-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SLaoA8rk9cI7HoExvJIGAGZK7GgG4+WP3kWQQLLHZ4qrHstS3Dj6zSV6q/Vc6FWd rr1AG9sbWYD/cgkNZslFug== 0000008192-95-000060.txt : 19951121 0000008192-95-000060.hdr.sgml : 19951121 ACCESSION NUMBER: 0000008192-95-000060 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19951116 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC CITY ELECTRIC CO CENTRAL INDEX KEY: 0000008192 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 210398280 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03559 FILM NUMBER: 95594373 BUSINESS ADDRESS: STREET 1: 6801 BLACK HORSE PIKE CITY: PLEASANTVILLE STATE: NJ ZIP: 08232 BUSINESS PHONE: 6096454100 MAIL ADDRESS: STREET 1: PO BOX 1264 CITY: PLEASANTVILLE STATE: NJ ZIP: 08232 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC ENERGY INC CENTRAL INDEX KEY: 0000806393 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 222871471 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09760 FILM NUMBER: 95594374 BUSINESS ADDRESS: STREET 1: 6801 BLACK HORSE PIKE CITY: PLEASANTVILLE STATE: NJ ZIP: 08232 BUSINESS PHONE: 6096454500 10-Q 1 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 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 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 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 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. 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 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 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 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 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. 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. 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. 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. 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. 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. 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. 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 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. EX-27 2
UT 0000008192 ATLANTIC CITY ELECTRIC COMPANY 6-MOS DEC-31-1995 jan-1-1995 JUN-30-1995 PER-BOOK 1,783,279 58,641 260,362 365,955 0 2,468,237 54,963 491,843 232,296 779,102 149,250 40,000 776,100 64,000 0 0 12,247 12,250 37,726 0 597,562 2,468,237 424,912 12,339 357,253 369,592 55,320 6,624 61,944 31,054 30,890 7,575 30,890 40,786 0 12,918 0 0
EX-27 3
UT 0000806393 ATLANTIC ENERGY, INC. 6-MOS DEC-31-1995 jan-1-1995 JUN-30-1995 PER-BOOK 1,783,279 186,191 264,377 367,394 0 2,601,241 564,975 0 230,445 795,420 149,250 40,000 791,100 84,000 0 0 31,747 12,250 37,727 0 659,747 2,601,241 424,834 12,339 357,115 369,454 55,380 5,286 60,666 31,054 22,037 7,575 22,037 40,635 0 7,610 0.42 0.42
EX-3 4 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. 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. 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. 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. -----END PRIVACY-ENHANCED MESSAGE-----