<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 September 30, 2000
------------------
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.)
20 INTERNATIONAL DRIVE, SUITE 301
PORTSMOUTH, NEW HAMPSHIRE
03801-6809
(Address of principal executive offices)
(Zip code)
603-431-6600
(Registrant's telephone number, including area code)
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
--- ---
The number of shares outstanding of the Registrant's common stock as of
September 30, 2000 was 8,314,300.
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BAYCORP HOLDINGS, LTD.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Consolidated Statements of Income and Comprehensive Income -
Three and Nine Months Ended September 30, 2000 and 1999................3
Consolidated Balance Sheets at September 30, 2000
and December 31, 1999................................................4-5
Consolidated Statements of Cash Flows - Nine
Months Ended September 30, 2000 and 1999...............................6
Notes to Financial Statements............................................7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations................................15-20
Item 3 - Quantitative and Qualitative Disclosures About Market Risk.....20
PART II - OTHER INFORMATION:
Item 6 - Exhibits and Reports on Form 8-K............................20-21
Signature...............................................................22
Exhibit Index...........................................................23
2
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BAYCORP HOLDINGS, LTD.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(Dollars in Thousands, except shares and per share data)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Revenues $ 16,919 $ 15,801 $ 46,612 $ 33,355
Operating Expenses
Production 5,880 4,653 17,666 14,081
Transmission 266 212 823 648
Purchased Power 561 5,254 4,302 10,121
Administrative & General 10,634 2,300 30,806 5,194
Depreciation & Amortization 1,519 1,067 4,534 2,944
Unrealized Loss on Firm Forward Contracts 1,776 495 8,819 801
Taxes other than Income 1,068 1,374 3,392 3,462
----------- ----------- ----------- -----------
Total Operating Expenses 21,704 15,355 70,342 37,251
Operating (Loss) Income (4,785) 446 (23,730) (3,896)
Other (Income) Deductions:
Interest and Dividend Income (327) (153) (842) (452)
Decommissioning Cost Accretion 908 816 2,724 2,449
Decommissioning Trust Fund Income (371) (166) (1,004) (455)
Other Deductions (Income) 72 69 (109) 84
----------- ----------- ----------- -----------
Total Other Deductions 282 566 769 1,626
Loss Before Income Taxes (5,067) (120) (24,499) (5,522)
Income Taxes 0 0 0 0
----------- ----------- ----------- -----------
Net Loss Before Minority Interest (5,067) (120) (24,499) (5,522)
Less: Minority Interest in Loss of Subsidiary (3,150) 0 (8,951) 0
----------- ----------- ----------- -----------
Net Loss Before Cumulative Effect
of Change in Accounting Principle (1,917) (120) (15,548) (5,522)
Cumulative Effect of Change in
Accounting Principle 0 0 0 159
----------- ----------- ----------- -----------
Net Loss (1,917) (120) (15,548) (5,363)
Other Comprehensive Income, Net of Tax
Unrealized Gain (Loss) on Securities 938 (240) 722 (610)
----------- ----------- ----------- -----------
Comprehensive Loss $ (979) $ (360) $ (14,826) $ (5,973)
=========== =========== =========== ===========
Weighted Average Shares Outstanding 8,303,173 8,215,100 8,282,261 8,199,750
Basic and Diluted Loss Per Share $ (0.23) $ (0.01) $ (1.88) $ (0.65)
</TABLE>
(The accompanying notes are an integral part of these consolidated statements.)
3
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BAYCORP HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
Unaudited Audited
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash & Cash Equivalents $ 18,896 $ 3,180
Restricted Cash - Escrow 2,718 2,503
Short-term Investments, at market 3,811 381
Accounts Receivable 4,941 4,564
Materials & Supplies, net 4,598 4,611
Prepayments & Other Assets 5,337 3,162
----------- -----------
Total Current Assets 40,301 18,401
Property, Plant, & Equipment:
Utility Plant Assets 122,168 121,043
Non-Utility Plant Assets 11,890 3,203
----------- -----------
Total Property, Plant and Equipment 134,058 124,246
Less: Accumulated Depreciation (20,537) (16,331)
----------- -----------
Net Utility Plant 113,521 107,915
Nuclear Fuel 26,067 20,243
Less: Accumulated Amortization (15,590) (11,863)
----------- -----------
Net Nuclear Fuel 10,477 8,380
Net Property, Plant & Equipment and Fuel 123,998 116,295
Other Assets:
Decommissioning Trust Fund 27,463 24,483
Deferred Debits & Other 14 5
----------- -----------
Total Other Assets 27,477 24,488
TOTAL ASSETS $ 191,776 $ 159,184
=========== ===========
</TABLE>
(The accompanying notes are an integral part of these consolidated statements.)
