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, 1998 Commission File No. 0-505
-------------- -----
BANGOR HYDRO-ELECTRIC COMPANY
----------------------------------------------------
(Exact Name of Registrant as specified in its Charter
MAINE 01-0024370
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
33 STATE STREET, BANGOR, MAINE 04401
- ---------------------------------------- ----------
(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
Outstanding Common Stock, $5 Par Value - 7,363,424 Shares
March 31, 1998
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, 1998
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, 1998 and
December 31, 1997 13
Consolidated Statements of Capitalization 15
Consolidated Statements of Cash Flows 16
Consolidated Statements of Common Stock Investment 17
Notes to the Consolidated Financial Statements 18
PART II - OTHER INFORMATION 25
Item 6 - Exhibits and Reports on Form 8-K 26
Signature Page 27
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
000's Omitted Except Per Share Amounts
(UNAUDITED)
Three Months Ended
Mar. 31, Mar. 31,
1998 1997
---------- ----------
ELECTRIC OPERATING REVENUES $ 49,100 $ 48,176
---------- ----------
OPERATING EXPENSES:
Fuel for generation and purchased power $ 21,359 $ 24,282
Other operation and maintenance 8,310 7,762
Depreciation and amortization 2,614 2,752
Amortization of Seabrook Nuclear Unit 425 425
Amortization of contract buyouts 5,091 5,228
Taxes -
Property and payroll 1,535 1,412
State income 228 (280)
Federal income 1,128 (62)
---------- ----------
$ 40,690 $ 41,519
---------- ----------
OPERATING INCOME $ 8,410 $ 6,657
---------- ----------
OTHER INCOME AND (DEDUCTIONS):
Allowance for equity funds used
during construction $ 69 $ 95
Other, net of applicable income taxes 197 297
---------- ----------
$ 266 $ 392
---------- ----------
INCOME BEFORE INTEREST EXPENSE $ 8,676 $ 7,049
---------- ----------
INTEREST EXPENSE:
Long-term debt $ 5,475 $ 5,755
Other 922 766
Allowance for borrowed funds used
during construction (129) (188)
---------- ----------
$ 6,268 $ 6,333
---------- ----------
NET INCOME $ 2,408 $ 716
DIVIDENDS ON PREFERRED STOCK 312 344
---------- ----------
EARNINGS APPLICABLE TO COMMON STOCK $ 2,096 $ 372
========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES 7,363 7,363
========== ==========
BASIC AND DILUTED EARNINGS PER COMMON SHARE,
based on the weighted average number of
shares outstanding during the period $ .28 $ .05
========== ==========
DIVIDENDS DECLARED PER COMMON SHARE $ - $ -
========== ==========
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, 1997 (1997 Form 10-K) should be read in conjunction with the
comments below.
EARNINGS
- --------
The quarter ended March 31, 1998 resulted in earnings of $.28
per common share, compared to earnings of $.05 per common share for the
quarter ended March 31, 1997. The improvement in first quarter earnings is
attributable largely to the February 9, 1998 rate increase authorized by the
Maine Public Utilities Commission (MPUC) designed to increase annual revenues
by approximately $13.2 million. That amount included the amount authorized
in a temporary rate increase that became effective on July 1, 1997. Earnings
were negatively impacted in the first quarter of 1998 by a decrease in energy
sales, as a result of service interruptions during a major ice storm in
January 1998 (see discussion below), and significantly warmer weather.
Earnings for the first quarter of 1997 were positively
affected by three transactions that were nonrecurring in nature. The Company
recorded $335,000 in revenues from the sale of air emission allowances to a
coal fired generating facility, and $350,000 in revenue was recognized under
a shared savings distribution agreement with another utility. Also, the
Company recorded a $204,000 state income tax benefit as the result of an
Internal Revenue Service examination of the Company's 1994 federal income tax
return.
