Sales and Expenditures (cont.)

O & M Spending
Excludes Payroll - Millions of Dollars

The Company's long-term trend of declining operations and maintenance spending directly results from employees' efforts to identify opportunities for cost savings and dedication to contain costs.

The Company continued to rein in spending, managing costs rigorously:

Maintenance expenses decreased by 6 percent during the year as a result of ongoing cost-containment efforts, but overall non-payroll operations and maintenance (O & M) spending for the year increased slightly over 1994 spending. O & M costs had declined by almost 50 percent over a period of six years, but customer research and R & D spending pushed up costs in 1995. We believe these forward-looking expenditures will strengthen the Company.

Payroll expenditures declined by almost $500,000 as a result of a reduction in the workforce. Twenty-four employees, whose annual salaries and benefits totaled $1.2 million, took advantage of the retirement-incentive option that the Company offered in the spring of 1995. The Company will continue to benefit from these payroll savings in future years.