4
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BAYCORP HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
Unaudited Audited
------------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses $ 8,439 $ 2,413
Unrealized Losses on Firm Forward Energy Contracts 9,466 647
Miscellaneous Current Liabilities 4,029 3,663
------------- -------------
Total Current Liabilities 21,934 6,723
Operating Reserves:
Decommissioning Liability 82,168 79,443
Miscellaneous Other 491 545
------------- -------------
Total Operating Reserves 82,659 79,988
Other Liabilities & Deferred Credits 6,476 6,227
Minority Interest in Subsidiary (5,868) 0
Preferred Stock of Subsidiaries 34,433 0
Commitments & Contingencies 0 0
Stockholders' Equity:
Common stock, $.01 par value,
Authorized - 20,000,000 shares,
Issued and Outstanding - 8,540,100 and
8,457,800, respectively 85 84
Less: Treasury Stock - 225,800 shares at cost (1,629) (1,629)
Additional paid-in capital 93,018 92,295
Cumulative Translation Adjustment (3) 0
Accumulated Other Comprehensive Income 719 (3)
Accumulated Deficit (40,048) (24,501)
------------- -------------
Total Stockholders' Equity 52,142 66,246
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 191,776 $ 159,184
============= =============
</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>
Nine Months Ended September 30,
2000 1999
----------- -----------
<S> <C> <C>
Net cash flow from operating activities:
Net Loss $(15,548) $ (5,363)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Cumulative effect of change in accounting principle 0 (159)
Minority interest in loss of subsidiary (8,951) 0
Depreciation and amortization 4,533 2,944
Amortization of nuclear fuel 3,726 2,840
Unrealized loss on firm forward energy contracts 8,819 801
Decommissioning trust accretion 2,724 2,449
Decommissioning trust interest (1,004) (455)
Increase in accounts receivable (378) (789)
Decrease in materials & supplies 148 106
(Increase) decrease in prepaids and other assets (2,189) 622
Increase in accounts payable 5,491 1,140
Increase in taxes accrued 116 695
Increase (decrease) in other accruals 922 (1,045)
-------- --------
Net cash (used in) provided by operating activities (1,591) 3,786
Net cash flows used in investing activities:
Purchases of property and equipment (9,811) (3,475)
Nuclear fuel additions (5,823) (519)
Payments to decommissioning fund (1,323) (1,272)
Short term investments, net (3,430) 4,961
-------- --------
Net cash used in investing activities (20,387) (305)
Net cash provided by financing activities:
Stock options exercised 476 196
Proceeds from issuance of Subsidiary stock 37,438 0
-------- --------
Net cash provided by financing activities 37,914 196
Cumulative Translation Adjustment (5) 0
Net increase in cash and cash equivalents 15,931 3,677
Cash and cash equivalents, beginning of period 5,683 2,559
-------- --------
Cash and cash equivalents, end of period $ 21,614 $ 6,236
======== ========
</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") is a holding company
that was incorporated in Delaware in 1996. Through its subsidiaries, BayCorp
operates in two business segments - an Internet-based energy trading and
information business and a wholesale electricity generation and trading
business.
The Company's majority-owned subsidiary, HoustonStreet Exchange, Inc.
("HoustonStreet"), developed and operates HoustonStreet.com, an Internet-based
trading platform and information portal for wholesale energy traders.
HoustonStreet offers an online trading exchange that allows utilities,
independent power producers and power marketers to trade electricity over the
Internet in the United States and in parts of Europe. Currently, HoustonStreet
also offers online trading exchanges for crude oil and refined products in the
United States. HoustonStreet plans to develop and launch trading platforms for
natural gas and other energy-related commodities. HoustonStreet is also
exploring opportunities to license its trading platform for use in other
non-energy business-to-business markets. HoustonStreet initially launched its
Internet-based wholesale electricity trading exchange in the Northeast in July
1999 and expanded throughout the United States in September 1999. In May 2000,
HoustonStreet launched web-based exchanges for the trading of crude oil and
refined products in the United States.
HoustonStreet's majority-owned subsidiary, HoustonStreet B.V., a
Netherlands company, owns and operates HoustonStreet Exchange, Ltd. in London,
Great Britain, headquarters for HoustonStreet's European operations. In
September 2000, HoustonStreet launched its European operations for electricity
trading. The Company is rolling out the platform in stages, having begun with
Great Britain and Wales, the Netherlands, Switzerland, Austria and Germany. In
addition to its sophisticated trading capabilities, HoustonStreet plans to offer
other services through its portal and facilitate integration of HoustonStreet
with trading companies' mid- and back-office systems to enable near real time
risk management.
The Company's two other subsidiaries, Great Bay Power Corporation ("Great
Bay") and Little Bay Power Corporation ("Little Bay"), are electricity
generation and trading companies. BayCorp wholly owns Great Bay and Little Bay,
which in turn own a combined 15% joint ownership interest in the Seabrook
Nuclear Power Project in Seabrook, New Hampshire (the "Seabrook Project"). This
ownership interest entitles the companies to approximately 174 megawatts ("MW")
of the Seabrook Project's power output. Neither BayCorp nor its subsidiaries
have operational responsibilities for the Seabrook Project. Great Bay and Little
Bay are exempt wholesale generators ("EWGs") under the Public Utility Holding
Company Act of 1935 ("PUHCA"). Unlike regulated public utilities, Great Bay and
Little Bay have no franchise area or captive customers. The companies sell their
power in the competitive wholesale power markets.
Great Bay and Little Bay currently sell all but approximately 10 MW of
their share of the Seabrook Project capacity in the wholesale short-term market.
In addition to selling its generation from Seabrook, Great Bay may purchase
power on the open market for resale to third parties.
On October 12, 2000, BayCorp announced that it reached an agreement with
Northeast Utilities ("NU") under which Great Bay and Little Bay will join with
NU in the sale of their ownership interests in the Seabrook Project. NU has
advised the Company that it expects to begin an auction to sell its interest in
the Seabrook Project during the first half of 2001 with a closing expected in
late 2001 or early 2002.
7
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BAYCORP HOLDINGS, LTD.
By retaining its interest in the Seabrook Project in 2001, the Company expects
to continue to generate operating revenues from its electricity generating
business throughout 2001.
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 ("SEC") 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, 1999 as filed on Form 10-K,
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.
The Company adopted SFAS No. 130, Reporting Comprehensive Income, effective
January 1, 1998. Accumulated Other Comprehensive Income and the current period
charge are as follows:
<TABLE>
<CAPTION>
Three Month Nine Month
Unrealized Unrealized
Income (Loss) Income (Loss)
on Securities on Securities
<S> <C> <C>
Beginning Balance $ (218,300) $ (2,700)
Current Period Charge 937,500 721,900
------------- -------------
Ending Balance $ 719,200 $ 719,200
============= =============
</TABLE>
Great Bay has entered into certain firm forward sale and purchase
commitments to help ensure stable cash flow, favorable prices and income, as
well as capture any long-term increases in value. In December 1998, the Emerging
Issues Task Force reached consensus on Issue No. 98-10, Accounting for Contracts
Involved in Energy Trading and Risk Management Activities ("EITF 98-10"). EITF
98-10 was effective for fiscal years beginning after December 15, 1998. EITF
98-10 requires firm forward energy trading contracts to be recorded at fair
value on the balance sheet, with the changes in fair value included in earnings.
