<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _____________
Commission file number 1-12527
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BAYCORP HOLDINGS, LTD.
(Exact name of registrant as specified in its charter)
------------------------------------------------------
DELAWARE 02-0488443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
COCHECO FALLS MILLWORKS, 100 MAIN STREET, SUITE 201
DOVER, NEW HAMPSHIRE 03820-3835
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 742-3388
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
----- -----
Indicate by check mark whether the registrant has filed all documents
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court.
Yes X No
----- -----
Class Outstanding at April 30, 1997
- --------------------------------------- -----------------------------
Common Stock, $0.01 Par Value per Share 8,298,803 .
<PAGE> 2
BAYCORP HOLDINGS, LTD.
INDEX
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Consolidated Statements of Income and Loss - Three
Months Ended March 31, 1997 and 1996........................... 3
Consolidated Balance Sheets at March 31, 1997
and December 31, 1996.......................................... 4-5
Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1997 and 1996........................... 6
Notes to Financial Statements....................................... 7-12
Item 2 - Financial Discussion:
Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 12-14
PART II - OTHER INFORMATION:
Item 1 - Legal Proceedings......................................... 14
Item 6 - Exhibits and Reports on Form 8-K.......................... 15
Signature.......................................................... 16
Exhibit Index...................................................... 17
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BAYCORP HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Operating Revenues $ 8,437 $ 6,891
Operating Expenses:
Production 4,394 3,588
Transmission 220 259
Administrative & General 1,933 1,914
Depreciation & Amortization 863 874
Taxes other than Income 1,162 1,054
--------- ---------
Total Operating Expenses 8,572 7,689
--------- ---------
Operating Loss (135) (798)
Other (Income) Deductions:
Interest and Dividend (Income) Expense (402) (271)
Decommissioning Cost Accretion 666 565
Decommissioning Trust Fund Income (111) (79)
Unit 2 Sales and Other (Income) 0 4
--------- ---------
Total Other Deductions 153 219
--------- ---------
Loss Before Income Taxes (288) (1,017)
Income Taxes 0 0
--------- ---------
Net Loss ($288) ($1,017)
========= =========
Weighted Average Shares Outstanding 8,320,869 7,999,948
Loss Per Share ($0.03) ($0.13)
</TABLE>
(The accompanying notes are an integral part of these consolidated statements.)
3
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BAYCORP HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- -----------
<S> <C> <C>
ASSETS:
Current Assets:
Cash & Cash equivalents $13,960 $16,412
Short-term Investments, at market 11,164 12,363
Accounts Receivable 2,684 2,927
Materials & Supplies, net 4,285 4,121
Prepayments & Other Assets 3,291 434
-------- --------
Total Current Assets 35,384 36,257
-------- --------
Property, Plant, & Equipment:
Utility Plant 107,098 106,656
Less: Accumulated Depreciation (7,935) (7,152)
-------- --------
Net Utility Plant 99,163 99,504
-------- --------
Nuclear Fuel 21,478 20,091
Less: Accumulated Amortization (10,770) (9,692)
Net Nuclear Fuel 10,708 10,399
-------- --------
Net Property, Plant & Equipment 109,871 109,903
Other Assets:
Decommissioning Trust Fund 6,674 6,234
Deferred Debits & Other 11 24
-------- --------
Total Other Assets 6,685 6,258
-------- --------
TOTAL ASSETS $151,940 $152,418
======== ========
</TABLE>
(The accompanying notes are an integral part of these consolidated statements.)
4
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BAYCORP HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable and Accrued Expenses $114 $129
Taxes Accrued 2,466 1,504
Miscellaneous Current Liabilities 2,484 4,072
-------- --------
Total Current Liabilities 5,064 5,705
Operating Reserves:
Decommissioning Liability 53,872 53,215
Miscellaneous Other 621 621
-------- --------
Total Operating Reserves 54,493 53,836
Other Liabilities & Deferred Credits 3,373 3,252
Commitments & Contingencies
Stockholders' Equity:
Common stock, $.01 par value,
Authorized - 20,000,000 shares,
Issued - 8,417,748 84 84
Less: Treasury Stock - 118,945 and 78,045 shares,
respectively, at cost (968) (633)
Additional paid-in capital 92,100 92,100
Holding Loss on Investments (140) (149)
Accumulated Deficit (2,066) (1,777)
-------- --------
Total Stockholders' Equity 89,010 89,625
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $151,940 $152,418
======== ========
</TABLE>
(The accompanying notes are an integral part of these consolidated statements.)
5
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BAYCORP HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net cash flow from operating activities:
Net (Loss) ($288) ($1,017)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 863 874
Amortization of nuclear fuel 1,078 927
Decommissioning trust accretion 666 565
Decommissioning trust interest (111) (79)
(Increase) decrease in accounts receivable 243 (1,008)
(Increase) decrease in materials & supplies (209) (36)
(Increase) decrease in prepaids and other assets (2,844) (1,392)
Increase (decrease) in accounts payable (16) (73)
Increase in taxes accrued 962 917
Other (1,467) (59)
-------- --------
Net cash used in operating activities (1,123) (381)
-------- --------
Net cash flows provided by (used in) investing activities:
Utlility plant additions (476) (116)
Nuclear fuel additions (1,387) (48)
Payments to decommissioning fund (277) (181)
Holding Gain (Loss) (52) 0
Short term investments, net 1,199 2,836
-------- --------
Net cash provided by (used in) investing activities (993) 2,491
-------- --------
Net cash provided by (used in) financing activities:
Common Stock Warrants 0 1,000
Reacquired Capital Stock (336) 0
-------- --------
Net cash provided by (used in) financing activities (336) 1,000
-------- --------
Net increase (decrease) in cash and cash equivalents (2,452) 3,110
Cash and cash equivalents, beginning of period 16,412 8,874
-------- --------
Cash and cash equivalents, end of period $ 13,960 $ 11,984
======== ========
</TABLE>
(The accompanying notes are an integral part of these consolidated statements.)
