UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the period ended June 30, 1999
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- OR -
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-6986
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PUBLIC SERVICE COMPANY OF NEW MEXICO
(Exact name of registrant as specified in its charter)
New Mexico 85-0019030
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Alvarado Square, Albuquerque, New Mexico 87158
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(Address of principal executive offices)
(Zip Code)
(505) 241-2700
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(Registrant's telephone number, including area code)
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(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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock--$5.00 par value 40,774,083 shares
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Class Outstanding at August 1, 1999
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION:
Report of Independent Public Accountants......................... 3
ITEM 1. FINANCIAL STATEMENTS
Consolidated Statements of Earnings -
Three Months and Six Months Ended June 30, 1999 and 1998......... 4
Consolidated Statements of Comprehensive Income -
Three Months and Six Months Ended June 30, 1999 and 1998......... 5
Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998.............................. 6
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998.......................... 7
Notes to Consolidated Financial Statements....................... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.................... 12
PART II. OTHER INFORMATION:
ITEM 1. LEGAL PROCEEDINGS............................................ 21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK.............................................. 22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.......... 23
ITEM 5. OTHER INFORMATION............................................ 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................. 24
Signature ............................................................. 25
2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Public Service Company of New Mexico:
We have reviewed the accompanying consolidated balance sheet of Public Service
Company of New Mexico (a New Mexico corporation) and subsidiaries as of June 30,
1999 and the related consolidated statements of earnings and comprehensive
income for the three-month and six-month periods ended June 30, 1999 and 1998,
and the consolidated statements of cash flows for the six-month periods ended
June 30, 1999 and 1998. These financial statements are the responsibility of the
company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Public Service Company of New
Mexico and subsidiaries as of December 31, 1998 (not presented herein), and, in
our report dated March 2, 1999, we expressed an unqualified opinion on that
statement. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1998, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
ARTHUR ANDERSEN LLP
Albuquerque, New Mexico
July 28, 1999
3
ITEM 1. FINANCIAL STATEMENTS
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- ----------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(In thousands, except per share amounts)
Operating revenues:
Electric $212,864 $176,503 $397,306 $356,155
Gas 48,319 53,793 133,183 156,505
Energy Services 188 182 3,700 378
--------- --------- --------- ---------
Total operating revenues 261,371 230,478 534,189 513,038
--------- --------- --------- ---------
Operating expenses:
Fuel and purchased power 87,531 58,871 149,684 113,903
Gas purchased for resale 20,423 27,199 68,679 91,910
Cost of sales and projects - Energy Services 237 80 2,855 409
Other operation and maintenance 85,567 82,153 168,325 163,760
Depreciation and amortization 23,345 20,942 46,426 42,016
Taxes, other than income taxes 8,848 8,909 18,169 18,345
Income taxes 6,173 6,282 15,736 20,027
--------- --------- --------- ---------
Total operating expenses 232,124 204,436 469,874 450,370
--------- --------- --------- ---------
Operating income 29,247 26,042 64,315 62,668
--------- --------- --------- ---------
Other income and deductions, net of tax: 6,313 5,031 12,412 7,753
--------- --------- --------- ---------
Income before interest charges 35,560 31,073 76,727 70,421
--------- --------- --------- ---------
Interest charges:
Interest on long-term debt 16,688 9,170 33,402 20,556
Other interest charges 700 5,406 2,023 7,807
--------- --------- --------- ---------
Net interest charges 17,388 14,576 35,425 28,363
--------- --------- --------- ---------
Net earnings from continuing operations 18,172 16,497 41,302 42,058
Discontinued operations, net of tax:
Loss from operations of gas marketing - (1,719) - (6,066)
Cumulative effect of a change in accounting
principle, net of tax (Note 2) - - 3,541 -
--------- --------- --------- ---------
Net earnings (Notes 2 and 5) 18,172 14,778 44,843 35,992
Preferred stock dividend requirements 146 146 293 293
--------- --------- --------- ---------
Net earnings applicable to common stock $ 18,026 $ 14,632 $ 44,550 $ 35,699
========= ========= ========= =========
Net earnings (loss) per share of common stock (Note 3):
Earnings from continuing operations $ 0.44 $ 0.39 $ 0.99 $ 1.00
Loss from discontinued operations - (0.04) - (0.15)
Cumulative effect of a change in accounting principle - - 0.09 -
--------- --------- --------- ---------
Net earnings per common share (Basic) $ 0.44 $ 0.35 $ 1.08 $ 0.85
========= ========= ========= =========
Net earnings per common share (Diluted) $ 0.44 $ 0.35 $ 1.08 $ 0.85
========= ========= ========= =========
Dividends paid per share of common stock $ 0.20 $ 0.20 $ 0.40 $ 0.37
========= ========= ========= =========
The accompanying notes are an integral part of these financial statements.
4
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(In thousands)
Net Earnings $ 18,172 $ 14,778 $ 44,843 $ 35,992
--------- --------- --------- ---------
Other Comprehensive Income, net of tax:
Unrealized gain (loss) on securities:
Unrealized holding gains arising during the period 384 (446) 1,672 313
Less reclassification adjustment for gains included
in net income (1,339) (73) (2,161) (171)
--------- --------- --------- ---------
Total Other Comprehensive Income (Loss) (955) (519) (489) 142
--------- --------- --------- ---------
Total Comprehensive Income $ 17,217 $ 14,259 $ 44,354 $ 36,134
========= ========= ========= =========
Note: Tax expense (benefit) for Total Other Comprehensive Income for the
three months ended June 30, 1999 and 1998 was $(626) and $(340),
respectively. Tax expense (benefit) for Total Other Comprehensive
Income for the six months ended June 30, 1999 and 1998 was $(320) and
$93, respectively.
The accompanying notes are an integral part of these financial statements.