IMPORTANT CURRENT ACTIVITIES-
- ----------------------------
MONETIZATION OF POWER SALE CONTRACT - As reported in the 1997 Form 10-K, the
Company had been negotiating a transaction for the monetization of a power
sale contract with UNITIL Power Corp. (UNITIL), a New Hampshire based
electric utility. The Company currently provides power to UNITIL at
significantly above-market rates, with the contract term ending in the year
2003. Based upon current projections of wholesale electricity markets, it is
expected that the rates charged under the UNITIL contract will remain at
above-market levels for the remainder of the contract term. Therefore, the
assignment of the Company's rights under the contract has a positive present
cash value. On March 31, 1998, the Company completed a transaction with a
financial institution that provided a loan of approximately $23 million in
net proceeds secured by the value of the UNITIL contract.
Also as previously reported, beginning in early 1997, the
Company failed to comply with certain finanical covenants under its bank
lending agreements and received temporary waivers from the lending banks. By
using a portion of the proceeds of the UNITIL monetization to pay down a
portion of the bank obligations, the Company was able to negotiate permanent
waivers of the earlier financial covenant violations and to establish new
financial covenant levels for the future that it believes to be reasonably
achievable.
At the time the Company filed its 1997 Form 10-K, the
monetization of the UNITIL contract had not been completed and the financial
covenant violations had, therefore, not been waived permanently. As
discussed in that Report, all debt under the bank credit facilities,
including certain medium term notes, was classified as a current liability on
the Company's Consolidated Balance Sheet as of December 31, 1997. As a
result of the permanent waivers that became effective upon completion of the
UNITIL monetization, $22 million of medium term notes, previously classified
as a current liability, have been reclassified as a long-term liability as of
March 31, 1998.
STORM DAMAGE - As discussed in the 1997 Form 10-K, the Company suffered
widespread damage throughout its service territory to its transmission and
distribution equipment during a major ice storm in January 1998. The
Company's incremental costs associated with the service restoration effort
were approximately $3.9 million, and additional incremental costs associated
with line clearance work are expected to be incurred in the future. The $3.9
million has been recorded as a deferred cost on the Company's Consolidated
Balance Sheet as of March 31, 1998. The MPUC issued an order authorizing the
Company to defer incremental, non-capitalized storm damage expenses for
future recovery through the rates charged to customers. MPUC proceedings on
the recovery of the incremental ice storm costs have been delayed, due to the
possibility of federal funds being available to utilities for ice storm
property damage. The Company is uncertain whether any federal funds will be
received or the timing of MPUC proceedings. The Company believes its storm
damage costs were prudently incurred and it should, therefore, be allowed to
recover them in rates.
REVENUES
- --------
Electric operating revenue increased by $924,000, or 1.9% in
the first quarter of 1998 due principally to the impact of the 3.8% temporary
rate increase effective on July 1, 1997 and the 5.83% rate increase effective
February 13, 1998. These increases were offset by an overall 4.9% decrease
in total kilowatt hour (KWH) sales (excluding off-system sales) in the first
quarter of 1998 over first quarter 1997 sales. The reduction in KWH sales in
the first quarter of 1998 was due to service interruption during the ice
storm in January 1998, as well as significantly warmer weather in the 1998
quarter as compared to 1997. Positively impacting revenues in the first
quarter of 1997 were the previously discussed sale of air emission allowances
and revenue associated with the shared distribution savings with another
utility.
EXPENSES
- --------
Fuel for generation and purchased power expense decreased $2.9
million or 12% in the first quarter of 1998 as compared to 1997. The
decreased expense was a result of several factors. The largest was reduced
expense associated with the permanent shutdown of the Maine Yankee nuclear
plant in 1998 as compared to maintaining the plant in an operating mode in
the first quarter of 1997. Also, in connection with the Company's recent
rate order (See the 1997 Form 10-K for discussion of the rate order), the
Company was ordered to defer, for future recovery, the excess of actual Maine
Yankee related costs incurred during the first quarter of 1998 over the Maine
Yankee costs included in the rate order. This deferral mechanism resulted in
an approximately $822,000 reduction in expense in the first quarter of 1998.
