SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
March 31, 1998
For the quarterly period ended. . . . . . . .. . . . . . . . . .
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from. . . . . . . .to. . . . . . . . .
1-3103-2
Commission file number. . . . . . . . . . . .. . . . . . . . . .
New York State Electric & Gas Corporation
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Exact name of registrant as specified in its charter)
New York 15-0398550
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 3287, Ithaca, New York 14852-3287
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
(Address of principal executive offices) (Zip Code)
607 347-4131
Registrant's telephone number, including area code . . . . . . .
N/A
. . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . .
Former name, former address and former fiscal year, if changed
since last report.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [x] No [ ]
The number of shares of common stock (par value $6.66 2/3
per share) outstanding as of April 30, 1998 was 64,508,477.
TABLE OF CONTENTS
PART I
Page
Item 1. Financial Statements . . . . . . . . . . . . . . 1
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
(a) Liquidity and Capital Resources . . . . . 6
(b) Results of Operations . . . . . . . . . . 8
PART II
Item 4. Submission of Matters to a Vote
of Security Holders. . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. . . . . . . . . . . . . . . . . 10
(b) Reports on Form 8-K . . . . . . . . . . . 10
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . 11
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
New York State Electric & Gas Corporation
Consolidated Statements of Income - (Unaudited)
Three Months
Periods Ended March 31 1998 1997
(Thousands, except per share amounts)
Operating Revenues
Electric . . . . . . . . . . . . . . . . $505,588 $451,270
Natural gas. . . . . . . . . . . . . . . 121,644 136,867
---------- ----------
Total Operating Revenues. . . . . . . 627,232 588,137
---------- ----------
Operating Expenses
Fuel used in electric generation . . . . 59,092 59,983
Electricity purchased. . . . . . . . . . 146,211 93,212
Natural gas purchased. . . . . . . . . . 57,137 60,407
Other operating expenses . . . . . . . . 73,168 79,561
Maintenance. . . . . . . . . . . . . . . 31,948 23,917
Depreciation and amortization. . . . . . 47,594 48,289
Other taxes. . . . . . . . . . . . . . . 54,940 55,241
---------- ----------
Total Operating Expenses. . . . . . . 470,090 420,610
---------- ----------
Operating Income. . . . . . . . . . . . . 157,142 167,527
Interest Charges, Net . . . . . . . . . . 30,636 30,626
Other Income and Deductions . . . . . . . 2,722 4,768
---------- ----------
Income Before Federal Income Taxes . . . 123,784 132,133
Federal Income Taxes. . . . . . . . . . . 45,344 50,156
---------- ----------
Net Income. . . . . . . . . . . . . . . . 78,440 81,977
Preferred Stock Dividends . . . . . . . . 2,269 2,315
---------- ----------
Earnings Available for Common Stock . . . $76,171 $79,662
========== ==========
Earnings Per Share, basic and diluted . . $1.15 $1.15
Dividends Per Share . . . . . . . . . . . $.35 $.35
Average Shares Outstanding. . . . . . . . 66,408 69,353
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Balance Sheets - (Unaudited)
March 31, Dec. 31,
1998 1997
(Thousands)
Assets
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . . . $17,005 $8,168
Special deposits . . . . . . . . . . . . . . . . . . . 2,309 3,170
Accounts receivable, net . . . . . . . . . . . . . . . 175,416 189,008
Fuel, at average cost. . . . . . . . . . . . . . . . . 24,198 43,706
Materials and supplies, at average cost. . . . . . . . 42,639 41,561
Prepayments. . . . . . . . . . . . . . . . . . . . . . 89,407 68,452
Accumulated deferred federal income
tax benefits, net. . . . . . . . . . . . . . . . . . 10,206 2,148
---------- ----------
Total Current Assets. . . . . . . . . . . . . . . . 361,180 356,213
Utility Plant, at Original Cost
Electric . . . . . . . . . . . . . . . . . . . . . . . 5,260,270 5,234,725
Natural gas. . . . . . . . . . . . . . . . . . . . . . 577,571 576,683
Common . . . . . . . . . . . . . . . . . . . . . . . . 146,138 152,034
---------- ----------
5,983,979 5,963,442
Less accumulated depreciation. . . . . . . . . . . . . 2,110,476 2,093,274
---------- ----------
Net Utility Plant in Service. . . . . . . . . . . . 3,873,503 3,870,168
Construction work in progress. . . . . . . . . . . . . 43,468 52,104
---------- ----------
Total Utility Plant . . . . . . . . . . . . . . . . 3,916,971 3,922,272
Other Property and Investments, Net . . . . . . . . . . 143,026 143,449
Regulatory and Other Assets
Regulatory assets
Unfunded future federal income taxes. . . . . . . . . 241,545 243,129
Environmental remediation costs . . . . . . . . . . . 82,800 82,900
