-----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, OLeHY3WUcuSB386qo0Hz2ZZkzN9V9Q4+YWDbOH1xjtO+6fZ0dMcZ6u1vrvMGrpGF tdUCJa76XGbUSgJ6Blokgw== 0000071297-99-000043.txt : 19990623 0000071297-99-000043.hdr.sgml : 19990623 ACCESSION NUMBER: 0000071297-99-000043 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990524 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEW ENGLAND ELECTRIC SYSTEM CENTRAL INDEX KEY: 0000071297 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 041663060 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: SEC FILE NUMBER: 001-03446 FILM NUMBER: 99632869 BUSINESS ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01582 BUSINESS PHONE: 5083892000 MAIL ADDRESS: STREET 1: 25 RESEARCH DR CITY: WESTBOROUGH STATE: MA ZIP: 01582 10-Q/A 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q AMENDMENT NO. 1 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 1-3446 (LOGO) NEW ENGLAND ELECTRIC SYSTEM (Exact name of registrant as specified in charter) MASSACHUSETTS 04-1663060 (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 Shares, par value $1 per share, authorized and outstanding: 59,123,792 shares at March 31, 1999. The undersigned registrant hereby amends its Quarterly Report on Form 10-Q for the quarterly period ending March 31, 1999 by properly reclassifying $51,395 (expressed in thousands) from "Cash" to "Marketable securities" on the March 31, 1999 Consolidated Balance Sheet. The correct amounts for the two categories, expressed in thousands, are identified below: Cash $62,867 Marketable Securities $93,928 Two reclassifications are also made to properly reclassify $346 and $402 (expressed in thousands) from "Deferred charges and other assets" to "Goodwill" on the March 31, 1999 and December 31, 1998 Consolidated Balance Sheets, respectively. The correct amounts for the two categories, expressed in thousands, are identified below: 3/31/99 12/31/98 ------- -------- Goodwill $92,594 $13,681 Deferred charges and other assets $31,474 $25,245 The first reclassification also affects the Consolidated Statements of Cash Flows. In addition, subsequent to filing its Quarterly Report on Form 10-Q, the undersigned registrant also identified that the Consolidated Statements of Cash Flows did not properly reflect an acquisition made in the first quarter of 1999. The affected lines in the Consolidated Statements of Cash Flows and their new amounts, expressed in thousands, are shown below:
Operating Activities: Decrease (increase) in fuel, materials, and supplies $ 5,978 Other, net $ (32,840) Net cash provided by operating activities $ 90,718 Investing Activities: Purchase of available-for-sale securities, net $ (36,013) Other investing activities $ (96,240) Net cash provided by (used in) investing activities $ (171,787) Net increase (decrease) in cash and cash equivalents $ (124,806) Cash and cash equivalents at end of period $ 62,867
In addition to its impact on the Consolidated Statements of Cash Flows, the acquisition also affects the Financial Data Schedule which is filed in Part 2 - Item 6 as an exhibit to the Form 10-Q. The affected line and its new amount, expressed in thousands, is identified below: Cash-flow-operations $ 90,718 Part 1 - Item 1 and Part 2 - Item 6 are restated in their entirety below. PART I FINANCIAL STATEMENTS Item 1. Financial Statements - ---------------------------- NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Statements of Consolidated Income Periods Ended March 31 (Unaudited)
Three Months Twelve Months ------------ ------------- 1999 1998 1999 1998 ---- ---- ---- ---- (In Thousands) Operating revenue $657,502 $619,563 $2,458,472$2,484,007 -------- -------- -------------------- Operating expenses: Fuel for generation 3,058 85,784 146,996 359,019 Purchased electric energy 250,840 122,675 761,512 506,374 Cost of sales AllEnergy 88,759 37,094 213,994 48,961 Other operation 111,298 117,500 507,275 538,417 Maintenance 16,952 38,013 87,979 150,329 Depreciation and amortization 69,744 55,247 221,159 225,734 Taxes, other than income taxes 28,460 40,219 123,004 146,985 Income taxes 29,144 35,885 115,613 149,144 -------- -------- -------------------- Total operating expenses 598,255 532,417 2,177,532 2,124,963 -------- -------- -------------------- Operating income 59,247 87,146 280,940 359,044 Other income: Allowance for equity funds used during