<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DRAFT 3/21/00
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the period January 29, 1999 (date of inception) to December 31, 1999
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 333-74671
BEC FUNDING LLC
---------------
(Exact name of registrant as specified in its charter)
Delaware 04-3454484
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
800 Boylston Street, 17th Floor, Boston MA 02199
- ------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 617-369-6000
------------
Securities registered pursuant to Section 12 (b) or 12 (g) of the Act: None
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 and 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.
[x] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the registrant as of March 15, 2000 was $0.
<PAGE> 2
ANNUAL REPORT ON FORM 10-K FOR BEC FUNDING LLC
PART I
ITEM 1.
BUSINESS.
BEC Funding LLC is a special purpose, single member limited liability company
whose sole member is Boston Edison Company ("BECo"), a provider of electric
distribution services. BEC Funding LLC is a wholly-owned subsidiary of BECo,
which is a wholly-owned subsidiary of BEC Energy, which is a wholly-owned
subsidiary of NSTAR. NSTAR is a holding company that was created through a
merger, effective August 25, 1999 between BEC Energy, headquartered in Boston,
Massachusetts, and Commonwealth Energy System, headquartered in Cambridge,
Massachusetts. BEC Funding LLC had no significant activities in the period
January 29, 1999 (date of inception) to July 29, 1999, the date when operations
commenced.
BEC Funding LLC was organized on January 29, 1999 under the laws of the State of
Delaware for the sole purpose of acquiring and holding transition property,
which BEC Funding LLC acquired from BECo. The transition property is a property
right created under Massachusetts law that includes the right to assess and
collect a non-bypassable charge, called an RTC charge, from customers of BECo.
The purchase price of the transition property was paid from proceeds of
$725,000,000 of notes issued by BEC Funding LLC to the Massachusetts RRB Special
Purpose Trust BEC-1. This indebtedness is secured by BEC Funding LLC's assets,
which consist primarily of the transition property and other collateral (the
"Acquisition Indebtedness").
Both its own organizational documents and debt covenants relating to the
Acquisition Indebtedness restrict BEC Funding LLC's business activities to
financing, purchasing, owing and managing transition property. The
organizational documents and documentation related to the Acquisition
Indebtedness also require BEC Funding LLC to be operated in a manner intended to
reduce the likelihood that it would be consolidated into BECo's bankruptcy
estate if BECo ever became a debtor in a bankruptcy case.
BEC Funding LLC is legally separate from BECo. The assets and revenues of BEC
Funding LLC, including, without limitation, the transition property, are not
available to creditors of BECo, BEC Energy or NSTAR, and the transition property
and other debt collateral will not be assets of BECo, BEC Energy or NSTAR
The financial statements present BEC Funding LLC's results of operations and its
financial condition as it operates as a subsidiary of BECo. The financial
statements may not be indicative of the results that would have been achieved
had BEC Funding LLC operated as an unaffiliated entity.
ITEM 2.
PROPERTIES
BEC Funding LLC has no physical property. Its primary asset is the transition
property as described above.
ITEM 3.
LEGAL PROCEEDINGS.
None.
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
2
<PAGE> 3
PART II
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no established public market for equity securities of BEC Funding
LLC. It is a wholly owned subsidiary of BECo.
ITEM 6.
SELECTED FINANCIAL DATA.
BEC Funding LLC was organized on January 29, 1999 and commenced operations on
July 29, 1999.
Total assets at December 31, 1999 amounted to $722,223,853.
Total Rate Reduction Note obligations outstanding at December 31, 1999
amounted to $725,000,000, of which $78,441,458 of Rate Reduction Note
obligations was due within one year. No payments of principal or interest on
the Rate Reduction Notes were scheduled to be made in the period ended
December 31, 1999. Semiannual principal and interest payments are scheduled
for March 15th and September 15th during any period subsequent to December
31, 1999 in which a class of Rate Reduction Notes is outstanding.
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION FOR THE PERIOD JANUARY 29, 1999 (DATE OF INCEPTION) TO DECEMBER 31,
1999.