5
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1999 1998
------------ ------------
(Unaudited)
ASSETS
Utility plant $ 2,619,816 $ 2,591,934
Accumulated depreciation and amortization (1,040,067) (998,175)
------------ ------------
Net utility plant 1,579,749 1,593,759
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Other property and investments 490,481 523,834
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Current assets:
Cash 6,629 2,573
Temporary investments, at cost 54,032 58,707
Receivables 196,210 197,906
Income tax receivable 6,227 8,266
Fuel, materials and supplies 44,526 33,137
Gas in underground storage 1,721 2,537
Other current assets 7,582 4,666
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Total current assets 316,927 307,792
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Deferred charges 145,237 151,403
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Total Assets $ 2,532,394 $ 2,576,788
============ ============
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock equity:
Common stock $ 203,870 $ 208,870
Additional paid-in capital 452,739 465,386
Accumulated other comprehensive income,
net of tax 638 1,127
Retained earnings 206,105 186,220
------------ ------------
Total common stock equity 863,352 861,603
Minority interest 13,037 13,405
Cumulative preferred stock without mandatory
redemption requirements 12,800 12,800
Long-term debt, less current maturities 987,089 1,008,614
------------ ------------
Total capitalization 1,876,278 1,896,422
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Current liabilities:
Short-term debt - 26,620
Accounts payable 92,400 113,975
Dividends payable 8,301 147
Accrued interest and taxes 35,118 34,289
Other current liabilities 40,271 28,308
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Total current liabilities 176,090 203,339
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Deferred credits 480,026 477,027
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Commitments and Contingencies (Note 7) - -
------------ ------------
Total Capitalization and Liabilities $ 2,532,394 $ 2,576,788
============ ============
The accompanying notes are an integral part of these financial statements.
6
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------
1999 1998
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(In thousands)
Cash Flows From Operating Activities:
Net earnings $ 44,843 $ 35,992
Adjustments to reconcile net earnings to net cash flows
from operating activities:
Depreciation and amortization 52,064 48,107
Gain on cumulative effect of a change in accounting
principle (Note 2) (5,862) -
Changes in certain assets and liabilities:
Receivables 3,341 34,556
Fuel, materials and supplies (581) 3,302
Deferred charges 5,288 2,340
Accounts payable (21,639) (33,273)
Accrued interest and taxes 829 (1,780)
Deferred credits 3,456 (5,648)
Other 5,449 2,640
Other, net 943 (3,109)
--------- ---------
Net cash flows from operating activities 88,131 83,127
--------- ---------
Cash Flows From Investing Activities:
Utility plant additions (39,951) (61,092)
(Increase) decrease in nuclear decommissioning trust 26,620 (1,140)
Purchase of PVNGS LOBs - (58,000)
Decrease in temporary investments, net 6,337 3,816
Other, net 5,878 4,256
--------- ---------
Net cash flows used by investing activities (1,116) (112,160)
--------- ---------
Cash Flows From Financing Activities:
Dividends paid (16,739) (15,687)
Common stock repurchased (17,651) -
(Repayments) borrowings for nuclear decommissioning trust (26,620) 1,140
Debt repaid (21,580) (144,540)
Financing - 187,460
Other, net (369) (2,525)
--------- ---------
Net cash flows (used) generated by financing activities (82,959) 25,848
--------- ---------
Increase (decrease) in cash 4,056 (3,185)
Cash at beginning of period 2,573 8,705
--------- ---------
Cash at end of period $ 6,629 $ 5,520
========= =========
Supplemental Cash Flow Disclosures:
Interest paid $ 34,645 $ 26,916
Income taxes paid, net of refunds $ 24,425 $ 32,687
The accompanying notes are an integral part of these financial statements.
7
PUBLIC SERVICE COMPANY OF NEW MEXICO AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) General Accounting Policies and Responsibilities for Financial Statements
The significant accounting policies followed by Public Service Company of New
Mexico (the "Company") are set forth in note (1) of notes to the Company's
consolidated financial statements in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 (the "1998 Form 10-K") filed with the
Securities and Exchange Commission ("SEC"). The consolidated financial
statements are unaudited and reflect all adjustments (consisting only of normal
and recurring adjustments) that are, in the opinion of management, necessary for
a fair presentation of the financial position and results of operations for the
interim periods presented. The consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
contained in the 1998 Form 10-K. The results of operations for the three and six
months ended June 30, 1999 are not necessarily indicative of the results for the
entire year ending December 31, 1999. Certain 1998 amounts have been
reclassified to conform to the 1999 financial statement presentation.
(2) Accounting Changes
Effective January 1, 1999, the Company adopted Emerging Issues Task Force
("EITF") Issue No. 98-10, Accounting for Contracts Involved in Energy Trading
and Risk Management Activities. EITF Issue No. 98-10 requires gains or losses
resulting from the market value changes on energy trading contracts to be
recorded in earnings. The effect of the initial application of EITF Issue No.
98-10 is reported as a cumulative effect of a change in accounting principle
which increased the Company's consolidated net income by approximately $3.5
million (after related income tax expense of approximately $2.3 million), or
$.09 per common share.
(3) Earnings Per Share
The following table provides a reconciliation between basic and diluted earnings
per share for the periods ended:
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
(In thousands, except per share amounts)
Net income applicable to common stock $18,026 $14,632 $44,550 $35,699
-------- -------- -------- --------
Weighted-average shares of common stock outstanding
Basic 40,852 41,774 41,307 41,774
Dilutive effect of common stock equivalents (a) 147 349 110 375
-------- -------- -------- --------
Diluted 40,999 42,123 41,417 42,149
-------- -------- -------- --------
Earnings per share
Basic - net income $0.44 $0.35 $1.08 $0.85
Diluted - net income $0.44 $0.35 $1.08 $0.85
(a) Excludes the effect of anti-dilutive common stock equivalents related to
out-of-the-money options of 72,433 and 10,726 for the three months ended
June 30, 1999 and June 30, 1998, respectively, and 197,813 and 17,715 for
the six months ended June 30, 1999 and June 30, 1998, respectively.
