-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SjjzrvgAlJ8OaAJRJzuCV0eDl8AXDucfwMmuPglxfKqHAzddvSA5HgOUiot46lSd ktTMYkTnTZ5YKYXBmwQlJw== 0000063073-98-000011.txt : 19980514 0000063073-98-000011.hdr.sgml : 19980514 ACCESSION NUMBER: 0000063073-98-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980513 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MASSACHUSETTS ELECTRIC CO CENTRAL INDEX KEY: 0000063073 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041988940 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-05464 FILM NUMBER: 98618443 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01582 BUSINESS PHONE: 5083892000 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-5464 (LOGO) MASSACHUSETTS ELECTRIC COMPANY (Exact name of registrant as specified in charter) MASSACHUSETTS 04-1988940 (State or other (I.R.S. Employer jurisdiction of Identification No.) incorporation or organization) 25 Research Drive, Westborough, Massachusetts 01582 (Address of principal executive offices) Registrant's telephone number, including area code (508-389-2000) 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 ( ) Common stock, par value $25 per share, authorized and outstanding: 2,398,111 shares at March 31, 1998. PART I FINANCIAL INFORMATION Item 1. Financial Statements - ---------------------------- MASSACHUSETTS ELECTRIC COMPANY Statements of Income Periods Ended March 31 (Unaudited)
Three Months Twelve Months ------------ ------------- 1998 1997 1998 1997 ---- ---- ---- ---- (In Thousands) Operating revenue $396,714 $405,518$1,615,281 $1,553,236 -------- ------------------ ---------- Operating expenses: Purchased electric energy, principally from New England Power Company, an affiliate 283,582 295,200 1,133,429 1,128,523 Other operation 50,782 48,546 219,386 213,011 Maintenance 8,752 7,424 38,234 30,470 Depreciation 14,253 12,638 51,309 47,959 Taxes, other than income taxes 8,949 8,873 31,219 30,687 Income taxes 7,553 8,596 41,411 27,071 -------- ------------------ ---------- Total operating expenses 373,871 381,277 1,514,988 1,477,721 -------- ------------------ ---------- Operating income 22,843 24,241 100,293 75,515 Other income (expense) - net (2,878) (1,896) (2,518) (1,071) -------- ------------------ ---------- Operating and other income 19,965 22,345 97,775 74,444 -------- ------------------ ---------- Interest: Interest on long-term debt 6,871 7,083 27,400 27,447 Other interest 1,419 1,742 6,891 6,828 Allowance for borrowed funds used during construction - credit (136) (116) (449) (660) -------- ------------------ ---------- Total interest 8,154 8,709 33,842 33,615 -------- ------------------ ---------- Net income $ 11,811 $ 13,636$ 63,933 $ 40,829 ======== ================== ========== Statements of Retained Earnings Retained earnings at beginning of period $201,156 $165,936$ 166,803 $ 150,671 Net income 11,811 13,636 63,933 40,829 Dividends declared on cumulative preferred stock (240) (778) (2,283) (3,114) Dividends declared on common stock (15,588) (11,991) (27,578) (21,583) Premium on redemption of preferred stock - - (3,736) - -------- ------------------ ---------- Retained earnings at end of period $197,139 $166,803$ 197,139 $ 166,803 ======== ================== ========== The accompanying notes are an integral part of these financial statements. Per share data is not relevant because the Company's common stock is wholly- owned by New England Electric System.