The effects of initial application of EITF 98-10 have been reported as a
cumulative effect of a change in accounting principle. Financial statements for
periods prior to initial adoption of EITF 98-10 have not been restated. The
cumulative effect of this accounting change as of January 1, 1999 was an
increase in net income of approximately $159,000 to recognize gains on net open
firm purchase and sales commitments considered to be trading activity. As of
September 30, 2000, the Company had a net unrealized loss of approximately
$9,465,600. The net change in unrealized loss on firm forward contracts for the
third quarter ended September 30, 2000 was $1,775,500 and for the nine months
ended September 30, 2000 was $8,818,600 and is included in the accompanying
consolidated statements of income.
Minority interest and preferred stock of subsidiaries consists of equity
securities, issued by the Company's subsidiary, HoustonStreet and
HoustonStreet's subsidiary HoustonStreet B.V. No gain or loss was recognized as
a result of the issuance of these securities, and the Company owned the majority
of the voting equity of HoustonStreet both before and after the transactions.
HoustonStreet Exchange, Inc. also owns the majority of the voting equity of
HoustonStreet B.V.
8
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BAYCORP HOLDINGS, LTD.
NOTE C - COMMITMENTS AND CONTINGENCIES
NUCLEAR POWER, ENERGY AND UTILITY REGULATION.
The Seabrook Project and Great Bay and Little Bay, as part owners 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 and Little Bay
have been, and will be, affected to the extent of their proportionate share by
the cost of any such requirements made applicable to the Seabrook Project.
Great Bay and Little Bay are 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, are required to file with FERC all contracts
for the sale of electricity. FERC has the authority to suspend the rates at
which Great Bay and Little Bay propose 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 they both are EWG's, Great Bay and Little Bay are not subject to
the jurisdiction of the SEC under PUHCA. In order to maintain their EWG status,
Great Bay and Little 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 and
Little Bay, their combined 15% joint ownership interest in the Seabrook Project
comprises an "eligible facility."
UTILITY DEREGULATION; PUBLIC CONTROVERSY CONCERNING NUCLEAR POWER PLANTS
The New Hampshire Public Utilities Commission ("NHPUC") and the regulatory
authorities with jurisdiction over utilities in New Hampshire and state
legislatures of several other states in which Great Bay and Little Bay sell
electricity are considering or are implementing initiatives relating to the
deregulation of the electric utility industry. All of the deregulation
initiatives open electricity markets to competition in the affected states.
While Great Bay and Little Bay believe they are low-cost producers of
electricity and will benefit from the deregulation of the electric industry, it
is not possible to predict the impact of these various initiatives on the
companies.
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 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 the Company
cannot predict the ultimate effect of such controversy, it is possible that it
could result in a premature shutdown of the unit.
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BAYCORP HOLDINGS, LTD.
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 monies in a trust fund to
pay decommissioning costs, if these costs exceed the amount of the trust fund,
the owners, including Great Bay and Little Bay, will be liable for the excess.
DECOMMISSIONING LIABILITY
Based on the Financial Accounting Standards Board's ("FASB") tentative
conclusions, Great Bay and Little Bay have recognized as a liability their
proportionate share of the present value of the estimated cost of the Seabrook
Project decommissioning. For Great Bay, the initial recognition of this
liability was capitalized as part of the Fair Value of the Utility Plant at
November 23, 1994. For Little Bay, the amount was provided for in the purchase
price allocation. 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 for such things as labor and material
costs, technology, inflation and timing of decommissioning could cause these
estimates to change, possibly materially, in the near term.
During April 1999, the NDFC issued an order that adjusted the
decommissioning collection period and funding levels based on the NDFC's opinion
that the anticipated energy producing life of the Seabrook Project was
twenty-five years from the time it went into commercial operation. This is
eleven years earlier than the service life established by Seabrook's NRC
operating license. The order also updated Seabrook's decommissioning estimate to
$565 million (in 2000 dollars). Based on this estimate, the value of Great Bay
and Little Bay's share of the decommissioning estimate in 2000 dollars is
approximately $84.8 million.
Great Bay and Little Bay accrete their share of the Seabrook Project's
decommissioning liability. This accretion is a non-cash charge and recognizes
their liability related to the closure and decommissioning of their nuclear
plant in current year dollars over the licensing period of the plant.
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 agreed to review the accounting for nuclear decommissioning
costs. On February 7, 1996, the FASB issued an Exposure Draft entitled
"Accounting for Certain Liabilities Related to Closure and Removal of Long-Lived
Assets." On February 17, 2000, the FASB issued a "Revision of Exposure Draft
issued February 7, 1996, Proposed Statement of Financial Accounting Standards:
Accounting for Obligations Associated with the Retirement of Long-Lived Assets."
Great Bay and Little Bay's accounting for decommissioning is based on the FASB's
original tentative conclusions. The proposed Statement requires that an
obligation associated with the retirement of a tangible long-lived asset be
recognized as a liability when incurred, and that the amount of the liability
resulting from (a) the passage of time and (b) revisions to either the timing or
the amount of estimated cash flows should also be recognized. The proposed
Statement also requires that, upon initial recognition of a liability for an
asset retirement obligation, an entity capitalize that cost by recognizing an
increase in the carrying amount of the related long-lived asset. Upon adoption,
the proposed statement would be effective for financial statements issued for
fiscal years beginning after June 15, 2001.
Great Bay and Little Bay, based on the initial exposure draft, have been
recognizing a liability based on the present value of the estimated future cash
outflows required to satisfy their obligations using a risk free interest rate.
The proposed Statement requires the initial measurement of the liability to be
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BAYCORP HOLDINGS, LTD.
based on fair value, where the fair value is the amount that an entity would be
required to pay in an active market to settle the asset retirement obligation in
a current transaction in circumstances other than a forced liquidation or
settlement. Because in most circumstances, a market for settling asset
retirement obligations does not exist, the FASB described an expected present
value technique for estimating fair value. If the proposed Statement is adopted,
Great Bay's and Little Bay's decommissioning liability and annual provision for
decommissioning accretion could change relative to 2000. Great Bay and Little
Bay have not quantified the impact, if any, that the proposed Statement will
have on their financial statements.