Unamortized debt expense. . . . . . . . . . . . . . . 75,196 76,418
Demand-side management program costs. . . . . . . . . 64,466 64,466
Other . . . . . . . . . . . . . . . . . . . . . . . . 73,153 113,637
---------- ----------
Total regulatory assets. . . . . . . . . . . . . . . . 537,160 580,550
Other assets . . . . . . . . . . . . . . . . . . . . . 26,870 26,197
---------- ----------
Total Regulatory and Other Assets . . . . . . . . . 564,030 606,747
---------- ----------
Total Assets. . . . . . . . . . . . . . . . . . . . $4,985,207 $5,028,681
========== ==========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Balance Sheets - (Unaudited)
March 31, Dec. 31,
1998 1997
(Thousands)
Liabilities
Current Liabilities
Current portion of long-term debt. . . . . . . . . . . $7,984 $38,240
Commercial paper . . . . . . . . . . . . . . . . . . . 105,000 58,000
Accounts payable and accrued liabilities . . . . . . . 116,001 124,981
Interest accrued . . . . . . . . . . . . . . . . . . . 35,314 20,500
Taxes accrued. . . . . . . . . . . . . . . . . . . . . 53,632 6,146
Other. . . . . . . . . . . . . . . . . . . . . . . . . 59,086 79,631
---------- ----------
Total Current Liabilities. . . . . . . . . . . . . . 377,017 327,498
Regulatory and Other Liabilities
Regulatory liabilities
Deferred income taxes - unfunded future federal
income taxes. . . . . . . . . . . . . . . . . . . . 98,382 99,126
Deferred income taxes . . . . . . . . . . . . . . . . 82,627 81,986
Other . . . . . . . . . . . . . . . . . . . . . . . . 41,940 79,709
---------- ----------
Total regulatory liabilities . . . . . . . . . . . . . 222,949 260,821
Other liabilities
Deferred income taxes . . . . . . . . . . . . . . . . 754,282 753,722
Other postretirement benefits . . . . . . . . . . . . 123,990 117,760
Environmental remediation costs . . . . . . . . . . . 82,800 82,900
Other . . . . . . . . . . . . . . . . . . . . . . . . 73,490 73,021
---------- ---------
Total other liabilities. . . . . . . . . . . . . . . . 1,034,562 1,027,403
Long-term debt . . . . . . . . . . . . . . . . . . . . 1,449,209 1,450,224
---------- ----------
Total Liabilities . . . . . . . . . . . . . . . . . 3,083,737 3,065,946
Commitments - -
Preferred Stock Redeemable Solely at the
Option of the Company. . . . . . . . . . . . . . . . 134,440 134,440
Preferred Stock Subject to Mandatory
Redemption Requirements. . . . . . . . . . . . . . . 25,000 25,000
Common Stock Equity
Common stock . . . . . . . . . . . . . . . . . . . . 442,250 462,250
Capital in excess of par value. . . . . . . . . . . . 717,836 811,648
Retained earnings . . . . . . . . . . . . . . . . . . 621,387 568,844
Treasury stock, at cost . . . . . . . . . . . . . . . (39,443) (39,447)
---------- ----------
Total Common Stock Equity . . . . . . . . . . . . . 1,742,030 1,803,295
---------- ----------
Total Liabilities and Stockholders' Equity . . . . $4,985,207 $5,028,681
========== ==========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Statements of Cash Flows - (Unaudited)
Three Months
Periods Ended March 31 1998 1997
(Thousands)
Operating Activities
Net income . . . . . . . . . . . . . . . . . . . . $78,440 $81,977
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization. . . . . . . . . . 47,594 48,289
Federal income taxes and investment tax credits
deferred, net. . . . . . . . . . . . . . . . . (5,575) (11,038)
Changes in current operating assets and liabilities
Accounts receivable . . . . . . . . . . . . . . 13,592 (10,128)
Prepayments. . . . . . . . . . . . . . . . . . . (20,955) (18,509)
Inventory. . . . . . . . . . . . . . . . . . . . 18,430 11,312
Accounts payable and accrued liabilities . . . . (8,980) (24,929)
Taxes accrued. . . . . . . . . . . . . . . . . . 47,486 62,884
Other, net . . . . . . . . . . . . . . . . . . . . 1,155 14,982
------- -------
Net Cash Provided by Operating Activities . . . 171,187 154,840
------- -------
Investing Activities
Utility plant capital expenditures . . . . . . . . (39,012) (25,995)
Proceeds from governmental and other sources . . . 211 131
Expenditures for other property and investments. . (249) (551)
------- -------
Net Cash Used in Investing Activities . . . . . (39,050) (26,415)
------- -------
Financing Activities
Repurchase of common stock . . . . . . . . . . . . (114,023) (7,246)
Repayments of first mortgage bonds . . . . . . . . (30,000) (48,000)
Changes in funds set aside for first
mortgage bond repayments . . . . . . . . . . . . - 25,000
Long-term notes, net . . . . . . . . . . . . . . . (380) (456)
Commercial paper, net. . . . . . . . . . . . . . . 47,000 (66,800)
Dividends on common and preferred stock. . . . . . (25,897) (26,643)
------- -------
Net Cash Used in Financing Activities . . . . . (123,300) (124,145)
------- -------
Net Increase in Cash and Cash Equivalents . . . . . 8,837 4,280
