
Reference herein to laws, regulations or agencies shall be deemed
to include all amendments thereof, substitutions therefor and
successors. (Amended July 9, 1987)
ARTICLE VII
AMENDMENT
These By-Laws may be amended or added to at any meeting of
the Board of Directors by an affirmative vote of a majority of
all the directors, if notice of the proposed change has been sent
to all the directors ten days before the meeting, or if all the
directors are present, or if those not present assent in writing
to such a change.
