SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR SECTION
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended March 31, 2002 Commission File No. 1-10922
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BANGOR HYDRO-ELECTRIC COMPANY
(Exact Name of Registrant as specified in its Charter)
MAINE 01-0024370
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
33 STATE STREET, BANGOR, MAINE 04401
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code 207-945-5621
NONE
----
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF EACH CLASS
7% Preferred Stock, $100 Par Value
4 1/4% Preferred Stock, $100 Par Value
4% Preferred Stock Series A, $100 Par Value
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 ____
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2002
PART I - FINANCIAL INFORMATION
PAGE
----
Cover Page 1
Index 2
Consolidated Statements of Income 3
Management's Discussion and Analysis of Results of
Operations and Financial Condition 4
Consolidated Balance Sheets - March 31, 2002 and
December 31, 2001 18
Consolidated Statements of Capitalization 20
Consolidated Statements of Cash Flows 21
Consolidated Statements of Common Stock Investment 22
Notes to the Consolidated Financial Statements 23
PART II - OTHER INFORMATION 30
Item 6 - Exhibits and Reports on Form 8-K 31
Signature Page 32
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
000's Omitted Except Per Share Amounts
(Unaudited)
Three Months Ended
Mar. 31, Mar. 31,
2002 2001
----------- ------------
Operating Revenues:
Electric operating revenue $ 36,439 $ 34,763
Standard offer service 12,206 22,017
------------ ------------
$ 48,645 $ 56,780
------------ ------------
Operating Expenses:
Purchased power and fuel for generation $ 11,233 $ 7,767
Standard offer service purchased power 11,890 21,536
Other operation and maintenance 9,715 8,308
Depreciation and amortization 2,676 2,698
Regulatory amortizations 3,649 4,747
Taxes -
Local property and other 1,345 1,338
State and federal income 1,845 2,759
------------ ------------
$ 42,353 $ 49,153
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Operating Income $ 6,292 $ 7,627
------------ ------------
Other Income And (Deductions):
Allowance for equity funds used
during construction $ 114 $ 166
Other, net of applicable income taxes 83 393
------------ ------------
Income Before Interest Expense $ 6,489 $ 8,186
------------ ------------
Interest Expense:
Long-term debt $ 3,378 $ 3,587
Other 192 170
Allowance for borrowed funds used
during construction (109) (155)
------------ ------------
$ 3,461 $ 3,602
------------ ------------
Net Income $ 3,028 $ 4,584
Dividends On Preferred Stock 66 66
------------ ------------
Earnings Applicable To Common Stock $ 2,962 $ 4,518
============ ============
Weighted Average Number of Shares Outstanding 7,363 7,363
============ ============
Earnings Per Common Share:
Basic $ .40 $ .61
Diluted - .55
============ ============
Dividends Declared Per Common Share $ - $ .20
============ ============
See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
Management's Discussion and Analysis of the Results of Operations and
Financial Condition contained in Bangor Hydro-Electric Company's (the
Company) Annual Report on Form 10-K for the year ended December 31, 2001
(2001 Form 10-K) should be read in conjunction with the comments below.
EARNINGS
For the quarters ended March 31, 2002 and 2001 basic earnings per
common share were $.40 and $.61, respectively. Negatively impacting earnings
in the first quarter of 2002 were decreased revenues as a result of lower
energy sales, which were due principally to warmer weather in the 2002
quarter as compared to 2001 and the weakened economy. Also in the first
quarter of 2002, primarily as a result of significant power outages caused by
a major snow storm, the Company incurred approximately $800,000 of
incremental expenses associated with service restoration efforts
(approximately $.07 reduction in earnings per common share after taxes).
Expense associated with pension and other postretirement benefits were
greater (approximately $.03 reduction in earnings per common share after
taxes) in the first quarter of 2002 as compared to the 2001 quarter. Finally
negatively impacting earnings in the first quarter of 2002 was an expense
associated with a contractual arrangement associated with a retiring officer
of the Company (approximately $.03 reduction in earnings per common share
after taxes).
IMPORTANT CURRENT ACTIVITIES
CURRENT REGULATORY PROCEEDINGS AND REORGANIZATION - As reported in the 2001
Form 10-K, on February 14, 2002, the Company presented to the Maine Public
Utilities Commission (MPUC) a proposed resolution of the ongoing Alternative
Rate Plan (ARP) proceeding that called for a multi-year freeze in the
distribution portion of the Company's rates. The ARP proceeding, as well as
proposed proceedings to implement a general increase in the Company's
distribution rates and to initiate a management investigation of the Company,
were suspended to provide the Company and interested parties additional time
to negotiate a potential settlement of these interrelated proceedings. Such
negotiations have been ongoing, and on April 25, 2002, the Company and other
parties to the proceeding executed a stipulation to present to the MPUC a
single comprehensive ARP applying to the Company's MPUC jurisdictional
distribution revenue requirement and rates. Approval of the ARP by the MPUC
would also include the dismissal of the pending management investigation of
the Company.