construction 588 - 1,221 - Equity in income of generating companies 515 2,346 7,606 9,886 Other income (expense), net 4,666 20 1,384 (14,067) -------- -------- -------------------- Operating and other income 65,016 89,512 291,151 354,863 -------- -------- -------------------- Interest: Interest on long-term debt 17,333 25,039 82,099 104,822 Other interest 2,245 5,947 24,120 19,096 Allowance for borrowed funds used during construction (347) (456) (1,645) (1,721) -------- -------- -------------------- Total interest 19,231 30,530 104,574 122,197 -------- -------- -------------------- Income after interest 45,785 58,982 186,577 232,666 Preferred dividends and net gain/loss on reacquisition of preferred stock of subsidiaries 257 571 3,140 11,057 Minority interests 1,375 1,533 6,120 6,513 -------- -------- -------------------- Net income $ 44,153 $ 56,878 $ 177,317$ 215,096 ======== ======== ==================== Average common shares - Basic 59,355,248 64,532,86361,082,450 64,791,620 Average common shares - Diluted 59,502,829 64,616,56861,195,181 64,851,221 Per share data: Net income Basic and Diluted $.74 $.88 $2.90 $3.32 Dividends declared $.59 $.59 $2.36 $2.36 Statements of Consolidated Retained Earnings (In Thousands) Retained earnings at beginning of period$ 998,912 $954,518$ 973,521 $ 910,841 Net income 44,153 56,878 177,317 215,096 Dividends declared on common shares (34,937) (37,875) (142,710) (152,416) ---------- ------------------ --------- Retained earnings at end of period $1,008,128 $973,521$1,008,128 $ 973,521 ========== ================== ========= The accompanying notes are an integral part of these financial statements.
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited)
March 31, December 31, ASSETS 1999 1998 ------ ---- ---- (In Thousands) Utility plant, at original cost $4,144,766 $4,130,102 Less accumulated provisions for depreciation and amortization 1,717,513 1,694,653 ---------- ---------- 2,427,253 2,435,449 Construction work in progress 68,505 52,977 ---------- ---------- Net utility plant 2,495,758 2,488,426 ---------- ---------- Investments: Nuclear power companies, at equity 47,323 48,538 Other subsidiaries, at equity 2,136 2,374 Non-utility property and other investments 188,850 169,196 ---------- ---------- Total investments 238,309 220,108 ---------- ---------- Current assets: Cash 62,867 187,673 Marketable securities 93,928 57,915 Accounts receivable, less reserves of $19,696,000 and $18,196,000 299,761 294,943 Unbilled revenues 67,187 87,467 Fuel, materials, and supplies, at average cost 33,696 38,339 Prepaid and other current assets 22,962 57,081 ---------- ---------- Total current assets 580,401 723,418 ---------- ---------- Regulatory assets 1,512,938 1,599,657 Goodwill, net of amortization 92,594 13,681 Deferred charges and other assets 31,474 25,245 ---------- ---------- $4,951,474 $5,070,535 ========== ========== CAPITALIZATION AND LIABILITIES ------------------------------ Capitalization: Common share equity: Common shares, par value $1 per share: Authorized - 150,000,000 shares Issued - 64,969,652 shares Outstanding - 59,123,792 shares and 59,171,015 shares $ 64,970 $ 64,970 Paid-in capital 736,744 736,744 Retained earnings 1,008,128 998,912 Treasury stock - 5,845,860 shares and 5,798,637 shares (240,040) (237,767) Accumulated other comprehensive income, net 7,390 7,144 ---------- ---------- Total common share equity $1,577,192 $1,570,003 Minority interests in consolidated subsidiaries 39,034 38,742 Cumulative preferred stock of subsidiaries 19,480 19,480 Long-term debt 1,046,762 1,055,740 ---------- ---------- Total capitalization 2,682,468 2,683,965 ---------- ---------- Current liabilities: Long-term debt due within one year 42,314 36,307 Accounts payable 183,269 204,992 Accrued taxes 21,389 24,196 Accrued interest 15,580 16,680 Dividends payable 31,989 34,412 Other current liabilities 125,252 142,975 ---------- ---------- Total current liabilities 419,793 459,562 ---------- ---------- Deferred federal and state income taxes 466,632 472,140 Unamortized investment tax credits 60,324 65,292 Accrued Yankee nuclear plant costs 232,770 242,138 Purchased power obligations 795,765 832,668 Other reserves and deferred credits 293,722 314,770 ---------- ---------- $4,951,474 $5,070,535 ========== ========== The accompanying notes are an integral part of these financial statements.