8
(4) Segments Information
The Company's principal business segments are electric ("Electric") and gas
("Gas") operations. Electric consists of three major business lines that include
the Electric Service Business Unit ("Distribution"), Transmission Service
Business Unit ("Transmission") and Bulk Power Business Unit ("Generation"). The
Company's non-operating subsidiaries and Energy Services Business Unit do not
meet the quantitative requirements to be reported as a separate segment and are
included in the "Other" classification. Intersegment revenues are determined
based on a formula mutually agreed upon between affected segments and are not
based on market rates.
Intersegment revenues are eliminated for consolidation purposes.
Summarized financial information by business segment for the three months and
six months ended June 30, 1999 and 1998 is as follows:
Electric
---------------------------------------
Distri. Trans. Gen. Total Gas Other Consolidated
------- ------ ---- ----- --- ----- ------------
(In thousands of dollars)
Three Months Ended:
- -------------------
1999:
Operating revenues:
External customers 133,191 3,736 75,937 212,864 48,319 188 261,371
Intersegment revenues - 7,450 79,198 86,648 - - 86,648
Operating income 13,952 2,155 10,900 27,007 2,007 233 29,247
Segment net income (loss) 11,154 1,164 8,557 20,875 (335) (2,368) 18,172
1998:
Operating revenues:
External customers 125,510 3,908 47,085 176,503 53,793 182 230,478
Intersegment revenues - 7,273 88,238 95,511 - - 95,511
Operating income 4,155 2,818 16,869 23,842 3,452 (1,252) 26,042
Segment net income (loss) 2,490 1,743 13,415 17,648 990 (3,860) 14,778
Six Months Ended:
- -----------------
1999:
Operating revenues:
External customers 262,374 7,512 127,420 397,306 133,183 3,700 534,189
Intersegment revenues - 14,900 157,168 172,068 - - 172,068
Operating income 26,651 4,548 22,056 53,255 9,858 1,202 64,315
Segment net income (loss) 20,944 2,479 20,488 43,911 4,648 (3,716) 44,843
1998:
Operating revenues:
External customers 256,421 7,724 92,010 356,155 156,505 378 513,038
Intersegment revenues - 14,545 177,441 191,986 - - 191,986
Operating income 11,047 5,755 34,792 51,594 13,385 (2,311) 62,668
Segment net income (loss) 6,744 3,453 27,245 37,442 8,454 (9,904) 35,992
9
(5) Financial Instruments
The Company uses derivative financial instruments in limited instances to manage
risk as it relates to changes in natural gas prices and adverse market changes
for investments held by the Company's various trusts. The Company is exposed to
credit losses in the event of non-performance or non-payment by counterparties.
The Company uses a credit management process to assess and monitor the financial
conditions of counterparties. The Company also uses, on a limited basis, certain
derivative instruments for bulk power electricity trading purposes in order to
take advantage of favorable price movements in the bulk power markets.
Natural Gas Contracts
Pursuant to an order issued by the New Mexico Public Utility Commission
("NMPUC"), predecessor to New Mexico Public Regulation Commission ("PRC"), the
Company has previously entered into swaps to hedge certain portions of natural
gas supply contracts in order to protect the Company's natural gas customers
from the risk of adverse price fluctuations in the natural gas market. The
financial impact of all hedge gains and losses from swaps flowed through the
Company's purchased gas adjustment clause. As a result, earnings were not
affected by gains or losses generated by these instruments. As of June 30, 1999,
the Company had no such derivative instruments outstanding.
Electricity Contracts
In order to reduce risk and take advantage of market opportunities associated
with the purchase and sale of electricity, the Company's bulk power operations
occasionally enter into derivative contracts. As of June 30, 1999, the Company
had recorded net assets of $7.8 million and year-to-date gains of $2.0 million
(pre-tax) related to these derivative financial instruments.
Corporate Hedge
The Company now has about $62 million invested in domestic stocks in various
trusts for nuclear decommissioning, executive retirement and retiree medical
benefits. At the end of March 1999, the Company began using financial
derivatives based on the Standard & Poor's ("S&P") 500 Index to limit potential
loss on these investments due to adverse market fluctuations. The options are
structured as a collar, protecting the portfolio against losses beyond a certain
amount and balancing the cost of that downside protection by foregoing gains
above a certain level. If the S&P Index is within the specified range when the
option contract expires, no cash transfer will occur. The Company accounts for
the market value changes of these options under mark-to-market accounting on a
quarterly basis. Because of the market's strong performance during the second
quarter of this year, the Company recorded an unrealized year-to-date loss of
$2.0 million (pre-tax) on the market value of these options, although the S&P
500 Index is still within the specified range of the collar, requiring no cash
commitment by the Company.
10
(6) Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company is in the process of
determining the full effect that SFAS No. 133 will have on the Company's
financial statements. Management understands that, upon adoption, SFAS No. 133
will increase the volatility of the Company's asset, liability and equity (other
accumulated comprehensive income) positions as the change in the fair market
value of the Company's derivative financial instruments will be recorded in the
Company's Consolidated Balance Sheets. In addition, to the extent hedges are
ineffective, such ineffective portion of the hedge position will be recognized
in the Company's Consolidated Statement of Earnings. SFAS No. 133, as amended,
will be effective January 1, 2001. The Company does not anticipate that final
adoption of SFAS No. 133 will have a material impact on the Company's
consolidated financial statements; however, management is still in the process
of fully evaluating SFAS No. 133.
