FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-1004
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-7624
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WESTERN MASSACHUSETTS ELECTRIC COMPANY
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(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-1961130
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
174 BRUSH HILL AVENUE, WEST SPRINGFIELD, MASSACHUSETTS 01090-0010
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(Address of principal executive offices) (Zip Code)
(413) 785-5871
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at April 28, 1995
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Common Shares, $25.00 par value 1,072,471 shares
WESTERN MASSACHUSETTS ELECTRIC COMPANY
TABLE OF CONTENTS
Page No.
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Part I. Financial Information
Item 1. Financial Statements
Balance Sheets - March 31, 1995 and
December 31, 1994 2
Statements of Income - Three Months Ended
March 31, 1995 and 1994 4
Statements of Cash Flows - Three Months
Ended March 31, 1995 and 1994 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 7
Part II. Other Information
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
Signatures 11
PART I. FINANCIAL INFORMATION
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
------------- ------------
(Thousands of Dollars)
<S> <C> <C>
ASSETS
- ------
Utility Plant, at original cost:
Electric................................................ $ 1,218,994 $ 1,214,326
Less: Accumulated provision for depreciation......... 436,004 425,019
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782,990 789,307
Construction work in progress........................... 19,640 19,187
Nuclear fuel, net....................................... 36,005 38,000
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Total net utility plant............................. 838,635 846,494
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Other Property and Investments:
Nuclear decommissioning trusts, at market............... 60,161 56,123
Investments in regional nuclear generating
companies, at equity................................... 14,746 14,927
Other, at cost.......................................... 3,980 3,941
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78,887 74,991
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Current Assets:
Cash and special deposits............................... 68 105
Notes receivable from affiliated companies.............. - 8,750
Receivables, net........................................ 37,376 35,427
Accounts receivable from affiliated companies........... 785 1,108
Accrued utility revenues................................ 15,144 15,766
Fuel, materials, and supplies, at average cost.......... 4,890 4,829
Recoverable energy costs, net........................... 5,025 530
Prepayments and other................................... 8,386 8,685
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71,674 75,200
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Deferred Charges:
Regulatory asset:
Income taxes, net...................................... 96,215 86,357
Amortizable property investment--Millstone 3........... 14,000 16,800
Deferred costs--Millstone 3............................ 3,918 7,836
Unrecovered contract obligation--Yankee Atomic
Electric Company...................................... 27,744 28,572
Recoverable energy costs............................... 8,324 8,324
Other.................................................. 38,747 36,337
Unamortized debt expense................................ 1,671 1,733
Other................................................... 510 974
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191,129 186,933
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Total Assets........................................ $ 1,180,325 $ 1,183,618
============= ============
</TABLE>
See accompanying notes to financial statements.
2
WESTERN MASSACHUSETTS ELECTRIC COMPANY
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
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(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization:
Common stock--$25 par value.
Authorized and outstanding 1,072,471 shares............ $ 26,812 $ 26,812
Capital surplus, paid in................................ 149,971 149,683
Retained earnings....................................... 114,555 111,586
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Total common stockholder's equity.............. 291,338 288,081
Preferred stock not subject to mandatory redemption..... 53,500 68,500
Preferred stock subject to mandatory redemption......... 22,500 24,000
Long-term debt.......................................... 346,173 345,669
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Total capitalization........................... 713,511 726,250
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Obligations Under Capital Leases.......................... 25,783 23,852
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Current Liabilities:
Notes payable to affiliated company..................... 11,750 -
Long-term debt and preferred stock--current
portion................................................ 35,800 34,975
Obligations under capital leases--current
portion................................................ 12,050 12,945
Accounts payable........................................ 11,581 20,396
Accounts payable to affiliated companies................ 6,424 17,352
Accrued taxes........................................... 9,701 5,160
Accrued interest........................................ 4,517 6,702
Other................................................... 10,680 7,584
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102,503 105,114
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Deferred Credits:
Accumulated deferred income taxes....................... 264,980 253,821
Accumulated deferred investment tax credits............. 27,395 27,822
Deferred contract obligation--Yankee Atomic
Electric Company....................................... 27,744 28,572
Other................................................... 18,409 18,187
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338,528 328,402
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Commitments and Contingencies (Note 2)<F2>
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Total Capitalization and Liabilities........... $ 1,180,325 $ 1,183,618
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</TABLE>
See accompanying notes to financial statements.