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Consolidated Statements of Cash Flows Quarters Ended March 31 (Unaudited)
1999 1998 ---- ---- (In Thousands) Operating activities: Net income $ 44,153 $ 56,878 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 71,547 55,992 Deferred income taxes and investment tax credits, net (5,318) (9,249) Allowance for funds used during construction (935) (456) Minority interests 1,375 1,533 Decrease (increase) in accounts receivable, net and unbilled revenues 24,733 5,786 Decrease (increase) in fuel, materials, and supplies 5,978 (12,224) Decrease (increase) in prepaid and other current assets 34,416 (2,742) Increase (decrease) in accounts payable (25,147) 31,416 Increase (decrease) in other current liabilities (27,244) 23,586 Other, net (32,840) 10,032 --------- --------- Net cash provided by operating activities $ 90,718 $ 160,552 --------- --------- Investing activities: Plant expenditures, excluding allowance for funds used during construction $ (39,534) $ (41,343) Proceeds from sale of New England Energy Incorporated oil and gas properties - 50,000 Purchase of available-for-sale securities, net (36,013) - Other investing activities (96,240) (6,045) --------- --------- Net cash provided by (used in) investing activities $(171,787)$ 2,612 --------- --------- Financing activities: Dividends paid to minority interests $ (1,581) $ (1,574) Dividends paid on NEES common shares (36,861) (38,168) Short-term debt - 82,375 Long-term debt - issues - 25,000 Long-term debt - retirements (3,040) (209,950) Repurchase of common shares (2,273) (14,437) Preferred stock - redemptions - (26) Return of capital to minority interests and related premium 18 - --------- --------- Net cash used in financing activities $ (43,737) $(156,780) --------- --------- Net increase (decrease) in cash and cash equivalents $(124,806) $ 6,384 Cash and cash equivalents at beginning of period 187,673 14,264 --------- --------- Cash and cash equivalents at end of period $ 62,867 $ 20,648 ========= ========= The accompanying notes are an integral part of these financial statements.