The terms of the stipulation include a rate plan to be in effect
through December 31, 2007, with the Company's core distribution rates being
adjusted downward on July 1 of each year from 2003 to 2007, at annual rates
ranging from 2% to 2 3/4%. The Company would also be allowed rate
adjustments associated with certain specified categories of costs. The
stipulation also includes a mechanism whereby distribution returns on equity
outside of a certain range would be shared evenly between the Company and
ratepayers. The Company would also be required to meeting certain customer
service quality standards during the term of the ARP, and rate reduction
penalties would result from not meeting the various performance measures as
set forth in the stipulation. Finally, the stipulation would provide the
Company with an accounting order allowing for the deferral of employee
transition costs during 2002 and 2003 in connection with reductions in cost
of operations and maintenance (O&M), which are discussed below. The deferred
costs would be amortized over a ten year period. The Company cannot predict
whether additional modifications will be made to the stipulation or whether
MPUC approval of the stipulation will be granted.
Successful implementation of the ARP necessitates a significant
decrease in the Company's operating costs. Accordingly, the Company has
announced its plans to reduce its O&M costs by approximately 20% and to
transform a further 20% of its fixed costs into variable costs in order to
adapt to future and yet unknown changes to the Company's business
environment. As part of this process, the Company has implemented an Early
Retirement Plan that will conclude on April 30, 2002. The Company will also
be implementing an employee severance program that is intended to conclude by
June 1, 2002.
In February 2002, the MPUC issued an Order in connection with changes
in the Company's stranded cost related electric rates. As a result of the
Order, and to recover the stranded costs created as a result of the
restructuring of the electric utility industry in the State of Maine, the
Company's stranded cost rates were increased effective March 1, 2002. The
stranded cost rate increase resulted in the Company's total electric rates
increasing by approximately 6.5%. The stranded cost rates are set for a
period not to exceed three years, although the Company has the right to seek
adjustments to these rates if certain economic situations occur.
Also effective March 1, 2002, the Company is no longer responsible
for being the standard-offer service provider. The Company, though, still
has a standard-offer related power supply commitment with a third party
through February 2004 amounting to approximately $54 million. The power
delivered under this contract is being resold to one of the new standard-
offer service providers, with estimated revenues to be realized of
approximately $40 million. The difference between the cost of the power and
the resale revenues are being recovered in the Company's stranded cost rates
starting March 1, 2002. As a result of the Company no longer being the
standard-offer provider effective in March 2002, and the previously discussed
power contract obligation, there is an impact on the comparability of
revenues and expenses for the first quarter of 2002 in relation to the first
quarter of 2001.
REVENUES
With the implementation of competition in the electric utility
industry starting March 1, 2000, and excluding the standard-offer service,
the Company is no longer selling electricity to customers. The Company's
transmission and distribution (T&D) and stranded cost charges to customers,
though, continue to be based on customers' electricity usage measured in
kilowatt-hours (kWh). Consequently, discussion related to electric operating
revenues will continue to have a kWh sales, or hereafter referred to as
energy sales component.
Electric operating revenue increased by $1.7 million in the first
quarter of 2002 as compared to the first quarter of 2001. The increase was
due to several factors. Off-system sales, which are sales related to power
pool and inter-connection agreements and resales of purchased power, were
approximately $2.1 million greater in the first quarter of 2002 in relation
to the comparable 2001 quarter. The increase is due principally to the
previously discussed resale of power associated with the former standard-
offer power supply contract.
Also positively impacting electric operating revenues in the first
quarter of 2002 was the effect of a special rate contract with a large
industrial customer. Effective July 1, 2001, the Company entered into a
special rate contract with a large industrial customer to provide fully
bundled electric service (both T&D and energy) to this customer. Formerly,
the Company was only providing T&D service to this customer. The Company has
entered into a power purchase contract to procure the power necessary to
serve this customer under this contact. Principally as a result of the new
contract, the Company recognized approximately $711,000 in greater electric
operating revenues associated with this customer in the first quarter of 2002
as compared to the 2001 quarter.
Offsetting these revenue increases to some extent in the first
quarter of 2002 was a $1.1 reduction in energy sales related electric
operating revenues (excluding large special rate contract customers). Energy
sales were 3% lower in the first quarter of 2002 as compared to the first
quarter of 2001, due to the warmer winter weather and the weakened economy.
This reduction in energy sales was offset to some extent by the previously
discussed stranded cost rate increase effective March 1, 2002.
The $9.8 million decrease in standard-offer service revenues in the
first quarter of 2002 is due principally to the Company no longer being the
standard-offer provider effective March 1, 2002, as well as the impact, prior
to March 1, 2002, of reduced energy sales resulting from larger customers
choosing competitive energy providers for the purchase of their electricity.