3
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
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1995 1994
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(Thousands of Dollars)
<S> <C> <C>
Operating Revenues.................................... $ 106,684 $ 112,984
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Operating Expenses:
Operation --
Fuel, purchased and net interchange power........ 17,669 17,107
Other............................................ 35,851 35,391
Maintenance......................................... 7,770 9,146
Depreciation........................................ 9,580 9,400
Amortization of regulatory assets................... 6,888 6,841
Federal and state income taxes...................... 6,046 10,608
Taxes other than income taxes....................... 5,050 5,023
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Total operating expenses...................... 88,854 93,516
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Operating Income...................................... 17,830 19,468
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Other Income:
Deferred Millstone 3 return--other funds............ 54 253
Equity in earnings of regional nuclear generating
companies......................................... 283 467
Other, net.......................................... 506 185
Income taxes--credit................................ 411 411
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Other income, net............................. 1,254 1,316
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Income before interest charges................ 19,084 20,784
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Interest Charges:
Interest on long-term debt.......................... 6,960 7,097
Other interest...................................... 88 (85)
Deferred Millstone 3 return--borrowed funds......... (40) (189)
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Interest charges, net......................... 7,008 6,823
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Net Income............................................ $ 12,076 $ 13,961
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</TABLE>
See accompanying notes to financial statements.
4
WESTERN MASSACHUSETTS ELECTRIC COMPANY
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1995 1994
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(Thousands of Dollars)
<S> <C> <C>
Operating Activities:
Net Income................................................ $ 12,076 $ 13,961
Adjustments to reconcile to net cash
from operating activities:
Depreciation............................................ 9,580 9,400
Deferred income taxes and investment tax credits, net... 2,648 959
Deferred return - Millstone 3, net of amortization...... 3,574 3,250
Recoverable energy costs, net of amortization........... (4,495) (3,029)
Other sources of cash................................... 9,857 3,520
Other uses of cash...................................... (5,603) (3,542)
Changes in working capital:
Receivables and accrued utility revenues................ (1,004) 2,997
Fuel, materials, and supplies........................... (61) 1,186
Accounts payable........................................ (19,743) (8,257)
Accrued taxes........................................... 4,541 7,590
Other working capital (excludes cash)................... 1,210 3,134
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Net cash flows from operating activities.................... 12,580 31,169
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Financing Activities:
Issuance of long-term debt................................ - 90,000
Net increase (decrease) in short-term debt................ 11,750 (6,000)
Reacquisitions and retirements of preferred stock......... (15,675) (1,500)
Cash dividends on preferred stock......................... (1,323) (1,343)
Cash dividends on common stock............................ (7,529) (7,357)
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Net cash flows (used for) from financing activities......... (12,777) 73,800
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Investment Activities:
Investment in plant:
Electric utility plant.................................. (5,758) (7,130)
Nuclear fuel............................................ (842) 2,406
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Net cash flows used for investments in plant.............. (6,600) (4,724)
NU System Money Pool...................................... 8,750 (98,250)
Other investment activities, net.......................... (1,990) (2,000)
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Net cash flows from (used for) investments.................. 160 (104,974)
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Net Decrease In Cash For The Period......................... (37) (5)
Cash and special deposits - beginning of period............. 105 185
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Cash and special deposits - end of period................... $ 68 $ 180
=========== ===========
</TABLE>
See accompanying notes to financial statements.
5
WESTERN MASSACHUSETTS ELECTRIC COMPANY
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
<F1>1. General
The accompanying unaudited financial statements should be read in conjunction
with the Annual Report of Western Massachusetts Electric Company (the company or
WMECO), a wholly owned subsidiary of Northeast Utilities (NU), on Form 10-K for
the year ended December 31, 1994 (1994 Form 10-K). In the opinion of the
company, the accompanying financial statements contain all adjustments necessary
to present fairly the financial position as of March 31, 1995, the results of
operations for the three months ended March 31, 1995 and 1994, and the
statements of cash flows for the three months ended March 31, 1995 and 1994.
The results of operations for the three months ended March 31, 1995 and 1994 are
not necessarily indicative of the results expected for a full year.
Certain reclassifications of prior period data have been made to conform with
the current period presentation.
<F2>2. Commitments and Contingencies
Construction Program: For information regarding WMECO's construction program,
see the Notes to Financial Statements in WMECO'S 1994 Form 10-K.