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES Notes to Unaudited 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. New England Electric System (NEES) subsidiaries currently have 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. NEES and/or its subsidiaries have been named as potentially responsible parties (PRPs) by either the United States Environmental Protection Agency or the Massachusetts Department of Environmental Protection for 20 sites at which hazardous waste is alleged to have been disposed. Private parties have also contacted or initiated legal proceedings against NEES and certain subsidiaries regarding hazardous waste cleanup. The most prevalent types of hazardous waste sites with which NEES and its subsidiaries have been associated are manufactured gas locations. (Until the early 1970s, NEES was a combined electric and gas holding company system.) NEES is aware of approximately 40 such manufactured gas locations, including 10 for which the NEES companies have been identified by either federal or state regulatory agencies as PRPs, mostly located in Massachusetts. NEES has reported the existence of all manufactured gas locations of which it is aware to state environmental regulatory agencies. NEES is engaged in various phases of investigation and remediation work at approximately 20 of the manufactured gas locations. NEES and its subsidiaries are currently aware of other possible hazardous waste sites, and may in the future become aware of additional sites, that they may be held responsible for remediating. In 1993, the Massachusetts Department of Public Utilities approved a settlement agreement that provides for 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 Massachusetts Electric Company's (Massachusetts Electric) books. Rate-recoverable contributions of $3 million, adjusted since 1993 for inflation, are added annually to the fund along with interest, lease payments, and any recoveries from insurance carriers and other third parties. At March 31, 1999, the fund had a balance of $47 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 NEES or its subsidiaries. In certain cases, agreements have been entered into with other parties which establish the liabilities for NEES and its subsidiaries. If, however, the other parties to these agreements should seek protection under the bankruptcy laws, NEES' liabilities could increase. The NEES companies have recovered amounts from certain insurers, and, where appropriate, intend 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, 1999, NEES had total reserves for environmental response costs of $55 million, which includes reserves established in connection with the Massachusetts Electric hazardous waste fund referred to above. NEES 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 - Nuclear Units - ---------------------- Nuclear Units Permanently Shut Down Three regional nuclear generating companies in which New England Power Company (NEP) has a minority interest own nuclear generating units that have been permanently shut down. These three units are as follows:
Future Estimated NEP's Billings Investment Date to NEP Unit % $ (millions) Retired $ (millions) - ----------------------------------------------------------------- Yankee Atomic 30 5 Feb 1992 21 Connecticut Yankee 15 16 Dec 1996 72 Maine Yankee 20 16 Aug 1997 139
In the case of each of these units, NEP has recorded a liability and an offsetting regulatory asset reflecting the estimated future billings from the companies. In a 1993 decision, the Federal Energy Regulatory Commission (FERC) allowed Yankee Atomic to recover its undepreciated investment in the plant as well as unfunded nuclear decommissioning costs and other costs. Connecticut Yankee and Maine Yankee have both filed similar requests with the FERC. Several parties have intervened in opposition to both filings. In August 1998, a FERC Administrative Law Judge (ALJ) issued an initial decision which would allow for full recovery of Connecticut Yankee's unrecovered investment, but precluded a return on that investment. Connecticut Yankee, NEP, and other parties have filed with the FERC exceptions to the ALJ's decision. Should the FERC uphold the ALJ's initial decision in its current form, NEP's share of the loss of the return component would total approximately $12 million to $15 million before taxes. In January 1999, parties in the Maine Yankee proceeding filed a comprehensive settlement agreement with the FERC, under which Maine Yankee would recover all unamortized investment in the plant, including a return on its equity investment of 6.5 percent, as well as decommissioning costs and other costs. This settlement agreement requires FERC approval. NEP's industry restructuring settlements allow it to recover all costs that the FERC allows these Yankee companies to bill to NEP. NEP and several other shareholders (Sponsors) of Maine Yankee are parties to 27 contracts (Secondary Purchase Agreements) under which they sold portions of their entitlements to Maine Yankee power output through 2002 to various entities, primarily