EXPENSES
Fuel for generation and purchased power expense, excluding the cost
of standard-offer service purchased power, increased $3.5 million in the
first quarter of 2002 as compared to 2001. The largest item affecting the
increased expense was approximately $2.7 million of costs in March 2002
associated with the previously discussed former standard-offer power contract
obligation. Also impacting this increase was the previously discussed new
special rate contract with a large industrial customer. In the first quarter
of 2002, the Company incurred approximately $897,000 of purchased power
expense associated with serving the customer.
Standard-offer purchased power expense decreased by approximately
$9.6 million in the first quarter of 2002 relative to the first quarter of
2001. The decrease was due principally to the Company no longer being the
standard offer service provider on March 1, 2002.
Other O&M expense increased by approximately $1.4 million in the
first quarter of 2002 in comparison to the first quarter of 2001. As
previously discussed the two largest items impacting the increased other O&M
expense in the first quarter of 2002 are the approximately $800,000 in
incremental service restoration costs associated with the major snow storm in
January 2002, as well as the approximately $370,000 increased pension and
other postretirement benefits expense in the first quarter of 2002 relative
to the comparable 2001 quarter. The increased pension and other
postretirement benefits expense is attributable to decreases in the discount
rate used to actuarially compute the expense as well as reduced returns on
plan assets as a result of poorer stock market performance.
Regulatory amortizations represent current amortizations allowed in
the Company's distribution and stranded cost rates as allowed by the MPUC in
prior rate orders. These include the amortization of purchased power
contract buyouts/restructurings, Seabrook investment, deferred asset sale
gain, and other regulatory amortizations. Effective March 1, 2002, in
connection with the implementation of new stranded cost electric rates, the
Company began amortizing stranded cost related regulatory assets and
liabilities that had been previously deferred on the Company's balance sheet.
Also, certain existing stranded cost related amortizations were modified
effective March 1, 2002 in connection with the stranded cost rate change.
The following summarizes the components of the regulatory amortizations for
the first quarter of 2002 as compared to the first quarter of 2001 (in
000's):
2002 2001
---- ----
Contract buyouts and restructurings $5,411 $5,639
Seabrook investment 425 425
Deferred asset sale gain (2,042) (1,704)
Other stranded cost related
regulatory assets and liabilities (434) 96
Distribution related regulatory
assets and liabilities 289 289
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Total Regulatory Amortizations $3,649 $4,747
======= =======
The decrease in total federal and state income taxes was principally
a function of lower earnings in the first quarter of 2002 as compared to the
2001 quarter. See Footnote 2 to the Consolidated Financial Statements for a
reconciliation of the Company's effective income tax rate.
OTHER INCOME AND (DEDUCTIONS) AND INTEREST EXPENS
Allowance for funds used during construction, which includes carrying
costs on certain regulatory assets and liabilities, decreased by $98,000 in
first quarter of 2002 relative to 2001. The Company recorded approximately
$163,000 of decreased carrying costs on deferred standard-offer service costs
in the first quarter of 2002 as compared to the 2001 quarter. This was
offset to some extent by approximately $41,000 of carrying costs being
recorded on regulatory assets associated with the exercise of PERC common
stock warrants.
Other income, net of income taxes decreased by $310,000 in the first
quarter of 2002 principally as a result of the previously discussed $384,000
expense associated with a contractual arrangement associated with a retiring
officer of the Company.
Long-term debt interest expense decreased $209,000 in the first
quarter of 2002 relative to 2001 due primarily to a $15.1 million principal
payment on the Company's Finance Authority of Maine (FAME) Revenue Notes at
the end of June 2001 and monthly principal payments on the $24.8 million
medium term notes from April 2001 through March 2002 amounting to
approximately $6.6 million. These decreases were offset to some extent by
additional interest expense in the 2002 quarter resulting from the issuance
of a $13.7 million note in October 2001 with the Municipal Review Committee
in connection with the exercise of common stock warrants.
Other interest expense increased $22,000 due principally to
borrowings under the Company's revolving credit facility in the first quarter
of 2002. Weighted average borrowings outstanding were approximately $5.9
million for the quarter ending March 31, 2002. The Company had no outstanding
borrowings in the first quarter of 2001. This was offset to some extent by a
reduction in the amortization of debt issuance costs in the first quarter of
2002. The amortization decrease was primarily attributable to the end of the
amortization period of certain deferred debt issuance costs in June 2001.
