FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _______________________ [x] Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 OR [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 _________________________ <TABLE> <CAPTION> Commission Exact name of registrant as specified in its charter State of I.R.S. Employer File Number and principal office address and telephone number Incorporation I.D. Number <S> <C> <C> <C> 1-14514 CONSOLIDATED EDISON, INC. New York 13-3965100 4 Irving Place, New York, New York 10003 (212) 460-3900 1-1217 CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. New York 13-5009340 4 Irving Place, New York, New York 10003 (212) 460-4600 </TABLE> Each Registrant 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 and has been subject to such filing requirements for the past 90 days. Yes X No _______ ------- As of the close of business on July 31, 1998, (i) Consolidated Edison, Inc. ("CEI") had outstanding 233,829,394. Common Shares ($.10 par value) and (ii) all of the outstanding Common Stock ($2.50 par value) of Consolidated Edison Company of New York, Inc. was held by CEI.
-2- TABLE OF CONTENTS <TABLE> <CAPTION> PAGE <S> <C> FILING FORMAT 2 PART I. - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS: Consolidated Edison, Inc. Consolidated Balance Sheet 3-4 Consolidated Income Statements 5-7 Consolidated Statements of Cash Flows 8-9 Consolidated Edison Company of New York, Inc. Consolidated Balance Sheet 10-11 Consolidated Income Statements 12-14 Consolidated Statement of Cash Flows 15-16 Notes to Financial Statements 17-18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 19-27 OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 27 ABOUT MARKET RISK PART II. - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 28-29 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 29-30 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 30-31 </TABLE> _________________________ FILING FORMAT This Quarterly Report on Form 10-Q is a combined quarterly report being filed separately by two different registrants: CEI and Consolidated Edison Company of New York, Inc. ("Con Edison"). CEI became the holding company for Con Edison on January 1, 1998. See "Corporate Structure" in Item 1 of the combined CEI and Con Edison Annual Reports on Form 10-K for the year ended December 31, 1997 (File Nos. 1-14514 and 1-1217, the "1997 Form 10-K"). Any references in this report to the "Company" are to CEI and Con Edison, collectively. Con Edison makes no representation as to the information contained in this report relating to CEI and the subsidiaries of CEI other than Con Edison.
-3- CONSOLIDATED EDISON, INC. ------------------------- CONSOLIDATED BALANCE SHEET -------------------------- AS AT JUNE 30, 1998, DECEMBER 31, 1997 AND JUNE 30, 1997 -------------------------------------------------------- <TABLE> <CAPTION> As At -------------- June 30, 1998 Dec. 31, 1997 June 30, 1997 -------------- -------------- -------------- (Thousands of Dollars) <S> <C> <C> <C> ASSETS UTILITY PLANT, AT ORIGINAL COST Electric $ 11,878,103 $ 11,743,745 $ 11,754,898 Gas 1,784,322 1,741,562 1,686,174 Steam 588,534 576,206 546,949 General 1,203,749 1,203,427 1,159,098 ------------- ------------ ------------ Total 15,454,708 15,264,940 15,147,119 Less: Accumulated depreciation 4,562,740 4,392,377 4,447,539 ------------- ------------ ------------ Net 10,891,968 10,872,563 10,699,580 Construction work in progress 298,349 292,218 324,400 Nuclear fuel assemblies and components, less accumulated amortization 105,515 102,321 102,101 ------------- ------------ ------------ NET UTILITY PLANT 11,295,832 11,267,102 11,126,081 ------------- ------------ ------------ CURRENT ASSETS Cash and temporary cash investments 105,008 183,458 12,231 Funds held for refunding of debt 99,519 328,874 - Accounts receivable - customer, less allowance for uncollectible accounts of $22,570, $21,600 and $20,804 521,262 581,163 472,773 Other receivables 56,653 60,759 51,763 Regulatory accounts receivable (593) (1,682) (866) Fuel, at average cost 34,745 53,697 34,940 Gas in storage, at average cost 40,701 37,209 37,746 Materials and supplies, at average cost 191,489 191,759 199,795 Prepayments 74,260 75,516 293,592 Other current assets 16,769 16,457 15,732 ------------- ------------ ------------ TOTAL CURRENT ASSETS 1,139,813 1,527,210 1,117,706 ------------- ------------ ------------ INVESTMENTS AND NONUTILITY PROPERTY 341,424 292,397 217,745 ------------- ------------ ------------ DEFERRED CHARGES Enlightened Energy program costs 91,026 117,807 120,837 Unamortized debt expense 135,679 126,085 125,770 Recoverable fuel costs 17,339 98,301 43,170 Power contract termination costs 69,943 80,978 38,636 Other deferred charges 245,338 239,559 277,102 ------------- ------------ ------------ TOTAL DEFERRED CHARGES 559,325 662,730 605,515 ------------- ------------ ------------ REGULATORY ASSET-FUTURE FEDERAL INCOME TAXES 899,799 973,079 948,410 ------------- ------------ ------------ TOTAL $ 14,236,193 $ 14,722,518 $ 14,015,457 ============= ============ ============ </TABLE> The accompanying notes are an integral part of these financial statements.
-4- CONSOLIDATED EDISON, INC. ------------------------- CONSOLIDATED BALANCE SHEET -------------------------- AS AT JUNE 30, 1998, DECEMBER 31, 1997 AND JUNE 30, 1997 -------------------------------------------------------- <TABLE> <CAPTION> As At --------------------------------------------------- June 30, 1998 Dec. 31, 1997 June 30, 1997 ------------- ------------- ------------- (Thousands of Dollars) <S> <C> <C> <C> CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock, authorized 500,000,000 shares; outstanding 234,151,294 shares, 235,489,650 shares and 235,023,795 shares $ 1,482,343 $ 1,482,351 $ 1,478,768 Retained earnings 4,409,589 4,484,703 4,242,133 Capital stock expense (36,835) (36,975) (34,754) ----------- ----------- ----------- TOTAL COMMON SHAREHOLDERS' EQUITY 5,855,097 5,930,079 5,686,147 ----------- ----------- ----------- Preferred stock Subject to mandatory redemption 7.20% Series I 47,500 47,500 47,500 6-1/8% Series J 37,050 37,050 37,050 ----------- ----------- ----------- TOTAL SUBJECT TO MANDATORY REDEMPTION 84,550 84,550 84,550 ----------- ----------- ----------- Other preferred stock $ 5 Cumulative Preferred 175,000 175,000 175,000 5-3/4% Series A 7,061 7,061 7,061 5-1/4% Series B 13,844 13,844 13,844 4.65% Series C 15,330 15,330 15,330 4.65% Series D 22,233 22,233 22,233 6% Convertible Series B - - 4,398 ----------- ----------- ----------- TOTAL OTHER PREFERRED STOCK 233,468 233,468 237,866 ----------- ----------- ----------- TOTAL PREFERRED STOCK 318,018 318,018 322,416 ----------- ----------- ----------- Long-term debt 4,197,577 4,188,906 4,288,383 ----------- ----------- ----------- TOTAL CAPITALIZATION 10,370,692 10,437,003 10,296,946 ----------- ----------- ----------- NONCURRENT LIABILITIES Obligations under capital leases 38,475 39,879 41,265 Other noncurrent liabilities 132,933 106,137 82,109 ----------- ----------- ----------- TOTAL NONCURRENT LIABILITIES 171,408 146,016 123,374 ----------- ----------- ----------- CURRENT LIABILITIES Long-term debt due within one year 200,000 529,385 202,630 Accounts payable 366,314 440,114 375,438 Notes payable 44,024 - 15,000 Customer deposits 170,653 161,731 159,749 Accrued taxes 67,718 65,736 (56,676) Accrued interest 83,512 85,613 83,310 Accrued wages 80,586 82,556 78,312 Other current liabilities 186,199 183,122 142,910 ----------- ----------- ----------- TOTAL CURRENT LIABILITIES 1,199,006 1,548,257 1,000,673 ----------- ----------- ----------- PROVISIONS RELATED TO FUTURE FEDERAL INCOME TAXES AND OTHER DEFERRED CREDITS Accumulated deferred federal income tax 2,227,669 2,307,835 2,333,097 Accumulated deferred investment tax credits 159,300 163,680 168,070 Other deferred credits 108,118 119,727 93,297 ----------- ----------- ----------- TOTAL DEFERRED CREDITS 2,495,087 2,591,242 2,594,464 ----------- ----------- ----------- TOTAL $14,236,193 $14,722,518 $14,015,457 =========== =========== =========== </TABLE> The accompanying notes are an integral part of these financial statements.
-5- CONSOLIDATED EDISON, INC. ------------------------- CONSOLIDATED INCOME STATEMENT ----------------------------- FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 ------------------------------------------------- <TABLE> <CAPTION> 1998 1997 ---- ---- (THOUSANDS OF DOLLARS) <S> <C> <C> Operating revenues Electric $1,286,320 $1,228,366 Gas 196,562 213,376 Steam 57,411 62,272 Non-utility 20,748 4,074 ---------- ---------- TOTAL OPERATING REVENUES 1,561,041 1,508,088 ---------- ---------- OPERATING EXPENSES Purchased power 324,426 314,221 Fuel 123,870 122,426 Gas purchased for resale 86,902 89,494 Other operations 289,388 288,881 Maintenance 132,709 146,859 Depreciation and amortization 129,265 125,003 Taxes, other than federal income tax 290,415 270,828 Federal income tax 36,015 24,044 ---------- ---------- TOTAL OPERATING EXPENSES 1,412,990 1,381,756 ---------- ---------- OPERATING INCOME 148,051 126,332 OTHER INCOME (DEDUCTIONS) Investment income 3,080 2,942 Allowance for equity funds used during construction 575 1,520 Other income less miscellaneous deductions 1,038 (205) Federal income tax 525 (1,296) ---------- ---------- TOTAL OTHER INCOME 5,218 2,961 ---------- ---------- INCOME BEFORE INTEREST CHARGES 153,269 129,293 Interest on long-term debt 76,985 79,192 Other interest 10,066 3,287 Allowance for borrowed funds used during construction (294) (745) ---------- ---------- NET INTEREST CHARGES 86,757 81,734 ---------- ---------- PREFERRED STOCK DIVIDEND REQUIREMENTS 4,536 4,603 ---------- ---------- NET INCOME FOR COMMON STOCK $ 61,976 $ 42,956 ========== ========== COMMON SHARES OUTSTANDING - AVERAGE (000) 234,992 235,016 BASIC AND DILUTED EARNINGS PER SHARE $ 0.26 $ 0.18 ========== ========== DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 0.53 $ 0.525 ========== ========== </TABLE> The accompanying notes are an integral part of these financial statements.
