UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
__ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-36005
ROCKLAND ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 13-1727720
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Blue Hill Plaza, Pearl River, New York 10965
(Address of principal executive offices) (Zip Code)
(914) 352-6000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (l) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
class of common stock, as of the close of the latest practicable date.
Common Stock - $100 Par Value 112,000 Shares
(Class) (Outstanding at October 31, 1994)
Table of Contents
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Financial Statements
Consolidated Balance Sheets (Unaudited)
at September 30, 1994 and December 31, 1993 1
Consolidated Statements of Income (Unaudited) for
the three months and nine months ended
September 30, 1994 and September 30, 1993
Consolidated Cash Flow Statements (Unaudited) for
the nine months ended September 30, 1994 and
September 30, 1993 4
Notes to Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 12
Signatures 13
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ROCKLAND ELECTRIC COMPANY
(A Wholly Owned Subsidiary of Orange and Rockland Utilities, Inc.)
Consolidated Balance Sheets (Unaudited)
Assets
September 30, December 31,
1994 1993
(Thousands of Dollars)
Utility Plant:
Electric $142,836 $140,584
Less accumulated depreciation 39,213 37,353
Net Utility Plant in Service 103,623 103,231
Construction work in progress 2,640 2,815
Net Utility Plant 106,263 106,046
Non-utility Property:
Non-utility property 7,704 7,397
Less accumulated depreciation and amortization 2,622 2,202
Net Non-utility Property 5,082 5,195
Current Assets:
Cash and cash equivalents 4,710 13,813
Temporary cash investments 666 685
Customer accounts receivable, less allowance for
uncollectible accounts of $196 and $210 13,398 12,345
Accrued utility revenue 1,867 2,932
Other accounts receivable, less allowance for uncollectible
accounts of $107 and $52 2,609 2,358
Receivable from associated companies 326 314
Gas marketing accounts receivable, less allowance for
uncollectible accounts of $349 and $471 42,157 49,249
Materials and supplies (at average cost) 7,494 7,210
Prepayments and other current assets 11,323 3,914
Total Current Assets 84,550 92,820
Deferred Debits:
Income tax recoverable in future rates 7,121 7,085
Extraordinary property loss - Sterling Nuclear Project 4,195 4,594
Deferred revenue taxes 10,927 11,769
Deferred pension and other postretirement benefits 3,226 2,138
Unamortized debt expense (amortized over term of securities) 896 987
Other deferred debits 12,535 6,557
Total Deferred Debits 38,900 33,130
Total $234,795 $237,191
The accompanying notes are an integral part of these statements.
ROCKLAND ELECTRIC COMPANY
(A Wholly Owned Subsidiary of Orange and Rockland Utilities, Inc.)
Consolidated Balance Sheets (Unaudited)
Capitalization and Liabilities
September 30, December 31,
1994 1993
(Thousands of Dollars)
Capitalization:
Common stock (112,000 shares outstanding) $ 11,200 $ 11,200
Capital stock expense (20) (20)
Retained earnings 84,403 78,904
Total Common Stock Equity 95,583 90,084
Long-term debt 43,155 43,866
Total Capitalization 138,738 133,950
Non-current Liabilities:
Reserve for claims and damages 252 268
Postretirement benefits 2,899 1,454
Total Non-current liabilities 3,151 1,722
Current Liabilities:
Long-term debt due within one year 965 891
Notes payable - 1,200
Accounts payable 85 384
Gas marketing accounts payable 48,860 54,247
Amounts due to associated companies 8,395 10,904
Customer deposits 1,165 1,130
Accrued taxes 4,930 8,435
Accrued interest 882 1,667
Other current liabilities 2,521 307
Total Current Liabilities 67,803 79,165
Deferred Taxes and Other:
Deferred Federal income taxes 19,484 16,601
Deferred investment tax credits 2,503 2,587
Refundable fuel costs 1,597 1,656
Other deferred credits 1,519 1,510
Total Deferred Taxes and Other 25,103 22,354
Total $234,795 $237,191
The accompanying notes are an integral part of these statements.
/TABLE
ROCKLAND ELECTRIC COMPANY
(A Wholly Owned Subsidiary of Orange and Rockland Utilities, Inc.)