BEC Funding LLC was formed on January 29, 1999 and issued Rate Reduction
Notes to the Massachusetts RRB Special Purpose Trust BEC-1 in the amount of
$725,000,000 on July 29, 1999, in exchange for $724,755,142 of net proceeds
from the issuance of Certificates by the Massachusetts RRB Special Purpose
Trust BEC-1 to the investing public. BEC Funding LLC then remitted net
proceeds from the issuance of Rate Reduction Notes of approximately
$719,837,271 to BECo in exchange for the transition property.
As of February 29, 2000, BECo has remitted to BEC Funding LLC approximately
$72,940,000 of RTC charges collected. Such funds are held by an Indenture
Trustee and are restricted in their ultimate use for the debt service of BEC
Funding LLC Rate Reduction Notes. Collections of RTC charges billed by BECo
and remitted to BEC Funding LLC are in accordance with original estimates and
are expected to be sufficient to meet current debt service requirements as
scheduled. BEC Funding LLC relies on timely remittances of adequate RTC
collections from BECo in order to meet its debt service obligations. BEC
Funding LLC believes it will continue to receive timely and adequate
remittances from BECo of RTC funds collected by BECo in order to meet its
debt service obligations.
BEC Funding LLC redeemed $40,000,000 of its Class A-1 Rate Reduction Notes on
their scheduled maturity date of March 15, 2000 (together with all accrued
interest) and made its semiannual interest payment in the amount of
$30,271,829 on March 15, 2000 on all classes of outstanding Rate Reduction
Notes as scheduled.
The assets of BEC Funding LLC consist and the company expects that its assets
will continue to consist primarily of transition property, acquired from
BECo, and other collateral for the Acquisition Indebtedness. For accounting
purposes, the transition property purchased from BECo is reflected on the
balance sheet as transition property receivable. The liabilities of BEC
Funding LLC consist and the company expects that its liabilities will
continue to consist primarily of Rate Reduction Notes issued and sold to the
Massachusetts RRB Special Purpose Trust BEC-1 in exchange for the net
proceeds from the issuance of certificates by the Massachusetts RRB Special
Purpose Trust BEC-1 to the public.
3
<PAGE> 4
Both its own organizational documents and debt covenants relating to
Acquisition Indebtedness restrict BEC Funding LLC's business activities to
financing, purchasing, owing and managing transition property. The
organizational documents and documentation related to the Acquisition
Indebtedness also require BEC Funding LLC to be operated in a manner intended
to reduce the likelihood that it would be consolidated into BECo's bankruptcy
estate if BECo ever becomes a debtor in a bankruptcy case.
The fiscal year of BEC Funding LLC is the calendar year. The financial
statements present BEC Funding LLC's results of operations and its financial
condition as it operates as a subsidiary of BECo. The financial statements
may not be indicative of the results that would have been achieved had BEC
Funding LLC operated as an unaffiliated entity.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
BEC Funding LLC has exposure to credit risk for its transition property
receivable from BECo. Failure of BECo's customers to remit RTC charges or
failure of BECo to remit collected RTC charges to BEC Funding LLC could have
a material adverse affect on the ability of BEC Funding LLC to service its
debt. Neither the notes issued by BEC Funding LLC to the Massachusetts RRB
Special PurposeTrust BEC-1 nor the transition property securing the notes is
an obligation of The Commonwealth of Massachusetts, or any governmental
agency, authority or instrumentality of The Commonwealth of Massachusetts or
of BECo or any of its affiliates, except for BEC Funding LLC. BEC Funding LLC
is legally separate from BECo. The assets and revenues of BEC Funding LLC,
including, without limitation, the transition property, are not available to
creditors of BECo, BEC Energy or NSTAR.