6
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BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE A - THE COMPANY
BayCorp Holdings, Ltd. ("BayCorp" or the "Company") serves as a holding
company for Great Bay Power Corporation ("Great Bay"). Great Bay is a public
utility whose principal asset is a 12.1% joint ownership interest in the
Seabrook Nuclear Power Project in Seabrook, New Hampshire (the "Seabrook
Project"). Great Bay is an exempt wholesale generator under the Public Utility
Holding Company Act of 1935 ("PUHCA").
Great Bay became a wholly-owned subsidiary of BayCorp in a corporate
reorganization that involved a merger of a newly-formed wholly-owned subsidiary
of BayCorp with and into Great Bay on January 24, 1997. The consolidated assets
and liabilities of Great Bay and its subsidiaries immediately before the
reorganization were the same as the consolidated assets and liabilities of
BayCorp and its subsidiaries immediately after the reorganization. Currently,
Great Bay is the sole subsidiary of BayCorp. BayCorp's principal asset is its
100% equity interest in Great Bay. The new corporate structure enables BayCorp,
either directly or through subsidiaries other than Great Bay, to engage in
businesses that Great Bay would be prohibited from pursuing due to its status as
an exempt wholesale generator under the PUHCA. BayCorp may in the future enter
into new businesses or acquire existing businesses, both in energy related
fields and possibly in unrelated fields.
BayCorp was incorporated in Delaware in March, 1996. Great Bay was
incorporated in New Hampshire in 1986 and was formerly known as EUA Power
Corporation. Great Bay sells its share of the electricity output of the Seabrook
Project in the wholesale electricity market, primarily in the Northeast United
States. Neither BayCorp nor Great Bay has operational responsibilities for the
Seabrook Project. Great Bay's share of the Seabrook Project capacity is
approximately 140 megawatts ("MW"). Great Bay currently sells all but 10 MW of
its share of the Seabrook Project capacity in the short-term market.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial statements included herein have been prepared on
behalf of the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted or
condensed pursuant to such rules and regulations. The Company believes, however,
its disclosures herein, when read in conjunction with the Company's audited
financial statements for the year ended December 31, 1996, are adequate to make
the information presented not misleading. The results for the interim periods
are not necessarily indicative of the results to be expected for the full fiscal
year.
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share. SFAS No. 128 establishes standards for computing and
presenting earnings per share and applies to entities with publicly held common
stock. This statement is effective for fiscal years ending after December 15,
1997 and early adoption is not permitted. The Company will adopt this statement
for its
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BAYCORP HOLDINGS, LTD.
fiscal year ending December 31, 1997 and does not believe that the effect of the
adoption of this standard would be materially different from the amounts
presented in the accompanying statements of income.
NOTE C - COMMITMENTS AND CONTINGENCIES
Nuclear Power, Energy and Utility Regulation
- --------------------------------------------
The Seabrook Project and Great Bay, as part owner of a licensed nuclear
facility, are subject to the broad jurisdiction of the Nuclear Regulatory
Commission ("NRC"), which is empowered to authorize the siting, construction and
operation of nuclear reactors after consideration of public health and safety,
environmental and antitrust matters. Great Bay has been, and will be, affected
to the extent of its proportionate share by the cost of any such requirements
made applicable to Seabrook Unit 1.
Great Bay is also subject to the jurisdiction of the Federal Energy
Regulatory Commission ("FERC") under Parts II and III of the Federal Power Act
and, as a result, is required to file with FERC all contracts for the sale of
electricity. FERC has the authority to suspend the rates at which Great Bay
proposes to sell power, to allow such rates to go into effect subject to refund
and to modify a proposed or existing rate if FERC determines that such rate is
not "just and reasonable." FERC's jurisdiction also includes, among other
things, the sale, lease, merger, consolidation or other disposition of
facilities, interconnection of certain facilities, accounts, service and
property records.
Because it is an Exempt Wholesale Generator ("EWG"), Great Bay is not
subject to the jurisdiction of the Securities and Exchange Commission ("SEC")
under PUHCA. In order to maintain its EWG status, Great Bay must continue to
engage exclusively in the business of owning and/or operating all or part of one
or more "eligible facilities" and to sell electricity only at wholesale (i.e.
not to end users) and activities incidental thereto. An "eligible facility" is a
facility used for the generation of electric energy exclusively at wholesale or
used for the generation of electric energy and leased to one or more public
utility companies. The term "facility" may include a portion of a facility. In
the case of Great Bay, its 12.1% joint ownership interest in the Seabrook
Project comprises an "eligible facility."
Great Bay is subject to regulation by the New Hampshire Public Utilities
Commission ("NHPUC") in many respects including the issuance of securities, the
issuance of debt, contracts with affiliates, forms of accounts, transfers of
utility properties, mortgaging of utility property and other matters. The NHPUC
does not regulate rates charged for sales of electricity at wholesale.