Consolidated Statements of Income (Unaudited)
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
(Thousands of Dollars)
Operating Revenues:
Electric operations $ 39,648 $ 40,310 $102,935 $101,902
Diversified activities 80,700 74,174 264,184 230,653
Total Operating Revenues 120,348 114,484 367,119 332,555
Operating Expenses:
Operations:
Electricity purchased from parent 17,292 18,319 49,600 51,238
Deferred purchased power 511 (363) (84) (1,252)
Non-utility gas marketing purchases 77,452 71,315 251,002 220,788
Other expenses of operation 11,127 10,818 32,211 30,776
Maintenance 1,452 1,472 3,933 3,820
Depreciation and amortization 1,157 1,118 3,444 3,306
Taxes other than income taxes 5,218 5,311 14,477 14,189
Federal income taxes 2,685 2,501 746 334
Deferred Federal income taxes (800) (547) 2,756 2,058
Deferred investment tax credit (28) (31) (84) (93)
Total Operating Expenses 116,066 109,913 358,001 325,164
Income From Operations 4,282 4,571 9,118 7,391
Other Income and (Deductions):
Allowance for other funds used
during construction - 7 9 24
Investigation costs (354) (221) (1,604) (221)
Other - net 162 190 565 370
Taxes other than income taxes (18) (11) (40) (32)
Federal income taxes 75 88 505 153
Deferred Federal income taxes 31 (13) (37) (90)
Total Other Income and (Deductions) (104) 40 (602) 204
Income Before Interest Charges 4,178 4,611 8,516 7,595
Interest Charges:
Interest on long-term debt 803 803 2,408 2,513
Other interest 143 253 524 508
Amortization of debt premium and expense-net 35 33 105 79
Allowance for borrowed funds used (9) (5) (20) (22)
during construction
Total Interest Charges 972 1,084 3,017 3,078
Net Income $ 3,206 $ 3,527 $ 5,499 $ 4,517
Average number of common shares (000's) 112 112 112 112
Earnings per average common share $ 28.63 $ 31.49 $ 49.10 $ 40.33
The accompanying notes are an integral part of these statements.
/TABLE
ROCKLAND ELECTRIC COMPANY
(A Wholly Owned Subsidiary of Orange and Rockland Utilities, Inc.)
Consolidated Cash Flow Statements (Unaudited)
Nine Months Ended
September 30,
1994 1993
(Thousands of Dollars)
Cash Flow from Operations:
Net income $ 5,499 $ 4,517
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 3,322 3,168
Deferred Federal income taxes 2,847 2,145
Deferred investment tax credit (84) (93)
Deferred fuel costs (59) (1,165)
Allowance for funds used during construction (29) (46)
Changes in certain current assets and liabilities:
Accounts and gas marketing accounts receivable,
net and accrued utility revenue 6,853 (7,533)
Receivable from associated companies (12) (1,471)
Materials and supplies (284) 305
Prepayments and other current assets (7,409) (575)
Operating and gas marketing accounts payable (5,686) 3,806
Amounts due to associated companies (2,509) 119
Accrued taxes (3,505) (1,468)
Accrued interest (785) (591)
Other current liabilities 2,249 174
Other-net (4,173) (5,692)
Net Cash (Used in) Provided by Operations ( 3,765) (4,400)
Cash Flow from Investing Activities:
Additions to plant (3,537) (4,137)
Allowance for funds used during construction 29 46
Temporary cash investments 19 (552)
Net Cash Used in Investing Activities (3,489) (4,643)
Cash Flow from Financing Activities:
Proceeds from:
Issuance of long-term debt - 20,000
Retirements of:
Long-term debt (649) (16,826)
Net borrowings under short-term debt arrangements* (1,200) -
Net Cash Provided by Financing Activities (1,849) 3,174
Net Change in Cash and Cash Equivalents (9,103) (5,869)
Cash and Cash Equivalents at Beginning of Period 13,813 14,827
Cash and Cash Equivalents at End of Period $ 4,710 $ 8,958
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for:
Interest, net of amounts capitalized $ 3,686 $ 3,433
The accompanying notes are an integral part of these statements.
* Debt with maturities of 90 days or less.
/TABLE
ROCKLAND ELECTRIC COMPANY
(A Wholly Owned Subsidiary of Orange and Rockland Utilities, Inc.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The consolidated balance sheet as of September 30, 1994, the consolidated
statements of income for the three month and nine month periods ended
September 30, 1994 and 1993, and the consolidated cash flow statements
for the nine month periods then ended have been prepared by Rockland
Electric Company (the "Company") without an audit. In the opinion of
management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position and
results of operations at September 30, 1994, and for all periods
presented, have been made. The amounts in the consolidated balance sheet
as of December 31, 1993 are from audited financial statements.
2. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these
unaudited consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's
December 31, 1993 Form 10-K Annual Report. The results of operations for
the period ended September 30, 1994 are not necessarily indicative of the
results of operations for the full year.