4
<PAGE> 5
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
STATEMENT OF OPERATIONS
for the period from January 29, 1999 (date of inception) to December 31, 1999
<TABLE>
<S> <C>
Administrative and servicing fees $231,305
--------
Expenses:
Debt issuance expenses, net 278
Interest expense, net 23
Bank fees 199
Administrative and servicing fees from BECo 184,722
Legal 14,576
Printing 883
Audit 27,124
Independent directors' fees 3,500
--------
Total expenses 231,305
--------
Interest income 70,637
--------
Net income $ 70,637
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
BALANCE SHEET
December 31, 1999
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash $ 9,023
Restricted cash - member's equity 3,625,000
Restricted cash - interest received on remittances from BECo 184,498
Accrued interest receivable on restricted cash remittances 180,486
Accrued interest receivable on restricted cash - member's equity 15,384
Due from BECo - transition property due in one year $ 78,441,458
Less: cash remitted by BECo (27,519,774)
50,921,684
-------------
Due from BECo - interest receivable on transition property 20,359,814
Due from BECo - debt issuance costs 432,235
Due from BECo - overcollateralization funds 139,140
Due from BECo - RTC funds collected for expenses 231,305
------------
Total current assets 76,098,569
Other Assets:
Long-term transition property receivable $ 692,316,474
Less: amount due in one year (50,921,684) 641,394,790
-------------
Unamortized debt issuance costs $ 5,162,729
Less: accumulated amortization (432,235) 4,730,494
------------- ------------
Total Assets $722,223,853
============
LIABILITIES
Current Liabilities:
Due to BECo - dividends payable $ 15,384
Deferred revenue - interest on remittances 368,485
Accrued Expenses 227,305
Overcollateralization funds 139,140
Due to Trust - short term transition property 50,921,684
Due to Trust - interest on short term transition property 20,359,814
------------
Total current liabilities 72,031,812
Due to Trust: long term notes related to transition property $ 697,480,226
Less: current portion (50,921,684) 646,558,542
-------------
Commitments and contingencies
Member's equity 3,633,499
------------
Total Liabilities and Member's Equity $722,223,853
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 7
BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
STATEMENT OF CHANGES IN MEMBER'S EQUITY
for the period from January 29, 1999 (date of inception) to December 31, 1999
<TABLE>
<S> <C>
Member's equity at January 29, 1999 $ 0
Initial member's contribution 3,625,000
----------
Subtotal 3,625,000
----------
Net income for the period from January 29, 1999
(date of inception) to December 31, 1999 70,637
Dividends declared (62,138)
----------
Retained earnings at December 31, 1999
Member's equity at December 31, 1999 $3,633,499
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE> 8
BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
STATEMENT OF CASH FLOWS
for the period from January 29, 1999 (date of inception) to December 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 70,637
Adjustments to reconcile net income to net Cash provided by operating
activities:
Changes in current assets and liabilities:
Due from BECo - for payment of expenses (231,305)
Due from BECo - principal remittances (27,519,774)
Interest from remittances of RTC billings (364,984)
Accrued Expenses 227,305
Deferred revenue 368,485
-------------
Net cash used in operating activities 27,589,912
-------------
Investing activities:
Purchase of transition property receivable, net (719,836,248)
-------------
-------------
Financing activities:
Cash received from issuance of notes to Trust 725,000,000
Repayment of debt 27,519,774
Payment of debt issuance costs (5,162,729)
Dividends declared (62,138)
-------------
Net cash provided by financing activities 719,775,133
-------------
Net increase in cash 9,023
Cash at beginning of period -0-
-------------
Cash at December 31, 1999 $ 9,023
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE> 9
BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
NOTES TO FINANCIAL STATEMENTS
A. OVERVIEW
BEC Funding LLC is a special purpose, single member limited liability
company whose sole member is BECo, a provider of electric distribution
services. BEC Funding LLC is a wholly-owned subsidiary of BECo, which is a
wholly-owned subsidiary of BEC Energy, which is a wholly-owned subsidiary
of NSTAR. NSTAR is a holding company that was created through a merger,
effective August 25, 1999 between BEC Energy, headquartered in Boston
Massachusetts, and Commonwealth Energy System, headquartered in Cambridge,
Massachusetts. BEC Funding LLC had no significant activities in the period
January 29, 1999 to July 29, 1999, the date when operations commenced.