municipal and cooperative systems in New England (Secondary Purchasers). Virtually all of the Secondary Purchasers had ceased making payments under the Secondary Purchase Agreements, claiming that such agreements excuse further payments upon plant shutdown. In February 1999, a settlement agreement which fully resolves the dispute between the Sponsors and Secondary Purchasers was filed with the FERC, under which the Secondary Purchasers would be required to make certain payments to Maine Yankee, and, in turn, to NEP, related to both past and future obligations under the Secondary Purchase Agreements. This settlement agreement requires FERC approval. Shutdown costs are recoverable from customers under the Settlement Agreements. A Maine statute provides that if both Maine Yankee and its decommissioning trust fund have insufficient assets to pay for the plant decommissioning, the owners of Maine Yankee are jointly and severally liable for the shortfall. Operating Nuclear Units NEP has minority interests in three other nuclear generating units: Vermont Yankee, Millstone 3, and Seabrook 1. Uncertainties regarding the future of nuclear generating stations, particularly older units, such as Vermont Yankee, are increasing rapidly and could adversely affect their service lives, availability, and costs. These uncertainties stem from a combination of factors, including the acceleration of competitive pressures in the power generation industry and increased Nuclear Regulatory Commission (NRC) scrutiny. NEP performs periodic economic viability reviews of operating nuclear units in which it holds ownership interests. Nuclear Divestiture NEP is engaged in efforts to divest its interests in the three operating nuclear units mentioned above. On February 25, 1999, the Board of Directors of Vermont Yankee Nuclear Power Corporation granted an exclusive right to AmerGen Energy Company (AmerGen), a joint venture by PECO Energy and British Energy to conduct a due diligence review over the next 120 days and negotiate a possible agreement to purchase the assets of Vermont Yankee. Provided the due diligence review leads to successful completion of negotiations for a sale, consummation of such a sale would be contingent on regulatory approvals by the NRC, the Securities and Exchange Commission, under the Public Utility Holding Company Act of 1935, and the Vermont Public Service Board, among others. The regulatory process could take eight to twelve months or longer. In past negotiations for the sale of nuclear plants, due diligence review has not guaranteed that a sale will occur. NEP has a 20 percent ownership interest in Vermont Yankee and an investment of approximately $11 million at March 31, 1999. Millstone 3 In July 1998, Millstone 3 returned to full operation after being shut down since April 1996. In April 1999, the NRC eliminated its "Watch List" designation process and has implemented a process that categorizes plants as requiring one of three levels of attention: "agency focus", calling for the attention of the Executive Director for Operations and/or the Commission; "regional focus", calling for special attention from the appropriate Regional Administrator; and "routine focus", calling for normal everyday oversight. Millstone 3 has been categorized as the subject of regional focus. Millstone 3 is operated by a subsidiary of Northeast Utilities (NU). A criminal investigation related to Millstone 3 is ongoing. In August 1997, NEP sued NU in Massachusetts Superior Court for damages resulting from the tortious conduct of NU that caused the shutdown of Millstone 3. NEP's damages include the costs of replacement power during the outage, costs necessary to return Millstone 3 to safe operation, and other additional costs. Most of NEP's incremental replacement power costs have been recovered from customers, either through fuel adjustment clauses or through provisions in settlement agreements approved by state and federal regulators in 1998 (Settlement Agreements). NEP also seeks punitive damages. NEP also sent a demand for arbitration to Connecticut Light & Power Company and Western Massachusetts Electric Company, both subsidiaries of NU, seeking damages resulting from their breach of obligations under an agreement with NEP and others regarding the operation and ownership of Millstone 3. The arbitration is scheduled for October 1999. In July 1998, the court denied NU's motion to dismiss and its motion to stay pending arbitration. NEP subsequently amended its complaint by, among other things, adding NU's Trustees as defendants. In December 1998, NU moved for summary judgement. NEP's suit has been consolidated with suits filed by other joint owners. The court is in the process of scheduling a trial date. Some or all of the damages awarded from the lawsuit would be refunded to customers. Nuclear Decommissioning NEP is liable for its share of decommissioning costs for Millstone 3, Seabrook 1, and all of the Yankees. Decommissioning costs include not only estimated costs to decontaminate the units as required by the NRC, but also costs