3. The results of the Company's wholly owned non-utility subsidiary, Saddle
River Holdings Corporation, are consolidated for financial reporting
purposes. All significant intercompany balances and transactions have
been eliminated.
4. Contingencies at September 30, 1994 are substantially the same as the
contingencies described in the "Notes to Consolidated Financial
Statements" included in the Company's December 31, 1993 Form 10-K Annual
Report, except, during June 1994, Orange and Rockland Utilities, Inc.
(the "Parent") entered into an agreement with Harriman Energy Partners,
LTD. to terminate a long-term power purchase agreement for 57 Mw of
capacity. The Company will request NJBPU approval of deferred accounting
of all associated termination costs pending recovery of those costs in
rates.
5. Certain amounts from prior years have been reclassified to conform with
the current year presentation.
6. Effective January 1, 1994 the Company adopted the provisions of Statement
of Financial Accounting Standards No. 112 "Employers' Accounting for
Postretirement Benefits" which required the recording of a liability of
approximately $.2 million. The Company records an offsetting regulatory
asset and the adoption of Statement No. 112 did not have a significant
impact on the results of current operations.
7. On September 8, 1994, the Company adopted a formal plan to sell the
radio broadcasting properties operated by its wholly owned
subsidiary, Saddle River Holdings, Inc. The disposal date is
anticipated to be June 1, 1995. The assets to be sold consist
primarily of radio broadcast licenses and operating plant and
equipment. At this time the Company is unable to determine the gain
or loss which will result from the disposition of the properties;
however, management does not believe the disposition will have a
material effect on the Company's financial statements. Further, no
material operating income (loss) is expected to result during the
period from September 8, 1994 through the date of disposal. Actual
operating losses of the radio broadcasting properties, which are
included in Income from Operations in the Consolidated Statement of
Income, for the nine months ended September 30, 1994 and 1993 were
($370,892) and ($560,138), respectively.
8. Events Subsequent to Earnings Release
Legal Proceedings
As more fully described in Part II, Item 1. Legal Proceedings, the Parent
has reached a tentative settlement, subject to court approval, of two
purported shareholder class action complaints against the Parent agreeing
to create a settlement fund of $1.85 million to resolve all claims in
both cases. The Parent's insurance carrier has agreed to contribute $.7
million to the settlement fund. The Company's allocated share of the net
amount is $.2 million and will be charged to operations during the fourth
quarter of 1994.
ROCKLAND ELECTRIC COMPANY
(A Wholly Owned Subsidiary of Orange and Rockland Utilities, Inc.)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Financial Performance
The Company's consolidated earnings per average common share outstanding for
the third quarter of 1994 amounted to $28.63 compared to $31.49 for the third
quarter of 1993. The decrease of $2.86 per share is the result of a number of
factors as discussed in the "Results of Operations".
Average common shares outstanding, all of which are owned by Orange and
Rockland Utilities, Inc. (the "Parent") were 112,000 shares for both the third
quarter of 1994 and 1993.
Capital Resources and Liquidity
At September 30, 1994, the Company had available bank lines of credit of $10
million for its utility business. In addition, non-utility lines of credit
amounted to $15 million at September 30, 1994. The non-utility subsidiaries
may undertake short-term borrowing or make short-term investments. The
average daily balance of short-term borrowings for the nine months ended
September 30, 1994 amounted to approximately $5.9 million at an effective
interest rate of 5.9% compared to $1.0 million at an effective rate of 4.6%
for the first nine months of 1993. The average daily balance of temporary
cash investments for the nine months ended September 30, 1994 was $7.0 million
as compared to $3.6 million for the first nine months of 1993.
Construction expenditures, excluding AFDC, amounted to $3.5 million for the
first nine months of 1994 as compared to $4.1 million for the same period of
1993.
Rate Activity
In January 1992, in response to the Company's March 18, 1991 petition
requesting a $12.9 million increase in base rates, an increase in electric
rates of $5.1 million was granted by the New Jersey Board of Regulatory
Commissioners ("NJBRC"). (The NJBRC was renamed effective July 5, 1994 and is
now the New Jersey Board of Public Utilities ("NJBPU")). This increase
includes a 12% rate of return on equity. In addition, the NJBRC initiated a
Phase II proceeding in this case to address the effect of the State of New
Jersey's June 1, 1991 tax legislation. That legislation changed the procedure
under which certain taxes are collected from New Jersey utilities.