MASSACHUSETTS ELECTRIC COMPANY Balance Sheets (Unaudited)
March 31, December 31, ASSETS 1998 1997 ------ ---- ---- (In Thousands) Utility plant, at original cost $1,590,785 $1,579,309 Less accumulated provisions for depreciation 474,391 465,796 ---------- ---------- 1,116,394 1,113,513 Construction work in progress 14,848 13,363 ---------- ---------- Net utility plant 1,131,242 1,126,876 ---------- ---------- Current assets: Cash 10,099 6,743 Accounts receivable: From sales of electric energy 176,641 158,627 Other (including $3,718,000 and $1,321,000 from affiliates) 5,216 2,112 Less reserves for doubtful accounts 13,521 12,808 ---------- ---------- 168,336 147,931 Unbilled revenues 47,235 49,513 Materials and supplies, at average cost 10,025 9,599 Prepaid and other current assets 20,851 22,255 ---------- ---------- Total current assets 256,546 236,041 ---------- ---------- Deferred charges and other assets 43,389 45,450 ---------- ---------- $1,431,177 $1,408,367 ========== ========== CAPITALIZATION AND LIABILITIES ------------------------------ Capitalization: Common stock, par value $25 per share, authorized and outstanding 2,398,111 shares $ 59,953 $ 59,953 Premiums on capital stocks 45,945 45,945 Other paid-in capital 193,224 193,224 Retained earnings 197,139 201,156 Unrealized gain on securities, net 189 129 ---------- ---------- Total common equity 496,450 500,407 Cumulative preferred stock 15,739 15,739 Long-term debt 343,359 338,387 ---------- ---------- Total capitalization 855,548 854,533 ---------- ---------- Current liabilities: Long-term debt due in one year 10,000 20,000 Short-term debt (including $1,525,000 and $4,800,000 to affiliates) 30,300 34,700 Accounts payable (including $180,775,000 and $179,211,000 to affiliates) 215,366 195,023 Accrued liabilities: Taxes 5,511 8,275 Interest 7,171 9,183 Other accrued expenses 25,778 22,081 Customer deposits 4,522 4,487 Dividends payable 15,828 5,036 ---------- ---------- Total current liabilities 314,476 298,785 ---------- ---------- Deferred federal and state income taxes 185,451 179,474 Unamortized investment tax credits 15,191 15,463 Other reserves and deferred credits 60,511 60,112 ---------- ---------- $1,431,177 $1,408,367 ========== ========== The accompanying notes are an integral part of these financial statements.
MASSACHUSETTS ELECTRIC COMPANY Statements of Cash Flows Quarters Ended March 31 (Unaudited)
1998 1997 ---- ---- (In Thousands) Operating activities: Net income $ 11,811 $ 13,636 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 14,253 12,639 Deferred income taxes and investment tax credits, net 5,834 (5,365) Allowance for funds used during construction (136) (116) Decrease (increase) in accounts receivable, net and unbilled revenues (18,127) 2,658 Decrease (increase) in materials and supplies (426) (133) Decrease (increase) in prepaid and other current assets 1,404 2,214 Increase (decrease) in accounts payable 20,343 1,097 Increase (decrease) in other current liabilities (1,044) 23,585 Other, net 2,455 2,562 -------- -------- Net cash provided by operating activities $ 36,367 $ 52,777 -------- -------- Investing activities: Plant expenditures, excluding allowance for funds used during construction $(18,488) $(22,546) Other investing activities (87) (306) -------- -------- Net cash used in investing activities $(18,575) $(22,852) -------- -------- Financing activities: Dividends paid on common stock $ (4,796) $ (7,194) Dividends paid on preferred stock (240) (779) Long-term debt - issues 25,000 - Long-term debt - retirements (30,000) - Changes in short-term debt (4,400) (21,900) -------- -------- Net cash provided by (used in) financing activities $(14,436) $(29,873) -------- -------- Net increase in cash and cash equivalents $ 3,356 $ 52 Cash and cash equivalents at beginning of period 6,743 2,356 -------- -------- Cash and cash equivalents at end of period $ 10,099 $ 2,408 ======== ======== The accompanying notes are an integral part of these financial statements.