LIQUIDITY AND CAPITAL RESOURCES
The Consolidated Statements of Cash Flows reflect events in the first
quarters of 2002 and 2001 as they affect the Company's liquidity. Net
increase in cash from operating activities was $9.5 million in the first
quarter of 2002 as compared to $11.4 million in the 2001 quarter. Reduced
cash flows from operations in the 2002 quarter were impacted by a $3.7
million increase in income tax payments in the first quarter of 2002 relative
to 2001. Operating cash flows are also impacted in each quarter by the
standard-offer service. In the 2002 quarter, the Company's standard-offer
service costs exceeded revenues by approximately $2.2 million, while in the
2001 quarter, revenues exceeded associated costs by approximately $1.8
million. Changes in accounts receivable and accounts payable in the
statement of cash flows are also greatly impacted by the standard-offer
related revenues and purchased power obligations.
The largest single item reducing operating cash flows in the 2001
quarter was $7.1 million in payments made in connection with the exercise of
the Company's common stock warrants.
Construction expenditures were approximately $159,000 lower in the
2002 quarter as compared to 2001 due to reductions in the Company's capital
budget.
The Company made no common dividend payments to its parent company,
Emera, in the first quarter, while in the 2001 quarter, which preceded the
Emera acquisition, common dividends of $.20 per share were paid.
The increase in payments on long-term debt is due principally to the
higher monthly principal payments on the $24.8 million medium term notes in
the 2002 quarter as compared to 2001.
The Company had maintained full borrowing capacity under its
revolving credit facility from the second quarter of 1999 through June 2001,
but it became necessary to renew borrowings under the revolving line in June
2001 to fund the required FAME debt payment of $15.1 million. The Company's
utilization of the line of credit was also impacted by the approximately $3.8
million in incremental merger costs in 2001 and the cash payments to common
stock warrant holders in 2001 amounting to approximately $14.2 million. The
Company's borrowings under this arrangement amounted to $4 million at March
31, 2002. On June 29, 2001, the Company extended the revolving credit
agreement until October 1 and then until March 31, 2002, and the agreement
has since been further extended until June 30, 2003 with some modifications.
The facility has been increased to $60 million to accommodate debt
retirements that will occur later in 2002 and act as a bridge financing until
permanent financing is put in place. The terms are similar to the prior
amendment, with the major differences being the addition of another pricing
level to recognize the Company's improved credit and modifications to some
the financial covenants. Also, the Company extended until June 1, 2003 the
promissory note that was entered into in 2001. This note allows the Company
to borrow up to an additional $10 million. This unsecured facility is used
by the Company to manage working capital needs, and the interest rate setting
mechanism and other major terms of the note are similar to terms in the
revolving credit agreement.
ENVIRONMENTAL MATTERS
The Company is regulated by the United States Environmental
Protection Agency (EPA) as to compliance with the Federal Water Pollution
Control Act, the Clean Air Act, and several federal statutes governing the
treatment and disposal of hazardous wastes. The Company is also regulated by
the Maine Department of Environmental Protection (DEP) under various Maine
environmental statutes. The Company is actively engaged in complying with
these federal and state acts and statutes, and it has not, to date,
encountered material difficulties in connection with such compliance.
In 1992, the Company received notice from the DEP that it was
investigating the cleanup of several sites in Maine that were used in the
past for the disposal of waste oil and other hazardous substances, and that
the Company, as a generator of waste oil that was disposed at those sites,
may be liable for certain cleanup costs. The Company learned in October 1995
that the EPA placed one of those sites on the National Priorities List under
the Comprehensive Environmental Response, Compensation and Liability Act and
would pursue potentially responsible parties. With respect to this site, the
Company is one of a number of waste generators under investigation.
The Company has recorded a liability, based on currently available
information, for what it believes are the estimated environmental remediation
costs that the Company expects to incur for this waste disposal site.
Additional future environmental cleanup costs are not reasonably estimable
due to a number of factors, including the unknown magnitude of possible
contamination, the appropriate remediation methods, and possible effects of
future legislation or regulation and the possible effects of technological
changes. At March 31, 2002, the liability recorded by the Company for its
estimated environmental remediation costs amounted to $429,000. The
Company's actual future environmental remediation costs may change as
additional factors become known.
The Company estimates that during 2002 it will incur approximately
$243,000 in operations expense to comply with environmental standards for
air, water and hazardous materials. This amount may change based on facts
and circumstances that occur in 2002.
DISCLOSURES ABOUT MARKET RISK
The Company's major financial market risk exposure is changing interest
rates. Changes in interest rates will affect interest paid on variable rate
debt and the fair value of fixed rate debt. The Company manages interest
rate risk through a combination of both fixed and variable rate debt
instruments and an interest rate swap, which is associated with the Company's
medium term notes (See Note 13 to the 2001 Form 10-K). As of March 31, 2002,
the Company had $3.6 million of medium term notes outstanding which bear
floating, LIBOR-based rates (1.88% LIBO rate at March 31, 2002). The
interest rate swap fixes the interest rate on the medium term notes at 5.72%
for the full notional amount of the debt. See Note 5 to the 2001 Form 10-K
for a discussion of these medium term notes.