-6- CONSOLIDATED EDISON, INC. ------------------------- CONSOLIDATED INCOME STATEMENT ----------------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 ------------------------------------------------ <TABLE> <CAPTION> 1998 1997 ---- ---- (THOUSANDS OF DOLLARS) <S> <C> <C> Operating revenues Electric $2,577,643 $2,497,316 Gas 595,732 668,396 Steam 192,801 224,450 Non-utility 47,912 33,481 ---------- ---------- TOTAL OPERATING REVENUES 3,414,088 3,423,643 ---------- ---------- OPERATING EXPENSES Purchased power 682,676 666,929 Fuel 258,424 273,780 Gas purchased for resale 276,341 341,205 Other operations 565,218 566,956 Maintenance 250,684 261,022 Depreciation and amortization 257,523 248,797 Taxes, other than federal income tax 592,634 575,811 Federal income tax 127,976 115,931 ---------- ---------- TOTAL OPERATING EXPENSES 3,011,476 3,050,431 ---------- ---------- OPERATING INCOME 402,612 373,212 OTHER INCOME (DEDUCTIONS) Investment income 5,984 3,978 Allowance for equity funds used during construction 1,087 3,320 Other income less miscellaneous deductions 535 (726) Federal income tax (454) (1,599) ---------- ---------- TOTAL OTHER INCOME 7,152 4,973 ---------- ---------- INCOME BEFORE INTEREST CHARGES 409,764 378,185 Interest on long-term debt 156,043 157,944 Other interest 11,313 7,701 Allowance for borrowed funds used during construction (557) (1,627) ---------- ---------- NET INTEREST CHARGES 166,799 164,018 ---------- ---------- PREFERRED STOCK DIVIDEND REQUIREMENTS 9,072 9,207 ---------- ---------- NET INCOME FOR COMMON STOCK $ 233,893 $ 204,960 ========== ========== COMMON SHARES OUTSTANDING - AVERAGE (000) 235,205 235,009 BASIC AND DILUTED EARNINGS PER SHARE $ 0.99 $ 0.87 ========== ========== DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 1.06 $ 1.05 ========== ========== </TABLE> The accompanying notes are an integral part of these financial statements.
-7- CONSOLIDATED EDISON, INC. ------------------------- CONSOLIDATED INCOME STATEMENT ----------------------------- FOR THE TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997 -------------------------------------------------- <TABLE> <CAPTION> 1998 1997 ---- ---- (THOUSANDS OF DOLLARS) <S> <C> <C> Operating revenues Electric $5,715,902 $5,507,860 Gas 1,021,216 1,053,175 Steam 360,151 381,763 Non-utility 89,328 123,921 ---------- ---------- TOTAL OPERATING REVENUES 7,186,597 7,066,719 ---------- ---------- OPERATING EXPENSES Purchased power 1,365,334 1,314,196 Fuel 581,468 542,779 Gas purchased for resale 487,733 572,087 Other operations 1,122,965 1,167,447 Maintenance 464,450 470,887 Depreciation and amortization 512,182 492,713 Taxes, other than federal income tax 1,197,978 1,158,528 Federal income tax 389,767 366,977 ---------- ---------- TOTAL OPERATING EXPENSES 6,121,877 6,085,614 ---------- ---------- OPERATING INCOME 1,064,720 981,105 OTHER INCOME (DEDUCTIONS) Investment income 14,220 8,988 Allowance for equity funds used during construction 2,215 5,530 Other income less miscellaneous deductions (2,839) (6,253) Federal income tax (853) 107 ---------- ---------- TOTAL OTHER INCOME 12,743 8,372 ---------- ---------- INCOME BEFORE INTEREST CHARGES 1,077,463 989,477 Interest on long-term debt 316,257 313,289 Other interest 20,695 16,551 Allowance for borrowed funds used during construction (1,110) (2,665) ---------- ---------- NET INTEREST CHARGES 335,842 327,175 ---------- ---------- PREFERRED STOCK DIVIDEND REQUIREMENTS 18,209 18,424 ---------- ---------- NET INCOME FOR COMMON STOCK $ 723,412 $ 643,878 ========== ========== COMMON SHARES OUTSTANDING - AVERAGE (000) 235,152 234,997 BASIC AND DILUTED EARNINGS PER SHARE $ 3.08 $ 2.74 ========== ========== DIVIDENDS DECLARED PER SHARE OF COMMON STOCK $ 2.11 $ 2.09 ========== ========== </TABLE> The accompanying notes are an integral part of these financial statements.
-8- CONSOLIDATED EDISON, INC. ------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 ----------------------------------------------- <TABLE> <CAPTION> 1998 1997 ----------- ----------- (THOUSANDS OF DOLLARS) <S> <C> <C> OPERATING ACTIVITIES Net income for common stock $ 233,893 $ 204,960 PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME Depreciation and amortization 257,523 248,797 Deferred recoverable fuel costs 80,962 58,292 Federal income tax deferred (17,810) 74,360 Common equity component of allowance for funds used during construction (1,057) (3,225) Other non-cash credits (7,139) 13,680 CHANGES IN ASSETS AND LIABILITIES Accounts receivable - customer, less allowance for uncollectibles 59,901 71,231 Regulatory accounts receivable (1,089) 46,263 Materials and supplies, including fuel and gas in storage 15,730 42,008 Prepayments, other receivables and other current assets 5,050 (239,372) Enlightened Energy program costs 26,781 12,881 Power contract termination costs 904 15,414 Cost of removal less salvage (36,390) (28,538) Accounts payable (73,800) (55,677) Accrued income taxes 15,760 (81,412) Other - net 2,244 (75,154) --------- --------- NET CASH FLOWS FROM OPERATING ACTIVITIES 561,463 304,508 --------- --------- INVESTING ACTIVITIES INCLUDING CONSTRUCTION Construction expenditures (264,331) (292,308) Nuclear fuel expenditures (3,194) (7,230) Contributions to nuclear decommissioning trust (10,650) (17,047) Common equity component of allowance for funds used during construction 1,057 3,225 --------- --------- NET CASH FLOWS FROM INVESTING ACTIVITIES INCLUDING CONSTRUCTION (277,118) (313,360) --------- --------- FINANCING ACTIVITIES INCLUDING DIVIDENDS Repurchase of common stock (59,340) - Net proceeds from short-term debt 44,024 15,000 Issuance of long-term debt 385,000 150,000 Retirement of long-term debt (100,000) (3,626) Advance refunding of long-term debt (605,240) - Issuance and refunding costs (6,975) (410) Funds held for refunding of debt 229,355 - Common stock dividends (249,619) (246,763) --------- --------- NET CASH FLOWS FROM FINANCING ACTIVITIES INCLUDING DIVIDENDS (362,795) (85,799) --------- --------- NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS (78,450) (94,651) CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 183,458 106,882 --------- --------- CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30 $ 105,008 $ 12,231 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 153,462 $ 151,686 Income taxes 174,426 126,133 </TABLE> The accompanying notes are an integral part of these financial statements.
-9- CONSOLIDATED EDISON, INC. ------------------------- CONSOLIDATED STATEMENT OF CASH FLOWS ------------------------------------ FOR THE TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997 -------------------------------------------------- <TABLE> <CAPTION> 1998 1997 ----------- ----------- (THOUSANDS OF DOLLARS) <S> <C> <C> OPERATING ACTIVITIES Net income for common stock $ 723,412 $ 643,878 PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME Depreciation and amortization 512,182 492,713 Deferred recoverable fuel costs 25,831 (21,202) Federal income tax deferred (69,550) 120,800 Common equity component of allowance for funds used during construction (2,153) (5,311) Other non-cash credits (3,551) 33,715 CHANGES IN ASSETS AND LIABILITIES Accounts receivable - customer, less allowance for uncollectibles (48,489) 26,743 Regulatory accounts receivable (273) 5,804 Materials and supplies, including fuel and gas in storage 5,546 7,476 Prepayments, other receivables and other current assets 213,405 (237,619) Enlightened Energy program costs 29,811 8,902 Power contract termination costs (2,959) 38,930 Cost of removal less salvage (81,571) (68,323) Accounts payable (9,124) 34,203 Accrued income taxes 120,997 (94,251) Other - net 63,568 (36,804) ---------- --------- NET CASH FLOWS FROM OPERATING ACTIVITIES 1,477,082 949,654 ---------- --------- INVESTING ACTIVITIES INCLUDING CONSTRUCTION Construction expenditures (626,244) (654,261) Nuclear fuel expenditures (10,543) (56,117) Contributions to nuclear decommissioning trust (14,904) (21,301) Common equity component of allowance for funds used during construction 2,153 5,311 ---------- --------- NET CASH FLOWS FROM INVESTING ACTIVITIES INCLUDING CONSTRUCTION (649,538) (726,368) ---------- --------- FINANCING ACTIVITIES INCLUDING DIVIDENDS Repurchase of common stock (59,340) - Net proceeds from short-term debt 29,024 15,000 Issuance of long-term debt 715,000 300,000 Retirement of long-term debt (202,630) (82,095) Advance refunding of long-term debt (605,240) - Issuance and refunding costs (15,495) (10,179) Funds held for refunding of debt (99,519) - Common stock dividends (496,567) (491,150) ---------- --------- NET CASH FLOWS FROM FINANCING ACTIVITIES INCLUDING DIVIDENDS (734,767) (268,424) ---------- --------- NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 92,777 (45,138) CASH AND TEMPORARY CASH INVESTMENTS AT JULY 1 12,231 57,369 ---------- --------- CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30 $ 105,008 $ 12,231 ========== ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 312,086 $ 304,948 Income taxes 383,924 341,888 </TABLE> The accompanying notes are an integral part of these financial statements.