Utility Deregulation; Public Controversy Concerning Nuclear Power Plants
- ------------------------------------------------------------------------
The NHPUC and the regulatory authorities with jurisdiction over utilities
in New Hampshire and state legislatures of several other states in which Great
Bay sells electricity are considering a range of proposals relating to the
deregulation of the utility industry. It is not possible to predict what steps
will be taken by these authorities and legislatures or their impact on Great
Bay.
Nuclear units in the United States have been subject to widespread
criticism and opposition, which has led to construction delays, cost overruns,
licensing delays and other difficulties. Various groups have sought to prohibit
the completion and operation of nuclear units and the disposal of nuclear waste
by litigation, legislation and participation in administrative proceedings. The
Seabrook Project
8
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BAYCORP HOLDINGS, LTD.
was the subject of significant public controversy during its construction and
licensing and remains controversial. An increase in public concerns regarding
the Seabrook Project or nuclear power in general could adversely affect the
operating license of Seabrook Unit 1. While Great Bay cannot predict the
ultimate effect of such controversy, it is possible that it could result in a
premature shutdown of the unit.
In the event of a permanent shutdown of any unit, NRC regulations require
that the unit be completely decontaminated of any residual radioactivity. While
the owners of the Seabrook Project are accumulating a trust fund to pay
decommissioning costs, if these costs exceed the amount of the trust fund, the
owners, including Great Bay, will be liable for the excess.
Decommissioning Liability
- -------------------------
Based on the Financial Accounting Standards Board's ("FASB") tentative
conclusions, the Company has recognized as a liability its proportionate share
of the estimated Seabrook Project decommissioning. The initial recognition of
this liability was capitalized as part of the fair value of the Seabrook plant
at November 23, 1994. The current estimated cost to decommission the Seabrook
Project, based on a study performed for the lead owner of the Plant, is
approximately $439 million in 1996 dollars and $2.3 billion in future year
dollars in years in which decommissioning will occur, assuming a 36-year life
for the facility and a future escalation rate of 5%. Based on this estimate, the
Company's share in 1997 dollars is approximately $53.9 million, which has been
recorded as a liability in the March 31, 1997 balance sheet.
During the first quarter of 1996, the Company began to accrete its share
of the Seabrook Project's Decommissioning Liability. This accretion is a
non-cash charge and recognizes the Company's liability related to the closure
and decommissioning of its nuclear plant in current year dollars over the
licensing period of the plant. As a result of this accretion, the Company's
share of the estimated decommissioning cost increased from $50.2 million as of
December 31, 1995 to $53.9 million as of March 31, 1997.
The Seabrook Project's decommissioning estimate and funding schedule is
subject to review each year by the New Hampshire Nuclear Decommissioning Finance
Committee ("NDFC"). This estimate is based on a number of assumptions. Changes
in assumptions based on factors such as labor and material costs, technology,
inflation and timing of decommissioning could cause these estimates to change in
the near term.
The Staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry regarding the recognition,
measurement and classification of decommissioning costs for nuclear generating
stations and joint owners in the financial statements of these entities. In
response to these questions, the FASB has agreed to review the accounting for
nuclear decommissioning costs. In 1996, the FASB issued an Exposure Draft
entitled "Accounting for Certain Liabilities Related to Closure and Removal of
Long-Lived Assets." Either a revised exposure draft or a final statement is
scheduled for 1997. The Company's accounting for decommissioning was based on
the FASB's original tentative conclusions. If the current exposure draft is
adopted or accounting practices for nuclear power plant decommissioning are
changed, the Company's decommissioning liability and annual provision for
decommissioning could change relative to amounts reflected in the financial
9
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BAYCORP HOLDINGS, LTD.
statements. The Company is uncertain as to the impact, if any, changes in the
current accounting will have on the Company's financial statements.
Although the owners of Seabrook are accumulating funds in an external
trust to defray decommissioning costs, these costs could substantially exceed
the value of the trust fund, and the owners, including the Company, would remain
liable for the excess. The amount that is required to be deposited in the trust
fund is subject to periodic review and adjustment by the NDFC, which could
result in material increases in such amounts.
Under a November 1992 settlement agreement with Eastern Utilities
Associates ("EUA"), a former parent of the Company, EUA reaffirmed its guarantee
of up to $10 million of the Company's future decommissioning costs of Seabrook
Unit 1.
In January 1997, the NRC issued a temporary six month exemption related to
Great Bay's status as an "electric utility" as defined in the NRC's regulations.
In the exemption, the NRC staff stated that it believes that Great Bay currently
does not satisfy the NRC definition of "electric utility." If Great Bay is an
"electric utility," then the NRC decommissioning requirements are satisfied by
Great Bay making monthly payments into the decommissioning trust fund. If Great
Bay is not an "electric utility," the NRC can require that Great Bay provide a
surety bond or other allowable decommissioning funding mechanisms. On February
21, 1997, Great Bay filed a petition with the NRC for partial reconsideration of
the exemption order. In its petition, Great Bay requested that the NRC
reconsider its order and issue a finding that Great Bay is an "electric
utility," or, in the alternative, Great Bay requested an opportunity to orally
argue this matter before the NRC. A review of Great Bay's status as an "electric
utility" by the NRC is currently in process, which may adversely effect Great
Bay's liquidity, possibly materially.
Liquidity and Capital Expenditures
- ----------------------------------
BayCorp anticipates that its share of the Seabrook Project's capital
expenditures for the 1997 fiscal year will total approximately $5.1 million,
primarily for nuclear fuel and various capital projects. This estimated amount
is based on the latest projections provided by the Managing Agent of the
Seabrook Project.