Previously, utilities had been subject to a 12.5% gross receipts and franchise
tax which the utilities paid in lieu of property taxes; however, the new tax
is based upon the number of units of energy (kwh or therms) delivered by a
utility rather than revenues. The legislation also requires that utilities
accelerate payment of the taxes collected to the State. As a result, the
Company is required to make additional tax payments of approximately $16
million during the period 1993-1994. On November 12, 1992 the NJBRC issued a
Decision and Order approving the recovery of the additional tax over a ten
year period. A carrying charge of 7.5% on the unamortized balance was also
approved. The amount of unrecovered accelerated payments is included in
Deferred Revenue Taxes.
On February 26, 1993 the New Jersey Department of Public Advocate, Division of
Rate Counsel ("Rate Counsel") filed a Notice of Appeal of the NJBRC Decision
and Order with the Superior Court of New Jersey, Appellate Division, stating
as grounds for the appeal that the Decision is arbitrary and capricious and
would result in unjust and unreasonable rates. On March 21, 1994, the
Superior Court of New Jersey, Appellate Division, upheld the NJBRC Decision,
stating the NJBRC used proper rate-making principles.
Under an agreement with the NJBRC the Company will return to customers any
funds found to be misappropriated, as a result of an ongoing investigation of
certain officers and former employees. The Company has refunded to New Jersey
ratepayers $94,100 through reductions in the applicable fuel adjustment
charges in February and March 1994.
Results of Operations:
QUARTERLY COMPARISON
Earnings per average common share outstanding for the third quarter of 1994
amounted to $28.63 per share as compared to $31.49 per share for the third
quarter of 1993. This decrease is attributed to the results of the gas
marketing subsidiary, expenses associated with the continuing investigation
and litigation involving misappropriation of company funds and a decrease in
utility revenues, which were partially offset by lower utility operating
expenses.
Utility Revenues
Electric operating revenues including fuel cost recoveries decreased by $.7
million in the third quarter of 1994 as compared to the same quarter of 1993.
The components of the changes in electric operating revenues for the quarter
ended September 30, 1994 as compared to the same quarter of 1993 are as
follows:
(Millions of Dollars)
Retail sales:
Base Rates* $ (.2)
Fuel cost recoveries (.2)
Sales volume changes (.3)
Total $ (.7)
* Includes miscellaneous surcharges
Retail sales of electricity for the third quarter decreased by 1.0% or 3,559
megawatt hours ("Mwh") from the same quarter of 1993. This decrease is the
result of a decrease in usage when compared to the third quarter of 1993.
Purchased Power Costs
Purchased power costs decreased by $.2 million in the third quarter of 1994 as
compared to the same quarter of 1993. The components of the changes in
electric energy costs are as follows:
(Millions of Dollars)
Prices paid for purchased power $(.3)
Changes in kilowatt-hours purchased (.8)
Deferred purchased power .9
Total $( .2)
The average cost per kilowatt-hour purchased was 4.55 cents for the quarter
ended September 30, 1994 and 4.75 cents for the comparable period of 1993.
Other Operating and Maintenance Expenses
The Company's total operating and maintenance expenses excluding electricity
purchased from its Parent, deferred purchased power, and gas marketing
purchases for the third quarter, increased $.2 million when compared to the
third quarter of 1993. The expenses associated with utility operations
decreased by $.3 million, while non-utility operation expense increased $.5
million.
The decrease in other utility operating expenses is the result of a decrease
in operation and maintenance expense of $.1 million and a decrease in tax
expense of $.2 million.
Diversified Activities
The Company's diversified activities, which are conducted through it's wholly
owned non-utility subsidiaries, consist of natural gas marketing and
communications.
Revenues from diversified activities increased by $6.5 million in the third
quarter of 1994 as compared to the same quarter of 1993, as a result of the
gas marketing subsidiaries success in adding customers and increasing sales
volumes. These revenues were offset by increases in operating expenses, which
included higher gas purchases of $6.1 million. Other operating expenses
increased by $.5 million.
Other Income, Deductions and Interest Charges - Net
Other income, net of interest charges and other deductions, decreased $.1
million during the third quarter of 1994 when compared to the third quarter
of 1993. This decrease is primarily the result of an increase in outside
professional and consultative services relating to the ongoing investigation.
It is estimated that the Company will incur from $.1 million to $.3 million of
additional expenses in the fourth quarter of 1994 in connection with legal and
regulatory proceedings related to these events.
YEAR TO DATE COMPARISON
Earnings per average common share outstanding for the nine month period ended
September 30, 1994 amounted to $49.10 per share as compared to $40.33 for the
same period in 1993. This increase is attributable to increased electric
revenues and the favorable results of the gas marketing subsidiary, partially
offset by expenses associated with the continuing investigation and litigation
involving misappropriation of company funds and increased operating expenses.