The reduction in expense in the first quarter of 1998 was also impacted by
the previously mentioned 4.9% decrease in KWH sales and an increase in power
generation by the Company's hydroelectric facilities. Purchases from
contracts tied largely to the cost of oil decreased in 1998, and these
decreases were approximately offset by payouts under the Company's fuel
hedging program.
Other operation and maintenance (O&M) expense increased by
$548,000 in the first quarter of 1998. O&M payroll expense increased by
$614,000 due principally to service restoration and support costs associated
with the January 1998 ice storm. The Company was ordered by the MPUC to
defer incremental non-capital costs related to the ice storm, but the non-
incremental labor costs were charged principally to other O&M in the first
quarter of 1998. Principally as a result of the ice storm, there was
significantly less payroll charged to the Company's capital program in the
first quarter of 1998. Also affecting the increased O&M payroll was a 3%
union wage increase effective January 1, 1998. These increases were offset
to some extent by lower employee levels in 1998.
Depreciation and amortization expense decreased $138,000 in
the first quarter of 1998 as compared to the 1997 quarter. Effective
February 13, 1998, in connection with the Company's most recent rate order,
the Company lengthened the depreciable lives of its large information system
capital projects from seven to ten years, and began amortizing its $3.6
million overaccumulated depreciation reserve ($225,000 amortization in the
first quarter of 1998), thus causing a reduction in depreciation expense.
These decreases were offset by the impact of anticipated 1998 property
additions.
The $137,000 decrease in amortization of contract buyouts in
the 1998 quarter was also due principally to the recent rate order, whereby
the MPUC required the Company to reduce the amortization of the deferred
regulatory asset associated with the 1993 buyout of one of its high-priced
non-utility generator contracts by an annualized amount of approximately $1.1
million, effective February 13, 1998.
The increase in property and other taxes in the first quarter
of 1998 was due principally to greater payroll taxes, which were primarily a
result of increased O&M labor in the 1998 quarter.
The increase in income taxes was principally a function of
greater earnings in the first quarter of 1998 as compared to the 1997
quarter. Also reducing income tax expense in the 1997 quarter was the
previously discussed $204,000 state income tax benefit. See Footnote 2 to
the Consolidated Financial Statements for a reconciliation of the Company's
effective income tax rate.
The decrease in other income in the 1998 quarter was due
primarily to the expense of start-up costs associated with non-core business
ventures by the Company.
Allowance for funds used during construction decreased in 1998
relative to 1997 due mainly to lower levels of construction work in progress
in the 1998 quarter. This decrease was offset, to some extent, by
approximately $77,000 in carrying costs recorded on deferred incremental
Maine Yankee and deferred incremental ice storm costs in the first quarter of
1998.
Long-term debt interest expense decreased $280,000 in the
first quarter of 1998 as compared to 1997 due to $14 million in principal
repayments on the medium term notes in 1997, as well as sinking fund payments
on the Company's 12.25% first mortgage bonds.
Other interest expense, which is composed principally of
interest expense on short term borrowings, increased due to a $2.8 million
increase in weighted average short-term borrowings outstanding in the 1998
quarter as compared to 1997, as well as an increase in average short-term
interest rates in 1998.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Consolidated Statements of Cash Flows reflect events in
the first quarters of 1998 and 1997 as they affect the Company's liquidity.
Net cash provided by operations was $7.8 million in 1998 as compared to $9.1
million in the 1997 quarter. Negatively impacting cash flows from
operations in the 1998 quarter was the $3.9 million in incremental costs
incurred in connection with the January 1998 ice storm. Cash flows were also
reduced by the effect of a large customer, who prepaid its electric usage for
a one-year period in the third quarter of 1997. Offsetting these cash flow
reductions was the beneficial impact of the 3.8% temporary rate increase on
July 1, 1997 and the 5.83% rate increase effective February 13, 1998.
Due principally to costs incurred to rebuild a major
transmission line damaged in the January 1998 ice storm, construction
expenditures were $1.2 million higher in the 1998 quarter as compared to
1997.
Dividends paid on common stock were lower in 1998 due to the
suspension of the common dividend, beginning with the first quarter of 1997.