BEC Funding LLC was organized on January 29, 1999 under the laws of the
State of Delaware for the sole purpose of acquiring and holding transition
property which BEC Funding LLC acquired from BECo. The purchase price of
the transition property has been paid from proceeds of indebtedness secured
by the transition property and other collateral (the "Acquisition
Indebtedness"). Transition property is the right to recover transition
costs pursuant to a non-bypassable reimburseable transition cost ("RTC")
charge as authorized by a financing order of the Commonwealth of
Massachusetts Department of Telecommunications and Energy (the "MDTE")
pursuant to certain provisions of the "Electric Industry Restructuring Act"
enacted in the Commonwealth of Massachusetts in 1997. The assets of BEC
Funding LLC consist primarily of transition property acquired from BECo and
other collateral for the Acquisition Indebtedness. For accounting purposes,
the transition property purchased from BECo is reflected on the balance
sheet as transition property receivable. The liabilities of BEC Funding LLC
consist primarily of notes issued and sold to the Massachusetts RRB Special
Purpose Trust BEC-1 ("the Trust") in exchange for the net proceeds from the
issuance of certificates by the Trust to the investing public. The activity
reflected in the statement of operations is limited to the interest income
and the servicing and administrative activities of operating BEC Funding
LLC as all other transactions are effectively pass-through costs between
BECo and the Trust.
Both its own organizational documents and debt covenants relating to
Acquisition Indebtedness restrict BEC Funding LLC's business activities to
financing, purchasing, owing and managing transition property. The
organizational documents and documentation related to the Acquisition
Indebtedness also require BEC Funding LLC to be operated in a manner
intended to reduce the likelihood that it would be consolidated into BECo's
bankruptcy estate if BECo ever becomes a debtor in a bankruptcy case.
BEC Funding LLC is legally separate from BECo. The assets and revenues of
BEC Funding LLC, including, without limitation, the transition property,
are not available to creditors of BECo nor BEC Energy nor NSTAR, and the
transition property and other debt collateral will not be an asset of BECo
nor NSTAR.
Certain other restrictions apply with respect to BEC Funding LLC's ability
to consolidate with or merge into another entity, and/or transfer or convey
property to another entity.
The fiscal year of BEC Funding LLC is the calendar year. The financial
statements present BEC Funding LLC's results of operations and its
financial condition as it operates as a subsidiary of BECo. The financial
statements may not be indicative of the results that would have been
achieved had BEC Funding LLC operated as an unaffiliated entity.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REVENUE RECOGNITION
Interest income is recognized on the accrual basis. RTC revenues are
recognized on an annualized basis in accordance with the servicing and
administrative fees permitted by the servicing agreement.
9
<PAGE> 10
BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
RESTRICTED CASH
RTC funds remitted by BECo to BEC Funding LLC, together with a $3,625,000
member contribution from BECo, are held on deposit with the note trustee
and are restricted in their use in accordance with the terms of the
indenture. Such funds are generally used to meet debt service requirements,
pay expenses, and maintain balances in various reserve accounts as required
by the indenture.
INCOME TAXES
BEC Funding LLC is organized as a single member limited liability company.
For income tax purposes, any income or losses are passed through to BECo.
Therefore, there is no provision for income taxes.
UNAMORTIZED DEBT ISSUANCE COSTS
Unamortized debt issuance costs in the net amount of $4,730,494 shown on
the accompanying financial statements are being amortized to expense
ratably over the lives of the related classes of Rate Reduction Notes
outstanding.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. Periodic trueups from estimates to actual are required to be
submitted to the MDTE.
C. RELATED PARTIES
BECo provides management, consulting and financial services to BEC Funding
LLC for a fee. Services are provided to BEC Funding LLC from BECo in
accordance with guidelines issued by the MDTE relative to transactions
between regulated entities and unregulated affiliated entities. BECo also
acts as servicer of transition property pursuant to a contract with BEC
Funding LLC. As of December 31, 1999, transition property receivable and
interest receivable, due from BECo, amounted to $719,837,271 and
$20,359,814, partially offset by RTC billings by BECo totaling $66,463,535.
As of December 31, 1999, amounts due to BECo from BEC Funding LLC for
servicing and administrative services totaled $184,722.