OTHER
Management's discussion and analysis of results of operations and
financial condition contains items that are "forward-looking" as defined in
the Private Securities Litigation Reform Act of 1995. These statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those anticipated in the forward-looking statements.
Readers should not place undue reliance on forward-looking statements, which
reflect management's view only as of the date hereof. The Company undertakes
no obligation to publicly revise these forward-looking statements to reflect
subsequent events or circumstances. Factors that might cause such differences
include, but are not limited to, the Company's reorganization, future
economic conditions, relationships with lenders, developments in the
legislative, regulatory and competitive environments in which the Company
operates and other circumstances that could affect revenues and costs.
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
000,s Omitted
(Unaudited)
Mar. 31, Dec. 31,
Assets 2002 2001
----------- -----------
Investment In Utility Plant:
Electric plant in service, at original cost $ 328,414 $ 328,560
Less - Accumulated depreciation and amortization 92,339 93,985
------------ ------------
$ 236,075 $ 234,575
Construction work in progress 6,501 7,308
------------ ------------
$ 242,576 $ 241,883
Investments in corporate joint ventures:
Maine Yankee Atomic Power Company $ 4,497 $ 4,422
Maine Electric Power Company, Inc. 925 853
------------ ------------
$ 247,998 $ 247,158
------------ ------------
Other Investments, at cost $ 3,561 $ 3,498
------------ ------------
Funds held by trustee, at cost $ 23,039 $ 22,695
------------ ------------
Current Assets:
Cash and cash equivalents $ 1,043 $ 885
Accounts receivable, net of reserve
of $704 for 2002 and $761 for 2001 20,546 19,269
Unbilled revenue receivable 7,150 15,380
Inventories, at average cost:
Material and supplies 2,452 2,532
Fuel oil 59 53
Prepaid expenses 341 671
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Total current assets $ 31,591 $ 38,790
------------ ------------
Regulatory Assets and Deferred Charges:
Goodwill-EMERA Acquisition $ 82,537 $ 82,537
Investment in Seabrook nuclear project 23,147 23,572
Costs to terminate/restructure purchased
power contracts 87,039 92,057
Maine Yankee decommissioning costs 33,597 37,307
Above-market purchased power contract obligations 69,137 73,954
Other regulatory assets 51,795 52,657
Other deferred charges 4,388 4,020
------------ ------------
Total regulatory assets and deferred charges $ 351,640 $ 366,104
------------ ------------
Total Assets $ 657,829 $ 678,245
============ ============
See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
000,s Omitted
(Unaudited)
Mar. 31, Dec. 31,
2002 2001
Stockholders' Investment and Liabilities ----------- -----------
Capitalization:
Common stock investment $ 208,546 $ 205,557
Preferred stock 4,734 4,734
Long-term debt, net of current portion 131,574 131,968
------------ ------------
Total capitalization $ 344,854 $ 342,259
------------ ------------
Current Liabilities:
Notes payable - banks $ 4,000 $ 8,000
------------ ------------
Other current liabilities -
Current portion of long-term debt $ 41,559 $ 43,246
Accounts payable 18,254 22,492
Dividends payable 66 66
Accrued interest 3,499 2,663
Customers' deposits 578 573
Current income taxes payable 417 1,917
------------ ------------
Total other current liabilities $ 64,373 $ 70,957
------------ ------------
Total current liabilities $ 68,373 $ 78,957
------------ ------------
Regulatory and Other Long-term Liabilities:
Deferred income taxes - Seabrook $ 12,002 $ 12,224
Other accumulated deferred income taxes 47,156 47,405
Maine Yankee decommissioning liability 33,597 37,307
Deferred gain on asset sale 12,528 14,574
Above-market purchased power contract obligations 69,137 73,954
Other regulatory liabilities 16,972 18,962
Unamortized investment tax credits 1,280 1,312
Accrued pension and postretirement benefit costs 40,238 39,655
Other long-term liabilities 11,692 11,636
------------ ------------
Total regulatory and other long-term liabilities $ 244,602 $ 257,029
------------ ------------
Total Stockholders' Investment and Liabilities $ 657,829 $ 678,245