-10- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. --------------------------------------------- BALANCE SHEET ------------- AS AT JUNE 30, 1998, DECEMBER 31, 1997 AND JUNE 30, 1997 -------------------------------------------------------- <TABLE> <CAPTION> As At -------------- June 30, 1998 Dec. 31, 1997 June 30, 1997 -------------- -------------- -------------- (Thousands of Dollars) <S> <C> <C> <C> ASSETS UTILITY PLANT, AT ORIGINAL COST Electric $11,878,103 $11,743,745 $11,754,898 Gas 1,784,322 1,741,562 1,686,174 Steam 588,534 576,206 546,949 General 1,203,749 1,203,427 1,159,098 ----------- ----------- ----------- Total 15,454,708 15,264,940 15,147,119 Less: Accumulated depreciation 4,562,740 4,392,377 4,447,539 ----------- ----------- ----------- Net 10,891,968 10,872,563 10,699,580 Construction work in progress 298,349 292,218 324,400 Nuclear fuel assemblies and components, less accumulated amortization 105,515 102,321 102,101 ----------- ----------- ----------- NET UTILITY PLANT 11,295,832 11,267,102 11,126,081 ----------- ----------- ----------- CURRENT ASSETS Cash and temporary cash investments 20,258 183,458 12,231 Funds held for refunding of debt 99,519 328,874 - Accounts receivable - customer, less allowance for uncollectible accounts of $21,739, $21,600 and $20,804 508,905 581,163 472,773 Other receivables 47,306 60,759 51,763 Regulatory accounts receivable (593) (1,682) (866) Fuel, at average cost 34,745 53,697 34,940 Gas in storage, at average cost 37,985 37,209 37,746 Materials and supplies, at average cost 191,489 191,759 199,795 Prepayments 72,956 75,516 293,592 Other current assets 16,756 16,457 15,732 ----------- ----------- ----------- TOTAL CURRENT ASSETS 1,029,326 1,527,210 1,117,706 ----------- ----------- ----------- INVESTMENTS AND NONUTILITY PROPERTY 254,302 292,397 217,745 ----------- ----------- ----------- DEFERRED CHARGES Enlightened Energy program costs 91,026 117,807 120,837 Unamortized debt expense 135,679 126,085 125,770 Recoverable fuel costs 17,339 98,301 43,170 Power contract termination costs 69,943 80,978 38,636 Other deferred charges 245,338 239,559 277,102 ----------- ----------- ----------- TOTAL DEFERRED CHARGES 559,325 662,730 605,515 ----------- ----------- ----------- REGULATORY ASSET - FUTURE FEDERAL INCOME TAXES 899,799 973,079 948,410 ----------- ----------- ----------- TOTAL $14,038,584 $14,722,518 $14,015,457 =========== =========== =========== </TABLE> The accompanying notes are an integral part of these financial statements.
-11- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. --------------------------------------------- BALANCE SHEET ------------- AS AT JUNE 30, 1998, DECEMBER 31, 1997 AND JUNE 30, 1997 -------------------------------------------------------- <TABLE> <CAPTION> As At -------------- June 30, 1998 Dec. 31, 1997 June 30, 1997 ----------------- -------------- -------------- (Thousands of Dollars) <S> <C> <C> <C> CAPITALIZATION AND LIABILITIES CAPITALIZATION Common stock $1,482,343 $ 1,482,351 $ 1,478,768 Retained earnings 4,214,561 4,484,703 4,242,133 Capital stock expense (36,835) (36,975) (34,754) ----------- ----------- ----------- TOTAL COMMON SHAREHOLDERS' EQUITY 5,660,069 5,930,079 5,686,147 ----------- ----------- ----------- Preferred stock Subject to mandatory redemption 7.20% Series I 47,500 47,500 47,500 6-1/8% Series J 37,050 37,050 37,050 ----------- ----------- ----------- TOTAL SUBJECT TO MANDATORY REDEMPTION 84,550 84,550 84,550 ----------- ----------- ----------- Other preferred stock $ 5 Cumulative Preferred 175,000 175,000 175,000 5-3/4% Series A 7,061 7,061 7,061 5-1/4% Series B 13,844 13,844 13,844 4.65% Series C 15,330 15,330 15,330 4.65% Series D 22,233 22,233 22,233 6% Convertible Series B - - 4,398 ----------- ----------- ----------- TOTAL OTHER PREFERRED STOCK 233,468 233,468 237,866 ----------- ----------- ----------- TOTAL PREFERRED STOCK 318,018 318,018 322,416 ----------- ----------- ----------- Long-term debt 4,197,577 4,188,906 4,288,383 ----------- ----------- ----------- TOTAL CAPITALIZATION 10,175,664 10,437,003 10,296,946 ----------- ----------- ----------- NONCURRENT LIABILITIES Obligations under capital leases 38,475 39,879 41,265 Other noncurrent liabilities 132,933 106,137 82,109 ----------- ----------- ----------- TOTAL NONCURRENT LIABILITIES 171,408 146,016 123,374 ----------- ----------- ----------- CURRENT LIABILITIES Long-term debt due within one year 200,000 529,385 202,630 Accounts payable 354,532 440,114 375,438 Notes payable 44,024 - 15,000 Customer deposits 180,853 161,731 159,749 Accrued taxes 74,662 65,736 (56,676) Accrued interest 83,512 85,613 83,310 Accrued wages 80,586 82,556 78,312 Other current liabilities 183,704 183,122 142,910 ----------- ----------- ----------- TOTAL CURRENT LIABILITIES 1,201,873 1,548,257 1,000,673 ----------- ----------- ----------- PROVISIONS RELATED TO FUTURE FEDERAL INCOME TAXES AND OTHER DEFERRED CREDITS Accumulated deferred federal income tax 2,222,210 2,307,835 2,333,097 Accumulated deferred investment tax credits 159,300 163,680 168,070 Other deferred credits 108,129 119,727 93,297 ----------- ----------- ----------- TOTAL DEFERRED CREDITS 2,489,639 2,591,242 2,594,464 ----------- ----------- ----------- TOTAL $14,038,584 $14,722,518 $14,015,457 =========== =========== =========== </TABLE> The accompanying notes are an integral part of these financial statements.
-12- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. --------------------------------------------- INCOME STATEMENT ---------------- FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997 ------------------------------------------------- <TABLE> <CAPTION> 1998 1997 ---- ---- <S> <C> <C> (THOUSANDS OF DOLLARS) Operating revenues Electric $ 1,289,860 $ 1,228,366 Gas 196,562 213,376 Steam 57,411 62,272 Non-utility - 4,074 ----------- ----------- TOTAL OPERATING REVENUES 1,543,833 1,508,088 ----------- ----------- OPERATING EXPENSES Purchased power 322,147 314,221 Fuel 123,870 122,426 Gas purchased for resale 75,033 89,494 Other operations 281,340 288,881 Maintenance 132,709 146,859 Depreciation and amortization 129,002 125,003 Taxes, other than federal income tax 290,265 270,828 Federal income tax 37,500 24,044 ----------- ----------- TOTAL OPERATING EXPENSES 1,391,866 1,381,756 ----------- ----------- OPERATING INCOME 151,967 126,332 OTHER INCOME (DEDUCTIONS) Investment income 1,665 2,942 Allowance for equity funds used during construction 575 1,520 Other income less miscellaneous deductions (1,462) (205) Federal income tax 1,766 (1,296) ----------- ----------- TOTAL OTHER INCOME 2,544 2,961 ----------- ----------- INCOME BEFORE INTEREST CHARGES 154,511 129,293 Interest on long-term debt 76,985 79,192 Other interest 10,066 3,287 Allowance for borrowed funds used during construction (294) (745) ----------- ----------- NET INTEREST CHARGES 86,757 81,734 ----------- ----------- NET INCOME 67,754 47,559 PREFERRED STOCK DIVIDEND REQUIREMENTS 4,536 4,603 ----------- ----------- NET INCOME FOR COMMON STOCK $ 63,218 $ 42,956 =========== =========== CON EDISON SALES Electric (Thousands of kilowatthours) Con Edison customers 8,760,065 8,281,386 Delivery service to NYPA and others 2,105,633 2,028,973 Service for municipal agencies 265,858 296,530 ----------- ----------- Total sales in service territory 11,131,556 10,606,889 Off-system and ESCO sales 411,652 701,070 Gas (dekatherms) Firm (A) 17,845,799 19,747,792 Off-peak firm/interruptible 3,646,403 5,215,550 ----------- ----------- Total sales to Con Edison customers 21,492,202 24,963,342 Transportation of customer-owned gas NYPA 641,921 4,668,422 Other 3,598,938 1,736,419 Off-system sales 4,600,307 1,255,168 ----------- ----------- Total sales and transportation 30,333,368 32,623,351 Steam (Thousands of pounds) 4,540,725 4,796,828 </TABLE> (A) Includes firm sales and transportation volumes. The accompanying notes are an integral part of these financial statements.