D. LONG-TERM DEBT
On July 29, 1999, BEC Funding LLC issued notes in the principal amount of
$725,000,000 to the Trust, in exchange for the net proceeds from the sale
of $725,000,000 of Rate Reduction Certificates issued by the Trust on July
29, 1999. Each class of notes issued by BEC Funding LLC secures the payment
of a related class of certificates issued by the Trust and has the same
principal balance, interest rate, amortization schedule, and legal maturity
date as the related class of certificates issued by the Trust.
BEC Funding LLC had notes payable at December 31, 1999 as set forth in the
table below:
10
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BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
Scheduled Final
Principal Interest Maturity Maturity
Class Amount Rate Date Date
----- --------- -------- --------- --------
<S> <C> <C> <C> <C>
A-1 $ 80,980,226 5.99% 3/15/01 3/15/03
A-2 170,609,837 6.45% 9/15/03 9/15/05
A-3 103,390,163 6.62% 3/15/05 3/15/07
A-4 170,875,702 6.91% 9/15/07 9/15/09
A-5 171,624,298 7.03% 3/15/10 3/15/12
------------
total $697,480,226
============
</TABLE>
The scheduled maturity date for a class of notes is the date by which BEC
Funding LLC expects to distribute in full all interest on and principal of that
class of notes. The final maturity date for a class of notes is the legal
maturity date of that class. For the first trueup date (March 15, 2000), an
estimated $2,600,000 of RTC charges collected will be deposited into the reserve
subaccount by the Trustee. This represents the excess funds collected that were
necessary to pay interest, principal, fees and expenses on March 15, 2000. The
note trustee will draw on amounts in the reserve subaccount, to the extent
amounts available in the general subaccount are insufficient to pay debt
service, expenses, and/or to fund the capital and overcollateralization
accounts.
Long-term note redemptions due in the years ended December 31 in each of the
next five years ended December 31, 2000, 2001, 2002, 2003, and 2004, are
scheduled to be $78,441,458 (of which a scheduled $40,000,000 payment was made
on March 15, 2000), $62,428,264, $70,225,942, $68,014,173, and $68,740,411,
respectively. The estimated fair market values at December 31, 1999 of the Class
A-1, Class A-2, Class A-3, Class A-4 and Class A-5 Notes was $108,022,600,
$168,613,702, $101,436,089, $168,022,077 and $167,659,776, respectively, based
upon quoted market prices for similar issues.
INTEREST
Interest on each class of notes accrues from its issuance date at the interest
rate set forth in the table above. On a daily basis, BEC Funding LLC submits
amounts to the intermediary bank trustee and on March 15, 2000 the intermediary
bank trustee will commence making semiannual interest payments on March 15 and
September 15 (or, if any payment date is not a business day, the following
business day) of each year, on all classes of Rate Reduction Certificates
outstanding, to the Trust. BEC Funding LLC will pay interest on the notes prior
to paying principal of the notes. BEC Funding LLC made its first scheduled
interest payment, totaling $30,271,829, on all classes of notes outstanding, on
March 15, 2000.
On each payment date, BEC Funding LLC will pay interest as follows:
* if there has been a payment default, any unpaid interest payable on
any prior payment dates, together with interest at the applicable note
interest rate on any of this unpaid interest; and
* accrued interest on the principal balance of each class of notes as of
the close of business on the preceding payment date, or the date of
the original issuance of the class of notes if applicable, after
giving effect to all payments made on the preceding payment date, or
the date of the original issuance of the class of notes if applicable.
If there is a shortfall in the amounts necessary to make these interest
payments, the note trustee will distribute interest pro rata to each class of
notes based on the outstanding principal amount of that class and the applicable
interest rate. BEC Funding LLC will calculate interest on the basis of a 360-day
year of twelve 30-day months.
11
<PAGE> 12
BEC FUNDING LLC
(A SPECIAL PURPOSE ENTITY)
NOTES TO FINANCIAL STATEMENTS, CONTINUED
PRINCIPAL
BEC Funding LLC will pay any principal on each payment date as follows:
1. to the holders of the notes, until the principal balance of that class
has been reduced to zero;
2. BEC Funding LLC will not, however, pay principal on a payment date on
any class of notes if making the payment would reduce the principal balance
of a class to an amount lower than that specified in the expected
amortization schedule for that class on that payment date. If an event of
default under the note indenture has occurred and is continuing, the note
trustee may declare the unpaid principal amount of all outstanding notes
and accrued interest to be due and payable.