Note A - Hazardous Waste - ------------------------ The Federal Comprehensive Environmental Response, Compensation and Liability Act, more commonly known as the "Superfund" law, imposes strict, joint and several liability, regardless of fault, for remediation of property contaminated with hazardous substances. A number of states, including Massachusetts, have enacted similar laws. The electric utility industry typically utilizes and/or generates in its operations a range of potentially hazardous products and by-products. Massachusetts Electric Company (the Company) currently has in place an internal environmental audit program and an external waste disposal vendor audit and qualification program intended to enhance compliance with existing federal, state, and local requirements regarding the handling of potentially hazardous products and by-products. The Company has been named as a potentially responsible party (PRP) by either the United States Environmental Protection Agency or the Massachusetts Department of Environmental Protection for 16 sites at which hazardous waste is alleged to have been disposed. Private parties have also contacted or initiated legal proceedings against the Company regarding hazardous waste cleanup. The most prevalent types of hazardous waste sites with which the Company has been associated are manufactured gas locations. (Until the early 1970s, New England Electric System (NEES) was a combined electric and gas holding company system.) The Company is aware of approximately 35 such manufactured gas locations in Massachusetts. The Company has been identified as a PRP at eight of these manufactured gas locations, which are included in the 16 PRP sites discussed above. The Company is engaged in various phases of investigation and remediation work at 17 of the manufactured gas locations. The Company is currently aware of other possible hazardous waste sites, and may in the future become aware of additional sites, that it may be held responsible for remediating. In 1993, the Massachusetts Department of Public Utilities approved a settlement agreement regarding the rate recovery of remediation costs of former manufactured gas sites and certain other hazardous waste sites located in Massachusetts. Under that agreement, qualified costs related to these sites are paid out of a special fund established on the Company's books. The Company made an initial $30 million contribution to the fund. Rate- recoverable contributions of $3 million, adjusted since 1993 for inflation, are added annually to the fund along with interest and any recoveries from insurance carriers. At March 31, 1998, the fund had a balance of $46 million. Predicting the potential costs to investigate and remediate hazardous waste sites continues to be difficult. There are also significant uncertainties as to the portion, if any, of the investigation and remediation costs of any particular hazardous waste site that may ultimately be borne by the Company. The NEES companies have recovered amounts from certain insurers, and, where appropriate, the Company intends to seek recovery from other insurers and from other PRPs, but it is uncertain whether, and to what extent, such efforts will be successful. At March 31, 1998, the Company had total reserves for environmental response costs of $49 million. This represents an increase from the balance at the end of 1997. Since the majority of the sites for which increased reserves were recognized are covered by rate agreements, this increase in the reserves did not have an adverse effect on net income. The Company believes that hazardous waste liabilities for all sites of which it is aware, and which are not covered by a rate agreement, are not material to its financial position. Note B - Comprehensive Income - ----------------------------- In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (FAS 130). The statement establishes standards for reporting comprehensive income and its components. Comprehensive income for the period is equal to net income plus "other comprehensive income," which, for the Company, consists of the change in unrealized holding gains on available-for-sale securities during the period. Other comprehensive income was immaterial for the Company for the quarters ended March 31, 1998 and 1997, respectively. Note C - New Accounting Standards - --------------------------------- In 1997, the Financial Accounting Standards Board (FASB) released Statement of Financial Accounting Standards No. 131, Disclosure about Segments of an Enterprise and Related Information (FAS 131), which goes into effect in 1998. FAS 131 requires the reporting in financial statements of certain new additional information about operating segments of a business. Application of FAS 131 is not required for interim reporting in the initial year of application. The Company is currently evaluating the impact that FAS 131 will have on its future reporting requirements. In February 1998, the FASB issued Statement of Financial Accounting Standards No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits (FAS 132) which revises disclosure requirements for pension and other postretirement benefits. The Company is currently evaluating the effects of FAS 132 on its reporting requirements and will adopt FAS 132 in its financial statements for the year ending December 31, 1998. The adoption of FAS 132 will have no impact on the Company's operating results, financial position, or cash flows. Note D - ------ In the opinion of the Company, these statements reflect all adjustments (which include normal recurring adjustments) necessary for a fair statement of the results of its operations for the periods presented and should be considered in conjunction with the notes to the financial statements in the Company's 1997 Annual Report. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - ----------------------------------------------------------------- This section contains management's assessment of Massachusetts Electric Company's (the Company) financial condition and the principal factors having an impact on the results of operations. This discussion should be read in conjunction with the Company's financial statements and footnotes and the 1997 Annual Report on Form 10-K. Earnings - -------- Net income for the first quarter of 1998 decreased $2 million as compared to the corresponding period in 1997. The decrease reflects a reduction in kilowatthour (kWh) deliveries as well as a retroactive purchased power billing adjustment from New England Power Company (NEP). Industry Restructuring - ---------------------- For a full discussion of industry restructuring activities in Massachusetts, Rhode Island, and New Hampshire, stranded cost recovery, the New England Electric System (NEES) companies' proposed divestiture of its nonnuclear generating business, accounting implications of industry restructuring and divestiture, workforce reductions, and the impact of industry restructuring on the distribution business, see the "Industry Restructuring" section in the Company's Form 10-K for 1997 and the Company's 1997 Annual Report. Risk Factors This report contains statements that may be considered forward looking as defined under the securities laws. Actual results may differ materially for reasons discussed in the "Industry Restructuring" sections of the Company's Form 10-K for 1997 and the Company's 1997 Annual Report. While the Company believes that the previously described settlement and legislation and the sale agreement with USGen New England, Inc. (USGen) and other developments constitute substantial progress in reducing the impacts associated with industry restructuring, significant risks remain. These include, but are not limited to: (i) the potential that ultimately the Massachusetts Settlement will not be implemented in the manner anticipated by the Company, (ii) the possibility that a voter referendum in November 1998 could overturn the Massachusetts legislation, followed by materially adverse legislative or regulatory actions, (iii) the possibility of federal legislation that would increase the risk to shareholders above those contained in the Massachusetts settlement and statute, and (iv) the failure of NEP and The Narragansett Electric Company to complete the sale of the nonnuclear generating business to USGen. The major factors affecting the Company relate to the possibility of adverse regulatory or judicial decisions or legislation which limit the level of revenues the Company is allowed to charge for its services or affect the costs the Company incurs. Year 2000 Computer Issues - ------------------------- For a full discussion of the Company's Year 2000 computer issues, including a description of the modification process, timeline, and estimated total costs, refer to the "Financial Review" section of the Company's 1997 Annual Report, filed in conjunction with the Company's Form 10-K for 1997. Operating Revenue - ----------------- The following table summarizes the changes in operating revenue: Increase (Decrease) in Operating Revenue First Quarter ------------- 1998 vs 1997 ------------- (In millions) Purchased power and transmission-related $(16) 1997 Purchased power cost adjustment (PPCA) mechanism 6 Distribution rate increase 4 Deliveries to ultimate customers and other (3) ---- $ (9) ==== Historically, the Company purchased all of its electrical requirements from NEP under the provisions of an all-requirements contract at NEP's standard resale rate. Effective March 1, 1998, the contract was amended, terminating the all-requirements provision of the contract. The Company's customers also gained the right to choose their power supplier. NEP continues to supply power to the Company, at new lower rates, for customers who choose to continue to take power from the Company. These new rates include the recovery by NEP of its generation-related stranded costs. Commencing in March 1998, the revenues that the Company is billing to its customers related to NEP's costs are all subject to true-up mechanisms based on NEP's actual billings. Prior to March, only the fuel component of purchased power expense was subject to a similar true-up mechanism. The Massachusetts Settlement provided for the end of the Company's PPCA mechanism in 1997. Prior to Federal Energy Regulatory Commission approval, which occurred in the fourth quarter of 1997, PPCA refund provisions continued to be accrued. In the first quarter of 1997, approximately $6 million of such refund provisions were accrued, and were subsequently reversed in the fourth quarter of 1997. In March 1998, the Company also put into effect a $45 million rate increase. This increase reflects changes to the distribution cost of service that include an $11 million increase in annual depreciation expense, a $3 million annual contribution to a storm fund and increased amortization of unfunded deferred income taxes of approximately $1 million per year over 6 years. The decrease in kWh deliveries to ultimate customers of 1.2 percent is reflective of milder winter weather in the first quarter of 1998 as compared to the corresponding period in 1997. Operating Expenses - ------------------ The following table summarizes the changes in operating expenses: Increase (Decrease) in Operating Expenses First Quarter ------------- 1998 vs 1997 ------------ (In millions) Purchased power and operation and maintenance: Purchased power and transmission costs $(7) Other (1) Depreciation 2 Taxes (1) --- $(7) === As noted above, effective March 1, 1998, NEP's billings to the Company were significantly changed in connection with the restructuring of the electric utility industry in Massachusetts. Not only were NEP's