Cash and Cash Equivalents, Beginning of Period. . . 8,168 8,253
------- -------
Cash and Cash Equivalents, End of Period. . . . . . $17,005 $12,533
======= =======
Supplemental Disclosure of Cash Flows Information
Cash paid during the period
Interest, net of amounts capitalized. . . . . . . $11,473 $14,216
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
New York State Electric & Gas Corporation
Consolidated Statements of Retained Earnings - (Unaudited)
Three Months
Periods Ended March 31 1998 1997
(Thousands)
Balance, beginning of period. . . . . . . . . . $568,844 $489,129
Add net income. . . . . . . . . . . . . . . . . 78,440 81,977
-------- --------
647,284 571,106
Deduct dividends on capital stock
Preferred. . . . . . . . . . . . . . . . . . . 2,269 2,315
Common . . . . . . . . . . . . . . . . . . . . 23,628 24,269
-------- --------
25,897 26,584
Balance, end of period. . . . . . . . . . . . . $621,387 $544,522
======== ========
The notes on page 6 are an integral part of the financial statements.
Item 1. Financial Statements (Cont'd)
Note 1. Unaudited Consolidated Financial Statements
The accompanying unaudited consolidated financial statements
reflect all adjustments which are, in the opinion of management,
necessary for a fair presentation of New York State Electric & Gas
Corporation's (company) consolidated results for the interim
periods. All such adjustments are of a normal recurring nature.
The unaudited consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes
contained in the company's annual report for the year ended
December 31, 1997. Due to the seasonal nature of the company's
operations, financial results for interim periods are not neces-
sarily indicative of trends for a twelve-month period.
Note 2. Reorganization
On May 1, 1998, the company was reorganized into a holding
company structure pursuant to an Agreement and Plan of Share
Exchange (Plan of Exchange) between the company and Energy East
Corporation (Energy East). The Plan of Exchange was approved on
April 29, 1998 by more than two-thirds of the outstanding company
common stock entitled to vote. As part of the reorganization, all
outstanding common stock of the company was exchanged on a share-
for-share basis for common stock of Energy East and the company
became a subsidiary of Energy East. The company's common stock was
delisted from the New York Stock Exchange. Energy East's common
stock is listed on the New York Stock Exchange under the symbol
NEG. The preferred stock and debt of the company were not
exchanged and remain securities of the company.
Item 2. Management's discussion and analysis of financial
condition and results of operations
(a) Liquidity and Capital Resources
Competitive Conditions (See Form 10-K for fiscal year ended
December 31, 1997, Item 7 - Liquidity and Capital Resources -
Competitive Conditions - Electric Industry, Natural Gas Industry
and Accounting Issues.)
Electric Industry
Holding Company Structure: The company reorganized into a holding
company structure on May 1, 1998. Subsidiaries under the holding
company (Energy East) include the company, a generation company and
an energy services company. The company is a regulated utility
transmitting and delivering electricity, transporting and
delivering natural gas, and generating electricity from its nuclear
and hydroelectric stations. The generation company produces
electricity from seven coal-fired stations. The energy services
company conducts activities such as providing energy, financial and
environmental services.
Generation Business: The company, on February 11, 1998,
transferred its seven coal-fired generating stations to a
generation subsidiary and commenced transferring associated assets
and liabilities (collectively, the generation assets) to such
subsidiary. This transfer of the associated assets and liabilities
is substantially complete. The Public Service Commission of the
State of New York (PSC) approved the company's auction protocols in
April 1998. The company is in the process of auctioning the
generation assets and will complete the auction process by August
1, 1999. Neither the company nor any affiliate will participate as
a bidder in the auction. Any shortfall between the auction
proceeds, net of taxes, and the net book value of the generation
assets, less funded deferred taxes, will be recovered by the
company through a competitive transition charge and any excess will
be used to write down the company's 18% investment in Nine Mile
Point nuclear generating unit No. 2. Any additional excess will be
used by the company as directed by the PSC.
Natural Gas Industry
Joint Venture with Central Maine Power Company (CMP): The company
and CMP signed an agreement in November 1997 to form a jointly-
owned company to distribute natural gas to Maine and New Hampshire
customers in areas not currently served by a natural gas utility.