-13- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. --------------------------------------------- INCOME STATEMENT ---------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 ----------------------------------------------- <TABLE> <CAPTION> 1998 1997 ---- ---- <S> <C> <C> (THOUSANDS OF DOLLARS) Operating revenues Electric $ 2,581,183 $ 2,497,316 Gas 595,732 668,396 Steam 192,801 224,450 Non-utility - 33,481 ----------- ----------- TOTAL OPERATING REVENUES 3,369,716 3,423,643 ----------- ----------- OPERATING EXPENSES Purchased power 680,383 666,929 Fuel 258,424 273,780 Gas purchased for resale 239,743 341,205 Other operations 549,500 566,956 Maintenance 250,684 261,022 Depreciation and amortization 257,054 248,797 Taxes, other than federal income tax 592,383 575,811 Federal income tax 131,640 115,931 ----------- ----------- TOTAL OPERATING EXPENSES 2,959,811 3,050,431 ----------- ----------- OPERATING INCOME 409,905 373,212 OTHER INCOME (DEDUCTIONS) Investment income 2,708 3,978 Allowance for equity funds used during construction 1,087 3,320 Other income less miscellaneous deductions (1,966) (726) Federal income tax 1,363 (1,599) ----------- ----------- TOTAL OTHER INCOME 3,192 4,973 ----------- ----------- INCOME BEFORE INTEREST CHARGES 413,097 378,185 Interest on long-term debt 156,043 157,944 Other interest 11,313 7,701 Allowance for borrowed funds used during construction (557) (1,627) ----------- ----------- NET INTEREST CHARGES 166,799 164,018 ----------- ----------- NET INCOME 246,298 214,167 PREFERRED STOCK DIVIDEND REQUIREMENTS 9,072 9,207 ----------- ----------- NET INCOME FOR COMMON STOCK $ 237,226 $ 204,960 =========== =========== CON EDISON SALES Electric (Thousands of kilowatthours) Con Edison customers 17,790,466 17,213,254 Delivery service to NYPA and others 4,360,230 4,250,306 Service for municipal agencies 465,482 510,591 ----------- ----------- Total sales in service territory 22,616,178 21,974,151 Off-system and ESCO sales 760,433 1,012,848 Gas (dekatherms) Firm (A) 54,285,625 59,021,742 Off-peak firm/interruptible 11,187,254 13,419,753 ----------- ----------- Total sales to Con Edison customers 65,472,879 72,441,495 Transportation of customer-owned gas NYPA 1,725,535 7,368,630 Other 7,186,264 3,453,753 Off-system sales 9,932,608 4,760,561 ----------- ----------- Total sales and transportation 84,317,286 88,024,439 Steam (Thousands of pounds) 13,526,399 14,937,516 </TABLE> (A) Includes firm sales and transportation volumes. The accompanying notes are an integral part of these financial statements.
-14- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. --------------------------------------------- INCOME STATEMENT ---------------- FOR THE TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997 -------------------------------------------------- <TABLE> <CAPTION> 1998 1997 ---- ---- <S> <C> <C> (THOUSANDS OF DOLLARS) Operating revenues Electric $ 5,719,441 $ 5,507,860 Gas 1,021,216 1,053,175 Steam 360,151 381,763 Non-utility 41,416 123,921 ------------ ------------ TOTAL OPERATING REVENUES 7,142,224 7,066,719 ------------ ------------ OPERATING EXPENSES Purchased power 1,363,041 1,314,196 Fuel 581,468 542,779 Gas purchased for resale 451,135 572,087 Other operations 1,107,247 1,167,447 Maintenance 464,450 470,887 Depreciation and amortization 511,712 492,713 Taxes, other than federal income tax 1,197,727 1,158,528 Federal income tax 393,431 366,977 ------------ ------------ TOTAL OPERATING EXPENSES 6,070,211 6,085,614 ------------ ------------ OPERATING INCOME 1,072,013 981,105 OTHER INCOME (DEDUCTIONS) Investment income 10,945 8,988 Allowance for equity funds used during construction 2,215 5,530 Other income less miscellaneous deductions (5,339) (6,253) Federal income tax 963 107 ------------ ------------ TOTAL OTHER INCOME 8,784 8,372 ------------ ------------ INCOME BEFORE INTEREST CHARGES 1,080,797 989,477 Interest on long-term debt 316,257 313,289 Other interest 20,695 16,551 Allowance for borrowed funds used during construction (1,110) (2,665) ------------ ------------ NET INTEREST CHARGES 335,842 327,175 ------------ ------------ NET INCOME 744,955 662,302 PREFERRED STOCK DIVIDEND REQUIREMENTS 18,209 18,424 ------------ ------------ NET INCOME FOR COMMON STOCK $ 726,746 $ 643,878 ============ ============ CON EDISON SALES Electric (Thousands of kilowatthours) Con Edison customers 38,105,191 36,781,964 Delivery service to NYPA and others 8,903,302 8,674,514 Service for municipal agencies 800,785 843,657 ------------ ------------ Total sales in service territory 47,809,278 46,300,135 Off-system and ESCO sales 2,247,172 3,661,056 Gas (dekatherms) Firm (A) 88,757,674 92,669,039 Off-peak firm/interruptible 21,679,035 22,600,610 ------------ ------------ Total sales to Con Edison customers 110,436,709 115,269,649 Transportation of customer-owned gas NYPA 11,398,600 12,141,058 Other 11,389,385 6,583,194 Off-system sales 19,131,031 8,917,528 ------------ ------------ Total sales and transportation 152,355,725 142,911,429 Steam (Thousands of pounds) 26,011,444 27,610,425 </TABLE> (A) Includes firm sales and transportation volumes. The accompanying notes are an integral part of these financial statements.
-15- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. --------------------------------------------- STATEMENT OF CASH FLOWS ----------------------- FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997 ----------------------------------------------- <TABLE> <CAPTION> 1998 1997 ---- ---- (THOUSANDS OF DOLLARS) <S> <C> <C> OPERATING ACTIVITIES Net income $ 246,298 $ 214,167 PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME Depreciation and amortization 257,054 248,797 Deferred recoverable fuel costs 80,962 58,292 Federal income tax deferred (17,810) 74,360 Common equity component of allowance for funds used during construction (1,057) (3,225) Other non-cash charges (credits) (7,139) 13,680 CHANGES IN ASSETS AND LIABILITIES Accounts receivable - customer, less allowance for uncollectibles 49,334 71,231 Regulatory accounts receivable (1,089) 46,263 Materials and supplies, including fuel and gas in storage 18,446 42,008 Prepayments, other receivables and other current assets 9,404 (239,372) Enlightened Energy program costs 26,781 12,881 Power contract termination costs 904 15,414 Cost of removal less salvage (36,390) (28,538) Accounts payable (60,932) (55,677) Accrued income taxes 23,072 (81,412) Other - net 19,345 (75,151) --------- --------- NET CASH FLOWS FROM OPERATING ACTIVITIES 607,183 313,718 --------- --------- INVESTING ACTIVITIES INCLUDING CONSTRUCTION Construction expenditures (264,331) (292,308) Nuclear fuel expenditures (3,194) (7,230) Contributions to nuclear decommissioning trust (10,650) (17,047) Common equity component of allowance for funds used during construction 1,057 3,225 --------- --------- NET CASH FLOWS FROM INVESTING ACTIVITIES INCLUDING CONSTRUCTION (277,118) (313,360) --------- --------- FINANCING ACTIVITIES INCLUDING DIVIDENDS Repurchase of common stock (59,340) - Net proceeds from short-term debt 44,024 15,000 Issuance of long-term debt 385,000 150,000 Retirement of long-term debt (100,000) (3,626) Advance refunding of long-term debt (605,240) - Issuance and refunding costs (6,975) (410) Funds held for refunding of debt 229,355 - Common stock dividends (249,619) (246,763) Preferred stock dividends (9,066) (9,210) Corporate reorganization (121,404) - --------- --------- NET CASH FLOWS FROM FINANCING ACTIVITIES INCLUDING DIVIDENDS (493,265) (95,009) --------- --------- NET DECREASE IN CASH AND TEMPORARY CASH INVESTMENTS (163,200) (94,651) CASH AND TEMPORARY CASH INVESTMENTS AT JANUARY 1 183,458 106,882 --------- --------- CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30 $ 20,258 $ 12,231 ========= ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 153,462 $ 151,686 Income taxes 174,426 126,133 </TABLE> The accompanying notes are an integral part of these financial statements.