============ ============
See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
000's Omitted
(Unaudited)
Mar. 31, Dec. 31,
2002 2001
---------- ----------
Common Stock Investment
Common stock, par value $5 per share $ 36,817 $ 36,817
-Authorized--10,000,000 shares
-Outstanding--7,363,424 shares
Amounts paid in excess of par value 165,352 165,352
Accumulated other comprehensive loss (20) (47)
Retained earnings 6,397 3,435
------------ -----------
Total common stock investment $ 208,546 $ 205,557
------------ ------------
Preferred Stock
Non-participating, cumulative, par value $100 per share,
authorized 600,000 shares, not redeemable or
redeemable solely at the option of the issuer-
7%, Noncallable, 25,000 shares
authorized and outstanding $ 2,500 $ 2,500
4.25%, Callable at $100, 4,840 shares
authorized and outstanding 484 484
4%, Series A, Callable at $110, 17,500 shares
authorized and outstanding 1,750 1,750
------------ ------------
$ 4,734 $ 4,734
------------ ------------
Long-Term Debt
First Mortgage Bonds-
10.25% Series due 2020 $ 30,000 $ 30,000
8.98% Series due 2022 20,000 20,000
7.38% Series due 2002 20,000 20,000
7.30% Series due 2003 15,000 15,000
------------ ------------
$ 85,000 $ 85,000
------------ ------------
Other Long-Term Debt-
Finance Authority of Maine - Taxable Electric Rate
Stabilization Revenue Notes,
7.03% Series 1995A, due 2005 $ 71,500 $ 71,500
Medium Term Notes, Variable interest rate-
LIBO rate plus 1.125%, due 2002 3,585 5,460
Municipal Review Committee Note, 5%, due 2008 13,029 13,235
Other Miscellaneous Notes Payable, 3.90%, due 2003 19 19
------------ ------------
$ 88,133 $ 90,214
Less: Current portion of long-term debt 41,559 43,246
------------ ------------
$ 46,574 $ 46,968
------------ ------------
Total Long-Term Debt $ 131,574 $ 131,968
------------ ------------
Total Capitalization $ 344,854 $ 342,259
============ ============
See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
000,s Omitted
(Unaudited)
Three Months Ended
Mar. 31, Mar. 31,
2002 2001
------------------------
Cash Flows From Operating Activities:
Net income $ 3,028 $ 4,584
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 2,676 2,698
Amortization of Seabrook nuclear project 425 425
Amortization of contract buyouts and
restructuring 5,411 5,639
Amortization of deferred asset sale gain (2,042) (1,704)
Other amortizations 281 409
Allowance for equity funds used
during construction (114) (166)
Deferred income tax provision and amortization of
investment tax credits (46) (1,909)
Changes in assets and liabilities:
Costs to restructure purchased power contract (250) (250)
Deferred standard-offer service costs (2,176) 1,845
Deferred special rate contract revenues (613) (430)
Exercise of PERC warrants-cash paid
in lieu of issuing shares - (7,114)
Accounts receivable, net and unbilled revenue 6,953 2,174
Accounts payable (4,238) (1,330)
Accrued interest 836 1,114
Current income taxes (1,500) 4,587
Accrued postretirement benefit costs 769 359
Other current assets and liabilities, net 409 489
Other, net (271) (69)
------------------------
Net Increase in Cash From Operating Activities: $ 9,538 $ 11,351
------------------------
Cash Flows From Investing Activities:
Construction expenditures $ (3,124)$ (3,283)
Allowance for borrowed funds used during construction (109) (155)
------------------------
Net Decrease in Cash From Investing Activities $ (3,233)$ (3,438)
------------------------
Cash Flows From Financing Activities:
Dividends on preferred stock $ (66)$ (66)
Dividends on common stock - (1,473)
Payments on long-term debt (2,081) (1,500)
Short-term debt, net (4,000) 0
------------------------
Net Decrease in Cash From Financing Activities $ (6,147)$ (3,039)
------------------------
Net Increase in Cash and Cash Equivalents $ 158 $ 4,874
Cash and Cash Equivalents at Beginning of Period 885 12,463
------------------------
Cash and Cash Equivalents at End of Period $ 1,043 $ 17,337
========================
Cash Paid During the Period for:
Interest (Net of Amount Capitalized) $ 2,411 $ 2,187
Income Taxes 4,100 367
========================
See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCK INVESTMENT
000,S Omitted
(Unaudited)
Accum.