rates reduced but the transmission portion of NEP's costs are billed separately and are recorded in operation and maintenance expense instead of as a component of purchased power expense. Partially offsetting these decreases in rates was a retroactive billing by NEP in February 1998 related to certain meter reading corrections which increased purchased power expense by approximately $2 million. The decrease in other operation and maintenance expenses primarily reflects lower charges to postretirement benefits other than pensions and lower bad-debt related expenses, partially offset by increased distribution-related expenses. The increase in depreciation expense primarily reflects a portion of the $11 million increase in annual depreciation expense provided for in the Massachusetts industry restructuring settlement, and depreciation expense on new utility plant expenditures. Utility Plant Expenditures and Financing - ---------------------------------------- Cash expenditures for utility plant totaled $18 million for the first three months of 1998. The funds necessary for utility plant expenditures during the period were primarily provided by net cash from operating activities, after the payment of dividends. In the first three months of 1998, the Company issued $25 million of long-term debt and retired $30 million of mortgage bonds and decreased its short-term debt outstanding by $4 million. The Company plans to issue an additional $30 million of long-term debt to refinance maturing bonds and to fund capital expenditures. At March 31, 1998, the Company had $30 million of short-term debt outstanding, including $29 million of commercial paper borrowings. At March 31, 1998, the Company had lines of credit with banks totaling $65 million which are available to provide liquidity support and other corporate purposes. There were no borrowings under these lines of credit at March 31, 1998. For the twelve-month period ended March 31, 1998, the ratio of earnings to fixed charges was 4.05. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security-Holders - ------------------------------------------------------------ On March 18, 1998, the Annual Meeting of Stockholders was held. The following actions were taken by the unanimous vote of the 2,398,111 shares having general voting rights represented at the meeting: The number of directors was fixed at seven. The following were elected as directors of the Company: Cheryl A. LaFleur Robert L. McCabe Lydia M. Pastuszek Lawrence J. Reilly Christopher E. Root Richard P. Sergel Dennis E. Snay John G. Cochrane was elected Treasurer and Robert King Wulff was elected Clerk. Coopers & Lybrand L.L.P. was selected as auditor for 1998. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- The Company is filing the following revised exhibit for incorporation by reference into its registration statement on Form S-3, Commission File No. 33-59145. 12 Statement re computation of ratios The Company is filing Financial Data Schedules. The Company filed a report on Form 8-K dated December 31, 1997, containing Item 5, Other Events. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-Q for the quarter ended March 31, 1998 to be signed on its behalf by the undersigned thereunto duly authorized. MASSACHUSETTS ELECTRIC COMPANY s/John G. Cochrane John G. Cochrane, Treasurer, Authorized Officer, and Principal Financial Officer Date: May 13, 1998 EX-99 2 Exhibit Index Exhibit Index ------------- Exhibit Description Page - ------- ----------- ---- 12 Statement re computation of Filed herewith ratios 27 Financial Data Schedule Filed herewith EX-12 3 STATEMENT RE COMPUTATION OF RATIOS MASSACHUSETTS ELECTRIC COMPANY Computation of Ratio of Earnings to Fixed Charges (SEC Coverage) (Unaudited)
12 Months Ended March 31, 1998 Years Ended December 31, Actual ------------------------------------------------------------- (Unaudited) 1997 1996 1995 1994 1993 -------------- ---- ---- ---- ---- ---- (In Thousands) Net Income $ 63,933 $ 65,758 $37,926 $29,101 $34,726 $23,779 - ---------- Add income taxes and fixed charges - ---------------------------------- Current federal income taxes 24,046 34,244 25,867 9,437 (6,762) 5,606 Deferred federal income taxes 10,196 912 (6,052) 6,156 24,932 3,430 Investment tax credits - net (1,098) (1,103) (1,118) (1,132) (1,228) (1,228) Massachusetts franchise tax 7,396 7,514 4,479 3,935 4,681 3,348 Interest on long-term debt 27,400 27,612 27,089 25,901 20,967 23,403 Interest on short-term debt and other6,891 7,214 6,473 6,784 6,366 3,638 -------- -------- ------- ------- ------- ------- Net earnings available for fixed charges $138,764 $142,151 $94,664 $80,182 $83,682 $61,976 -------- -------- ------- ------- ------- ------- Fixed charges: Interest on long-term debt $ 27,400 $ 27,612 $27,089 $25,901 $20,967 $23,403 Interest on short-term debt and other6,891 7,214 6,473 6,784 6,366 3,638 -------- -------- ------- ------- ------- ------- Total fixed charges $ 34,291 $ 34,826 $33,562 $32,685 $27,333 $27,041 ======== ======== ======= ======= ======= ======= Ratio of earnings to fixed charges 4.05 4.08 2.82 2.45 3.06 2.29 - ----------------------------------
EX-27 4 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF MASSACHUSETTS ELECTRIC COMPANY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 DEC-31-1998 MAR-31-1998 3-MOS PER-BOOK 1,131,242 0 256,546 43,389 0 1,431,177 59,953 239,169 197,139 496,450 0 15,739 343,359 1,525 0 28,775 10,000 0 0 0 535,329 1,431,177 396,714 7,553 366,318 373,871 22,843 (2,878) 19,965 8,154 11,811 240 11,571 15,588 6,871 36,367 0 0 Total deferred charges includes other assets. Per share data is not relevant because the Company's common stock is wholly-owned by New England Electric System. Total common stockholders equity includes the unrealized gain on securities. -----END PRIVACY-ENHANCED MESSAGE-----