(7) Commitments and Contingencies
There are various claims and lawsuits pending against the Company and certain of
its subsidiaries. The Company is also subject to Federal, state and local
environmental laws and regulations, and is currently participating in the
investigation and remediation of numerous sites. In addition, the Company also
periodically entered into financial commitments in connection with business
operations. It is not possible at this time for the Company to determine fully
the effect of all litigation on its consolidated financial statements. However,
the Company has recorded a liability where such litigation can be estimated and
where an outcome is considered probable. The Company does not expect that any
known lawsuits, environmental costs and commitments will have a material adverse
effect on its financial condition or results of operations.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's 1998 Form 10-K PART II, ITEM 7 - "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" discussed
management's assessment of the Company's financial condition, results of
operations and other issues facing the Company. The following discussion and
analysis by management focuses on those factors that had a material effect on
the Company's financial condition and results of operations during the three
months and six months ended June 30, 1999 and 1998. It should be read in
conjunction with the Company's consolidated financial statements. Trends and
contingencies of a material nature are discussed to the extent known and
considered relevant.
RESULTS OF OPERATIONS
For the Three Months Ended June 30, 1999
Consolidated Results - Net earnings of $18.2 million or $.44 per common share
increased $3.4 million ($.09 per common share-including the effect of the stock
repurchase) for the quarter. The following discussion highlights significant
items that affected the results of operations for the quarter ended June 30,
1999 versus 1998.
Operating revenues grew $30.9 million (13.4%) for the quarter to $261.4 million
reflecting strong electric sales. Total operating expenses grew $27.7 million
(13.5%) caused by a volume-related increase in power purchased for resale,
higher depreciation expense as a result of additions to the plant base and
higher depreciation rates because of a rate change made earlier in 1999 and
higher quarter-over-quarter costs associated with the implementation of the
Company's Year 2000 ("Y2K") efforts. Operating income improved $3.2 million
(12.3%) to $29.2 million as margins for both the gas and electric businesses
improved.
Other income and deductions, net of taxes, increased $1.3 million for the
quarter due to the recording of interest income from the Palo Verde Nuclear
Generating Station ("PVNGS") Capital Trust and a gain resulting from closing
down of coal mine reclamation activities. Net interest charges increased $2.8
million for the quarter as a result of the issuance of $435 million in senior
unsecured notes in August 1998, offset by a decrease in short-term debt interest
charges.
Electric Operations - Net earnings from electric operations of $20.9 million
increased $3.2 million (18.3%) for the quarter. The following discussion
highlights significant items that affected the results of operations of the
electric business for the quarter ended June 30, 1999 versus 1998.
12
Operating revenues grew $36.4 million (20.6%) for the quarter to $212.9 million
reflecting strong volume growth that was only somewhat offset by lower average
prices for bulk electric sales. Revenue growth was spurred by a 60.5% growth in
wholesale (bulk) power sales and a 5.3% increase in retail power sales as the
Company delivered 4.34 million megawatt hours of electricity during the quarter
compared to 3.24 million last year. Total operating expenses grew $33.2 million
(21.7%) caused by a volume-related increase in power purchased for resale and
higher depreciation expense caused by additions to the plant base and higher
depreciation rates because of a rate change made earlier in 1999. Operating
income increased $3.2 million (13.3%) to $27.0 million reflecting improvements
in electric gross margin (electric operating revenues less fuel and purchased
power expense) of $7.7 million for the quarter. The margin growth was
attributable to increased off-system sales in the wholesale energy market, net
of increased purchases for resale, and increased retail sales.
Gas Operations - A net loss of $.3 million for the quarter compared to net
income of $1.0 million a year ago. The following discussion highlights
significant items that affected the results of operations of gas operations for
the quarter ended June 30, 1999 versus 1998.
Operating revenues declined $5.5 million (10.2%) for the quarter to $48.3
million reflecting lower residential and commercial demand due to mild weather
conditions and depressed gas prices. Total operating expenses fell $4.0 million
(8.0%) caused by lower gas purchase costs (lower sales volume and lower gas
prices) and lower tax expense. Operating income decreased $1.4 million (41.9%)
to $2.0 million despite an improvement in gas gross margin (gas operating
revenues less gas purchased for resale) of $1.3 million for the quarter.
Discontinued Operations - In August 1998, the Company adopted a plan to
discontinue the natural gas trading operations of its Energy Services Business
Unit and completely discontinued these operations on December 31, 1998. As a
result, the Company reclassified the losses from such operations to discontinued
operations. Second quarter results for 1998 included losses from discontinued
operations, net of taxes, of $1.7 million, or $.04 per common share.
For the Six Months Ended June 30, 1999
Consolidated Results - Net earnings of $44.8 million or $1.08 per common share
increased $8.8 million ($.23 per common share-including the effect of the stock
repurchase) for the period. The following discussion highlights significant
items that affected the results of operations for the six months ended June 30,
1999 versus 1998.
Operating revenues grew $21.2 million (4.1%) for the six months to $534.2
million reflecting strong electric sales. Total operating expenses grew $19.5
million (4.3%) caused by a volume-related increase in power purchased for
resale, higher depreciation expense as a result of additions to the plant base
and higher depreciation rates because of a rate change made earlier in 1999 and
higher year-over-year costs associated with the implementation of the Company's
Y2K efforts. Operating income improved $1.6 million (2.6%) to $64.3 million as
bulk power margins demonstrated continued strength.
13
Other income and deductions, net of taxes, increased $4.7 million for the period
due to the recording of interest income from the PVNGS Capital Trust and a gain
resulting from closing down of the coal mine reclamation activities. Net
interest charges increased $7.1 million for the period as a result of the
issuance of $435 million in senior unsecured notes in August 1998, offset by a
decrease in short-term debt interest charges.
Discontinued Operations - In August 1998, the Company adopted a plan to
discontinue the natural gas trading operations of its Energy Services Business
Unit and completely discontinued these operations on December 31, 1998. As a
result, the Company reclassified the losses from such operations to discontinued
operations. Losses from discontinued operations, net of taxes, for the six
months ended June 30, 1998, were $6.1 million, or $.15 per common share.
