<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-5464
(LOGO) MASSACHUSETTS ELECTRIC COMPANY
(Exact name of registrant as specified in charter)
MASSACHUSETTS 04-1988940
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
25 Research Drive, Westborough, Massachusetts 01582
(Address of principal executive offices)
Registrant's telephone number, including area code
(508-389-2000)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
Common stock, par value $25 per share, authorized and
outstanding: 2,398,111 shares at March 31, 1997.
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
<TABLE>
MASSACHUSETTS ELECTRIC COMPANY
Statements of Income
Periods Ended March 31
(Unaudited)
<CAPTION>
Three Months Twelve Months
------------ -------------
1997 1996 1997 1996
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Operating revenue $405,518 $390,819$1,553,236 $1,523,403
-------- ------------------ ----------
Operating expenses:
Purchased electric energy, principally from
New England Power Company, an affiliate 295,200 287,385 1,128,523 1,116,520
Other operation 48,546 47,198 213,011 208,947
Maintenance 7,424 8,056 30,470 30,149
Depreciation 12,638 12,037 47,959 45,401
Taxes, other than income taxes 8,873 8,745 30,687 30,413
Income taxes 8,596 6,711 27,071 22,965
-------- ------------------ ----------
Total operating expenses 381,277 370,132 1,477,721 1,454,395
-------- ------------------ ----------
Operating income 24,241 20,687 75,515 69,008
Other income (expense) - net, including
related taxes (1,896) (2,037) (1,071) (2,904)
-------- ------------------ ----------
Operating and other income 22,345 18,650 74,444 66,104
-------- ------------------ ----------
Interest:
Interest on long-term debt 7,083 6,725 27,447 26,521
Other interest 1,742 1,387 6,828 5,530
Allowance for borrowed funds used during
construction - credit (116) (196) (660) (656)
-------- ------------------ ----------
Total interest 8,709 7,916 33,615 31,395
-------- ------------------ ----------
Net income $ 13,636 $ 10,734$ 40,829 $ 34,709
======== ================== ==========
Statements of Retained Earnings
Retained earnings at beginning of period $165,936 $150,308$ 150,671 $ 135,264
Net income 13,636 10,734 40,829 34,709
Dividends declared on cumulative
preferred stock (778) (779) (3,114) (3,115)
Dividends declared on common stock (11,991) (9,592) (21,583) (16,187)
-------- ------------------ ----------
Retained earnings at end of period $166,803 $150,671$ 166,803 $ 150,671
======== ================== ==========
The accompanying notes are an integral part of these financial statements.
Per share data is not relevant because the Company's common stock is wholly-
owned by New England Electric System.
</TABLE>
<PAGE>
<TABLE>
MASSACHUSETTS ELECTRIC COMPANY
Balance Sheets
(Unaudited)
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
------ ---- ----
(In Thousands)
<S> <C> <C>
Utility plant, at original cost $1,526,477 $1,509,896
Less accumulated provisions for depreciation 438,176 430,585
---------- ----------
1,088,301 1,079,311
Construction work in progress 10,152 9,119
---------- ----------
Net utility plant 1,098,453 1,088,430
---------- ----------
Current assets:
Cash 2,408 2,356
Accounts receivable:
From sales of electric energy 171,223 165,866
Other (including $2,292,000 and $1,605,000
from affiliates) 2,951 2,600
Less reserves for doubtful accounts 13,967 13,146
---------- ----------
160,207 155,320
Unbilled revenues 35,845 43,390
Materials and supplies, at average cost 8,953 8,820
Prepaid and other current assets 23,710 25,923
---------- ----------
Total current assets 231,123 235,809
---------- ----------
Deferred charges and other assets 63,101 66,019
---------- ----------
$1,392,677 $1,390,258
========== ==========
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common stock, par value $25 per share, authorized
and outstanding 2,398,111 shares $ 59,953 $ 59,953
Premiums on capital stocks 45,862 45,862
Other paid-in capital 155,310 155,310
Retained earnings 166,803 165,936
---------- ----------
Total common equity 427,928 427,061
Cumulative preferred stock 50,000 50,000
Long-term debt 333,369 343,321
---------- ----------