Funds collected by Seabrook for decommissioning are deposited in an
external irrevocable trust pending their ultimate use. The earnings on the
external trusts also accumulate in the fund balance. The trust funds are
restricted for use in paying the decommissioning of Unit 1. The investments in
the trust are available for sale. Great Bay and Little Bay have therefore
reported their investment in trust fund assets at market value and any
unrealized gains and losses are reflected in equity. There was an unrealized
holding gain of $759,800 as of September 30, 2000.
Based on the currently approved funding schedule and Great Bay's funding
schedule, Great Bay's decommissioning payments will be approximately $1.8
million in 2000 and escalate at 4% each year thereafter through 2015. Little
Bay's share of decommissioning costs was prefunded by Montaup Electric Company,
the owner of the 2.9% interest in the Seabrook Project that Little Bay acquired
in November 1999. As part of that acquisition, Montaup Electric Company
transferred approximately $12.4 million into Little Bay's decommissioning
account, an irrevocable trust earmarked for Little Bay's share of Seabrook Plant
decommissioning expenses.
SALE OF OWNERSHIP IN SEABROOK NUCLEAR POWER PLANT
In October 2000, BayCorp announced that it had reached an agreement with NU
under which Great Bay and Little Bay will join with NU in the sale of their
ownership interests in the Seabrook Project.
Under the agreement, the two BayCorp subsidiaries will include their
aggregate 15% ownership share, or approximately 174 megawatts, in the upcoming
auction of NU's subsidiaries' shares of the plant, as called for under the
settlement agreement reached in 1999 with the State of New Hampshire. NU is the
largest owner of the Seabrook Project and NU's subsidiary, North Atlantic Energy
Service Corporation ("NAESCO"), is the operator of the plant. Based on
anticipated proceeds from the sale, the Company does not expect to incur a loss
on this transaction.
As part of its agreement with NU, Great Bay also agreed to withdraw its
appeal of the restructuring agreement for deregulation in New Hampshire between
NU and the State of New Hampshire. Great Bay's withdrawal of its appeal avoids a
potential lengthy court battle and should help deregulation move forward
expeditiously in New Hampshire.
Under the terms of the agreement, BayCorp will receive the sales price
established by the auction process. In the event that the sale yields proceeds
for BayCorp of more than $87.19 million, BayCorp and NU will share the excess
proceeds. Should BayCorp's sales proceeds be less than $87.19 million, NU will
make up the difference below that amount on a dollar-for-dollar basis up to a
maximum of $17.44 million. Under the agreement, BayCorp will be paid separately
for nuclear fuel and inventory. BayCorp estimates the sale of nuclear fuel and
inventory to provide additional proceeds of approximately $10 million to $14
million. The agreement also limits any top-off amount required to be funded by
BayCorp
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BAYCORP HOLDINGS, LTD.
for decommissioning as part of the sale process at the amount required by NRC
regulations. BayCorp estimates this potential exposure to be less than $10
million.
NU has advised the Company that it expects to begin an auction to sell its
interest in the Seabrook Project during the first half of 2001 with a closing
expected in late 2001 or early 2002. Initiation of the auction depends upon both
the NHPUC and the Connecticut Department of Public Utilities Control approving
divestiture plans and NU's engaging a sales agent. As a result, BayCorp expects
to sell its Seabrook power entitlement into the New England market for all of
2001.
NOTE D - HOUSTONSTREET FINANCING ACTIVITY AND RELATIONSHIPS
EQUIVA RELATIONSHIP
In February 2000, HoustonStreet sold $6.0 million of its common stock and
Series A convertible preferred stock to Equiva Trading Company ("Equiva").
Equiva is a hydrocarbon supply and trading partnership jointly owned by Equilon
Enterprises LLC ("Equilon") and Motiva Enterprises LLC ("Motiva"). Equilon is
owned by Shell Oil Company and Texaco Inc. Motiva is owned by Shell Oil Company,
Texaco Inc. and Saudi Refining Inc., an affiliate of Saudi Aramco.
Also in February 2000, HoustonStreet announced plans to launch the first
Web exchanges for wholesale crude oil and refined products trading. At that
time, HoustonStreet entered into agreements with Equiva under which Equiva
agreed to share its knowledge of the oil trading industry with HoustonStreet and
to pay HoustonStreet at least $1.5 million over a two year period as minimum
trading commissions generated through Equiva's use of HoustonStreet's crude and
refined oil products trading exchange.
Pursuant to additional agreements, Equiva committed to make markets and
promote liquidity for all of the primary products traded on HoustonStreet's
crude and refined oil products trading exchange. HoustonStreet's management
believes that Equiva's reputation as a leader in the energy trading markets,
coupled with Equiva's commitment to make markets on HoustonStreet, increases the
probability of success for HoustonStreet's crude and refined oil products
exchange.
Notwithstanding HoustonStreet's relationship with Equiva or any other
strategic partner or financial investor, HoustonStreet provides a neutral,
secure and anonymous trading platform. HoustonStreet does not take title to any
products traded on HoustonStreet.com nor compete with any users of the system.
OTHER SERIES A AND SERIES B FINANCING ACTIVITY
In addition to sales of its capital stock to Equiva, HoustonStreet sold
$24.1 million of its common stock and Series A and Series B convertible
preferred stock to other investors including Williams Energy Marketing and
Trading Company, Omega Advisors, Inc., Elliot Associates, L.P., Thomas H. Lee
Company, Sapient Corporation, kRoad Ventures L.P., Vivendi S.A. and Conoco, Inc.
Collectively with the Equiva investments, HoustonStreet raised $30.1 million in
gross proceeds through these stock sales.
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BAYCORP HOLDINGS, LTD.
As a result, BayCorp owned approximately 50.04% of HoustonStreet stock (on an as
converted to common stock basis) as of September 30, 2000.