The expected amortization schedule for the principal of each class of notes
gives effect to the payments expected to be made on each payment date and is
based upon the issuance date of the notes on July 29, 1999 and also the
following:
* payments on the certificates are made on each distribution date,
commencing March 15, 2000;
* the servicing fee equals 0.05 percent annually of the initial
principal amount of the notes, or $362,500;
* there are no net earnings on amounts on deposit in the collection
account;
* the administration fee (which is $75,000 per year, payable
semiannually) and other ongoing operating expenses are estimated to be
approximately $220,000 per annum, and these amounts are payable in
arrears, and;
* payments arising from the property securing the notes are deposited in
the collection account as expected.
There can be no assurance that the principal balances of the classes of BEC
Funding LLC's notes outstanding and the Trust's related classes of certificates
outstanding will be reduced at the rates expected. The actual rates of reduction
in class principal balances may be slower (and cannot be faster) than the
expected amortization schedule.
The note trustee has established a collection account to hold amounts remitted
by the servicer of the property securing the notes. The notes are secured
primarily by transition property of the note issuer, which is the right to
assess and collect all revenues arising from a portion of the transition charge
included in the bills of all classes of retail users of BECo's electric
distribution system within its geographic service territory as in effect on July
1, 1997. This portion of the transition charge, which is a usage-based charge,
is referred to as the RTC charge. As of December 31, 1999, the RTC charge is
approximately 1.10 cents per kilowatt-hour.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of BEC Funding LLC:
In our opinion, the accompanying balance sheet and the related statement of
operations, statement of changes in member's equity and statement of cash flows
present fairly, in all material respects, the financial position of BEC Funding
LLC at December 31, 1999, and the results of its operations and its cash flows
for the period from January 29, 1999 (date of inception) to December 31, 1999 in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 26, 2000
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON FINANCIAL DISCLOSURE
None.
12
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PART III
ITEM 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT AS OF MARCH 1, 2000
The following is a list of the directors and executive officers of BEC Funding
LLC. The directors and executive officers serve in accordance with the company's
limited liability company agreement. Independent directors are designated with
an asterisk (*).
DIRECTORS PRINCIPAL OCCUPATION AND DIRECTORSHIPS
- --------- --------------------------------------
Thomas J. May, 52 Chairman and Chief Executive Officer, BEC Funding LLC
(since 1999). Chairman and Chief Executive Officer
(since 1999), NSTAR and its subsidiaries; Chairman,
President, and Chief Executive Officer (1998 to 1999),
BEC Energy; and Chairman, President and Chief Executive
Officer (1995 to 1999), Boston Edison Company; Director,
Fleet Boston Financial; Liberty Mutual Insurance
Company, Liberty Mutual Fire Insurance Company; Liberty
Financial Companies, Inc.; New England Business Service,
Inc.; and RCN Corporation.
Russell D. Wright, 53 Vice Chairman, President and Chief Operating Officer,
BEC Funding LLC (since 1999). President and Chief
Operating Officer (since 1999), NSTAR and its
subsidiaries. President and Chief Executive Officer
(1998 to 1999), Commonwealth Energy System; President
and Chief Operating Officer (1993-1998) Commonwealth
Energy System's operating subsidiaries; Director, Reed
and Barton.
James J. Judge, 44 Director and Senior Vice President & Chief Financial
Officer, BEC Funding LLC (since 1999), and Treasurer,
BEC Funding LLC (since 2000). Senior Vice President and
Chief Financial Officer, NSTAR and its subsidiaries
since 1999. Senior Vice President - Corporate Services
and Treasurer, BEC BEC Energy, 1998-1999. Senior Vice
President Corporate Services and Treasurer, Boston
Edison Company, 1995-1999.
*Andrew Stidd, 42 Director since 1999. President of Global Securitization
Services, LLC since January 1998. Managing Director of
Global Securitization Services, LLC between December
1996 and December 1997. Vice President and Director of
Lord Securities Corporation, 1992-1996.