Amounts Other Total
Paid in Compre- Common
Common Excess of Retained hensive Stock
Stock Par Value Earnings Loss Investment
----------------------------------------------- --------------
Balance December 31, 2000 $ 36,817 $ 58,643 $ 41,960 $ - $ 137,420
Net income - - 4,584 - 4,584
Other comprehensive loss
net of taxes:
Unrealized loss on interest
rate swap - - - (55) (55)
--------------
Total comprehensive income 4,529
--------------
Cash dividends declared on-
Preferred stock - - (66) - (66)
Common stock - - (1,472) - (1,472)
Exercise of warrants-cash paid
in lieu of issuing shares - (3,074) - - (3,074)
----------------------------------------------- --------------
Balance March 31, 2001 $ 36,817 $ 55,569 $ 45,006 $ (55) $ 137,337
=============================================== ==============
Balance December 31, 2001 $ 36,817 $ 165,352 $ 3,435 $ (47)$ 205,557
Net income - - 3,028 - 3,028
Other comprehensive loss
net of taxes:
Unrealized gain on interest
rate swap - - - 27 27
--------------
Total comprehensive income 3,055
--------------
Cash dividends declared on-
Preferred stock - - (66) - (66)
Common stock - - - - -
----------- ----------- ----------- ------------ -------------
Balance March 31, 2002 $ 36,817 $ 165,352 $ 6,397 $ (20) $ 208,546
=========== =========== =========== ============ =============
See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002
-------------
(Unaudited)
(1) BASIS OF PRESENTATION AND ACCOUNTING POLICIES:
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted
accounting principles, have been condensed or omitted in this Form 10-Q
pursuant to the Rules and Regulations of the Securities and Exchange
Commission. However, in the opinion of Bangor Hydro-Electric Company
(the Company), the disclosures contained in this Form 10-Q are adequate
to make the information presented not misleading. The year end
condensed balance sheet data was derived from audited consolidated
financial statements but does not include all disclosures required by
generally accepted accounting principles. These statements should be
read in conjunction with the consolidated financial statements,
footnotes and all other information included in the 2001 Form 10-K.
In the opinion of the Company, the accompanying unaudited
consolidated financial statements reflect all adjustments, including
normal recurring accruals, necessary to present fairly the financial
position as of March 31, 2002 and the results of operations and cash
flows for the periods ended March 31, 2002 and 2001.
The Company's significant accounting policies are described in the
Notes to the Consolidated Financial Statements included in its 2001
Form 10-K filed with the Securities and Exchange Commission. For
interim reporting purposes, the Company follows these same basic
accounting policies but considers each interim period as an integral
part of an annual period. Accordingly, certain expenses are allocated
to interim periods based upon estimates of such expenses for the year.
(2) INCOME TAXES:
The following table reconciles a provision calculated by
multiplying income before federal income taxes by the statutory federal
income tax rate to the federal income tax provision:
Three Months Ended March 31,
2002 2001
Amount % Amount %
(Dollars in Thousands)
Federal income tax provision
at statutory rate $1,743 35.0 $2,693 35.0
Plus permanent reductions
in tax expense resulting
from statutory exclusions
from taxable income 42 .8 8 .1
------ ---- ------ ----
Federal income tax provision before
effect of temporary differences
and investment tax credits $1,785 35.8 $2,701 35.1
Less temporary differences that
are flowed through for rate-
making and accounting purposes (188) (3.8) (226) (3.0)
Less utilization and amortization
of investment tax credits (32) (.6) (35) (.4)
------ ---- ------ ----
Federal income tax provision $1,565 31.4 $2,440 31.7
====== ==== ====== ====
(3) INVESTMENT IN JOINTLY OWNED FACILITIES:
Condensed financial information for Maine Yankee Atomic Power
Company (Maine Yankee)and Maine Electric Power Company, Inc. (MEPCO) is
as follows:
MAINE YANKEE MEPCO
(Dollars in Thousands - Unaudited)
Operations for Three Months Ended
--------------------------------------
Mar. 31, Mar. 31, Mar. 31, Mar. 31,
2002 2001 2002 2001
OPERATIONS: -------- -------- -------- --------
As reported by investee-
Operating revenues $ 15,045 $ 16,311 $ 1,079 $ 1,266
======== ======== ======== ========
Earnings applicable to
common stock $ 1,011 $ 1,138 $ 426 $ 407
======== ======== ======== ========
Company's reported equity-
Equity in net income $ 71 $ 80 $ 71 $ 58
Add(Deduct)-Effect of
adjusting Company's
estimate to actual 4 - (17) 47
-------- -------- -------- --------
Amounts reported by Company $ 75 $ 80 $ 54 $ 105
======== ======== ======== ========
MAINE YANKEE MEPCO
(Dollars in Thousands - Unaudited)
Financial Position at
----------------------------------------
Mar. 31, Dec. 31, Mar. 31, Dec. 31,
2002 2001 2002 2001
FINANCIAL POSITION: --------- --------- --------- --------
As reported by investee-
Total assets $ 750,335 $ 802,118 $ 7,325 $ 6,870
Less-
Long-term debt 28,800 31,200 - -
Other liabilities and
deferred credits 659,246 707,643 823 770
---------- ---------- -------- --------
Net assets $ 62,289 $ 63,275 $ 6,502 $ 6,100
========== ========== ======== ========
Company's reported equity-
Equity in net assets $ 4,360 $ 4,429 $ 923 $ 866
Add (deduct) effect of
adjusting Company's
estimate to actual 137 (7) 2 (12)
---------- ---------- -------- --------
Amounts reported by Co. $ 4,497 $ 4,422 $ 925 $ 854
========== ========== ======== ========
(4) EARNINGS PER SHARE:
The following table reconciles basic and diluted earnings per
common share assuming all outstanding stock warrants were converted to
common shares, for the quarter ending March 31, 2001 only.