-16- CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. --------------------------------------------- STATEMENT OF CASH FLOWS ----------------------- FOR THE TWELVE MONTHS ENDED JUNE 30, 1998 AND 1997 -------------------------------------------------- <TABLE> <CAPTION> 1998 1997 ---- ---- (THOUSANDS OF DOLLARS) <S> <C> <C> OPERATING ACTIVITIES Net income $ 744,955 $ 662,302 PRINCIPAL NON-CASH CHARGES (CREDITS) TO INCOME Depreciation and amortization 511,712 492,713 Deferred recoverable fuel costs 25,831 (21,202) Federal income tax deferred (69,550) 120,800 Common equity component of allowance for funds used during construction (2,153) (5,311) Other non-cash charges (credits) (3,551) 33,715 CHANGES IN ASSETS AND LIABILITIES Accounts receivable - customer, less allowance for uncollectibles (59,056) 26,743 Regulatory accounts receivable (273) 5,804 Materials and supplies, including fuel and gas in storage 8,262 7,476 Prepayments, other receivables and other current assets 217,757 (237,619) Enlightened Energy program costs 29,811 8,902 Power contract termination costs (2,959) 38,930 Cost of removal less salvage (81,571) (68,323) Accounts payable 3,745 34,203 Accrued income taxes 128,309 (94,251) Other - net 80,736 (36,804) ---------- --------- NET CASH FLOWS FROM OPERATING ACTIVITIES 1,532,005 968,078 ---------- --------- INVESTING ACTIVITIES INCLUDING CONSTRUCTION Construction expenditures (626,244) (654,261) Nuclear fuel expenditures (10,543) (56,117) Contributions to nuclear decommissioning trust (14,904) (21,301) Common equity component of allowance for funds used during construction 2,153 5,311 ---------- --------- NET CASH FLOWS FROM INVESTING ACTIVITIES INCLUDING CONSTRUCTION (649,538) (726,368) ---------- --------- FINANCING ACTIVITIES INCLUDING DIVIDENDS Repurchase of common stock (59,340) - Net proceeds from short-term debt 29,024 15,000 Issuance of long-term debt 715,000 300,000 Retirement of long-term debt (202,630) (82,095) Advance refunding of long-term debt (605,240) - Issuance and refunding costs (15,495) (10,179) Funds held for refunding of debt (99,519) - Common stock dividends (496,567) (491,150) Preferred stock dividends (18,269) (18,424) Corporate reorganization (121,404) - ---------- --------- NET CASH FLOWS FROM FINANCING ACTIVITIES INCLUDING DIVIDENDS (874,440) (286,848) ---------- --------- NET INCREASE (DECREASE) IN CASH AND TEMPORARY CASH INVESTMENTS 8,027 (45,138) CASH AND TEMPORARY CASH INVESTMENTS AT JULY 1 12,231 57,369 ---------- --------- CASH AND TEMPORARY CASH INVESTMENTS AT JUNE 30 $ 20,258 $ 12,231 ========== ========= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 312,086 $ 304,948 Income taxes 383,924 341,888 </TABLE> The accompanying notes are an integral part of these financial statements.
-17- NOTE A - GENERAL These footnotes accompany and form an integral part of (i) the interim consolidated financial statements of Consolidated Edison, Inc. ("CEI") and its subsidiaries, including Consolidated Edison Company of New York, Inc. ("Con Edison"), the regulated utility, and several non-utility subsidiaries, and (ii) the interim consolidated financial statements of Con Edison on a stand-alone basis. These financial statements are unaudited but, in the respective opinions of the managements of CEI and Con Edison, represent all adjustments (which include only normally recurring adjustments) necessary for a fair statement of the results for the interim periods presented. These financial statements should be read together with the audited financial statements (including the notes thereto) included in the combined CEI and Con Edison Annual Reports on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10-K"). NOTE B - CONTINGENCIES INDIAN POINT Nuclear generating units similar in design to Con Edison's Indian Point 2 unit have experienced problems that have required steam generator replacement. Inspections of the Indian Point 2 steam generators since 1976 have revealed various problems, some of which appear to have been arrested, but the remaining service life of the steam generators is uncertain. The projected service life of the steam generators is reassessed periodically in the light of the inspections made during scheduled outages of the unit. Based on the latest available data and current NRC criteria, Con Edison estimates that steam generator replacement will not be required before 2001. Con Edison has replacement steam generators, which are stored at the site. Replacement of the steam generators would require estimated additional expenditures of approximately $108 million (1997 dollars, exclusive of replacement power costs) and an outage of approximately four months. However, securing necessary permits and approvals or other factors could require a substantially longer outage if steam generator replacement is required on short notice. NUCLEAR INSURANCE The insurance policies covering Con Edison's nuclear facilities for property damage, excess property damage, and outage costs permit assessments under certain conditions to cover insurers' losses. As of June 30, 1998, the highest amount that could be assessed for losses during the current policy year under all of the policies was $19 million. While assessments may also be made for losses in certain prior years, Con Edison is not aware of any losses in such years that it believes are likely to result in an assessment. Under certain circumstances, in the event of nuclear incidents at facilities covered by the federal government's third-party liability indemnification program, Con Edison could be assessed up to $88.1 million per incident, of which not more than $10 million may be assessed in any one year. The per-incident limit is to be adjusted for inflation not later than 2003 and not less than once every five years thereafter. ENVIRONMENTAL MATTERS The normal course of Con Edison's operations necessarily involves activities and substances that expose it to potential liabilities under federal, state and local laws protecting the environment. Such liabilities can be material and in some instances may be imposed without regard to fault, or may be imposed for past acts, even though such past acts may have been lawful at the time they occurred. Sources of such potential liabilities include (but are not limited to) the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund), a 1994 settlement with the New York State Department of Environmental Conservation (DEC), asbestos, and electric and magnetic fields (EMF).
-18- SUPERFUND By its terms Superfund imposes joint and several strict liability, regardless of fault, upon generators of hazardous substances for resulting removal and remedial costs and environmental damages. Con Edison has received process or notice concerning possible claims under Superfund or similar state statutes relating to a number of sites at which it is alleged that hazardous substances generated by Con Edison (and, in most instances, a large number of other potentially responsible parties) were deposited. Estimates of the investigative, removal, remedial and environmental damage costs (if any) that Con Edison will be obligated to pay with respect to each of these sites range from extremely preliminary to highly refined. Based on these estimates Con Edison had accrued at June 30, 1998 a liability of approximately $23 million. There will be additional costs with respect to these and possibly other sites, the materiality of which is not presently determinable. DEC SETTLEMENT In 1994 Con Edison agreed to a consent order settling a civil administrative proceeding instituted by the DEC alleging environmental violations by Con Edison. Pursuant to the consent order, Con Edison has conducted an environmental management systems evaluation and an environmental compliance audit. Con Edison also must implement "best management practices" plans for certain facilities and undertake a remediation program at certain sites. At June 30, 1998, Con Edison had an accrued liability of $16.6 million for these sites. Expenditures for environmental-related capital projects in the five years 1998-2002, including expenditures to comply with the consent order, are estimated at $148 million. These estimated expenditures do not reflect divestiture by Con Edison of generating plants pursuant to the Settlement Agreement (see Note A to the financial statements included in the 1997 Form 10- K) or otherwise. ASBESTOS CLAIMS Suits have been brought in New York State and federal courts against Con Edison and many other defendants, wherein a large number of plaintiffs sought large amounts of compensatory and punitive damages for deaths and injuries allegedly caused by exposure to asbestos at various premises of Con Edison. Many of these suits have been disposed of without any payment by Con Edison, or for immaterial amounts. The amounts specified in all the remaining suits total billions of dollars but Con Edison believes that these amounts are greatly exaggerated, as were the claims already disposed of. Based on the information and relevant circumstances known to Con Edison at this time, it is the opinion of Con Edison that these suits will not have a material adverse effect on Con Edison's financial position, results of operations or liquidity. EMF Electric and magnetic fields (EMF) are found wherever electricity is used. In the event a causal relationship between EMF and adverse health effects is established, or independently of any such causal determination, in the event of adverse developments in related legal or public policy doctrines, there could be a material adverse effect on the electric utility industry, including Con Edison.
-19- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis relates to (i) the interim consolidated financial statements of Consolidated Edison, Inc. (CEI) and its subsidiaries, including Consolidated Edison Company of New York, Inc. (Con Edison), the regulated utility, and several non-utility subsidiaries, and (ii) the interim consolidated financial statements of Con Edison on a stand-alone basis. CEI is a holding company, operates only through its subsidiaries and has no material assets other than the stock of its subsidiaries. Con Edison is the principal subsidiary of CEI. Unless otherwise indicated, this discussion and analysis applies to each of CEI and Con Edison. References in this report to the "Company" are to CEI and Con Edison, collectively. This discussion and analysis should be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of the combined CEI and Con Edison Annual Reports on Form 10-K for the year ended December 31, 1997 (File Nos. 1-14514 and 1-1217, the 1997 Form 10-K). Reference is also made to the notes to the financial statements in Part I, Item 1 of this report, which notes are incorporated herein by reference. LIQUIDITY AND CAPITAL RESOURCES Con Edison's cash balances reflect, among other things, the timing and amount of external financing and the January 1, 1998 corporate reorganization (see "Corporate Structure" in Item 1 of the 1997 10-K). In addition, the June 1997 balance reflects a prepayment of $226 million for New York City property taxes. Con Edison initiated a $500 million commercial paper program in January 1998. The highest amount outstanding during the six months ended June 30, 1998 was $195 million. There was $44 million of commercial paper outstanding at June 30, 1998. Con Edison's interest coverage for the 12 months ended June 30, 1998 was 4.19 times, compared with 4.09 times for the year 1997 and 3.96 times for the 12 months ended June 30, 1997. The increase in interest coverage reflects higher pre-tax income. In June 1998 Con Edison issued $100 million of 6.15 percent 10-year taxable debentures to refund, in July 1998, its 7-3/8 percent tax-exempt debt issued through the New York State Energy Research and Development Authority. For information about securities refunded by Con Edison during the first quarter of 1998, see "Liquidity and Capital Resources - Refundings" in Item 7 of the 1997 Form 10-K. In May 1998 CEI commenced its common stock repurchase program. Approximately 1.3 million shares were repurchased by Con Edison at a cost of $59.3 million through June 30, 1998. Con Edison's equivalent number of days of revenue outstanding as customer accounts receivable was 27.6 days at June 30, 1998 compared with 28.2 days at December 31, 1997 and 27.8 days at June 30, 1997. Recoverable fuel costs amounted to $17.3 million at June 30, 1998 compared with $98.3 million at December 31, 1997 and $43.2 million at June 30, 1997, reflecting the ongoing recovery of previously deferred amounts and the changes in purchased power, fuel and gas purchased for resale discussed below in "Results of Operations."