The reduction in preferred dividends paid resulted principally from a $1.5
million sinking fund payment made on the Company's 8.76% mandatory redeemable
preferred stock in December 1997.
The Company in each quarter made sinking fund payments on its
12.25% first mortgage bonds. Also in the first quarter of 1998 the Company
repaid $4 million of principal on its outstanding medium term notes and made
the final $2.5 million payment on its 6.75% first mortgage bonds. As
previously discussed, in connection with the monetization of the UNITIL
contract, the Company issued $24.8 million in medium term notes on March 31,
1998. The Company's net proceeds from this issuance were $23.3 million, due
to the requirement to deposit $1.5 million in a capital reserve fund for the
final payment of principal and interest in 2002. Of the $23.3 million of
proceeds received, the Company utilized $19 million to repay borrowings
outstanding under its revolving credit facility. The remaining funds are
intended to be utilized for the Penobscot Energy Recovery Company purchased
power contract restructuring transaction, which is more fully discussed in
the 1997 Form 10-K.
For additional discussion of liquidity and capital resources,
see the Company's 1997 Form 10-K.
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, future economic conditions, relationship
with lenders, earnings retention and dividend payout policies, electric
utility restructuring, 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 1998 1997
----------- -----------
INVESTMENT IN UTILITY PLANT:
Electric plant in service, at original cost $ 344,041 $ 341,009
Less - Accumulated depreciation and
amortization 99,191 96,595
---------- ----------
$ 244,850 $ 244,414
Construction work in progress 13,480 12,011
---------- ----------
$ 258,330 $ 256,425
Investments in corporate joint ventures:
Maine Yankee Atomic Power Company $ 5,684 $ 5,532
Maine Electric Power Company, Inc. 335 326
---------- ----------
$ 264,349 $ 262,283
---------- ----------
OTHER INVESTMENTS, principally at cost $ 5,618 $ 5,274
---------- ----------
FUNDS HELD BY TRUSTEE, at cost $ 23,041 $ 21,196
---------- ----------
CURRENT ASSETS:
Cash and cash equivalents $ 1,645 $ 937
Accounts receivable, net of reserve 16,077 16,615
Unbilled revenue receivable 11,589 11,605
Inventories, at average cost:
Material and supplies 2,860 2,759
Fuel oil 470 35
Prepaid expenses 987 1,207
Deferred Maine Yankee refueling costs 0 286
---------- ----------
Total current assets $ 33,628 $ 33,444
---------- ----------
DEFERRED CHARGES:
Investment in Seabrook Nuclear Project, net of
accumulated amortization of $28,899 in 1998
and $28,474 in 1997 $ 29,943 $ 30,368
Costs to terminate purchased power contracts,
net of accumulated amortization of $64,707
in 1998 and $59,616 in 1997 142,542 147,633
Maine Yankee decommissioning costs 60,068 60,924
Deferred regulatory assets 32,325 32,551
Demand-side management costs 1,474 1,705
Other 8,421 5,205
---------- ----------
Total deferred charges $ 274,773 $ 278,386
---------- ----------
Total assets $ 601,409 $ 600,583
=========== ===========
See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
000's Omitted
(Unaudited)
Mar.31, Dec. 31,
STOCKHOLDERS' INVESTMENT AND LIABILITIES 1998 1997
----------- ----------
CAPITALIZATION:
Common stock investment $ 108,655 $ 106,558
Preferred stock 4,734 4,734
Preferred stock subject to mandatory redemption,
exclusive of current sinking fund
requirements 9,152 9,137
Long-term debt, net of current portion 259,575 221,643
---------- ----------
Total capitalization $ 382,116 $ 342,072
---------- ----------
CURRENT LIABILITIES:
Notes payable - banks $ 16,000 $ 34,000
---------- ----------
Other current liabilities -
Current portion of long-term debt and sinking
fund requirements on preferred stock $ 31,527 $ 52,172
Accounts payable 12,752 13,171
Dividends payable 296 327