Various regulatory approvals are required before the joint venture
can operate a new natural gas distribution service. The joint
venture received conditional approval from the Maine Public Service
Commission in March 1998 to provide service to 60 Maine towns.
Unconditional approval is expected later this year. This project
is dependent upon construction of two pipelines from Canada which
are expected to begin in mid-1998 and early 1999. The joint
venture's plans have been developed to coincide with these
construction schedules, with initial service to customers
anticipated by the end of 1998.
Investing Activities
Capital expenditures for the first three months of 1998 were
$39 million. The company estimates its capital expenditures for
1998 will be about $150 million, primarily for extension of service
and necessary improvements to existing facilities. These
expenditures are expected to be financed entirely with internally
generated funds.
Financing Activities
During the first quarter of 1998 the company redeemed $30
million of 6 1/2% Series first mortgage bonds due September 1,
1998. The company also repurchased three million shares of common
stock as part of its common stock repurchase program.
In April 1998 the board of directors increased the quarterly
common stock dividend rate from 35 cents to 40 cents per share.
This 14% increase is effective with the quarterly dividend payable
May 15, 1998.
(b) Results of Operations
Three Months Ended March 31,
1998 1997 Change
(Thousands, except per share amounts)
Total Operating Revenues $627,232 $588,137 7%
Operating Income $157,142 $167,527 (6%)
Earnings Available for
Common Stock $76,171 $79,662 (4%)
Average Shares Outstanding 66,408 69,353 (4%)
Earnings Per Share,
basic and diluted $1.15 $1.15 -
Dividends Per Share $.35 $.35 -
Earnings per share for the first quarter of 1998 were
unchanged compared to the prior year. The benefits of
management's cost control efforts and a reduction in the number
of common shares outstanding increased earnings per share. Those
increases were offset by lower electric and natural gas retail
deliveries because of unusually warm weather and expenses related
to a major ice storm that hit the Northeast in January.
Operating Results by Business Segment
Electric Three Months Ended March 31,
1998 1997 Change
(Thousands)
Retail Deliveries-
Megawatt-hours 3,390 3,492 (3%)
Operating Revenues $505,588 $451,270 12%
Operating Expenses $384,321 $331,969 16%
Operating Income $121,267 $119,301 2%
Electric retail deliveries decreased because of unusually
warm weather this quarter.
The $54 million increase in electric operating revenues is
primarily due to a $63 million increase in revenues from
wholesale deliveries, partially offset by a $15 million decrease
in revenues because of lower retail deliveries that resulted from
the unusually warm weather.
The $52 million increase in electric operating expenses for
the three months was primarily due to a $56 million increase in
electricity purchased for wholesale deliveries, partially offset
by a $3 million decrease in electricity purchased for retail
deliveries.
Natural Gas Three Months Ended March 31,
1998 1997 Change
(Thousands)
Retail Deliveries-
Dekatherms 21,279 23,419 (9%)
Operating Revenues $121,644 $136,867 (11%)
Operating Expenses $85,769 $88,641 (3%)
Operating Income $35,875 $48,226 (26%)
The $15 million decrease in natural gas operating revenues
was primarily due to lower retail deliveries that resulted from
the unusually warm weather.
Natural gas operating expenses decreased $3 million
primarily due to a decrease in the amount of natural gas
purchased.
PART II - OTHER INFORM ATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of stockholders of the company was held
on April 29, 1998. The following matters were voted upon:
(a) Approval of the Agreement and Plan of Share Exchange:
Shares For: 45,899,062
Shares Against: 4,600,980
Shares Abstain: 713,992
Broker "Non Voted": 5,207,347
(b) The election of three directors:
Cumulative Cumulative
Nominees Votes For Votes Withheld
James A. Carrigg 54,996,584 1,424,797
Paul L. Gioia 55,070,986 1,350,395
Ben E. Lynch 55,042,910 1,378,471
(c) A stockholder proposal relating to a percentage reduction in
director remuneration based on a dividend reduction was defeated:
Shares For: 5,576,268
Shares Against: 43,495,812
Shares Abstain: 1,740,651
Broker "Non Voted": 5,608,650
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - See Exhibit Index.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter.
Signature
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
NEW YORK STATE ELECTRIC & GAS CORPORATION
(Registrant)
By Sherwood J. Rafferty
Sherwood J. Rafferty
Senior Vice President and
Chief Financial Officer
Date: May 14, 1998
EXHIBIT INDEX
(1) The following exhibit is delivered with this report:
27 - Financial Data Schedule.
(2) The following exhibit is incorporated herein by reference:
2-1 - Agreement and Plan of Share Exchange between
New York State Electric & Gas Corporation and
Energy East Corporation, filed in Registration
No. 333-37997 as Exhibit 2-1.