In September 2000, HoustonStreet B.V., HoustonStreet's holding company for
its European operations, sold $7.3 million of its Series A Preferred Stock to
three European energy companies, Electrabel, RWE and Vattenfall. As a result,
HoustonStreet owned approximately 86% of HoustonStreet B.V. stock (on an as
converted to common stock basis) as of September 30, 2000.
ENRON RELATIONSHIP
In July 2000, HoustonStreet signed a Memorandum of Understanding with
EnronOnline. Under this arrangement, North American electricity and natural gas
prices posted on EnronOnline will automatically be posted on HoustonStreet.com.
After the software links are completed, traders will be able to act on the
EnronOnline prices via either platform. In September 2000, HoustonStreet and
Enron Net Works LLC entered into a Common Stock Purchase Agreement, under which
HoustonStreet will issue HoustonStreet common stock in exchange for cash and
certain contractual rights provided to HoustonStreet by Enron. The closing is
subject to customary closing conditions. The waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, has expired.
Consequently, the transaction has received the only necessary regulatory
approval.
As a result of the transaction, the Company will not have voting control of
HoustonStreet after the closing of the transaction. The Company therefore
expects to deconsolidate HoustonStreet during the fourth quarter of 2000 and
expects a gain as a result of applying the equity method of accounting for
HoustonStreet.
The Company believes that the addition of EnronOnline pricing will
correspond with the launch of HoustonStreet's natural gas platform, which is
expected to occur in early 2001.
NOTE E - EQUITY
BayCorp has never paid cash dividends on its common stock and currently
expects that it will retain all of its future earnings and does not anticipate
paying a dividend in the foreseeable future.
NOTE F - SEGMENT INFORMATION
BayCorp is a holding company for Great Bay, Little Bay and HoustonStreet.
The Company operates primarily in two segments, each of which is managed
separately because each segment sells distinct products and services. Great Bay
and Little Bay constitute the electricity generation and trading business
segment, whose principal asset is a combined 15% joint ownership interest in the
Seabrook Project and sell their combined power in the competitive wholesale
power markets. HoustonStreet, the Internet-based energy trading and information
business, operates a Web portal for trading wholesale electric power, crude oil
and refined products and charges commissions for these energy products traded on
its site, HoustonStreet.com.
Management utilizes more than one measurement and multiple views of data to
measure segment performance and to allocate resources to the segments. However,
the dominant measurements are consistent with the Company's consolidated
financial statements and, accordingly, are reported on the same basis herein.
Management evaluates the performance of its segments and allocates resources to
them primarily based on cash flows and overall economic returns. Intersegment
sales are generally accounted for at amounts comparable to sales to unaffiliated
customers and are eliminated in consolidation.
13
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BAYCORP HOLDINGS, LTD.
<TABLE>
<CAPTION>
As of and for the
nine months ended Great Bay and
September 30 ($000's) Little Bay HoustonStreet Corporate Eliminations Total
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
2000
----
Revenues 51,246 214 1,434 6,282 46,612
Depreciation
&
Amortization 2,980 1,554 0 0 4,534
Operating Expenses 44,304 26,059 1,727 6,282 65,808
Interest Expense 12 0 0 0 12
Segment Net Income
(Loss) 2,901 (18,201) (18,449) 18,201 (15,548)
Total Assets 184,990 22,569 57,203 72,987 191,776
Capital Expenditures 1,125 8,686 0 0 9,811
-----------------------------------------------------------------------------------------------------------
1999
----
Revenues 33,350 5 1,784 1,784 33,355
Depreciation &
Amortization 2,793 129 22 0 2,944
Operating Expenses 33,522 1,302 1,108 1,784 34,148
Interest Expense 14 0 0 0 14
Segment Net Income
(Loss) (4,603) (1,426) 666 0 (5,363)
Total Assets 135,907 1,894 66,212 66,096 137,917
Capital Expenditures 1,657 1,818 0 0 3,475
</TABLE>
HoustonStreet's majority owned subsidiary, HoustonStreet B.V., a holding
company for HoustonStreet Exchange, Ltd., launched operations in Europe. As of
September 30, 2000, HoustonStreet B.V. reported no revenues and had total assets
of approximately $8,033,000.
NOTE G - NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities ("SFAS 133"). SFAS 133 establishes accounting
and reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting.
SFAS 133, as amended by SFAS 137 and 138, will be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. A company may also
implement SFAS 133 as of the beginning of
14
<PAGE> 15
BAYCORP HOLDINGS, LTD.
any fiscal quarter after issuance (that is, fiscal quarters beginning June 16,
1998 and thereafter). SFAS 133 cannot be applied retroactively. SFAS 133 must be
applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998).
The Company has established a schedule for implementation by January 1,
2001, as required by SFAS 133, as amended. As of September 30, 2000, the Company
has taken an inventory of the majority of its contracts and for each of those
contracts has considered the impact of SFAS 133 on such contracts. Based on such
evaluation and work performed to date, SFAS 133, as amended, is not expected to
have a material effect on the financial position or results of operations of the
Company. The Company expects to continue accounting for certain firm forward
sale and purchase commitments in accordance with EITF 98-10 by recording their
fair value on the balance sheet, with the changes in fair value included in
earnings.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
Currently, BayCorp derives substantially all of its revenue through its
energy trading activities and its 100% equity interest in Great Bay and Little
Bay. Great Bay and Little Bay are electric generating companies whose principal
asset is a combined 15% joint ownership interest in the Seabrook Project in
Seabrook, New Hampshire. The Company anticipates that it will derive additional
revenues from HoustonStreet.
The following discussion focuses solely on operating revenues and operating
expenses that are presented in a substantially consistent manner for all of the
periods presented.