Accrued interest 4,824 3,667
Customers' deposits 282 297
Deferred revenue 840 1,571
Current income taxes payable 0 8
---------- ----------
Total other current liabilities $ 50,521 $ 71,213
---------- ----------
Total current liabilities $ 66,521 $ 105,213
---------- ----------
DEFERRED CREDITS AND RESERVES:
Deferred income taxes - Seabrook $ 15,544 $ 15,766
Other accumulated deferred income taxes 57,513 55,859
Maine Yankee decommissioning liability 58,664 60,926
Deferred regulatory liability 9,881 9,972
Unamortized investment tax credits 1,909 1,962
Accrued pension and postretirement benefit
costs 7,236 7,034
Other 2,025 1,779
---------- ----------
Total deferred credits and reserves $ 152,772 $ 153,298
---------- ----------
Total Stockholders' Investment and Liabilities $ 601,409 $ 600,583
=========== ===========
See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
000's Omitted
(Unaudited)
Mar. 31, Dec. 31,
1998 1997
----------- -----------
COMMON STOCK INVESTMENT
Common stock, par value $5 per share- $ 36,817 $ 36,817
Authorized -- 10,000,000 shares
Outstanding -- 7,363,424 shares in 1998 and 1997
Amounts paid in excess of par value 56,969 56,969
Retained earnings 14,869 12,772
----------- -----------
Total common stock investment $ 108,655 $ 106,558
----------- -----------
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
----------- -----------
8.76%, Subject to mandatory redemption requirements-
Callable at 103.75% if called on or prior to December 27, 1998,
150,000 shares authorized and 105,000 shares outstanding
in 1998 and 1997 $ 10,746 $ 10,731
Less: Sinking fund requirements 1,594 1,594
----------- -----------
$ 9,152 $ 9,137
----------- -----------
LONG-TERM DEBT
First Mortgage Bonds-
6.75% Series due 1998 $ - $ 2,500
10.25% Series due 2019 15,000 15,000
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
12.25% Series due 2001 4,509 5,521
----------- -----------
$ 104,509 $ 108,021
Less: Current maturity in 1997 and sinking fund requirements 1,579 4,278
----------- -----------
Total first mortgage bonds $ 102,930 $ 103,743
----------- -----------
Variable rate demand pollution control revenue bonds
Series 1983 due 2009 $ 4,200 $ 4,200
----------- -----------
Other Long-Term Debt-
Finance Authority of Maine - Taxable Electric Rate
Stabilization Revenue Notes, 7.03% Series 1995A, due 2005 $ 126,000 $ 126,000
Medium Term Notes, Variable interest rate- LIBO Rate plus 2%,
due 2000 30,000 34,000
Medium Term Notes, Variable interest rate- LIBO Rate plus 1.125%,
due 2002 24,800 -
----------- -----------
$ 180,800 $ 160,000
Less: Current portion of long-term debt 28,355 46,300
----------- -----------
$ 152,445 $ 113,700
----------- -----------
Total long-term debt $ 259,575 $ 221,643
----------- -----------
Total Capitalization $ 382,116 $ 342,072
=========== ===========
See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
000's Omitted
(Unaudited)
1998 1997
---------- ----------
Cash Flows From Operations:
Net income $ 2,408 $ 716
Adjustments to reconcile net income to net cash
provided by(used in) operations:
Depreciation and amortization 2,614 2,752
Amortization of Seabrook Nuclear Project 425 425
Amortization of contract buyouts 5,091 5,228
Other amortizations 445 473
Allowance for equity funds used during
construction (69) (95)
Deferred income tax provision and
investment tax credits 1,505 (182)
Changes in assets and liabilities:
Deferred incremental ice storm costs (3,942) -
Deferred incremental Maine Yankee costs (822) -
Deferred fuel revenue and Maine Yankee 286 (323)
refueling costs
Accounts receivable, net and unbilled
revenue 554 1,160
Accounts payable (419) (2,847)
Accrued interest 1,157 1,186
Current and deferred income taxes (16) 110
Accrued postretirement benefit costs 175 500
Deferred revenue (731) -
Other current assets and liabilities, net (331) 490
Other, net (528) (473)
---------- ----------