to dismantle the uncontaminated portion of the units. NEP records decommissioning costs on its books consistent with its rate recovery. NEP is recovering its share of projected decommissioning costs for Millstone 3 and Seabrook 1 through depreciation expense. In addition, NEP is paying its portion of projected decommissioning costs for all of the Yankees through purchased power expense. Such costs reflect estimates of total decommissioning costs approved by the FERC. In New Hampshire, legislation was recently enacted which makes owners of Seabrook 1, in which NEP owns a 10 percent interest, proportional guarantors for decommissioning costs in the event that an owner without a franchise service territory fails to fund its share of decommissioning costs. Currently, a single owner of an approximate 12 percent share of Seabrook 1 has no franchise service territory. The New Hampshire Nuclear Decommissioning Finance Committee is reviewing Seabrook Station's decommissioning estimate and associated annual funding levels. Among the items being considered is the imposition of joint and several liability among the Seabrook joint owners for decommissioning funding. NEP cannot predict what additional liability, if any, may be imposed on it. The Nuclear Waste Policy Act of 1982 establishes that the federal government (through the Department of Energy (DOE)) is responsible for the disposal of spent nuclear fuel. The federal government requires NEP to pay a fee based on its share of the net generation from the Millstone 3 and Seabrook 1 nuclear generating units. Prior to 1998, NEP recovered this fee through its fuel clause. Under the Settlement Agreements, substantially all of these costs are recovered through contract termination charges (CTC). Similar costs are billed to NEP by Vermont Yankee and also recovered from customers through the same mechanism. In November 1997, ruling on a lawsuit brought against the DOE by numerous utilities and state regulatory commissions, the U.S. Court of Appeals for the District of Columbia (the Appeals Court) held that the DOE was obligated to begin disposing of utilities' spent nuclear fuel by January 31, 1998. The DOE failed to meet this deadline, and is not expected to have a temporary or permanent repository for spent nuclear fuel for many years. In February 1998, Maine Yankee petitioned the Appeals Court to compel the DOE to remove Maine Yankee's spent fuel from the site. In May 1998, the Appeals Court rejected the petitions of Maine Yankee and the other utilities and state regulatory commissions, stating that the issue of damages was a contractual matter. The operators of the units in which NEP has an obligation, including Maine Yankee, Connecticut Yankee, and Yankee Atomic, continue to pursue damage claims against the DOE in the Federal Court of Claims (Claims Court). In October 1998, the Claims Court ruled that the DOE violated a commitment to remove spent fuel from Yankee Atomic. The Claims Court issued similar rulings in November 1998 related to cases brought by Connecticut Yankee and Maine Yankee. Further proceedings will be scheduled by the Claims Court to decide the amount of damages. On April 6, 1999, a federal judge with the Claims Court dismissed a lawsuit brought by Northern States Power Company seeking damage payments resulting from the DOE's failure to remove spent fuel from nuclear power plants. It is unclear at this time what effect, if any, this ruling will have on the independent separate lawsuits brought by Yankee Atomic, Maine Yankee, and Connecticut Yankee. Note C - Town of Norwood Dispute - -------------------------------- In September 1998, the United States District Court (District Court) for the District of Massachusetts dismissed the lawsuit filed in April 1997 by the Town of Norwood, Massachusetts against NEES and NEP. NEP had been a wholesale power supplier for Norwood pursuant to rates approved by the FERC. In the lawsuit, Norwood had alleged that NEP's divestiture of its power generating assets would violate the terms of a 1983 power contract. Norwood also alleged that the divestiture and recovery of stranded investment costs contravened federal antitrust laws. The District Court judge granted NEES' and NEP's motion for dismissal on the grounds that the contract did not require NEP to retain its generating units, that the FERC-approved filed rates govern these matters, and that Norwood had adequate opportunity at the FERC to litigate these matters. Norwood filed a motion to alter or amend the order of dismissal, which was denied. In December 1998, Norwood filed a second motion to amend judgement and also filed an appeal with the First Circuit Court of Appeals (First Circuit). In March 1999, the District Court denied Norwood's second motion to amend judgement. In March 1998, Norwood gave notice of its intent to terminate its contract with NEP, without accepting responsibility for its share of NEP's stranded costs, and began taking power from another supplier commencing in April 1998. In May 1998, the FERC ruled that NEP could assess a CTC to any of NEP's