Cumulative Effect of a Change in Accounting Principle - Effective January 1,
1999, the Company adopted EITF Issue No. 98-10, Accounting for Contracts
Involved in Energy Trading and Risk Management Activities. The effect of the
initial application of the new standard is reported as a cumulative effect of a
change in accounting principle. As a result, the Company recorded additional
earnings, net of taxes, in the first quarter of 1999 of approximately $3.5
million, or $.09 per common share to recognize the gain on net open physical
electricity purchase and sales commitments considered to be trading activities.
LIQUIDITY AND CAPITAL RESOURCES
Cash Activity - Cash generated from operating activities improved $5.0 million
in the first six months of 1999 because of higher earnings and higher non-cash
depreciation charges. These gains in operating cash flow were partially
mitigated by a non-cash gain recognized in the first quarter of 1999 as a result
of the adoption of a new accounting standard and lower funds generated from
working capital accounts.
Cash used for investing activities was $1.1 million in 1999 compared to $112.2
million in 1998. This decrease reflects the absence of a $58.0 million
investment in lease obligation bonds made in 1998; lower utility construction
expenditures in 1999 of $20.2 million and the liquidation of insurance-based
investments in the nuclear decommissioning trust of $26.6 million.
The reduction in cash used for investing activities combined with improved
operating cash flow allowed funds to be available to repay debt and repurchase
common stock. As a result, cash used for financing activities increased to $83.0
million in 1999 compared to the cash generation of $25.8 million in 1998 from
incremental borrowings. As a result, the Company's debt to total capitalization
improved to 52.6% at June 30, 1999 from a year-end 1998 level of 53.8%.
14
Capital Requirements - The projection for total capital requirements for 1999 is
$176 million, which includes $145 million of utility construction expenditures.
During the first six-month period, the Company spent approximately $74.3 million
for capital requirements and anticipates spending approximately $101.7 million
over the remainder of 1999. The Company expects that these cash requirements
will be met primarily through internally generated cash. However, to cover the
difference in the amounts and timing of cash generation and cash requirements,
the Company intends to utilize short-term borrowings under its liquidity
arrangements. These estimates are under continuing review and subject to
on-going adjustment.
Stock Repurchase - In March 1999, the Company's board of directors approved a
plan to repurchase up to 1,587,000 shares of the Company's outstanding common
stock with the maximum purchase price of $19.00 per share. The repurchase
program was created to facilitate the Company's stock option program. During the
first half of 1999, the Company repurchased 1 million shares of its previously
outstanding common stock at a cost of $17.7 million. The Company has no
intention to initiate further repurchases of common stock at this time.
Financings and Liquidity - In June 1999, the Company retired $21.6 million of
its 7.1% senior unsecured notes through open market purchases, utilizing the
funds from operations and the funds from temporary investments.
As of June 30, 1999, the Company had $405.0 million of available liquidity
arrangements, consisting of $300 million from a senior unsecured revolving
credit facility, $80.0 million from an accounts receivable securitization and
$25.0 million in local lines of credit. At June 30, 1999, the Company did not
have any short-term borrowings and had $60.7 million in cash and temporary
investments.
The Company's ability to finance its construction program at a reasonable cost
is dependent largely upon its earnings, credit ratings, regulatory approvals and
financial market conditions. In May 1999, S&P placed its ratings of the Company
on CreditWatch with positive implications. This action followed the electric
rate settlement with various parties submitted to the PRC for its approval. The
rate agreement, which would reduce the Company's annual revenues by $37.0
million, would remain in effect until January 2002 when all retail customers
will have a choice of electricity suppliers. Further, S&P has stated that it
believes that the Company's financial profile will strengthen to levels
appropriate for investment-grade ratings in the near future. The Company
currently does not have long term financing plans for the near future except for
the issuance of up to $11.5 million in tax-exempt pollution control revenue
bonds in September 1999 to partially reimburse the Company for expenditures
associated with its share of a recently completed upgrade of the emission
control system at the San Juan Generating Station ("SJGS") (see ITEM 2.
- -"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - LIQUIDITY AND CAPITAL RESOURCES" in the quarterly report on Form
10-Q for the quarter ended March 31, 1999 "first quarter Form 10-Q").
15
ASSET ACQUISITIONS
Certain Assets of Plains Electric Generation and Transmission Cooperative, Inc.
("Plains")
As previously reported, the Company and Tri-State Generation and Transmission
Association, Inc. ("Tri-State") submitted a binding joint offer in September
1998 for the acquisition of the assets of Plains, and Plains subsequently
announced that it would be entering into exclusive negotiations with the Company
and Tri-State regarding the joint proposal. Plains has entered into an agreement
to merge with Tri-State, with Tri-State being the surviving entity. Tri-State
would then sell certain assets to the Company consisting primarily of
transmission assets and the Plains headquarters building in Albuquerque. In
addition, the Company has agreed to become the power supplier of 50 MW to one of
Plains member cooperatives. (See PART I, ITEM 2. "PROPERTIES - Other Electric
Properties" in the 1998 Form 10-K.) Plains, Tri-State and the Company have filed
for regulatory approval from the PRC. Hearing on the merits is scheduled for
September 1999. Closing of the transactions will depend on the timing of
regulatory and other approvals.
Gas Transmission Pipeline
As previously reported, in 1996, the Company entered into a purchase agreement
with the U.S. Department of Energy ("DOE") for the purchase of approximately 130
miles of transmission pipeline for $3.1 million, through which natural gas is
being supplied to the City of Los Alamos and to certain other communities in
northern New Mexico. In 1996, the NMPUC approved the acquisition by the Company.
However, the purchase was subject to the DOE providing right-of-way satisfactory
to the Company. (See PART I, ITEM 2. "PROPERTIES - NATURAL GAS" in the 1998 Form
10-K.)