A scheduled refueling outage for the Seabrook Project began May 10, 1997
and is expected to last forty days. During outage periods at the Seabrook
Project, BayCorp has no electricity for resale and consequently no revenues. The
impact of refueling and other outages on the Company's results of operations and
financial position is materially adverse.
Great Bay accrues for the incremental costs of the Seabrook Project's
scheduled outages over the periods between those outages. However, Great Bay
continues to expense the normal Seabrook operating and maintenance expenses as
incurred. Therefore, the Company will incur losses during scheduled outage
periods as a result of the combination of the lack of revenue and the
recognition of normal recurring operation and maintenance costs as well as the
continuing depreciation of the Seabrook Plant.
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BAYCORP HOLDINGS, LTD.
The current refueling outage was rescheduled from its original date of
August 1997 due to reliability concerns expressed by the New England Power Pool
("NEPOOL") regarding the supply of sufficient electricity during New England's
peak summer season. The joint owners of Seabrook will receive reimbursement from
NEPOOL for any additional costs associated with moving the date of the scheduled
refueling outage. The 1997 outage has an estimated total cost of $28 million.
The Company's share is approximately $3.4 million. The estimate is based on a
number of assumptions, including labor and contractor costs, required repairs
and days to perform the outage and plant operations in the interim. Changes in
these and other assumptions could cause this estimate to change in the near
term.
Based on the Seabrook Project budget for this scheduled outage, assuming
that the duration of the outage is forty days and further assuming that only
refueling and routine maintenance is performed, the Company anticipates
incurring a loss of approximately $4,600,000 in the second quarter of 1997
resulting from the decreased revenues coupled with continuing operating and
maintenance expenses and depreciation, as discussed above.
For the second quarter of 1997 and based on the assumptions presented
above, the Company expects to use approximately $5,000,000 of its cash and
equivalents, largely to fund its share of this planned refueling outage.
For each of the tax years 1994, 1995 and 1996, Great Bay has filed
property tax abatement applications with the three New Hampshire towns in which
the Seabrook Project is located. Great Bay paid its 1994, 1995 and the first
half of its 1996 property taxes to the Towns and withheld payment of the second
half of its 1996 property taxes to the Towns, based on the Company's position
that the portion of 1996 property taxes paid to the Towns exceeds the amount of
the total 1996 property taxes appropriately payable by Great Bay to the Towns.
The full assessed amount of property taxes has been accrued and reflected by
Great Bay on its 1997 and 1996 income statements. Under New Hampshire law,
however, Great Bay will be required to pay an interest penalty computed at an
annual rate of 17% on all unpaid taxes if it is unsuccessful in its tax
abatement proceedings against the Towns. As a result of Great Bay's withholding
of its property tax payment for the second half of 1996, two of the three Towns
exercised their right to place a lien on the Seabrook Project: the Town of
Seabrook, effective April 18, 1997 and the Town of Hampton Falls, effective
April 21, 1997. Under New Hampshire law, Seabrook and Hampton Falls cannot take
any action pursuant to their liens until two years after the execution of the
liens. The outcome of the Company's appeals with respect to property tax
assessments will affect the Company's liquidity and obligation for property tax
payments in the future.
As described above, a review of Great Bay's status as an "electric
utility" by the NRC is currently in process, which may adversely affect
BayCorp's and Great Bay's liquidity, possibly materially.
NOTE D - EQUITY
On January 27, 1997 Great Bay Power Corporation announced that it had
received all necessary shareholder and regulatory approvals for the formation of
a holding company structure for Great Bay. As a result of the restructuring,
Great Bay became a wholly-owned subsidiary of BayCorp Holdings, Ltd.
Shareholders of Great Bay common stock received one share of
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BAYCORP HOLDINGS, LTD.
BayCorp common stock for each share of Great Bay common stock which they owned.
The new BayCorp common stock began public trading on the American Stock Exchange
under the symbol "MWH" on January 28, 1997.
On June 4, 1996, the Board of Directors of Great Bay adopted a resolution
authorizing Great Bay to repurchase up to an aggregate of 140,000 shares of
Great Bay's Common Stock on the open market or in privately negotiated
transactions. On March 4, 1997, the Board of Directors of BayCorp adopted a
similar resolution for Baycorp. The authority to repurchase shares established
by this resolution continues to the earlier of June 30, 1997, or a determination
by the Board of Directors to discontinue such repurchases. As of April 30, 1997,
the Company had repurchased 118,945 shares at a cost of $968,415, or an average
price of approximately $8.14 per share, as part of the repurchase program.
The Company has never declared or paid cash dividends on its Common Stock
and currently does not anticipate paying a dividend in the foreseeable future.
Item 2. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations
- ---------------------
Overview
- --------
As a result of a corporate restructuring that was effective January 24,
1997, BayCorp's principal asset is its 100% equity interest in Great Bay. Great
Bay is a public utility whose principal asset is a 12.1% joint ownership
interest in the Seabrook Nuclear Power Project in Seabrook, New Hampshire.
Unless the context requires otherwise, references to BayCorp for events and time
periods before January 24, 1997 reflect treatment of BayCorp as the successor to
Great Bay.
A scheduled refueling outage for the Seabrook Project began on May 10,
1997 and is expected to last forty days. Based on the Seabrook Project budget
for this scheduled outage, assuming that the duration of the outage is forty
days and assuming that only refueling and routine maintenance is performed, the
Company anticipates incurring a loss of approximately $4,600,000 in the second
quarter of 1997 resulting from decreased revenues coupled with continuing
operating and maintenance expenses and depreciation, as discussed above. See
"Liquidity and Capital Expenditures."