Electric Revenues
Electric operating revenues increased by $1.0 million for the nine month
period ending September 30, 1994 as compared to the same period in 1993.
The components of the changes in electric operating revenues for the nine
month period ending September 30, 1994 as compared to the same period in 1993
are as follows:
(Millions of Dollars)
Retail sales:
Base rates* $ .6
Fuel cost recoveries (.4)
Sales volume changes .7
Subtotal .9
Other operating revenue .1
Total $ 1.0
* Includes miscellaneous surcharges
Sales of electricity to retail customers increased to 948,640 MWh in the first
nine months of 1994, compared to 940,660 MWh during the comparable period a
year ago. This increase is the result of an increase in the average number of
customers for 1994 compared to the same period of 1993.
Purchased Power Costs
Purchased power costs decreased by $.5 million for the nine month period of
1994 as compared to the same period of 1993. The components of the changes in
purchased power costs are as follows:
(Millions of Dollars)
Prices paid for purchased power $ (1.9)
Changes in kilowatt-hours purchased .3
Deferred purchased power 1.1
Total $ (.5)
The average cost per kilowatt-hour purchased was 4.89 cents during the first
nine months of 1994 and 5.08 cents for the comparable period of 1993.
Other Operating and Maintenance Expenses
Other operation and maintenance expenses, excluding purchased power costs and
gas marketing purchases, increased by $3.1 million in the first nine months of
1994 as compared to the same period in 1993. This increase is the result of
increases of $2.3 million in diversified activities expenses and $.8 million
in utility operating expenses. The utility operating expenses reflect $.5
million amortization of DSM costs which are offset with revenues in the
current period, increases in maintenance costs of $.1 million, and increases
of $.5 million in Federal income taxes and $.1 million in taxes other than
income taxes, primarily from increases in revenue taxes, offset by a decrease
of $.4 million in other operating expenses.
Diversified Activities
Revenues from diversified activities increased by $33.5 million in the first
nine months of 1994 as compared to the first nine months of 1993. The
increase is primarily the result of increased sales from gas marketing
activities. These revenues were offset by increases in operating expenses,
primarily gas purchases, which increased $30.2 million, while other operating
expenses increased by $2.3 million.
Other Income, Deductions and Interest Charges - Net
Other income, net of interest charges and other deductions, decreased $.8
million during the first nine months of 1994 when compared to the first nine
months of 1993. This decrease is primarily the result of an increase in
outside professional and consultative services relating to the ongoing
investigation. It is estimated that the Company will incur from $.1 million
to $.3 million of additional expenses in the fourth quarter of 1994 in
connection with legal and regulatory proceedings related to these events.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Investigation Related Litigation
Reference is made to Part II, Item 1. Legal Proceedings, in the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994 and June
30, 1994, respectively, for a description of actions entitled Bernstein v.
Orange and Rockland Utilities, Inc. and James F. Smith, a purported
shareholder class action complaint against the Parent and a former Chairman of
the Board of Directors and Chief Executive Officer of the Company and the
Parent, which was filed in the United States District Court, Southern District
of New York, and Gross v. Orange and Rockland Utilities, Inc., a purported
shareholder class action complaint, filed against the Parent in the United
States District Court, Southern District of New York. On November 3, 1994,
the Parent signed a tentative settlement in each of these actions, subject to
Court approval. The settlements have been filed with Judge Brieant who has
been asked to consolidate the two cases and certify class actions for
settlement purposes only. If the settlements are approved by the Court after
members of the classes are given notice and an opportunity to be heard, the
Parent will create a settlement fund of $1.85 million to resolve all claims in
both cases. Additional information regarding these settlements is included
under the caption "Notes to Consolidated Financial Statements" in Part I, Item
1. "Financial Statements" of this Quarterly Report on Form 10-Q.
Reference is made to Part II, Item 1. Legal Proceedings, in the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1994 and June
30, 1994, respectively, for a description of an action entitled Feiner, et al.
v. Orange and Rockland Utilities, Inc., a purported ratepayer class action
complaint against the Parent which was filed in the United States District
Court, Southern District of New York. As stated therein, on February 18, 1994
the Parent filed a motion to dismiss this case. On September 8, 1994, the
District Court granted the Parent's motion to dismiss this action and on
September 16, 1994, plaintiff filed a Notice of Appeal with the United States
Court of Appeals for the Second Circuit appealing the District Court's
decision.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROCKLAND ELECTRIC COMPANY
(Registrant)
Date: November 10, 1994 By TERRY L. DITTRICH
Terry L. Dittrich
Acting Controller
Date: November 10, 1994 By ROBERT J. McBENNETT
Robert J. McBennett
Treasurer