RESULTS OF OPERATIONS: THIRD QUARTER OF FISCAL 2000 COMPARED TO THE THIRD
QUARTER OF FISCAL 1999
Operating Revenues
BayCorp's operating revenues increased by approximately $1,118,000, or
7.1%, to $16,919,000 in the third quarter of 2000 as compared to $15,801,000 in
the third quarter of 1999. This increase in operating revenues was primarily
attributable to an increase in average selling prices in the third quarter of
2000 as compared to the third quarter of 1999. During the three months ended
September 30, 2000, the average sales price per kilowatt-hour ("kWh")
(determined by dividing total sales revenue by the total number of kWhs sold in
the applicable period) increased 20.8% to 4.30 cents per kWh as compared with
3.56 cents per kWh for the three months ended September 30, 1999.
Sales of electricity decreased by approximately 12% to 390,140,000 kWhs in
the third quarter of 2000 as compared to 443,472,300 kWhs in the third quarter
of 1999. During the third quarter of 2000, BayCorp's subsidiaries, Great Bay and
Little Bay, owned a combined 15.03% joint ownership interest in the Seabrook
Project, or approximately 174 megawatts of the Seabrook Project's power output.
During the third quarter of 1999, Great Bay's ownership in the Seabrook Project
was 12.13%, or approximately 140 megawatts. The capacity factor at the Seabrook
Project for the third quarter of 2000 and the third quarter of 1999 was 100% of
the rated capacity. Offsetting this increase in ownership was a decrease in the
amount of power purchased for resale in the third quarter of 2000 as compared to
the third quarter of 1999. During the third quarter of 1999, the Company
purchased approximately 131,600 megawatt hours for resale as compared to
approximately 6,382 megawatt hours purchased for resale in the third quarter of
15
<PAGE> 16
BAYCORP HOLDINGS, LTD.
2000. In 1999, Great Bay entered into a 12-month agreement for 1999 to purchase
30 MWs of power monthly for resale.
Substantially all of the Company's operating revenues for the three months
ended September 30, 2000 and September 30, 1999 were earned by its wholesale
electricity generation and trading business.
Expenses
Production and Transmission expenses increased approximately $1,281,000, or
26.3%, to $6,146,000 in the third quarter of 2000 as compared to $4,865,000 in
the third quarter of 1999. This increase was primarily attributable to the
Company's increased ownership in the Seabrook Project, from 12.13% in the third
quarter of 1999 to 15.03% in the third quarter of 2000. Administrative and
general expenses increased approximately $8,334,000, or 362.3%, to $10,634,000
in the third quarter of 2000 as compared to $2,300,000 in the third quarter of
1999. This increase was primarily attributable to expenses associated with the
continued development, operation and expansion of HoustonStreet. Also
contributing to this increase were administrative and general expenses
associated with BayCorp's increased ownership percentage in the Seabrook Project
as discussed above. Depreciation and amortization increased approximately
$452,000, or 42.4%, to $1,519,000 in the third quarter of 2000 as compared to
$1,067,000 in the third quarter of 1999. The increase in depreciation expense
was primarily due to depreciating the assets of HoustonStreet and Little Bay.
Taxes other than income decreased approximately $306,000, or 22.3%, during the
third quarter of 2000 as compared to the same period in 1999 primarily due to a
reduction in the State Utility Property Tax assessed upon the Seabrook Project.
In the third quarter of 2000, Great Bay recorded unrealized losses on
forward firm energy contracts of $1,776,000 as compared to $495,000 in the third
quarter of 1999. Power prices in the Northeast increased significantly in the
third quarter of 2000 as compared to the third quarter of 1999. This enabled
Great Bay to realize significantly higher selling prices for its uncommitted
capacity in the third quarter of 2000 as compared to the third quarter of 1999,
but resulted in a higher non-cash charge to earnings for unrealized losses on
forward firm energy contracts.
Decommissioning cost accretion increased $92,000, or 11.3%, and
decommissioning trust fund income increased $205,000, or 123.5%, in the third
quarter of 2000 as compared to the same period in 1999. These increases reflect
the Company's increased ownership in the Seabrook Project in the third quarter
of 2000 as compared to the third quarter of 1999. The accretion is a non-cash
charge that reflects Great Bay's liability related to the closure and
decommissioning of the Seabrook Project in current year dollars over the
licensing period during which the Seabrook Project is licensed to operate.
Interest income increased approximately $174,000, or 113.7%, in the third
quarter of 2000 as compared to the third quarter of 1999, reflecting earnings on
higher cash balances in the third quarter of 2000 as compared to cash balances
in the third quarter of 1999.
Minority Interest
Minority interest in loss of subsidiary for the third quarter of 2000 was
$3,150,000. Minority interest, based on common stock ownership in HoustonStreet,
which does not give effect to preferred stock ownership in HoustonStreet, was
approximately 34% as of September 30, 2000.
16
<PAGE> 17
BAYCORP HOLDINGS, LTD.
Net Loss
As a result of the above factors, during the third quarter of 2000, the
Company recorded a net loss of $1,917,000, or approximately $0.23 per basic and
diluted share, as compared to a net loss of approximately $120,000, or
approximately $0.01 per basic and diluted share, during the third quarter of
1999. Excluding HoustonStreet expenses and the non-cash charge related to losses
on forward firm energy contracts, BayCorp would have reported net income of
$5,985,000 in the third quarter of 2000 as compared to $1,801,000 in the third
quarter of 1999.
RESULTS OF OPERATIONS:
FIRST NINE MONTHS OF FISCAL 2000 COMPARED TO THE FIRST NINE MONTHS OF FISCAL
1999
Operating Revenues
BayCorp's operating revenues increased by approximately $13,257,000, or
39.7%, to $46,612,000 in the first nine months of 2000 as compared to
$33,355,000 in the first nine months of 1999. This increase in operating
revenues was primarily attributable to an increase in megawatt-hours sold and in
average selling prices in the first nine months of 2000 as compared to the first
nine months of 1999. During the first nine months of 2000, BayCorp's
subsidiaries, Great Bay and Little Bay, owned a combined 15.03% joint ownership
interest in the Seabrook Project, or approximately 174 megawatts of the Seabrook
Project's power output. During the first nine months of 1999, Great Bay's
ownership in the Seabrook Project was 12.13%, or approximately 140 megawatts.