*Kevin P. Burns, 30 Director since 1999. Vice President of Global
Securitization Services, LLC since December, 1996.
Director of Lord Securities Corporation, 1992-1996.
13
<PAGE> 14
EXECUTIVE OFFICERS AS OF MARCH 1, 2000
- --------------------------------------
Thomas J. May, 52 Chairman and Chief Executive Officer, BEC Funding LLC
(since 1999). Chairman and Chief Executive Officer
(since 1999), NSTAR and its subsidiaries; Chairman,
President, and Chief Executive Officer (1998 to 1999),
BEC Energy; and Chairman, President and Chief Executive
Officer (1995 to 1999), Boston Edison Company; Director,
Fleet Boston Financial; Liberty Mutual Insurance
Company, Liberty Mutual Fire Insurance Company; Liberty
Financial Companies, Inc.; New England Business Service,
Inc.; and RCN Corporation.
Russell D. Wright, 53 Vice Chairman, President and Chief Operating Officer,
BEC Funding LLC (since 1999). President and Chief
Operating Officer (since 1999), NSTAR and its
subsidiaries. President and Chief Executive Officer
(1998 to 1999), Commonwealth Energy System; President
and Chief Operating Officer (1993-1998) Commonwealth
Energy System's operating subsidiaries; Director, Reed
and Barton.
James J. Judge, 44 Director and Senior Vice President & Chief Financial
Officer, BEC Funding LLC (since 1999), and Treasurer,
BEC Funding LLC (since 2000). Senior Vice President and
Chief Financial Officer, NSTAR and its subsidiaries
since 1999. Senior Vice President - Corporate Services
and Treasurer, BEC BEC Energy, 1998-1999. Senior Vice
President Corporate Services and Treasurer, Boston
Edison Company, 1995-1999.
Douglas S. Horan, 50 Senior Vice President, 1999. Senior Vice President
Strategy, Law & Policy, NSTAR and its Subsidiaries
(since 1999). Senior Vice President - Strategy and Law
and General Counsel, BEC Energy since 1998. Senior Vice
President - Strategy and Law and General Counsel, Boston
Edison Company since 1995.
Michael P. Sullivan, 52 Vice President, Secretary/Clerk, and General Counsel
(since 1999). Vice President, Secretary/ Clerk and
General Counsel of NSTAR and its subsidiaries since
1999. formerly Vice President, Secretary and General
Counsel of Commonwealth Energy and its subsidiaries
prior to 1999.
14
<PAGE> 15
ITEM 11.
EXECUTIVE COMPENSATION
BEC Funding LLC does not compensate its officers and does not compensate its
directors, other than the two directors that are independent of Boston Edison
Company and its affiliates (Mr. Stidd and Mr. Burns), for their services on
behalf of BEC Funding LLC. The initial aggregate annual compensation for both of
the independent directors is $3,500. Officers serve at the discretion of BEC
Funding LLC's directors. BEC Funding LLC's organizational documents provide that
it will indemnify its officers and directors against liabilities incurred in
connection with their services on behalf of BEC Funding LLC.
ITEM 12.
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
None of BEC Funding LLC's directors or officers holds equity securities of the
company.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
15
<PAGE> 16
PART IV
ITEM 14.
EXHIBITS, FINANCIAL STATEMENTS SCHEDULES, AND REPORTS ON FORM 8-K.
a) The following designated documents and exhibits are filed herewith
and/or incorporated by reference:
Balance Sheet of BEC Funding LLC as of December 31, 1999; Statement
of Operations for the January 29, 1999 (date of inception) to
December 31, 1999; Statement of Changes in Members' Equity for the
period January 29, 1999 (date of inception) to December 31, 1999;
Statement of Cash Flows for the period from January 29, 1999 (date
of inception) to December 31, 1999 Notes to Financial Statements and
Reports of Independent Accountants.
Exhibit 1.1 - Underwriting Agreement (incorporated by reference to
the same titled exhibit to the registrants' Form 8-K
filed with the Commission on August 13, 1999).