Final right-of-way clearances were obtained in July 1999 and the Company
executed a quitclaim deed effective August 1, 1999 which effectively terminated
the Company's existing lease agreement with the DOE and transferred ownership of
the pipeline to the Company. The Company will pay the $3.1 million by providing
transportation services to Los Alamos National Laboratory for a period not to
exceed three years. Any part of the remaining purchase price still due after
three years may either be remitted to the government in a final lump sum cash
payment or used for additional transportation services.
OTHER ISSUES FACING THE COMPANY
Deregulation
Preparation for Retail Electric Competition
The Electric Utility Industry Restructuring Act of 1999 was enacted into law on
April 8, 1999, opening the state's electric power market to customer choice
beginning in 2001. The law requires unregulated activities to be separated from
the regulated activities through creation of at least two separate corporations.
16
The law also requires that utilities be allowed to recover at least half of
their stranded costs, with recovery above that amount dependent on meeting
criteria specified in the law. The Company is required to file a transition plan
with the PRC by March 1, 2000, which plan must include, among other things,
proposals for separating regulated and non-regulated business activities and
proposed charges for the recovery of stranded costs and transition costs. In a
related matter, on May 21, 1999, the Company and the major parties to the
Company's electric rate case filed a stipulated rate agreement with the PRC for
approval. The stipulation, if approved, would reduce the Company's annual
revenues by $37.0 million and the rate reduction would be effective for all
customer bills rendered on and after July 30, 1999 (see Item 5. - "Other Event -
Electric Rate Case" in the Company's Current Report on Form 8-K filed on June 7,
1999). Subsequently, a supplemental stipulation was entered into to meet
objections raised by Kirtland Air Force Base. The County of Bernalillo raised
objections involving the treatment of franchise fees and future undergrounding
costs in the stipulation. Hearings on the stipulation were conducted by a
hearing examiner. On August 5, the hearing examiner recommended that the PRC
approve the stipulation. It is anticipated that the PRC will issue an order in
the case in late August or early September.
The Company is currently preparing its transition plan in compliance with the
new law. It is planning to separate its regulated and unregulated businesses
through formation of separate corporations owned by a holding company.
Subsidiary Formation
As previously reported, in December 1998, the NMPUC issued a final order
approving the Company's request to form and capitalize three wholly-owned
subsidiaries. Under the order, the Company received approval to use "available
unappropriated retained earnings" to invest a maximum of $50 million in the
three subsidiaries and to enter into reciprocal loan agreements for up to $30
million. (See PART I, ITEM 1. - "BUSINESS - ENERGY SERVICES BUSINESS UNIT
OPERATIONS" in the 1998 Form 10-K.)
The Company subsequently determined that for business reasons, formation of one
larger, wholly owned energy services subsidiary would be more advantageous than
three smaller subsidiaries. On May 20, 1999, the Company filed a motion with the
PRC, requesting the PRC to modify its final order to allow the Company to form
one subsidiary and invest the $50 million in equity into the one subsidiary, and
authorize the Company to enter into a reciprocal loan with the subsidiary for up
to $30 million. On June 29, 1999, the PRC issued an order approving the
Company's request.
On August 2, 1999, the Company filed Articles of Incorporation with the PRC to
incorporate its new wholly-owned unregulated subsidiary, Avistar, Inc.
("Avistar"), as a New Mexico corporation. Avistar received its certificate of
incorporation dated August 2, 1999. The Company expects Avistar to commence
operations starting on August 11, 1999. Avistar will engage in non-utility
business, including energy and utility-related services previously operated by
the Company.
17
Risks of Deregulation
Deregulation in the electric utility industry is likely to have a significant
impact on the price for electric generation and recovery of the investment in
electric generation assets. Such price pressures will likely put a strain on
electric generation margins. In response to competition and the need to gain
economies of scale, electricity producers will need to control costs to maintain
margins, profitability and cash flow that will be adequate to support
investments in new technology and infrastructure. As a result, the uncertainties
surrounding deregulation and the Company's ability to be competitive in a
deregulated environment could be significant business risks for the Company as
deregulation and possible industry consolidation continue to evolve.
New Customer Billing System
As previously reported, the Company installed a new customer billing system in
November 1998. Due to a significant number of implementation issues associated
with the installation of the new billing system, the Company was unable to
properly bill to approximately 10% of its accounts. Under PRC rules and
PRC-approved Company rules, the Company is required to send customer bills on a
monthly basis. In February 1999, the Company filed an application for temporary
variance with the PRC. Subsequently, the PRC issued an order granting the
Company a temporary variance through April 15, 1999, which allowed the Company
to issue bills to customers that had been delayed from 60-120 days. The order
further provided for a possible imposition of penalty to the Company in the
amount of $100 to $100,000 for each violation. At a pre-hearing conference held
in April 1999, the Company advised the hearing examiner, the PRC Staff and other
parties that significant progress had been made toward resolving the
implementation issues associated with the new billing system. Because of the
implementation issues associated with the new billing system, the Company has
been estimating retail gas and electric revenues since December 1998. The
Company's financial, tax and regulatory reports have been based on these
estimates. (See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - OTHER ISSUES FACING THE COMPANY - NEW CUSTOMER BILLING
SYSTEM" in the first quarter Form 10-Q.)
The hearing examiner issued an order on March 11, 1999 granting the Company
additional variance to issue bills up to 128 days and on April 16, 1999
extending the variances to April 28, 1999. The delayed bills sent to customers
contained one single service charge (electric service charge and/or gas access
fee) even though it was for service of up to four billing cycles. The April 16
order requires the Company to obtain PRC approval to bill customers for
additional service charges not contained in the delayed bills. On June 1, 1999,
the Company submitted a report which included an assessment of any outstanding
issues associated with the billing system and other specific data requested by
the PRC Staff. The June 1 report described the types of implementation issues
encountered by the Company in implementing the new billing system and how the
implementation issues were resolved. The report also described the pending
issues that still needed to be resolved and the Company's efforts to address
these issues.