Results of Operations: First Quarter of Fiscal 1997 Compared to the First
- -------------------------------------------------------------------------
Quarter of Fiscal 1996
- ----------------------
Operating Revenues
- ------------------
Operating Revenues increased by approximately $1,546,500, or 22.4%, to
$8,437,300 in the first quarter of 1997 as compared to $6,890,800 in the first
quarter of 1996. This increase in revenues was primarily due to increased
availability and production at the Seabrook Project during the first quarter of
1997 as compared to the first quarter of 1996. For the first quarter of 1997,
the capacity factor at the Seabrook plant was 100% versus a capacity factor of
86.1% for the first quarter of 1996. There were unscheduled outages at the
Seabrook plant during January and February of the first quarter of 1996.
Sales of electricity increased by approximately 15.2% to 304,475,500
kilowatt hours in the first quarter of 1997 as compared to 264,134,400 kilowatt
hours in the first quarter of 1996. Operating
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BAYCORP HOLDINGS, LTD.
revenues were also favorably affected in the first quarter of 1997 by an
increase in the sales price per kWh. During the first quarter of 1997 the sales
price per kWh (determined by dividing total sales revenue by the total number of
kWhs sold in the applicable period) increased 6.1% to 2.77 cents per kWh as
compared with 2.61 cents per kWh in the first quarter of 1996. BayCorp's cost of
power (determined by dividing total operating expenses by BayCorp's 12.1% share
of the power produced by the Seabrook Project during the applicable period)
decreased 3% to 2.82 cents per kWh in the first quarter of 1997 as compared to
2.91 cents per kWh in the first quarter of 1996. This decrease was primarily the
result of the higher capacity factor at the Seabrook Project during the first
quarter of 1997 as compared to the first quarter of 1996. Scheduled and
unscheduled outage time increases BayCorp's cost of power because Seabrook costs
are spread over fewer kWhs.
Expenses
Production and Transmission expenses for the first quarter of 1997
increased approximately $766,400, or 19.9%, as compared to the first quarter of
1996. This increase was primarily the result of an increase in the accrual for
nuclear fuel and refueling outage expenses during the first quarter of 1997 as
compared to the first quarter of 1996 due to the acceleration of the current
refueling outage. The Seabrook Project's 1997 refueling outage began May 10,
1997 and is expected to last 40 days.
During the first quarter of 1997, there was an overall increase of
approximately $116,500, or 3%, in depreciation and amortization, taxes, and
administrative and general expenses, from $3,841,900 in the first quarter of
1996 to $3,958,300 in the first quarter of 1997.
Other (Income) Deductions
Decommissioning Cost Accretion increased $100,500, to $665,700 during the
first quarter of 1997 as compared to $565,200 during the first quarter of 1996.
This accretion is a non-cash charge and recognizes Great Bay's liability related
to the closure and decommissioning of its nuclear plant in current year dollars
over the licensing period of the plant. Interest (Income) Expense and
Decommissioning Trust Fund Income increased 46.7%, or $163,500, during the first
quarter of 1997 as compared to the first quarter of 1996. This increase in
interest income reflects the Company's significantly higher cash and investment
balances during the first quarter of 1997 as compared to the first quarter of
1996.
Net Income (Loss)
As a result of the above factors, during the first quarter ended March 31,
1997, the Company recorded a net loss of $288,400, or approximately $.03 per
share, as compared to a net loss of $1,017,300, or approximately $.13 per share,
during the first quarter ended March 31, 1996.
Net Operating Losses
For federal income tax purposes, as of December 31, 1996, the Company had
net operating loss carry forwards ("NOLs") of approximately $174 million, which
are scheduled to expire between 2005 and 2011. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $136 million of these carryforwards. The
Company's best estimate at this
13
<PAGE> 14
BAYCORP HOLDINGS, LTD.
time is that the annual limitation on the use of $136 million of the Company's
NOLs is approximately $5.5 million per year. The Company's other $38 million of
NOLs are not currently subject to such limitations.
Liquidity
BayCorp's cash and short-term investments decreased approximately
$3,650,600 during the first quarter of 1997. Principal factors affecting
liquidity during the first quarter of 1997 included the operating loss discussed
above and cash expenditures of approximately $1,863,000 for capital plant
additions and nuclear fuel purchases and $277,000 for decommissioning trust fund
payments. An increase in Prepaids and Other Assets of approximately $2,844,000
and a decrease in Other working capital items of $1,466,900 primarily reflects
payments to the Seabrook project for nuclear fuel of $4,600,000 and payment of
1996 accruals for Seabrook personnel employee benefits of approximately $680,000
which are payable in the first quarter of each year. Also in the first quarter
of 1997, BayCorp purchased 40,900 shares of the Company's Common Stock for
$336,000. Offsetting these cash charges were non-cash charges to income which
included $862,800 for depreciation, $1,077,900 for nuclear fuel amortization and
decommissioning trust fund accretion of $665,700 and an increase in Taxes
Accrued of $962,500.