The capacity factor at the Seabrook Project for the first nine months of 2000
was 97.5% of the rated capacity as compared to a capacity factor of 80.7% for
the first nine months of 1999. Operating revenues and capacity factor were
adversely impacted in the first nine months of 1999 by the scheduled refueling
outage at the Seabrook Project that began on March 27, 1999; the Seabrook
Project resumed full power on May 21, 1999. There was no refueling outage in the
first nine months of 2000.
Sales of electricity increased by approximately 15.5% to 1,203,967,000 kWhs
in the first nine months of 2000 as compared to 1,042,550,800 kWhs in the first
nine months of 1999. During the nine months ended September 30, 2000, the
average sales price per kWh (determined by dividing total sales revenue by the
total number of kWhs sold in the applicable period) increased 20.7% to 3.85
cents per kWh as compared with 3.19 cents per kWh for the nine months ended
September 30, 1999.
Substantially all of the Company's operating revenues were earned by its
wholesale electricity generation and trading business in the nine month periods
ending September 30, 2000 and September 30, 1999.
Expenses
Production and Transmission expenses increased approximately $3,760,000, or
25.5%, to $18,489,000 in the first nine months of 2000 as compared to $14,729,00
in the first nine months of 1999. These increases were primarily attributable to
the Company's increased ownership in the Seabrook Project, from 12.13% in the
first nine months of 1999 to 15.03% in the first nine months of 2000.
Administrative and general expenses increased approximately $25,612,000, or
493%, to $30,806,000 in the first nine months of 2000 compared to $5,194,000 in
the first nine months of 1999. This increase was primarily attributable to
expenses associated with the continued development, operation and expansion of
HoustonStreet. Also contributing to this increase were administrative and
general expenses associated with BayCorp's increased ownership percentage in the
Seabrook Project discussed above. Depreciation
17
<PAGE> 18
BAYCORP HOLDINGS, LTD.
and amortization increased approximately $1,590,000, or 54%, to $4,534,000 in
the first nine months of 2000 as compared to $2,944,000 in the first nine months
of 1999. The increase in depreciation expense was primarily due to depreciating
the assets of HoustonStreet and Little Bay.
In the first nine months of 2000, Great Bay recorded unrealized losses on
forward firm energy contracts of $8,819,000 compared to unrealized losses on
forward firm energy contracts of $801,000 in the first nine months of 1999.
Power prices in the Northeast increased significantly in the first nine months
of 2000 as compared to the first nine months of 1999. This enabled Great Bay to
realize significantly higher selling prices for its uncommitted capacity in the
first nine months of 2000 as compared to the first nine months of 1999, but
resulted in a higher non-cash charge to earnings for unrealized losses on
forward firm energy contracts.
Decommissioning cost accretion increased $275,000, or 11.2%, and
decommissioning trust fund income increased $549,000, or 120%, in the first nine
months of 2000 as compared to the same period in 1999. These increases reflect
the Company's increased ownership in the Seabrook Project in the first nine
months of 2000 as compared to the same period in 1999. Interest income increased
approximately $390,000, or 86.3%, in the first nine months of 2000 as compared
to the same period in 1999, reflecting earnings on higher cash balances in the
first nine months of 2000 as compared to cash balances in the first nine months
of 1999. The increase in cash balances during the first nine months of 2000 was
primarily attributable to the receipt by HoustonStreet of approximately
$37,438,000 from investors in HoustonStreet and HoustonStreet B.V. and to the
increased positive cash flow generated by the Company's wholesale generating
business.
Minority Interest
Minority interest in loss of subsidiary for the first nine months of 2000
was $8,951,000. Minority interest, based on common stock ownership in
HoustonStreet, which does not give effect to preferred stock ownership in
HoustonStreet, was approximately 34% as of September 30, 2000.
Net Loss
As a result of the above factors, for the first nine months of 2000, the
Company recorded a net loss of $15,548,000, or approximately $1.88 per basic and
diluted share, as compared to a net loss of approximately $5,363,000, or $0.65
per basic and diluted share, during the first nine months of 1999. Excluding
HoustonStreet expenses and the non-cash charge related to losses on forward firm
energy contracts, BayCorp would have reported net income of approximately
$11,472,000 for the first nine months of 2000 as compared to a net loss of
approximately $3,295,000 for the first nine months of 1999.
Liquidity and Capital Resources
As of September 30, 2000, BayCorp's consolidated cash position was
approximately $25,425,000 in cash and equivalents, restricted cash and
short-term investments. A significant factor affecting BayCorp's consolidated
cash position during the first nine months of 2000 was the receipt of
approximately $37,438,000 in cash by HoustonStreet from investors in
HoustonStreet and HoustonStreet B.V. Excluding cash held by HoustonStreet, the
Company had cash and cash equivalents, restricted cash and short-term
investments of approximately $13,348,000 at September 30, 2000. As of September
30, 2000, Great Bay had provided approximately $4,000,000 in Letters of Credit
to its customers as financial support for power sales and purchases.
18
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BAYCORP HOLDINGS, LTD.
BayCorp's wholesale electricity generation and trading business, Great Bay
and Little Bay, generated approximately $10,500,000 in cash during the first
nine months of 2000. In addition, during the first nine months of 2000, BayCorp
received approximately $4,000,000 from HoustonStreet in early 2000 for
settlement of a 1999 intercompany loan and in September 2000, BayCorp loaned
$7,000,000 to HoustonStreet.
If the Seabrook Project operates 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 would be required to
raise additional capital, either through a debt financing or an equity
financing, to meet its ongoing cash requirements. Nonetheless, there can be no
assurance that BayCorp will be able to raise additional capital on acceptable
terms or at all.
The Seabrook Project from time to time experiences both scheduled and
unscheduled outages. The Company incurs losses during outage periods due to the
loss of operating revenues and due to the additional costs associated with
outages as well as continuing operating and maintenance expenses and
depreciation. A scheduled refueling outage at the Seabrook plant began on
October 20, 2000 and was expected to last until November 21, 2000. There was an
unplanned extension to this refueling outage due to problems with the plant's
back-up diesel generators; the plant is expected to resume power on December 10,
2000. The Company expects that its portion of refueling outage and maintenance
expenses will be approximately $5,000,000.