Nuclear Performance: Management's ongoing evaluation of the current Millstone 2
extended refueling and maintenance outage that began on October 1, 1994 has
concluded that, based on currently available information, the unit is not
expected to return to service before June 1995. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in this Form 10-Q
for additional information on the Millstone 2 outage.
For additional information regarding the performance of WMECO's nuclear units,
see the Notes to Financial Statements in WMECO's 1994 Form 10-K.
Environmental Matters: For information regarding environmental matters, see the
Notes to Financial Statements in WMECO's 1994 Form 10-K.
Nuclear Insurance Contingencies: For information regarding nuclear insurance
contingencies, see the Notes to Financial Statements in WMECO's 1994 Form 10-K.
Purchased Power Arrangements: For information regarding purchased power
arrangements, see the Notes to Financial Statements in WMECO's 1994 Form 10-K.
Hydro-Quebec: For information regarding Hydro-Quebec, see the Notes to
Financial Statements in WMECO's 1994 Form 10-K.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations
This section contains management's assessment of WMECO's (the company) financial
condition and the principal factors having an impact on the results of
operations. The company is a wholly owned subsidiary of Northeast Utilities(NU).
This discussion should be read in conjunction with the company's financial
statements, footnotes and management's discussion and analysis in the 1994 Form
10-K.
FINANCIAL CONDITION
Overview
The company's net income decreased to approximately $12 million for the three
months ended March 31, 1995 from approximately $14 million for the same period
in 1994. The decrease in net income from 1994 is primarily attributable to
lower retail kilowatt-hour sales as a result of extremely mild weather in the
first three months of 1995. The company's retail kilowatt-hour sales for 1995
were down by approximately 5 percent from 1994, which had colder than normal
weather in the first three months.
Nuclear Performance
The composite capacity factor of the five nuclear generating units that the NU
system operates -- including the Connecticut Yankee nuclear unit -- was 65.6
percent for the three months ended March 31, 1995, as compared with 66.9 percent
for the same period in 1994. The lower 1995 capacity factor was primarily the
result of an extended refueling and maintenance outage for Millstone 2.
On October 1, 1994, Millstone Unit 2 was shut down for a planned 63-day
refueling and maintenance outage. The outage has encountered several unexpected
difficulties which have lengthened the duration of the outage. The outage
extension was primarily caused by a significant scope increase in service water
system repairs as identified through a comprehensive inspection plan, and by a
need for management to exercise a deliberate approach to the conduct of work
during the early portion of the outage. The outage has been further extended for
one month(May to June) based on a detailed analysis of the work remaining to be
performed, and the need to adequately train the plant's licensed operators in
the use of revised emergency operating procedures. The outage schedule is
currently under review, but the unit is not expected to return to service until
June 1995 following a Nuclear Regulatory Commission assessment of the unit's
readiness to restart. Total replacement-power costs attributable to the
extension of the outage for WMECO are expected to be in the range of $1 million
per month. In addition, operation and maintenance (O&M)costs to be incurred
during the outage are estimated to be $11 million, an increase of $5 million as
a result of the extended outage. O&M costs associated with the refueling outage
are are deferred and amortized through rates for WMECO. The recovery of
replacement-power and O&M costs is subject to prudence reviews in Massachusetts.
Maine Yankee Atomic Power Company (Maine Yankee) is the owner of an 860 MW
nuclear electric generating unit (the Plant). The company owns 3% of the common
stock of Maine Yankee and purchases approximately the same percentage of the
Plant's output at a rate based on Maine Yankee's costs. Like other pressurized
water reactors, the Plant has been experiencing degradation of its steam
generator tubes, primarily in the form of circumferential cracking. Until early
1995, the cracking was believed to be limited to a relatively small number of
tubes.
During the current refueling and maintenance outage that began in February 1995,
Maine Yankee detected substantially increased degradation of the steam generator
tubes. Maine Yankee is continuing to assess the extent of the cracking and
evaluating its options. The extent of tube cracking is sufficiently great that
the Plant cannot return to operation without repairs that will result in
substantial additional expenditures by Maine Yankee, with the company being
responsible for its pro rata share of noncapital costs under its power contract.
In addition, the company will incur additional costs for replacement power
(estimated at approximately $150,000 per month) until the Plant returns to
service.