This Quarterly Report on Form 10-Q contains forward-looking statements
that involve a number of risks and uncertainties. Any statements contained
herein (including without limitation statements to the effect that the Company,
Great Bay or their management "believes", "expects", "anticipates", "plans" and
similar expressions) that are not statements of historical fact should be
considered forward-looking statements. Among the important factors that could
cause actual results to differ materially from those indicated by such
forward-looking statements are the factors set forth in the Company's Annual
Report on Form 10-K under the caption Management's Discussion and Analysis of
Financial Condition and Results of Operation - Certain Factors That May Affect
Future Results, which are incorporated by reference herein. In addition, risks
and uncertainties relating to the 1997 refueling outage, including delays,
unbudgeted expenses and the need for any non-routine maintenance could cause
actual results to differ materially from the forward-looking statements
contained in this Quarterly Report.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- -------------------------
For each of the tax years 1994, 1995 and 1996, Great Bay has filed
property tax abatement applications with the three New Hampshire towns in which
the Seabrook Project is located. Great Bay paid its 1994, 1995 and half of the
1996 property taxes billed by the Towns of Seabrook, Hampton and Hampton Falls,
New Hampshire (collectively, the "Towns") and withheld payment of the second
half of its 1996 property taxes to the Towns, based on Great Bay's position that
the portion of 1996 property taxes paid to the Towns exceeds the amount of the
total 1996 property taxes appropriately payable by Great Bay to the Towns. The
full assessed amount of property taxes has been accrued and reflected by Great
Bay on its 1997 and 1996 income statements. Under New Hampshire law, however,
Great Bay will be required to pay an interest penalty computed at an annual rate
of 17% on all unpaid taxes if it is unsuccessful in its tax abatement
proceedings against the Towns. As a result of Great Bay's withholding of its
property tax payment for the second half of 1996, two of the three Towns
exercised their right to
14
<PAGE> 15
BAYCORP HOLDINGS, LTD.
place a lien on the Seabrook Project: the Town of Seabrook, effective April 18,
1997 and the Town of Hampton Falls, effective April 21, 1997. Under New
Hampshire law, Seabrook and Hampton Falls cannot take any action pursuant to
their liens until two years after the execution of the liens. Great Bay is
unable to express an opinion as to the likely outcome of this matter.
In December 1996, eight of the Joint Owners of the Seabrook Project (the
"Demanding Joint Owners") served a demand on Great Bay for arbitration of a
dispute between Great Bay and the Demanding Joint Owners concerning the
allocation among the joint owners of real property taxes assessed by the Towns
against the Seabrook Project. Great Bay takes the position that the JOA does not
provide for allocation of real estate tax liabilities in proportion to each
Joint Owner's ownership interest in the Seabrook Project. The Demanding Joint
Owners claim that real estate taxes should be allocated in accordance with
ownership shares. Arbitration proceedings have commenced and Great Bay is unable
to express an opinion as to the likely outcome of this matter.
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) See Exhibit Index
(b) There were no reports on Form 8-K submitted for the three months ended
March 31, 1997.
15
<PAGE> 16
BAYCORP HOLDINGS, LTD.
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.
BAYCORP HOLDINGS, LTD.
May 15, 1997 By: /s/ John A. Tillinghast
-------------------------------------------------
John A. Tillinghast
President, Treasurer and Chief Executive Officer
(Principal Accounting Officer)
16
<PAGE> 17
BAYCORP HOLDINGS, LTD.
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
99 Pages 18-21 of the Company's Annual Report on Form 10-K for
the period ended December 31, 1996 (which is not deemed to
be filed except to the extent that portions thereof are
expressly incorporated by reference herein).
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GREAT BAY POWER CORPORATION FOR THE THREE MONTHS ENDED
MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 13,960
<SECURITIES> 11,164
<RECEIVABLES> 2,684
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 35,384
<PP&E> 109,871
<DEPRECIATION> 7,935
<TOTAL-ASSETS> 151,940
<CURRENT-LIABILITIES> 5,064
<BONDS> 0
0
0
<COMMON> 84
<OTHER-SE> 88,925
<TOTAL-LIABILITY-AND-EQUITY> 151,940
<SALES> 8,437
<TOTAL-REVENUES> 8,437
<CGS> 8,572
<TOTAL-COSTS> 8,572
<OTHER-EXPENSES> (153)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (288)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (288)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
<PAGE> 1
EXHIBIT 99
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
This Annual Report on Form 10-K contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "excepts,"
"intends" and similar expressions are intended to identify forward-looking
statements. There are a number of important factors that could cause the results
of BayCorp and/or Great Bay to differ materially from those indicated by such
forward-looking statements. These factors include, without limitation, those set
forth below and elsewhere in this Annual Report.
Ownership of a Single Asset. BayCorp's sole asset is it equity interest in
Great Bay. Great Bay owns a single principal asset, a 12.1% joint interest in
the Seabrook Nuclear Power Project in Seabrook, New Hampshire. Accordingly,
Great Bay's results of operations are completely dependent upon the successful
and continued operation of the Seabrook Project. In particular, if the Seabrook
Project experiences unscheduled outages of significant duration, Great Bay's
results of operations will be materially adversely affected.
History of Losses; Implementation of Business Strategy. Great Bay has
never reported an operating profit for any year since its incorporation. Great
Bay's business strategy is to seek purchasers for its share of the Seabrook
Project electricity output at prices, either in the short-term market or
pursuant to medium or long-term contracts, significantly in excess of the prices
currently available in the short-term wholesale electricity market since sales
at current short-term rates do not result in sufficient revenue to enable Great
Bay to meet its cash requirements for operations, maintenance and capital
related costs. Great Bay's ability to obtain such higher prices will depend on
regional, national and worldwide energy supply and demand factors which are
beyond the control of Great Bay. There can be no assurance that Great Bay ever
will be able to sell power at prices that will enable it to meet its cash
requirements.