BayCorp's subsidiary, HoustonStreet, began charging commissions for its
services in September 1999. The cash generated from commission revenues earned
on HoustonStreet.com have been significantly less than the HoustonStreet's
ongoing cash requirements. The Company expects that HoustonStreet expenses and
capital expenditures will substantially exceed HoustonStreet's revenues while
HoustonStreet is in the early stages of development, operation and expansion and
that HoustonStreet will incur additional cash deficits. The Company intends to
cover such deficits during the early stages of development, operation and
expansion at HoustonStreet with invested capital. As of September 30, 2000,
HoustonStreet had received approximately $37,438,000 in cash from investors in
HoustonStreet and HoustonStreet B.V. The Company anticipates that HoustonStreet
will raise additional funds through the sale of equity that will cause the
Company's ownership interest to decline. BayCorp loaned $7,000,000 to
HoustonStreet in September 2000.
BayCorp's consolidated cash and equivalents, restricted cash and short-term
investments increased approximately $19,360,000 during the first nine months of
2000. The Company had a consolidated net loss of approximately $15,548,000 and a
minority interest in loss of subsidiary of $8,951,000. The Company used cash of
approximately $9,811,000 for capital expenditures, $5,823,000 for nuclear fuel
additions and $1,323,000 for decommissioning fund payments. In addition, during
the first nine months of 2000, there was an increase in prepaids and other
assets of approximately $2,189,000 primarily due to the timing of payments to
Seabrook for operating expenses. Offsetting these cash expenditures were
non-cash charges to income of approximately $4,533,000 for depreciation,
$3,726,000 for nuclear fuel amortization, $8,819,000 for unrealized losses on
firm energy trading contracts and $2,724,000 for decommissioning trust fund
accretion. Accounts payable also increased approximately $5,491,000 primarily
due to HoustonStreet operations.
The Company anticipates that capital expenditures for HoustonStreet for the
fiscal year 2000 will total approximately $10,000,000 primarily for software
construction. HoustonStreet plans to raise funds
19
<PAGE> 20
BAYCORP HOLDINGS, LTD.
for these expenditures in part through a private placement of preferred stock.
Great Bay and Little Bay anticipate that their share of the Seabrook Project's
capital expenditures for the 2000 fiscal year will total approximately
$8,400,000 for nuclear fuel and various capital projects.
The statements in this Quarterly Report on Form 10-Q relating to the
Company's future plans for marketing, new products and alliances and future
growth and operating results, including but not limited to statements regarding
the sale of its interests in the Seabrook Nuclear Power Project and the
memorandum of understanding with EnronOnline, are forward-looking statements.
There are a number of important factors that could cause actual results to
differ materially from those suggested or indicated by such forward-looking
statements, including without limitation, that (i) BayCorp may be unable to
obtain, and meet conditions imposed for, state and federal governmental
approvals for the sale of its ownership interest in the Seabrook Nuclear Power
Plant, (ii) BayCorp may be unable to obtain stockholder approval of the sale of
its ownership interest in the Seabrook Nuclear Power Plant, (iii) costs related
to the sale may exceed the Company's expectation, (iv) HoustonStreet's European
operations may be unsuccessful, (v) HoustonStreet may be unable to negotiate a
definitive agreement with EnronOnline, (vi) the Seabrook Nuclear Power Plant may
operate at lower capacity than historical levels, (vii) decommissioning or other
expenses associated with ownership of 15% of the Seabrook Nuclear Power Plant
may be materially higher than anticipated, (viii) the price of electricity in
the New England wholesale power market cannot be predicted, (ix) energy traders
may be unwilling or unable to use Internet-based energy trading systems,
including HoustonStreet.com, (x) HoustonStreet.com may not be able to operate
profitably, (xi) HoustonStreet.com may be unable to secure additional financing,
(xii) technological or systems outages could occur on the HoustonStreet.com
site, (xiii) competitors to HoustonStreet.com with greater financial, marketing
or other resources could emerge, (xiv) HoustonStreet.com's performance is
contingent upon successful completion of design, implementation and improvement
to the electricity, crude, refined products and natural gas sites, and (xv)
general economic and/or industry-specific conditions and the other factors
described in BayCorp's Annual Report on Form 10-K for the year ended December
31, 1999, and its most recent quarterly reports filed with the SEC.
HoustonStreet.com is a registered service mark of HoustonStreet Exchange.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not believe that there is any material market risk
exposure with respect to derivative or financial instruments that would require
disclosure under this item.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits furnished as Exhibits hereto:
27.1 Financial Data Schedule
99.1 Certain Factors That May Affect Future Results, set out on pages
20-27 of the Company's Annual Report on Form 10-K for the period
ended December 31, 1999. Such Form 10-K shall not be deemed to be
filed except to the extent that portions thereof are expressly
incorporated by reference herein.
20
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BAYCORP HOLDINGS, LTD.
(b) There were no reports on Form 8-K submitted for the three months ended
September 30, 2000.
The Company filed a Current Report on Form 8-K on October 16, 2000
that described an agreement among BayCorp, Great Bay, Little Bay and NU to
sell Great Bay and Little Bay's interest in the Seabrook Project in an
auction together with NU.
21
<PAGE> 22
BAYCORP HOLDINGS, LTD.
SIGNATURE
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.
November 14, 2000 By: /s/ Frank W. Getman Jr.
-----------------------------------------
Frank W. Getman Jr.
President and Chief Executive Officer
(Principal executive officer, principal
financial officer and principal
accounting officer)
22
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BAYCORP HOLDINGS, LTD.
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
27.1 Financial Data Schedule
99.1 Certain Factors That May Affect Future Results, set out on pages
20-27 of the Company's Annual Report on Form 10-K for the period
ended December 31, 1999. Such Form 10-K shall not be deemed to be
filed except to the extent that portions thereof are expressly
incorporated by reference herein.
23