-20- TRANSITION TO COMPETITION Reference is made to (i) "Liquidity and Capital Resources - Competition and Industry Restructuring and PSC Settlement Agreement" in Item 7, "Electric Facilities - Generating Facilities" in Item 2 and "Challenges to the Settlement Agreement" in Item 3 of the 1997 Form 10-K, (ii) "Liquidity and Capital Resources - Transition to Competition" in Part I, Item 2 of the combined CEI and Con Edison Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998 (First Quarter Form 10-Q) and (iii) "Challenges to the Settlement Agreement" in Part II, Item 1 of this report for information about the September 1997 Settlement Agreement among Con Edison, the staff of the New York State Public Service Commission (PSC) and certain other parties (the Settlement Agreement) and additional information about the transition to competitive electric markets. In June 1998 approximately 68,000 Con Edison customers representing approximately 1,000 megawatts of aggregate customer load began purchasing electricity from other power providers under the first phase of Con Edison's Retail Choice program. The electricity purchased by these customers is delivered through Con Edison's transmission and distribution system. In July 1998 the PSC issued an order (the Divestiture Order) authorizing Con Edison to auction all of its New York City fossil-fueled electric generating capacity (approximately 5,500 MW). Sales pursuant to the auction will be subject to PSC approval and contingent upon an independent system operator being operational in New York State. The Divestiture Order also directed Con Edison to analyze and report to PSC staff the feasibility of divesting its entitlements under its contracts with non-utility generators and to provide a detailed plan for divestiture of its property not required for Con Edison's continuing operations. In the Divestiture Order, the PSC indicated that it "agree[s] generally that Con Edison need not plan on constructing new generation as the competitive market develops," but considers "overly broad" and does not adopt Con Edison's request for a declaration that, solely with respect to providing generating capacity, it will no longer be required to engage in long-range planning to meet potential demand and, in particular, that it will no longer have the obligation to construct new generating facilities, regardless of the market price of capacity. In August 1998 the PSC also approved a proposal pursuant to which Con Edison affiliates would not participate in the auction and Con Edison would be permitted to apply up to $50 million of any net after-tax gains resulting from divestiture of its in-City capacity, jointly-owned Bowline Point and Roseton generating stations and potential generating sites (which are also required to be sold pursuant to the Divestiture Order) to reduce Con Edison's unrecovered investment in Indian Point 2. The net after-tax gain to be applied would be in excess of the $50 million of any net after-tax gain that under the Settlement Agreement would be retained by shareholders. In June 1998 FERC conditionally authorized the establishment of the independent system operator that would control and operate most electric transmission facilities in New York and a New York State Reliability Council that would promulgate reliability rules.
-21- ACQUISITION In May 1998 CEI agreed to acquire Orange and Rockland Utilities, Inc. (O&R) for cash at a price of $58.50 per share of O&R common stock (approximately $790 million in aggregate) pursuant to an Agreement and Plan of Merger among the parties. The acquisition is to be accomplished through the merger of C Acquisition Corp., a CEI subsidiary, with O&R. The transaction is subject to certain conditions, including the approval of the holders of O&R's common stock and the approval of the New York, New Jersey and Pennsylvania utility regulators, the Federal Energy Regulatory Commission and the Securities and Exchange Commission. The transaction is not subject to the approval of CEI's shareholders. O&R has called a Special Meeting of the Common Shareholders of O&R, to be held on August 20, 1998, to consider and vote upon the Agreement and Plan of Merger. CEI, Con Edison and O&R have submitted joint petitions for approval of the acquisition to the PSC, the New Jersey Board of Public Utilities, and the Pennsylvania Public Utilities Commission. FINANCIAL MARKET RISKS Reference is made to "Liquidity and Capital Resources - Financial Market Risks" in Item 7 of the 1997 Form 10-K and Part I, Item 3 of the First Quarter Form 10-Q. Currently, CEI and its consolidated subsidiaries, including Con Edison, enter into derivative transactions only when such transactions meet the criteria for hedging and qualify for deferred accounting treatment. See Note A to the financial statements included in Item 8 of the 1997 Form 10-K. At June 30, 1998 neither the fair value of the derivatives outstanding nor potential derivative losses from reasonably possible near-term changes in market prices were material to the financial position, results of operations or liquidity of the Company. In June 1998 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), which will apply to the Company beginning January 1, 2000. SFAS 133 requires that all derivative instruments be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether or not a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction. The effect that SFAS 133 will have on the Company's financial position and results of operations in future periods will depend on the nature and extent of the Company's derivative transactions and changes in the prices of the commodities or financial or other instruments relating to the derivative transactions during such periods. NUCLEAR GENERATION Reference is made to (i) "Electric Facilities - Generating Facilities" in Item 2 and "Liquidity and Capital Resources - Nuclear Generation and 1995 Electric Rate Agreement - Partial Pass-Through Fuel Adjustment Clause (PPFAC)" in Item 7 of the 1997 Form 10-K and (ii) "Liquidity and Capital Resources - Nuclear Generation" in Part 1, Item 2 of the First Quarter Form 10-Q, for information about Con Edison's Indian Point 2 nuclear generating unit, which has been out of service since October 15, 1997. In July 1998 the Nuclear Regulatory Commission fined Con Edison $110,000 for testing and repair violations at Indian Point 2. ENVIRONMENTAL CLAIMS AND OTHER CONTINGENCIES Reference is made to the notes to the financial statements included in this report for information concerning potential liabilities of the Company arising from the Federal Comprehensive Environmental Response, Compensation and Liability Act of 1980 (Superfund), from claims relating to alleged exposure to asbestos, and from certain other contingencies to which the Company is subject.
-22- FORWARD-LOOKING STATEMENTS This discussion and analysis includes forward-looking statements, which are statements of future expectation and not facts. Words such as "estimates," "expects," "anticipates," "intends," "plans" and similar expressions identify forward-looking statements. Actual results or developments might differ materially from those included in the forward-looking statements because of factors such as competition and industry restructuring, changes in economic conditions, changes in historical weather patterns, changes in laws, regulations, regulatory policies or public policy doctrines, technological developments and other presently unknown or unforeseen factors. RESULTS OF OPERATIONS CEI's net income for common stock for the second quarter, six months and 12 months ended June 30, 1998 was higher than in the corresponding 1997 periods by $19.0 million ($.08 per share), $28.9 million ($.12 per share) and $79.5 million ($.34 per share), respectively. The increased earnings reflect higher electric revenues from an improving New York City economy and lower expenses from continued cost reduction programs and voluntary attrition in the labor force, partially offset by the expenses incurred during the current outage of Indian Point 2. The 1997 results were also impacted by cooler than normal spring weather in the second quarter of the year and by hotter than normal weather in the third quarter. The results of operations of CEI include the results of operations of Con Edison and of the several non-utility subsidiaries of CEI. <TABLE> <CAPTION> Increases (Decreases) Three Months Ended Six Months Ended Twelve Months Ended June 30, 1998 June 30, 1998 June 30, 1998 Compared With Compared With Compared with Three Months Ended Six Months Ended Twelve Months Ended June 30, 1997 June 30, 1997 June 30, 1997 Amount Percent Amount Percent Amount Percent (Amounts are for CEI and are in Millions) <S> <C> <C> <C> <C> <C> <C> Operating revenues $ 52.9 3.5% $ (9.6) (0.3)% $119.9 1.7% Purchased power - electric and steam 10.2 3.2 15.8 2.4 51.1 3.9 Fuel - electric and steam 1.4 1.2 (15.4) (5.6) 38.7 7.1 Gas purchased for resale (2.6) (2.9) (64.9) (19.0) (84.3) 14.7) Operating revenues less purchased power, fuel and gas purchased for resale (Net revenues) 43.9 4.5 54.9 2.6 114.4 2.5 Other operations and maintenance (13.7) (3.1) (12.1) (1.5) (50.9) (3.1) Depreciation and amortization 4.3 3.4 8.7 3.5 19.5 4.0 Taxes, other than federal income tax 19.6 7.2 16.8 2.9 39.4 3.4 Federal income tax 12.0 49.8 12.1 10.4 22.8 6.2 Operating income 21.7 17.2 29.4 7.9 83.6 8.5 Other income less deductions and related federal income tax 2.2 76.2 2.2 43.8 4.4 52.2 Net interest charges 5.0 6.1 2.8 1.7 8.7 2.6 Preferred stock dividend requirements 0.1 1.5 0.1 1.5 0.2 1.2 Net income for common stock $ 19.0 44.3% $ 28.9 14.1% $ 79.5 12.4% ====== ====== ====== </TABLE>
-23- CEI's investment in its non-utility subsidiaries was $136.3 million at June 30, 1998. CEI's results of operations include the net after-tax losses of its non-utility subsidiaries as follows (with amounts shown in millions): <TABLE> <CAPTION> 1998 1997 Amount Per Share Amount Per Share <S> <C> <C> <C> <C> Second Quarter $ (2.0) $(.01) $(3.6) $(.02) Six months ended June 30, $ (5.2) $(.02) $(4.1) $(.02) Twelve Months ended June 30, $(10.7) $(.05) $(4.4) $(.02) </TABLE> For additional information about CEI's non-utility subsidiaries, see "Competitive Businesses and Competition" in Item 1 of the 1997 Form 10-K. SECOND QUARTER 1998 COMPARED WITH SECOND QUARTER 1997 CEI's net revenues (operating revenues less purchased power, fuel and gas purchased for resale) increased $43.9 million in the second quarter of 1998 compared with the 1997 period. Electric, steam and non-utility net revenues increased $40.8 million, $2.9 million and $6.6 million, respectively. Gas net revenues decreased $6.4 million. Electric net revenues in the 1998 period were higher than in the 1997 period primarily as a result of higher sales, partially reflecting warmer weather in the 1998 period, offset in part by the $107.5 million annualized rate reductions that went into effect in January and April 1998. See "Liquidity and Capital Resources - PSC Settlement Agreement - Rate Plan" in Item 7 of the 1997 Form 10-K. Con Edison's electric sales, excluding off-system sales, in the 1998 period compared with the 1997 period were: <TABLE> <CAPTION> MILLIONS OF KWHRS. 2ND QUARTER 2ND QUARTER PERCENT DESCRIPTION 1998 1997 VARIATION VARIATION <S> <C> <C> <C> <C> Residential/Religious 2,429 2,308 121 5.2% Commercial/Industrial 6,175 5,833 342 5.9% Other 157 140 17 12.1% Total Con Edison Customers 8,761 8,281 480 5.8% NYPA, Municipal Agency and Other Sales 2,371 2,326 45 1.9% Total Service Area 11,132 10,607 525 4.9% </TABLE> For the 1998 period, Con Edison's firm gas sales volume, including firm transportation, decreased 9.6 percent and interruptible sales decreased 30.1 percent compared with the 1997 period as a result of warmer winter weather in 1998. Under the gas rate agreements covering the 1998 and 1997 periods, most weather-related variations in firm gas sales and transportation did not affect earnings. Transportation of customer-owned gas (other than gas transported for the New York Power Authority), which comprised approximately 12 percent of the gas Con Edison sold or transported to customers in the 1998 period, increased 107 percent. See "Gas Operations - Gas Sales" in Item 1 of the 1997 Form 10-K.