Liquidity Needs. As of December 31, 1996, Great Bay had approximately
$28.8 million in cash and cash equivalents and short-term investments. The
Company believes that such cash, together with the anticipated proceeds from the
sale of electricity by Great Bay, will be sufficient to enable the Company to
meet its cash requirements until the prices at which Great Bay can sell its
electricity increase sufficiently to enable the Company to cover its annual cash
requirements. However, if the Seabrook Project operated at a capacity factor
below historical levels, or if expenses associated with the ownership or
operation of the Seabrook Project, including without limitation decommissioning
costs, are materially higher than anticipated, or if the prices at which Great
Bay is able to sell its share of the Seabrook Project electricity do not
increase at the rates and within the time expected by Great Bay, Great Bay or
the Company would be required to raise additional capital, either through a debt
financing or an equity financing, to meet its ongoing cash requirements. There
is no assurance that Great Bay or the Company would be able to raise such
capital or that the terms on which any additional capital is available would be
acceptable. If additional funds are raised by issuing equity securities,
dilution to then existing stockholders will result.
Changes in Power Sale Contract Terms Available in Wholesale Power
Market. In the past, wholesale sellers of electric power, which typically were
regulated electric utilities, frequently entered into medium or long-term power
sale contracts providing for prices in excess of the prices available in the
short-term market, which includes contracts of one year or less in duration. In
recent years, increased competition in the wholesale electric power market,
reduced growth in the demand for electricity, low prices in the short-term
market and the uncertainty associated with deregulation of the industry have
reduced the willingness of wholesale power purchasers to enter into medium or
long-term contracts and have reduced the prices obtainable from such contracts.
Risks in Connection with Joint Ownership of Seabrook Project. Great Bay is
required under the Agreement for Joint Ownership, Construction and Operation of
New Hampshire Nuclear Units dated May 1, 1973, as amended, by and among Great
Bay and the other 10 utility companies who are owners of the Seabrook Project
(the "JOA"), to pay its share of Seabrook Unit 1 and Seabrook Unit 2 expenses,
including without limitation operations and maintenance expenses, construction
and nuclear fuel expenditures and decommissioning costs, regardless of Seabrook
Unit 1's operations. Under certain circumstances, a failure by
18
<PAGE> 2
Great Bay to make its monthly payments under the JOA entitles certain other
joint owners of the Seabrook Project to purchase Great Bay's interest in the
Seabrook Project for 75% of the then fair market value thereof.
In addition, the failure to make monthly payments under the JOA by owners
of the Seabrook Project other than Great Bay may have a material adverse effect
on Great Bay by requiring Great Bay to pay a greater proportion of the Seabrook
Unit 1 and Seabrook Unit 2 expenses in order to preserve the value of its share
of the Seabrook Project. In the past, certain of the owners of the Seabrook
Project other than Great Bay have not made their full respective payments. The
electric utility industry is undergoing significant changes as competition and
deregulation are introduced into the marketplace. Some utilities, including
certain Participants, have indicated in state regulatory proceedings that they
may be forced to seek bankruptcy protection if regulators, as part of the
industry restructuring, do not allow for full recovery of stranded costs. On
February 28, 1997, the NHPUC issued an order requiring stranded cost recovery to
be based on the average market price of electricity in New England, rather than
alternative regulatory accounting methods that are more favorable to the
Participants. On March 3, 1997, one of the Participants, Northeast Utilities
(along with three of its subsidiaries) commenced litigation against the NHPUC
involving the issue of proper accounting for stranded cost recovery. If a
Participant other than Great Bay were to file for bankruptcy, and such
Participant was unable to pay its share of Seabrook Project expenses, Great Bay
might be required to pay a greater portion of Seabrook Project expenses. In the
past, the filing of bankruptcy by a Participant has not resulted in a failure to
pay Seabrook Project expenses or an increase in the percentage of expenses paid
by other Participants.
The Seabrook Project is owned by Great Bay and the other owners thereof as
tenants in common, with the various owners holding varying ownership shares.
This means that Great Bay, which owns only a 12.1% interest, does not have
control of the management of the Seabrook Project. As a result, decisions may be
made affecting the Seabrook Project notwithstanding Great Bay's opposition.
Certain costs and expenses of operating the Seabrook Project or owning an
interest therein, such as certain insurance and decommissioning costs, are
subject to increase or retroactive adjustment based on factors beyond BayCorp's
or Great Bay's control. The cost of disposing of Unit 2 of the Seabrook Project
is not known at this time. These various costs and expenses may adversely affect
Great Bay, possibly materially.
Extensive Government Regulation. The Seabrook Project is subject to
extensive regulation by federal and state agencies. In particular, the Seabrook
Project and Great Bay as part owner of a licensed nuclear facility, are subject
to the broad jurisdiction of the NRC, which is empowered to authorize the
siting, construction and operation of nuclear reactors after consideration of
public health and safety, environmental and antitrust matters. Great Bay is also
subject to the jurisdiction of the FERC and, as a result, is required to file
with FERC all contracts for the sale of electricity. FERC has the authority to
suspend the rates at which Great Bay proposes to sell power, to allow such rates
to go into effect subject to refund and to modify a proposed or existing rate if
FERC determines that such rate is not "just and reasonable." FERC's jurisdiction
also includes, among other things, the sale, lease, merger, consolidation or
other disposition of facilities, interconnection of certain facilities,
accounts, service and property records. Compliance with the various requirements
of the NRC and FERC is expensive. Noncompliance with NRC requirements may
result, among other things, in a shutdown of the Seabrook Project.