18
The Company is currently negotiating a stipulation with the PRC Staff that would
allow the Company to bill an additional service charge to customers who were not
billed the appropriate electric service charges and/or gas access fees. The
one-time charge will be equal to or less than the amount that customers would
have otherwise been billed had their bills not been delayed. The stipulation, if
approved by the PRC, will close the investigation and will not impose any civil
penalty on the Company.
Management does not believe that the estimation process will have a material
adverse effect on the Company's results of operations or financial condition.
However, the Company is not able to predict the ultimate timing for the
completion of all billing system remediation efforts and associated issues or
outcome of regulatory actions regarding these issues.
The Year 2000 Issues
As previously reported, the Y2K issue is a consequence of computer programs ("IT
Systems") written using two digits rather than four digits to define the
applicable year. The Company adopted a plan to address the Y2K issue for
internal systems and external dependencies ("Y2K Project"). (See ITEM 2. -
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OTHER ISSUES FACING THE COMPANY - THE YEAR 2000 ISSUE" in the
Company's first quarter Form 10-Q)
On June 30, 1999, the Company reported, as required, to the North American
Electric Reliability Council ("NERC") that it believes its mission critical
systems used to produce and deliver electricity are Y2K ready, without any
exceptions. On July 2, 1999, the Company announced that it believes its mission
critical systems used to produce electricity and to deliver gas and electricity
are Y2K ready. The Company's remaining non-mission critical systems are
scheduled to be completed by October 1, 1999.
The estimated status of each phase as of July 2, 1999, is set out below:
Estimated Status of
Y2K Project Phases Completion*
------------------ -----------
Awareness Phase Completed
Inventory Phase 99%
Assessment Phase 98%
Planning and Scheduling Phase 94%
Repair Phase 87%
Testing Phase 82%
Re-Integration/Deployment Phase 65%
Company-Wide Testing Phase 38%
* The stated percentages represent the status of completion as of July
2, 1999, of all of the Company's IT Systems and Embedded Systems,
including mission critical systems. For purposes of this presentation,
"mission critical systems" include systems whose failures could cause
an interruption in the supply of electricity or gas to the Company's
customers, could interfere with the Company's ability to communicate
with customers, or could interfere with the Company's cash flow.
19
The Company has a 10.2% undivided interest in PVNGS, with portions of its
interest held under leases. Arizona Public Service Company ("APS"), the
operating agent of PVNGS, notified the U. S. Nuclear Regulatory Commission
("NRC") on June 26, 1999 that PVNGS is Y2K ready.
Although the mission critical systems are Y2K ready, work will continue on the
development and testing of the Company's contingency plans. Contingency plans
for mission critical systems were completed on July 30, 1999, with simulated
disaster testing to begin in early September 1999 in conjunction with the second
NERC system-wide test. Testing of the Company's contingency plans will continue
into October and November 1999.
The Company has completed the remediation and testing of its current energy
management system ("EMS") and it is now Y2K ready. However, it is still the
Company's intention to upgrade the EMS prior to the end of 1999. The upgraded
system is currently undergoing Y2K testing at the manufacturer's facility.
The Company has spent approximately $8.2 million on non-PVNGS Y2K related
activities during the first six months of 1999, and approximately $13.5 million
since project commencement. The Company's share of the PVNGS costs associated
with the Y2K project is deemed to be immaterial.
The statements in this section are Y2K readiness disclosures pursuant to the
Year 2000 Information and Readiness Disclosure Act.
Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". The Company is in the process of
determining the full effect that SFAS No. 133 will have on the Company's
financial statements. Management understands that, upon adoption, SFAS No. 133
will increase the volatility of the Company's asset, liability and equity (other
accumulated comprehensive income) positions as the change in the fair market
value of the Company's derivative financial instruments will be recorded in the
Company's Consolidated Balance Sheet. In addition, to the extent hedges are
ineffective, such ineffective portion of the hedge position will be recognized
in the Company's Consolidated Statement of Earnings. SFAS No. 133, as amended,
will be effective January 1, 2001. The Company does not anticipate that final
adoption of SFAS No. 133 will have a material impact on the Company's
consolidated financial statements; however, management is still in the process
of fully evaluating SFAS No. 133.
Disclosure Regarding Forward Looking Statements
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about their companies without fear of litigation so long
as those statements are identified as forward-looking and are accompanied by
20
meaningful, cautionary statements identifying important factors that could cause
actual results to differ materially from those projected in the statement. Words
such as "estimates," "expects," "anticipates," "plans," "believes," "projects,"
and similar expressions identify forward-looking statements. Accordingly, the
Company hereby identifies the following important factors which could cause the
Company's actual financial results to differ materially from any such results
which might be projected, forecasted, estimated or budgeted by the Company in
forward-looking statements: (i) adverse actions of utility regulatory
commissions; (ii) utility industry restructuring; (iii) failure to recover
stranded costs; (iv) the inability of the Company to successfully compete
outside its traditional regulated market; (v) regional economic conditions,
which could affect customer growth; (vi) adverse impacts resulting from
environmental regulations; (vii) loss of favorable fuel supply contracts; (viii)
failure to obtain water rights and rights-of-way; (ix) operational and
environmental problems at generating stations; (x) the cost of debt and equity
capital; (xi) weather conditions; and (xii) technical developments in the
utility industry.
The costs of the Company's Y2K Project and the dates on which the Company
believes it will complete the phases of the Project are based upon management's
best estimates, which were derived using numerous assumptions regarding future
events, including the continued availability of certain resources, third-party
remediation plans, and other factors. There can be no assurance that these
estimates will prove to be accurate and actual results could differ materially
from those currently anticipated. Specific factors that could cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in Y2K issues, the ability to identify, assess, remediate
and test all relevant computer codes and embedded technology, and similar
uncertainties.