unaffiliated customers that choose to terminate their wholesale power contracts early. Norwood claimed that the CTC approved by the FERC did not apply to Norwood; however, in denying Norwood's motion for rehearing, the FERC ruled that the charge did apply to Norwood. Norwood has appealed this decision to the First Circuit. NEP's billings to Norwood for this charge through March 1999 have been approximately $7 million, which remain unpaid. NEP filed a collection action with the Massachusetts Superior Court in December 1998 to recover these amounts. Norwood filed a motion to dismiss or stay in January 1999, which has been denied. Norwood also appealed the FERC's orders approving the divestiture and the Massachusetts and Rhode Island industry restructuring settlement agreements (including modification of NEP's contracts with Massachusetts Electric and The Narragansett Electric Company) to the First Circuit, despite the FERC's finding that those settlement agreements do not apply to Norwood. The First Circuit has consolidated all three of Norwood's appeals from the FERC's orders with two other appeals filed by the Northeast Center for Social Issue Studies, which challenge the FERC's approval of NEP's sale of its hydroelectric facilities. The case is expected to be fully briefed by July 1999. Note D - Marketable Securities - ------------------------------ At March 31, 1999, marketable securities consist primarily of corporate debt, mortgage-backed government securities, and collateralized mortgage obligations. Marketable securities have been categorized as available-for-sale and, as a result, are carried at fair value, based generally on quoted market prices. At March 31, 1999, NEES had marketable securities with a fair value of approximately $94 million. Fair value closely approximated cost. Marketable securities are available for current operations and are classified as current assets, and have contractual maturities of less than two years. During the first quarter of 1999, the proceeds received from the sales of securities held as available-for-sale totaled approximately $53 million, which resulted in immaterial realized gains and losses. Note E - Average Common Shares - ------------------------------ The following table summarizes the reconciling amounts between basic and diluted earnings per share (EPS) computations, in compliance with Statement of Financial Accounting Standards No. 128, Earnings per Share, which became effective during 1997, and requires restatement for all prior-period EPS data presented.
Quarter Ended Twelve Months Ended ----------------------------------------- Period Ended March 31, 1999 1998 1999 1998 - ------------------------------------------------------------------------------------- Income after interest and minority interest (000s) $44,410 $57,449 $180,457 $226,153 Less: preferred stock dividends and net gain/loss on reacquisition of preferred stock of subsidiaries (000s) $ 257 $ 571 $ 3,140 $ 11,057 Income available to common shareholders (000s) $44,153 $56,878 $177,317 $215,096 Basic EPS $.74 $.88 $2.90 $3.32 Diluted EPS $.74 $.88 $2.90 $3.32 - ------------------------------------------------------------------------------------- Average common shares outstanding for Basic EPS 59,355,24864,532,86361,082,45064,791,620 Effect of Dilutive Securities Average potential common shares related to share-based compensation plans 147,581 83,705 112,731 59,601 - ------------------------------------------------------------------------------------- Average common shares outstanding for Diluted EPS 59,502,82964,616,56861,195,18164,851,221 - -------------------------------------------------------------------------------------
Note F - Comprehensive Income - ----------------------------- In the first quarter of 1998, NEES adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income (FAS 130). FAS 130 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 NEES, consists of the change in the unrealized holding gains on available-for-sale securities during the period. Total comprehensive income is calculated for the quarters ended March 31, 1999 and 1998, respectively, in the table below:
Quarters Ended March 31, ------------------------ 1999 1998 ---- ---- (In Thousands) Net income $44,153 $56,878 Other comprehensive income, net of tax: Unrealized gains, net of tax expense of $575 and $1,249, respectively 1,060 2,304 Less: Reclassification adjustments for realized gains included in net income, net of tax expense of $441 and $62, respectively 814 114 ------- ------- Total comprehensive income $44,399 $59,068 ======= =======
Note G - Segment Information - ---------------------------- NEES has two reportable segments: (1) regulated electric operations and (2) unregulated subsidiaries. The unregulated subsidiaries are principally engaged in the marketing of energy commodities and services and the construction and leasing of telecommunications infrastructure. All of the other NEES companies are part of the electric operations segment, including the parent company and the administrative services subsidiary.