Net Cash Provided By Operations $ 7,803 $ 9,120
---------- ----------
Cash Flows From Investing:
Construction expenditures $ (4,426)$ (3,179)
Allowance for borrowed funds used during
construction (129) (188)
---------- ----------
Net Cash Used In Investing $ (4,555)$ (3,367)
---------- ----------
Cash Flows From Financing:
Dividends on preferred stock $ (327)$ (362)
Dividends on common stock - (1,325)
Payments on long-term debt (7,513) (898)
Proceeds from issuance of long-term debt, net of
capital reserve fund requirements 23,300 -
Short-term debt, net (18,000) (500)
---------- ----------
Net Cash Used In Financing $ (2,540)$ (3,085)
---------- ----------
Net Change in Cash and Cash Equivalents $ 708 $ 2,668
Cash and Cash Equivalents at Beginning of Period 937 1,274
---------- ----------
Cash and Cash Equivalents at End of Period $ 1,645 $ 3,942
========== ==========
Cash Paid During the Three Months For:
Interest (Net of Amount Capitalized) $ 4,876 $ 4,906
Income Taxes 11 -
========== ==========
See notes to consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF COMMON STOCK INVESTMENT
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
000's Omitted
(Unaudited)
Amounts Total
Paid in Common
Common Excess of Retained Stock
Stock Par Value Earnings Investment
BALANCE DECEMBER 31, 1996 $36,817 $56,969 $14,535 $108,321
Net income - - 716 716
Cash dividends declared on-
Preferred stock - - (329) (329)
Other - - (15) (15)
----------- ---------- ----------- ----------
BALANCE MARCH 31, 1997 $36,817 $56,969 $14,907 $108,693
=========== =========== ============ ===========
BALANCE DECEMBER 31, 1997 $36,817 $56,969 $12,772 $106,558
Net income - - 2,408 2,408
Cash dividends declared on-
Preferred stock - - (296) (296)
Other - - (15) (15)
---------- ---------- ----------- -----------
BALANCE MARCH 31, 1998 $36,817 $56,969 $14,869 $108,655
========== ========== =========== ===========
See notes to the consolidated financial statements.
BANGOR HYDRO-ELECTRIC COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(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 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 and all other information included in the 1997 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,
1998 and the results of operations and cash flows for the periods ended March
31, 1998 and 1997.
The Company's significant accounting policies are described in the Notes
to the Consolidated Financial Statements included in its 1997 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 multi- plying
income before federal income taxes by the statutory federal income tax rate
to the federal income tax provision:
THREE MONTHS ENDED MARCH 31,
---------------------------
1998 1997
---- ----
AMOUNT % AMOUNT %
------ --- ------ ---
(Dollars in Thousands)
Federal income tax provision
at statutory rate $1,369 34% $ 198 34%
Plus permanent reductions
in tax expense resulting
from statutory exclusions
from taxable income 24 1 11 2
------ --- ----- ---
Federal income tax provision before
effect of temporary differences
and investment tax credits $1,393 35% $ 209 36%
Less temporary differences that
are flowed through for rate-
making and accounting purposes (97) (2) (25) (4)
Less utilization and amortization
of investment tax credits (53) (1) (85) (15)
------ --- ----- ---
Federal income tax provision $1,243 32% $ 99 17%
====== === ===== ===
(3) INVESTMENT IN JOINTLY OWNED FACILITIES:
--------------------------------------
Condensed financial information for Maine Yankee Atomic Power Company
("Maine Yankee"), Maine Electric Power Company, Inc. ("MEPCO"), Bangor-
Pacific Hydro Associates ("BPHA") and Chester SVC
Partnership ("Chester") is as follows:
MAINE YANKEE MEPCO
---------------- --------------
(Dollars in Thousands)
(Unaudited)
Operations for Three Months Ended
----------------------------------
Mar.31, Mar.31, Mar.31, Mar.31,
1998 1997 1998 1997