The NRC has promulgated a broad range of regulations affecting all aspects
of the design, construction and operation of a nuclear facility, such as the
Seabrook Project, including performance of nuclear safety systems, fire
protection, emergency response planning and notification systems, insurance and
quality assurance. The NRC retains authority to modify, suspend or withdraw
operating licenses, such as that pursuant to which the Seabrook project
operates, at any time that conditions warrant. The NRC might order Seabrook Unit
1 shut down (i) if flaws were discovered in the construction or operation of
Seabrook Unit 1, (ii) if problems developed with respect to other nuclear
generating plants of a design and construction similar to Unit 1, or (iii) if
accidents at other nuclear facilities suggested that nuclear generating plants
generally were less safe than previously believed.
Great Bay is also subject to the New Hampshire public utility law and
regulations of the NHPUC which affect, among other things, the issuance of
securities, transfer of utility property and contacts with affiliates as
19
<PAGE> 3
well as the sale, lease, merger, consolidation or other disposition of
facilities. The NHPUC does not regulate wholesale electricity rates.
Risk of Nuclear Accident. Nuclear reactors have been used to generate
electric power for more than 30 years and there are currently more than 100
nuclear reactors used for electric power generation in the United States.
Although the safety record of such nuclear reactors in the United States
generally has been very good, accidents and other unforeseen problems have
occurred both in the United States and elsewhere, including the well-publicized
incidents at Three Mile Island in Pennsylvania and Chernobyl in the former
Soviet Union. The consequences of such an accident can be severe, including loss
of life and property damage, and the available insurance coverage may not be
sufficient to pay all the damages incurred.
Public Controversy Concerning Nuclear Power Plants. Substantial
controversy has existed for some time concerning nuclear generating plants and
over the years such opposition has led to construction delays, cost overruns,
licensing delays, demonstrations and other difficulties. The Seabrook Project
was the subject of significant public controversy during its construction and
licensing and remains controversial. An increase in public concerns regarding
the Seabrook Project or nuclear power in general could adversely affect the
operating license of Seabrook Unit 1. While Great Bay cannot predict the
ultimate effect of such controversy, it is possible that it could result in a
premature shutdown of the unit.
Waste Disposal; Decommissioning Cost. There has been considerable public
concern and regulatory attention focused upon the disposal of low- and
high-level nuclear wastes produced at nuclear facilities and the ultimate
decommissioning of such facilities. As to waste disposal concerns, both the
federal government and the State of New Hampshire are currently delinquent in
the performance of their statutory obligations. See "Business -- Nuclear Waste
Disposal." In April 1995, a privately owned facility in Utah was approved as a
disposal facility for certain types of LLW. Additionally, the Barnwell, South
Carolina disposal facility was reopened in July 1995 to all states except North
Carolina as a result of legislation passed by the South Carolina legislature.
The Seabrook Project began shipping certain LLW to the Utah facility in December
1995. All LLW generated by the Seabrook Project which exceeds the maximum
radioactivity level of LLW accepted by the Utah facility is stored on-site at
the Seabrook facility. Based on information provided by NAESCO, management
believes that the on-site storage capacity for LLW generated by the Seabrook
Project is adequate until at least 2006.
As to decommissioning, the NRC regulations require that upon permanent
shutdown of a nuclear facility, appropriate arrangements for full
decontamination and decommissioning of the facility be made. These regulations
include a requirement to set aside during operation sufficient funds to defray
decommissioning costs. While the owners of the Seabrook Project are accumulating
a trust fund to defray decommissioning costs, these costs could substantially
exceed the value of the trust fund, and the owners (including Great Bay) would
remain liable for the excess. Moreover, the amount that is required to be
deposited in the trust fund is subject to periodic review and adjustment by an
independent commission of the State of New Hampshire, which could result in
material increases in such amounts.
In January 1997, the NRC issued a temporary exemption related to Great
Bay's status as an "electric utility" as defined in the NRC's regulations. In
the exemption, the NRC staff stated that it believes that Great Bay currently
does not satisfy the NRC definition of "electric utility." If Great Bay is an
"electric utility," then the NRC decommissioning requirements are satisfied by
Great Bay making monthly payments into the decommissioning trust fund. If Great
Bay is not an "electric utility," the NRC can require that Great Bay provide a
surety bond or other allowable decommissioning funding mechanisms. A review of
Great Bay's status as an "electric utility" by the NRC is currently in process,
which may materially and adversely affect Great Bay's liquidity.
Intense Competition. Great Bay sells its share of Seabrook Project
electricity primarily into the Northeast United States wholesale electricity
market. There are a large number of suppliers to this market and competition is
intense. A primary source of competition comes from traditional utilities, many
of which presently have excess capacity. In addition, non-utility wholesale
generators of electricity, such as IPPs, QFs and EWGs, as well as power
marketers and brokers, actively sell electricity in this market. Great Bay may
face increased competition, primarily based on price, from all sources in the
future.
20
<PAGE> 4
Risk Related to Holding Company. In contrast with Great Bay, the
activities of BayCorp will not be subject to the extensive government regulation
related to public utilities and licensed nuclear facilities. Thus, BayCorp will
not receive the benefit of the scrutiny by federal and state agencies that Great
Bay receives. In addition, BayCorp may pursue activities with a greater business
risk than those associated with a regulated entity such as Great Bay. Depending
on the success of any new activities that BayCorp determines to pursue, it is
possible that BayCorp's earnings per share and dividends, if any, might be lower
than if BayCorp did not pursue such activities.