(Amounts in 000's, except per share data)
For the Quarters
Ended
--------------------
Mar. 31, Mar. 31,
2002 2001
-------- ---------
Earnings
applicable to
common stock $ 2,962 $ 4,518
-------- --------
Average common
shares outstanding 7,363 7,363
Plus: incremental
shares from assumed
conversion - 923
-------- --------
Average common shares
outstanding plus
assumed warrants
converted 7,363 8,286
-------- --------
Basic earnings
per common share $ .40 $ .61
======== =======
Diluted earnings
per common share $ .40 $ .55
======== =======
(5) NEW ACCOUNTING PRONOUNCEMENT:
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets", effective for years beginning after December 15,
2001. Statement 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets and supersedes APB
Opinion No. 17, "Intangible Assets". Goodwill will no longer be
amortized, but it will be reviewed at least annually for impairment.
Statement 142 specifies that at the time of adoption an impairment
review should be performed. If an impairment of the existing goodwill is
determined, any charge would be recorded as a cumulative effect of a
change in accounting principle. Subsequent impairment charges would be
presented within operating results. In 2001, the Company adopted the
non-amortization provision for goodwill associated with its acquisition
by Emera, Inc (Emera). The Company adopted the remaining provisions of
Statement 142 effective January 1, 2002. The Company will complete its
initial impairment review by the end of the second quarter of 2002.
There is no pro forma effect of Statement 142, assuming the Company
had adopted this standard as of January 1, 2001, since the goodwill
associated with the Emera acquisition has not been amortized.
(6) RECLASSIFICATIONS:
Certain 2001 amounts have been reclassified to conform with the
presentation used in Form 10-Q for the quarter ended March 31, 2002.
(7) SUBSEQUENT EVENT - REORGANIZATION:
As reported in the 2001 Form 10-K, on February 14, 2002, the
Company presented to the Maine Public Utilities Commission a proposed
resolution of the ongoing Alternative Rate Plan proceeding that called
for a multi-year freeze in the distribution portion of the Company's
rates. The ARP proceeding, as well as proposed proceedings to implement
a general increase in the Company's distribution rates and to initiate a
management investigation of the Company, were suspended to provide the
Company and interested parties additional time to negotiate a potential
settlement of these interrelated proceedings. Such negotiations have
been ongoing, and on April 25, 2002, the Company and other parties to
the proceeding executed a stipulation to present to the MPUC a single
comprehensive ARP applying to the Company's MPUC jurisdictional
distribution revenue requirement and rates. Approval of the ARP by the
MPUC would also include the dismissal of the pending management
investigation of the Company.
The terms of the stipulation include a rate plan to be in effect
through December 31, 2007, with the Company's core distribution rates
being adjusted downward on July 1 of each year from 2003 to 2007, at
annual rates ranging from 2% to 2 3/4%. The Company would also be
allowed rate adjustments associated with certain specified categories of
costs. The stipulation also includes a mechanism whereby distribution
returns on equity outside of a certain range would be shared evenly
between the Company and ratepayers. The Company would also be required
to meeting certain customer service quality standards during the term of
the ARP, and rate reduction penalties would result from not meeting the
various performance measures as set forth in the stipulation. Finally,
the stipulation would provide the Company with an accounting order
allowing for the deferral of employee transition costs during 2002 and
2003 in connection with reductions in cost of operations and maintenance
(O&M), which are discussed below. The deferred costs would be amortized
over a ten year period. The Company cannot predict whether additional
modifications will be made to the stipulation or whether MPUC approval
of the stipulation will be granted.
Successful implementation of the ARP necessitates a significant
decrease in the Company's operating costs. Accordingly, the Company has
announced its plans to reduce its O&M costs by approximately 20% and to
transform a further 20% of its fixed costs into variable costs in order
to adapt to future and yet unknown changes to the Company's business
environment. As part of this process, the Company has implemented an
Early Retirement Plan that will conclude on April 30, 2002. The Company
will also be implementing an employee severance program that is intended
to conclude by June 1, 2002.
BANGOR HYDRO-ELECTRIC COMPANY
FORM 10-Q FOR PERIOD ENDING MARCH 31, 2002
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS: None.
REPORTS ON FORM 8-K:
One Current Report on Form 8-K was filed regarding the Company's change
in Accountants effective November 21, 2001.
BANGOR HYDRO-ELECTRIC COMPANY
FORM 10-Q FOR PERIOD ENDED MARCH 31, 2002
The information furnished in this report reflects all adjustments which
are, in the opinion of management, necessary to a fair statement of the
results for the interim period.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BANGOR HYDRO-ELECTRIC COMPANY
(Registrant)
Dated: May 6, 2002 /s/ David R. Black
--------------------
David R. Black
Manager - Finance & Accounting
(Chief Accounting Officer)