Maine Yankee intends to sleeve all 17,000 tubes in the Plant's three steam
generators. Maine Yankee expects that the sleeving operation would begin in
June and that the Plant would return to service near the end of 1995. The cost
to Maine Yankee of the sleeving operation has not been determined, but could be
approximately $40 million. If the capital cost of the sleeving operation
exceeds the funds available to Maine Yankee itself (which is not currently
expected), Maine Yankee might request equity contributions from its common
stockholders, including the company, under its capital funds agreement with
them. If requested, the stockholders are required to contribute their pro rata
shares, subject in some cases to regulatory approval.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided from operations decreased approximately $19 million for the first
three months of 1995 primarily due to a decrease in working capital. Cash
provided by financing activities decreased approximately $87 million due
primarily due to the issuance of long-term debt in the first quarter in 1994.
Cash used for investments was approximately $105 million lower in 1995, as
compared with 1994, primarily due to a decrease in loans to other companies
under the NU system money pool.
The company's construction program expenditures amounted to approximately $6
million for the first three months of 1995, as compared to approximately $7
million during the same period in 1994.
RESULTS OF OPERATIONS
Comparison of the First Quarter of 1995 with the First Quarter of
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1994
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Operating revenues decreased approximately $6 million in the first quarter of
1995, as compared with 1994. The components of the change in operating revenues
are as follows:
Changes in Operating Revenues Increase/(Decrease)
- ----------------------------- -------------------
(Millions of Dollars)
Regulatory decisions $(3)
Sales volume (5)
Other revenues 2
---
Total revenue change $(6)
===
Revenues related to regulatory decisions decreased primarily because of the
June 1994 retail rate reduction for the company. Sales volume decreased as a
result of lower retail kilowatt-hour sales in 1995. Retail sales decreased
approximately 5 percent for the first quarter of 1995 from 1994 sales level
primarily due to extremely mild weather in the first three months of 1995.
Maintenance expense decreased approximately $1 million in the first quarter of
1995, as compared with 1994, primarily due to lower maintenance costs at the
nuclear units.
Federal and state income taxes decreased approximately $5 million in the first
quarter of 1995, as compared with 1994, primarily because of lower book taxable
income and an adjustment to the tax accrual for a favorable tax ruling.
PART II. OTHER INFORMATION
Item 5. Other Information
1. On March 31, 1995, WMECO submitted its comments entitled "Path To A
Competitive Future" in the Massachusetts Department of Public Utilities'
electric utility restructuring docket. WMECO's comments paralleled those
submitted by The Connecticut Light and Power Company, another wholly owned
subsidiary of NU, to the Connecticut Department of Public Utility Control on
March 22, 1995.
For additional information on this matter, see "Item 1. Business - Subsequent
Events" in WMECO's 1994 Form 10-K.
Item 6. Exhibits and Reports on Form 8-K
(a) Listing of Exhibits:
Exhibit
Number Description
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27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during this reporting period.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WESTERN MASSACHUSETTS ELECTRIC COMPANY
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Registrant
Date May 11, 1995 By /s/ Bernard M. Fox
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Bernard M. Fox
Vice Chairman and Director
Date May 11, 1995 By /s/ John W. Noyes
-------------------- ------------------------------
John W. Noyes
Vice President and
Controller
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000106170
<NAME>WESTERN MASSACHUSETTS ELECTRIC COMPANY
<MULTIPLIER>1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> MAR-31-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 838,635
<OTHER-PROPERTY-AND-INVEST> 78,887
<TOTAL-CURRENT-ASSETS> 71,674
<TOTAL-DEFERRED-CHARGES> 191,129
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,180,325
<COMMON> 26,812
<CAPITAL-SURPLUS-PAID-IN> 149,971
<RETAINED-EARNINGS> 114,555
<TOTAL-COMMON-STOCKHOLDERS-EQ> 291,338
22,500
53,500
<LONG-TERM-DEBT-NET> 346,173
<SHORT-TERM-NOTES> 11,750
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 34,300
1,500
<CAPITAL-LEASE-OBLIGATIONS> 25,783
<LEASES-CURRENT> 12,050
<OTHER-ITEMS-CAPITAL-AND-LIAB> 381,431
<TOT-CAPITALIZATION-AND-LIAB> 1,180,325
<GROSS-OPERATING-REVENUE> 106,684
<INCOME-TAX-EXPENSE> 5,635
<OTHER-OPERATING-EXPENSES> 82,808
<TOTAL-OPERATING-EXPENSES> 88,854
<OPERATING-INCOME-LOSS> 17,830
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<INCOME-BEFORE-INTEREST-EXPEN> 19,084
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