-24- Steam sales volume decreased 5.3 percent compared with the 1997 period as a result of the warmer winter weather in 1998. After adjusting for variations, primarily in weather and billing days in each period, electric sales volume in Con Edison's service territory increased 3.4 percent in the 1998 period, firm gas sales volume (including firm transportation) increased 1.0 percent and steam sales volume decreased 2.5 percent. Electric fuel costs increased $10.0 million in the 1998 period due to an increase in the unit cost of fuel, partially offset by lower electric generation. Electric purchased power costs increased in the 1998 period due to higher purchased volumes. Steam fuel costs decreased $8.6 million in the 1998 period due to decreased generation of steam and lower unit cost. Steam purchased power costs increased $0.8 million due to higher unit cost, partially offset by lower purchased volumes. Gas purchased for resale decreased, reflecting lower sendout and a lower unit cost of purchased gas. Other operations and maintenance expenses decreased in the 1998 period compared with the 1997 period, due primarily to lower nuclear production expenses (lower expenses for the maintenance outage at Indian Point 2 in the 1998 period compared with the refueling and maintenance outage expenses at Indian Point 2 in the 1997 period) and continued voluntary attrition in the labor force. Depreciation and amortization increased in the 1998 period due principally to higher plant balances. Taxes other than federal income tax increased in the 1998 period due to higher revenue and property taxes. Federal income tax increased in the 1998 period due to higher taxable income. Net interest charges increased due to increased short-term borrowing by Con Edison. SIX MONTHS ENDED JUNE 30, 1998 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1997 CEI's net revenues increased $54.9 million in the six months ended June 30, 1998 compared with the 1997 period. Electric, steam and non-utility net revenues increased $48.7 million, $2.0 million and $8.5 million, respectively. Gas net revenues decreased $4.3 million. Electric net revenues in the 1998 period were higher than in the corresponding 1997 period primarily as a result of higher sales, offset in part by the rate reductions that went into effect in January and April 1998. Electric net revenues in the 1998 period include $3.9 million of earnings under the partial pass-through fuel adjustment clause (PPFAC) incentive, compared with $1.1 million of PPFAC and other incentive earnings for the 1997 period.
-25- Con Edison's electric sales, excluding off-system sales, in the 1998 period compared with the 1997 period were: <TABLE> <CAPTION> MILLIONS OF KWHRS. SIX MONTHS SIX MONTHS ENDED ENDED PERCENT DESCRIPTION JUNE 30,1998ON JUNE 30, 1997 VARIATION VARIATION <S> <C> <C> <C> <C> Residential/Religious 5,081 4,949 132 2.7% Commercial/Industrial 12,392 11,976 416 3.5% Other 317 288 29 10.1% Total Con Edison Customers 17,790 17,213 577 3.4% NYPA, Municipal Agency and Other Sales 4,826 4,761 65 1.4% Total Service Area 22,616 21,974 642 2.9% </TABLE> For the 1998 period, Con Edison's firm gas sales volume, including firm transportation, decreased 8.0 percent and interruptible sales decreased 16.6 percent compared with the 1997 period, as a result of warmer winter weather in 1998. Transportation of customer-owned gas (other than gas transported for the New York Power Authority), which comprised approximately nine percent of the gas Con Edison sold or transported to customers in the 1998 period, increased 108 percent. See "Gas Operations - Gas Sales " In Item 1 of the 1997 Form 10-K. Steam sales volume decreased 9.4 percent compared with the 1997 period, as a result of the warmer winter weather in 1998. After adjusting for variations, primarily in weather and billing days in each period, electric sales volume in Con Edison's service territory increased 2.4 percent in the 1998 period, firm gas sales volume (including firm transportation) was unchanged and steam sales volume decreased 2.0 percent. Electric fuel costs increased $17.9 million in the 1998 period due to an increase in the unit cost of fuel, partially offset by lower electric generation. Electric purchased power costs increased in the 1998 period due to higher purchased volumes. Steam fuel costs decreased $33.3 million in the 1998 period due to decreased generation of steam and lower unit cost. Steam purchased power costs decreased $0.4 million due to lower purchased volumes, partially offset by higher unit cost. Gas purchased for resale decreased, reflecting lower sendout and a lower unit cost of purchased gas. Other operations and maintenance expenses decreased in the 1998 period compared with the 1997 period, due primarily to lower pension and retiree benefit expenses, continued cost reduction programs and voluntary attrition in the labor force, partially offset by increased Indian Point 2 outage expenses (higher expenses for the maintenance outage at Indian Point 2 in the 1998 period compared with the refueling and maintenance outage expenses at Indian Point 2 in the 1997 period).
-26- Depreciation and amortization increased in the 1998 period due principally to higher plant balances. Taxes other than federal income tax increased in the 1998 period due primarily to higher property taxes. Federal income tax increased in the 1998 period due to higher taxable income. Net interest charges increased due to increased short-term borrowing by Con Edison. TWELVE MONTHS ENDED JUNE 30, 1998 COMPARED WITH TWELVE MONTHS ENDED JUNE 30, 1997 CEI's net revenues increased $114.4 million in the 12 months ended June 30, 1998 compared with the 1997 period. Electric, gas, steam and non-utility net revenues increased $89.8 million, $6.2 million, $9.3 million and $9.1 million, respectively. Electric net revenues in the 1998 period were higher than in the corresponding 1997 period primarily as a result of higher sales, offset in part by the rate reductions that went into effect in January and April 1998. Electric net revenues in the 1998 period include $1.6 million of PPFAC incentive earnings compared with $31.3 million for PPFAC and other incentive earnings for the 1997 period. Gas net revenues in the 1998 period reflect the retention of net revenues from interruptible sales in accordance with the 1997 gas rate agreement. Steam net revenues in the 1998 period reflect rate increases, offset in part by weather-related sales decreases. Con Edison's electric sales, excluding off-system sales, for the 1998 period compared with the 1997 period were: <TABLE> <CAPTION> MILLIONS OF KWHRS. TWELVE MONTHS TWELVE MONTHS ENDED ENDED PERCENT DESCRIPTION JUNE 30, 1998 JUNE 30, 1997 VARIATION VARIATION <S> <C> <C> <C> <C> Residential/Religious 11,135 10,728 407 3.8% Commercial/Industrial 26,327 25,450 877 3.4% Other 643 604 39 6.5% Total Con Edison Customers 38,105 36,782 1,323 3.6% NYPA Municipal Agency and Other Sales 9,704 9,518 186 2.0% Total Service Area 47,809 46,300 1,509 3.3% </TABLE>
-27- For the 1998 period, Con Edison's firm gas sales volume (including firm transportation) decreased 4.2 percent and interruptible sales decreased 4.1 percent. Transportation of customer-owned gas (other than gas transported for the New York Power Authority), which comprised approximately seven percent of the gas Con Edison sold or transported to customers in the 1998 period, increased 73 percent. Steam sales volume decreased 5.8 percent compared with the 1997 period. The decreases in firm gas and steam sales volumes for the 1998 period were due primarily to milder than normal 1998 winter weather. After adjustment for variations, primarily in weather and billing days in each period, electric sales volume in Con Edison's service territory in the 1998 period increased 2.2 percent. Similarly adjusted, firm gas sales volume (including firm transportation) increased 0.1 percent and steam sales volume decreased 2.2 percent. Electric fuel costs increased $77.8 million in the 1998 period due to a higher unit cost of fuel, partially offset by decreased generation of electricity. Electric purchased power costs increased in the 1998 period, reflecting increased purchased volumes. The variations in electric fuel and purchased power costs also reflect the greater availability of Indian Point 2 in the 1997 period than in the 1998 period. Steam fuel costs decreased $39.1 million in the 1998 period due to decreased generation of steam by Con Edison and a lower unit cost of fuel. Steam purchased power costs were $8.3 million higher reflecting greater purchased volumes. Gas purchased for resale decreased, reflecting a lower unit cost of fuel. Other operations and maintenance expenses decreased in the 1998 period due primarily to lower pension, retiree benefits and health insurance costs, continued cost reduction programs and voluntary attrition of the labor force, partially offset by increased Indian Point 2 outage expenses (higher expenses for the maintenance outage at Indian Point 2 in the 1998 period compared with the refueling and maintenance outage expenses at Indian Point 2 in the 1997 period). Depreciation and amortization increased in the 1998 period due principally to higher plant balances. Taxes other than federal income tax increased in the 1998 period compared with the 1997 period due primarily to higher property and revenue taxes. Federal income tax increased in the 1998 period due to higher taxable income. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For information about the Company's primary market risks associated with activities in derivative financial instruments, other financial instruments and derivative commodity instruments, see "Liquidity and Capital Resources - Financial Market Risks" in Item 2 of this report and Item 7 of the 1997 Form 10- K.