OPERATIONS: -------- -------- -------- ------
As reported by investee-
Operating revenues $37,603 $63,864 $ 701 $12,995
======= ======= ======= =======
Earnings applicable to
common stock $ 2,075 $ 1,766 $ 222 $ 307
======= ======= ======= =======
Company's reported equity-
Equity in net income $ 145 $ 124 $ 32 $ 44
Add(Deduct)-Effect of
adjusting Company's
estimate to actual 7 (2) (20) (41)
------- ------- ------- -------
Amounts reported by Company $ 152 $ 122 $ 12 $ 3
======= ======= ======= =======
MAINE YANKEE MEPCO
------------------- -----------------
(Dollars in Thousands)
(Unaudited)
Financial Position at
----------------------------------------
Mar.31, Dec. 31, Mar.31, Dec. 31,
1998 1997 1998 1997
FINANCIAL POSITION: ---------- ---------- ------- --------
As reported by investee-
Total assets $1,339,238 $1,368,143 $ 4,426 $ 4,362
Less-
Preferred stock 16,800 17,400 - -
Long-term debt 128,665 143,665 370 420
Other liabilities and
deferred credits 1,112,748 1,128,128 1,494 1,578
---------- --------- ------- -------
Net assets $ 81,025 $ 78,950 $ 2,562 $ 2,364
========== ========== ======= =======
Company's reported equity-
Equity in net assets $ 5,672 $ 5,527 $ 364 $ 336
Add(Deduct)- Effect
of adjusting Company's
estimate to actual 12 5 (29) (10)
---------- ---------- ------- -------
Amounts reported by Co. $ 5,684 $ 5,532 $ 335 $ 326
========== ========== ======= =======
BPHA Chester
----------------- -----------------
(Dollars in Thousands)
(Unaudited)
Operations for Three Months Ended
-------------------------------------
Mar.31, Mar.31, Mar.31, Mar.31,
1998 1997 1998 1997
------- ------- -------- -------
OPERATIONS:
As reported by investee-
Operating revenues $ 1,847 $ 1,806 $ 1,076 $ 1,134
======= ======= ======= =======
Net Income $ 646 $ 559 $ - $ -
======= ======= ======= =======
Company's reported equity
in net income $ 323 $ 280 $ - $ -
======= ======= ======= =======
Financial Position at
Mar. 31, Dec. 31, Mar. 31, Dec. 31,
1998 1997 1998 1997
-------- -------- -------- --------
FINANCIAL POSITION:
As reported by investee-
Total assets $39,106 $39,013 $27,297 $27,633
Less-
Long-term debt 27,950 28,500 25,542 25,837
Other liabilities 2,422 2,425 1,755 1,796
------- ------- ------- -------
Net assets $ 8,734 $ 8,088 $ - $ -
======= ======= ======= =======
Company's reported equity
in net assets $ 4,367 $ 4,044 $ - $ -
======= ======= ======= =======
(4) MONETIZATION OF POWER SALE CONTRACT -
-----------------------------------
As reported in the 1997 Form 10-K, the Company had been
negotiating a transaction for the monetization of a contract with
UNITIL Power Corp. (UNITIL), a New Hampshire based electric utility. The
Company currently provides power to UNITIL at significantly above-market
rates, with the contract term ending in the year 2003. Based upon current
projections of wholesale electricity markets, it is expected that the rates
charged under the UNITIL contract will remain at above-market levels for
the remainder of the contract term. Therefore, the assignment of the
Company's rights under the contract has a positive present cash value. On
March 31, 1998, the Company completed a transaction with a financial
institution that provided loan proceeds of approximately $23.3 million, net
of a requirement to deposit $1.5 million of the proceeds in a debt service
reserve fund. The loan is secured by the value of the UNITIL contract.
Also as previously reported, beginning in early 1997, the
Company failed to comply with certain finanical covenants under its bank
lending agreements and received temporary waivers from the lending banks.
By using a portion of the proceeds of the UNITIL monetization to pay down a
portion of the bank obligations, the Company was able to negotiate
permanent waivers of the earlier financial covenant violations and to
establish new financial covenant levels for the future that it believes to
be reasonably achievable.