Quarter Ended Quarter Ended March 31, 1999 March 31, 1998 -------------- -------------- Electric Unregulated Total Electric Unregulated Total -------- ----------- ----- -------- ----------- ----- (In millions) Revenues from external customers 553 105 658 584 36 620 Net income (loss) 44 - 44 63 (6) 57 March 31, 1999 December 31, 1998 -------------- ----------------- Electric Unregulated Total Electric Unregulated Total -------- ----------- ----- -------- ----------- ----- Total assets 4,726 225 4,951 4,948 123 5,071
Note H - Derivative Instruments - -------------------------------- NEES, through its wholly owned subsidiary, AllEnergy, uses derivative instruments to manage exposure in fluctuations in commodity prices. At this time, AllEnergy uses derivative instruments to manage risks associated with natural gas, propane, and oil prices. Hedge criteria used and accounting for hedge transactions are in accordance with Statement of Financial Accounting Standards No. 80, Accounting for Futures Contracts (FAS 80). FAS 80 states that in order to qualify as a hedge, price movements in commodity derivatives must be highly correlated with the underlying hedged commodity and must reduce exposure to market fluctuations throughout the hedged period. Any gain or loss on a derivative that qualifies as a hedge under FAS 80 is deferred until recognized in the income statement in the same period as the hedged item is recognized in the income statement. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (FAS 133), which establishes accounting and reporting standards for such instruments. FAS 133 requires recognition of all derivatives as either assets or liabilities on the balance sheet and requires measurement of those instruments at fair value. If certain conditions are met, derivatives may be treated as hedges and accounted for in the income statement in the same manner as under FAS 80. To the extent these conditions are not met, that portion of the gain or loss is reported in earnings immediately. FAS 133 is effective for fiscal years beginning after June 15, 1999. As of March 31, 1999, all of AllEnergy's derivative instruments qualified as hedges under FAS 80, with limited exceptions, and are expected to qualify as hedges under FAS 133. The derivative instruments that do not qualify as hedges under FAS 80 and are recognized in income immediately are immaterial to NEES. Note I - ------ In the opinion of NEES, these financial 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 consolidated financial statements in NEES' 1998 Annual Report. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- The Company filed reports on Form 8-K dated February 1, 1999, and February 23, 1999, containing Items 5 and 7 and Item 5, respectively. The Company is filing Financial Data Schedules. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Amendment No. 1 to Form 10-Q for the quarter ended March 31, 1999 to be signed on its behalf by the undersigned thereunto duly authorized. NEW ENGLAND ELECTRIC SYSTEM s/Michael E. Jesanis Michael E. Jesanis Senior Vice President, Authorized Officer, and Principal Financial Officer Date: May 24, 1999 The name "New England Electric System" means the trustee or trustees for the time being (as trustee or trustees but not personally) under an agreement and declaration of trust dated January 2, 1926, as amended, which is hereby referred to, and a copy of which as amended has been filed with the Secretary of the Commonwealth of Massachusetts. Any agreement, obligation or liability made, entered into or incurred by or on behalf of New England Electric System binds only its trust estate, and no shareholder, director, trustee, officer or agent thereof assumes or shall be held to any liability therefor.
EX-99 2 EXHIBIT INDEX Exhibit Index ------------- Exhibit Description Page - ------- ----------- ---- 27 Financial Data Schedule Filed herewith EX-27 3 FINANCIAL DATA SCHEDULE
UT THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND RELATED CONSOLIDATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND ELECTRIC SYSTEM, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 DEC-31-1999 MAR-31-1999 3-MOS PER-BOOK 2,495,758 238,309 580,401 1,637,006 0 4,951,474 64,970 736,744 1,008,128 1,577,192 0 19,480 1,046,762 0 0 0 42,314 0 0 0 2,265,726 4,951,474 657,502 29,144 569,111 598,255 59,247 5,769 65,016 19,231 44,153 257 44,153 34,937 17,333 90,718 $.74 $.74 Total deferred charges includes other assets. Preferred stock reflects preferred stock of subsidiaries. Preferred stock dividends reflect preferred stock dividends of subsidiaries. Total common stockholders equity includes treasury stock at cost and unrealized gain on securities. -----END PRIVACY-ENHANCED MESSAGE-----