-28- PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS GRAMERCY PARK Reference is made to "Gramercy Park" in Part I, Item 3, Legal Proceedings in the 1997 Form 10-K and in Part II, Item 1, Legal Proceedings in the combined CEI and Con Edison Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1998. CHALLENGES TO THE SETTLEMENT AGREEMENT Reference is made to "Challenges to the Settlement Agreement" in Part I, Item 3, Legal Proceedings in the 1997 Form 10-K. Con Edison and the New York State Public Service Commission (the "PSC") have each filed a motion to dismiss the lawsuit commenced by the Public Utility Law Project of New York, Inc. Travelers Group Inc. and Smith Barney Inc. have withdrawn, without prejudice, their lawsuit against the PSC. RATE PROCEEDINGS Reference is made to "Rate Proceedings" in Part I, Item 3, Legal Proceedings in the 1997 Form 10-K. In July 1998, the United States Court of Appeals for the Second Circuit affirmed the dismissal by the United States District Court for the Southern District of New York of the suit against Con Edison. In the state court proceeding by these plaintiffs, the New York State Supreme Court, County of Kings has denied Con Edison's motion to dismiss. SUPERFUND - GLOBAL LANDFILL SITE Reference is made to the information under the caption "SUPERFUND - Global Landfill Site" in Part I, Item 3, Legal Proceedings in the 1997 Form 10-K. In September 1997, the EPA issued a Record of Decision in which it selected a Phase II cleanup program estimated to cost approximately $2.35 million of which Con Edison's share has not yet been determined. SUPERFUND - ANCHOR MOTOR SITE Reference is made to the information under the caption "SUPERFUND - Anchor Motor Site" in Part I, Item 3, Legal Proceedings in the 1997 Form 10-K. The costs of the cleanup programs being considered for the contaminated section of the Hudson River range from approximately $1.87 million to $2.82 million. The cost of the cleanup program for the coal tar contamination present on the Anchor Motor and asphalt plant properties could exceed $8 million if the DEC requires Con Edison to excavate all of the coal tar.
-29- SUPERFUND - BORNE CHEMICAL SITE Reference is made to the information under the caption "SUPERFUND - Borne Chemical Site" in Part I, Item 3, Legal Proceedings in the 1997 Form 10-K. Con Edison and four other third-party defendants in the lawsuit have reached a tentative settlement with the third-party plaintiffs under which Con Edison would pay about $70,000 as reimbursement of the $8.25 million in expenses that the third-party plaintiffs incurred performing emergency removal actions at the site and would assume responsibility for approximately 0.67% of the expenses that the third-party plaintiffs incur conducting the site investigation study ordered by the NJDEP and any soil or groundwater cleanup program that the NJDEP may require after the site investigation study is completed. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (a) At the Annual Meeting of Stockholders of CEI and the Annual Meeting of Stockholders of Con Edison held concurrently on May 18, 1998, the stockholders of CEI voted to elect management's nominees for the Board of Directors, to ratify and approve the appointment of CEI's independent accountants, and not to adopt two stockholder proposals, and the stockholders of Con Edison (including CEI, which owned all 235,489,650 shares of Con Edison's common stock outstanding and entitled to vote at the Annual Meeting and the holders of 1,915,319 shares of cumulative preferred stock) voted to elect management's nominees for the Board of Trustees and to ratify and approve the appointment of Con Edison's independent accountants. The stockholder proposals were submitted by Con Edison stockholders prior to January 1, 1998 when CEI became the holding company for Con Edison and (as provided in the Proxy Statement and Prospectus of CEI and Con Edison included in CEI's Registration Statement on Form S-4 (No. 333-39164)) were deemed to apply to CEI. (b) The name of each nominee for election as a member of CEI's Board of Directors or Con Edison's Board of Trustees and the number of shares voted for or with respect to which authority to vote for was withheld are as follows: <TABLE> <CAPTION> CEI's Board of Directors Con Edison's Board of Trustees ------------------------ ------------------------------- For Withheld For Withheld <S> <C> <C> <C> <C> E. Virgil Conway 185,755,137 2,491,838 236,902,361 16,658 Gordon J. Davis 185,861,901 2,385,074 236,902,206 16,813 Ruth M. Davis 185,761,066 2,485,909 236,902,431 16,588 Joan S. Freilich 185,866,162 2,380,813 236,901,532 17,487 Ellen V. Futter 185,861,575 2,385,400 236,902,506 16,513 Sally Hemandez-Pinero 185,609,960 2,637,015 236,900,653 18,366 Peter W. Likins 185,908,394 2,338,581 236,902,398 16,621 Eugene R. McGrath 185,878,900 2,368,075 236,903,738 15,281 Robert G. Schwartz 185,746,103 2,500,872 236,902,839 16,180 Richard A. Voell 185,928,911 2,318,064 236,903,658 15,361 Stephen R. Volk 185,833,071 2,363,904 236,902,629 16,390 </TABLE> (c) The results of the vote on the appointment of Price Waterhouse LLP (now PricewaterhouseCoopers LLP) as independent accountants for CEI for 1998 were as follows: 186,093,507 shares were voted for this proposal; 946,966 shares were voted against the proposal; and 1,206,502 shares were abstentions. (d) The results of the vote on the appointment of Price Waterhouse LLP (now PricewaterhouseCoopers LLP) as independent accountants for Con Edison for 1998 were as follows: 236,881,512 shares were voted for this proposal; 9,012 shares were voted against the proposal; and 28,495 shares were abstentions.
-30- (e) The following stockholder-proposed resolution was voted upon by the stockholders of CEI at the Annual Meeting: "RESOLVED: That the stockholders of Consolidated Edison Company of New York, Inc., assembled in annual meeting in person and by proxy, hereby request the Board of Directors to take the steps necessary to provide for cumulative voting in the election of directors, which means each stockholder shall be entitled to as many votes as shall equal the number of shares he or she owns multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single candidate, or any two or more of them as he or she may see fit." The results of the vote on this proposal were as follows: 37,868,522 shares were voted for this proposal; 111,343,829 shares were voted against the proposal; 8,396,663 shares were abstentions; and 30,637,961 shares were broker nonvotes. (f) The following stockholder-proposed resolution was voted upon by the stockholders of CEI at the Annual Meeting: "RESOLVED: That the shareholders recommend that the Board take the necessary step that Con Edison specifically identify by name and corporate title in all future proxy statements those executive officers, not otherwise so identified, who are contractually entitled to receive in excess of $100,000 annually as base salary, together with whatever other additional compensation bonuses and other cash payments were due them." The results of the vote on this proposal were as follows: 15,229,325 shares were voted for this proposal; 136,710,753 shares were voted against the proposal; 5,668,936 shares were abstentions; and 30,637,961 shares were broker nonvotes ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) EXHIBITS Exhibit 3.2.1 By-laws of CEI, effective June 23, 1998. Exhibit 3.2.2 By-laws of Con Edison, effective June 23, 1998. Exhibit 12.1 Statement of computation of CEI ratio of earnings to fixed charges for the twelve-month periods ended June 30, 1998 and 1997. Exhibit 12.2 Statement of computation of Con Edison's ratio of earnings to fixed charges for the twelve-month periods ended June 30, 1998 and 1997. Exhibit 27.1 Financial Data Schedule for CEI.* Exhibit 27.2 Financial Data Schedule for Con Edison.* ___________ *To the extent provided in Rule 402 of Regulation S-T, this exhibit shall not be deemed "filed", or otherwise subject to liabilities, or be deemed part of a registration statement.
-31- (B) REPORTS ON FORM 8-K CEI and Con Edison each filed a Current Report on Form 8-K, dated May 10, 1998, reporting (under Item 5) the proposed acquisition of Orange and Rockland Utilities, Inc. discussed in "Liquidity and Capital Resources - Acquisition" Item 2 of Part I of this report. Con Edison filed a Current Report on Form 8-K, dated June 22, 1998, reporting (under Item 5) the sale of debentures and refunding of a series of outstanding debt securities. No other CEI or Con Edison Current Reports on Form 8-K were filed during the quarter ended June 30, 1998.
-32- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, each Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CONSOLIDATED EDISON, INC. CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. DATE: August 14, 1998 By: JOAN S. FREILICH Joan S. Freilich Executive Vice President, Chief Financial Officer and Duly Authorized Officer DATE: August 14, 1998 By: HYMAN SCHOENBLUM Hyman Schoenblum Vice President, Controller and Chief Accounting Officer