At the time the Company filed its 1997 Form 10-K, the
monetization of the UNITIL contract had not been completed and the
financial covenant violations referred to above had, therefore, not been
waived permanently. As discussed in that Report, all debt under the bank
credit facilities, including certain medium term notes, was classified as a
current liability on the Company's Consolidated Balance Sheet as of
December 31, 1997. As a result of the permanent waivers that became
effective upon completion of the UNITIL monetization, $22 million of medium
term notes, previously classified as a current liability, have been
reclassified as a long-term liability as of March 31, 1998.
(5) STORM DAMAGE -
------------
As discussed in the 1997 Form 10-K, the Company suffered
widespread damage throughout its service territory to its transmission and
distribution equipment during a major ice storm in January 1998. The
Company's incremental costs associated with the service restoration effort
were approximately $3.9 million, and additional incremental costs
associated with line clearance work are expected to be incurred in the
future. The $3.9 million has been recorded as a deferred asset on the
Company's Consolidated Balance Sheet as of March 31, 1998. The MPUC issued
an order authorizing the Company to defer incremental, non-capitalized
storm damage expenses for future recovery through the rates charged to
customers. MPUC proceedings on the recovery of the incremental ice storm
costs have been delayed, due to the possibility of federal funds being
available to utilities for ice storm property damage. The Company is
uncertain whether any federal funds will be received or the timing of MPUC
proceedings. The Company believes its storm damage costs were prudently
incurred and it should, therefore, be allowed to recover them in rates.
(6) COMPREHENSIVE INCOME -
--------------------
In June 1997 the FASB issued Statement No. 130, "Reporting
Comprehensive Income" (FAS 130), which establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements.
This Statement requires that all items that are required to be recognized
under accounting standards as components of comprehensive income be
reported in a financial statement that is displayed with the same
prominence as other financial statements. This Statement is effective for
fiscal years beginning after December 15, 1997. There was no impact in
adopting FAS 130 on the Company's consolidated financial statements for the
quarter ended March 31, 1998.
(7) RECLASSIFICATIONS -
-----------------
Certain 1997 amounts have been reclassified to conform with the
presentation used in Form 10-Q for the quarter ended March 31, 1998.
BANGOR HYDRO-ELECTRIC COMPANY
FORM 10-Q FOR PERIOD ENDING MARCH 31, 1998
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------ --------------------------------
EXHIBITS:
- --------
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS
---------------------------------------------------
4(a) TERM LOAN AGREEMENT dated as of March 31, 1998 among BANGOR
ENERGY RESALE, INC., BANKBOSTON, N.A. and the certain other
lending institutions and BANKBOSTON, N.A., as Agent, including
all Exhibits thereto
4(b) GUARANTY, dated as of March 31,1998, by BANGOR HYDRO-ELECTRIC
COMPANY, in favor of(a) BANKBOSTON, N.A., as Agent, for itself
and the other lending institutions which are or may become
parties to a Term Loan Agreement, dated as of March 31, 1998
10. MATERIAL CONTRACTS
------------------
10(a) ASSIGNMENT OF CONTRACTS AND ENTITLEMENTS, made March 31, 1998
by and between Bangor Hydro-Electric Company and Bangor Energy
Resale, Inc.
10(b) Rate Agreement made October 30, 1997, by and between Bangor
Hydro-Electric Company and Bangor Energy Resale, Inc.
10(c) Management and Support Services Agreement made March 31, 1998
by and between Bangor Hydro- Electric Company and
Bangor Energy Resale, Inc.
REPORTS ON FORM 8-K
-------------------
Two Current Reports on Form 8-K, dated January 23, 1998 and February 13,
1998, were filed in the first quarter of 1998 regarding significant storm
damage from a recent ice storm, the divestiture of generation assets, and the
results of the Company's request for an increase in retail rates.
BANGOR HYDRO-ELECTRIC COMPANY
FORM 10-Q FOR PERIOD ENDED MARCH 31, 1998
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 14, 1998 /s/ Frederick S. Samp
------------------------
Frederick S. Samp
Vice President - Finance & Law
(Chief Financial Officer)