Exhibit 3.1 - Certificate of Formation of the Registrant
(incorporated by reference to the same titled
exhibit to the registrants' Registration Statement
on Form S-3, File No. 333-74671).
Exhibit 3.2 - Limited Liability Company Agreement of the
Registrant (incorporated by reference to the same
titled exhibit to the registrants' Registration
Statement on Form S-3, File No. 333-74671).
Exhibit 4.1 - Note Indenture (incorporated by reference to the
same titled exhibit to the registrants' Form 8-K
filed with the Commission on August 13, 1999).
Exhibit 4.2 - Certificate Indenture (incorporated by reference to
the same titled exhibit to the registrants' Form 8-K
filed with the Commission on August 13, 1999).
Exhibit 4.3 - Declaration of Trust (incorporated by reference to
the same titled exhibit to the registrants' Form 8-K
filed with the Commission on August 13, 1999).
Exhibit 4.4 - Notes (incorporated by reference to the same titled
exhibit to the registrants' Form 8-K filed with the
Commission on August 13, 1999).
Exhibit 4.5 - Rate Reduction Certificates (incorporated by
reference to the same titled exhibit to the
registrants' Form 8-K filed with the Commission on
August 13, 1999).
Exhibit 10.1 - Transition Property and Purchase and Sale Agreement
(incorporated by reference to the same titled
exhibit to the registrants' Form 8-K filed with the
Commission on August 13, 1999).
Exhibit 10.2 - Transition Property Servicing Agreement
(incorporated by reference to the same titled
exhibit to the registrants' Form 8-K filed with the
Commission on August 13, 1999).
Exhibit 10.3 - Note Purchase Agreement (incorporated by reference
to the same titled exhibit to the registrants' Form
8-K filed with the Commission on August 13, 1999).
Exhibit 10.4 - Administration Agreement (incorporated by reference
to the same titled exhibit to the registrants' Form
8-K filed with the Commission on August 13, 1999).
16
<PAGE> 17
Exhibit 10.5 - Fee and Indemnity Agreement (incorporated by
reference to the same titled exhibit to the
registrants' Form 8-K filed with the Commission on
August 13, 1999).
Exhibit 27.1 - Financial Data Schedule for the period January 29,
1999 (date of inception) to December 31, 1999.
Exhibit 99.5 - Issuance Advice Letter (incorporated by reference to
the same titled exhibit to the registrant's Form 8-K
filed with the Commission on August 13, 1999.)
b) Reports on Form 8-K
There were no reports on Form 8-K filed in the fourth quarter of
1999.
17
<PAGE> 18
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BEC FUNDING LLC
---------------
(Registrant)
/s/ James J. Judge
----------------------------------
James J. Judge
Senior Vice President and
Chief Financial Officer and
Treasurer
Date: March 23, 2000
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities indicated on the 23rd day of
March 2000.
/s/ Thomas J. May Director, Chairman of the Board and
- ------------------------------ Chief Executive Officer
Thomas J. May
/s/ Robert J. Weafer, Jr. Vice President, Controller and
- ------------------------------ Chief Accounting Officer
Robert J. Weafer, Jr.
/s/ Russell D. Wright Director, Vice Chairman, President and
- ------------------------------ Chief Operating Officer
Russell D. Wright
/s/ James J. Judge Director, Senior Vice President and
- ------------------------------ & Chief Financial Officer, and Treasurer
James J. Judge
/s/ Kevin Burns Director
- ------------------------------
Kevin Burns
/s/ Andrew Stidd Director
- ------------------------------
Andrew Stidd
18
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 3,818,521
<SECURITIES> 0
<RECEIVABLES> 72,280,048
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 76,098,569
<PP&E> 646,125,284
<DEPRECIATION> 0
<TOTAL-ASSETS> 722,223,853
<CURRENT-LIABILITIES> 72,031,812
<BONDS> 646,558,542
0
0
<COMMON> 0
<OTHER-SE> 3,633,499
<TOTAL-LIABILITY-AND-EQUITY> 722,223,853
<SALES> 301,942
<TOTAL-REVENUES> 301,942
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 231,305
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 70,637
<INCOME-TAX> 0
<INCOME-CONTINUING> 70,637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 70,637
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