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Nuclear Decommissioning Trust
As previously reported, in 1998, the Company and the trustee of the Company's
master decommissioning trust filed a civil complaint and an amended complaint,
respectively, against several companies and individuals for the
under-performance of a corporate owned life insurance program. The program,
which was approved by the NMPUC and set up in a trust in 1987, was used to fund
a portion of the Company's nuclear decommissioning obligations for its 10.2%
interest in PVNGS. In January 1999, the life insurance program was terminated,
and the life insurance policies were surrendered by the trust in exchange for
the cash surrender value of the policies. In the lawsuit, the Company asserted
various tort, contract and equity theories against the defendants, seeking,
among other things, an amount sufficient to compensate for the harm to the
Company caused by the defendants' conduct. A defendant counterclaimed for
indemnity based on its engagement contract with the Company, claiming that if it
had injured the trustee, then the Company must pay the damages. The Company
denied liability under the counterclaim and set forth numerous defenses. (See
PART I, ITEM 3. - "LEGAL PROCEEDINGS - OTHER PROCEEDINGS Nuclear Decommissioning
Trust" in the 1998 Form 10-K.)
21
The case is proceeding in State District Court in Santa Fe County. The
defendants' motions to dismiss were denied and the Company's motions to further
amend the complaint to assert claims against two additional defendants, a law
firm and an accounting firm, were granted. Discovery is currently proceeding.
The Company is currently unable to predict the ultimate outcome or amount of
recovery, if any.
Royalty Claim
On July 1, 1997, a lawsuit was filed in Federal District Court for the District
of New Mexico (the "Court") against the Company and its subsidiaries, Sunterra
Gas Gathering Company and Sunterra Gas Processing Company (collectively called
"Company"), alleging violations of the Federal False Claims Act by purportedly
failing to properly measure natural gas from Federal and tribal properties in
New Mexico, and consequently, underpaid royalties owed to the Federal
government. The complaint was sealed but was not served on the Company while the
U.S. Department of Justice considered whether to intervene to pursue the
lawsuit. On April 9, 1999, the U.S. Department of Justice filed its notice of
eto decline intervention in the lawsuit. The plaintiff is proceeding as a
private relator.
On April 15, 1999, the Court entered an order, unsealing the complaint and
directing that it be served on the Company. On June 28, 1999, the complaint was
served on the Company. The plaintiff filed a motion to consolidate this case
with others, asserting similar claims against other defendants filed in other
jurisdictions with the Multi-District Litigation ("MDL") panel. The motion also
seeks to transfer all cases to Federal District Court for the District of
Wyoming. The judge in the Company's case has ordered a stay of all proceedings,
pending the MDL panel's decision on the plaintiff's motion. Under the False
Claims Act, the plaintiff is permitted to continue to pursue these cases on
behalf of the United States, even though the government has declined to
intervene, and would be entitled to a portion of monetary judgement, if any.
The Company is vigorously defending this lawsuit and is unable to estimate the
potential liability, if any, or to predict the ultimate outcome of this
litigation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Disclosure concerning market risk-sensitive instruments is set forth in Note (5)
to the Consolidated Financial Statements included in ITEM 1 of PART I of this
Report and is incorporated herein by reference.
Neither the net fair value of the derivatives outstanding nor the potential,
near-term derivative losses from reasonably possible near-term changes in market
prices are anticipated to be material to the Company's financial condition or
results of operations.
22
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Annual Meeting
At the meeting of shareholders held on June 8, 1999, the shareholders reelected
the following three nominees to serve as directors until the annual meeting of
shareholders in 2002, or until their successors are duly elected and qualified,
as follows:
Votes
Against Broker
Director Votes For or Withheld Abstentions Non-Votes
-------- --------- ----------- ----------- ---------
Laurence H. Lattman 37,752,831 301,511 * *
Benjamin F. Montoya 37,772,317 282,025 * *
Robert M. Price 37,768,596 285,746 * *
As reported in the Definitive 14A Proxy Statement filed April 26, 1999, the name
of each other director whose term of office as director continues after the
meeting is as follows:
John T. Ackerman
Robert G. Armstrong
Joyce A. Godwin
Manuel Lujan, Jr.
Reynaldo U. Ortiz
Paul F. Roth
The approval of the selection by the Company's board of directors of Arthur
Andersen LLP as independent auditors for the fiscal year ending December 31,
1999, was voted on, as follows:
Votes
Against Broker
Votes for or Withheld Abstentions Non-Votes
--------- ----------- ----------- ---------
37,888,840 80,338 85,164 *
* Not applicable or not readily available.
ITEM 5. OTHER INFORMATION
New Chairman of the Board
On June 15, 1999, the Company's board of directors elected President and Chief
Executive Officer Mr. Benjamin F. Montoya as the new chairman of the Company's
board of directors. Mr. Montoya will delegate additional management tasks to
other senior executives in order to focus more attention on the work of the
board as it oversees the Company's restructuring efforts. The Company is
currently undergoing major changes of the Company's business infrastructure,
including the ground work for the formation of a holding company and the
creation of regulated and unregulated subsidiaries, to separate the regulated
businesses from the unregulated business units in compliance with the newly
enacted Electric Utility Industry Restructuring Act of 1999.
23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
3.1* Restated Articles of Incorporation of the Company, as amended through
May 10, 1985
3.2* By-laws of Public Service Company of New Mexico With All Amendments
to and including December 5, 1994
15.0 Letter Re: Unaudited Interim Financial Information
27 Financial Data Schedule
*The Company hereby incorporates the exhibits by reference pursuant
to Exchange Act Rule 12b-32 and Regulation S-K, Section 10,
paragraph (d).
b. Reports on Form 8-K:
Report dated June 7, 1999 and filed June 8, 1999 relating to the electric
rate case.
24
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.
PUBLIC SERVICE COMPANY OF NEW MEXICO
------------------------------------
(Registrant)
Date: August 9, 1999 /s/ John R. Loyack
-----------------------------------
John R. Loyack
Vice President,
Corporate Controller and
Chief Accounting Officer
(Officer duly authorized to
sign this report)
25