Total capitalization 811,297 820,382
---------- ----------
Current liabilities:
Long-term debt due in one year 40,000 30,000
Short-term debt (including $4,400,000 and $5,275,000
to affiliates) 21,875 43,775
Accounts payable (including $173,702,000 and $157,603,000
to affiliates) 179,360 178,263
Accrued liabilities:
Taxes 11,690 961
Interest 7,342 9,635
Other accrued expenses 69,955 54,833
Customer deposits 4,335 4,308
Dividends payable 12,769 7,973
---------- ----------
Total current liabilities 347,326 329,748
---------- ----------
Deferred federal and state income taxes 172,703 177,778
Unamortized investment tax credits 16,290 16,566
Other reserves and deferred credits 45,061 45,784
---------- ----------
$1,392,677 $1,390,258
========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
MASSACHUSETTS ELECTRIC COMPANY
Statements of Cash Flows
Quarters Ended March 31
(Unaudited)
<CAPTION>
1997 1996
---- ----
(In Thousands)
<S> <C> <C>
Operating activities:
Net income $ 13,636 $ 10,734
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 12,639 12,037
Deferred income taxes and investment tax credits, net (5,365) (7,279)
Allowance for funds used during construction (116) (196)
Decrease (increase) in accounts receivable,
net and unbilled revenues 2,658 (2,412)
Decrease (increase) in materials and supplies (133) (739)
Decrease (increase) in prepaid and other current assets 2,214 (920)
Increase (decrease) in accounts payable 1,097 (10,466)
Increase (decrease) in other current liabilities 23,585 29,526
Other, net 2,562 2,993
-------- --------
Net cash provided by operating activities $ 52,777 $ 33,278
-------- --------
Investing activities:
Plant expenditures, excluding allowance for
funds used during construction $(22,546) $(22,779)
Other investing activities (306) (178)
-------- --------
Net cash used in investing activities $(22,852) (22,957)
-------- --------
Financing activities:
Dividends paid on common stock $ (7,194) $ (1,198)
Dividends paid on preferred stock (779) (779)
Changes in short-term debt (21,900) (8,975)
-------- --------
Net cash provided by (used in)
financing activities $(29,873) $(10,952)
-------- --------
Net decrease in cash and cash equivalents $ 52 $ (631)
Cash and cash equivalents at beginning of period 2,356 1,840
-------- --------
Cash and cash equivalents at end of period $ 2,408 $ 1,209
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Note A - Hazardous Waste
- ------------------------
The Federal Comprehensive Environmental Response, Compensation
and Liability Act, more commonly known as the "Superfund" law,
imposes strict, joint and several liability, regardless of fault,
for remediation of property contaminated with hazardous substances.
A number of states, including Massachusetts, have enacted similar
laws.
The electric utility industry typically utilizes and/or
generates in its operations a range of potentially hazardous
products and by-products. New England Electric System (NEES)
subsidiaries currently have in place an internal environmental
audit program and an external waste disposal vendor audit and
qualification program intended to enhance compliance with existing
federal, state, and local requirements regarding the handling of
potentially hazardous products and by-products.
The Company has been named as a potentially responsible party
(PRP) by either the United States Environmental Protection Agency
or the Massachusetts Department of Environmental Protection for 19
sites at which hazardous waste is alleged to have been disposed.
Private parties have also contacted or initiated legal proceedings
against the Company regarding hazardous waste cleanup. The most
prevalent types of hazardous waste sites with which the Company has
been associated are manufactured gas locations. The Company is
aware of approximately 35 such manufactured gas locations in
Massachusetts (including eight of the 19 locations for which the
Company is a PRP). The Company is currently aware of other
possible hazardous waste sites, and may in the future become aware
of additional sites, that it may be held responsible for
remediating.
In 1993, the Massachusetts Department of Public Utilities
approved a settlement agreement regarding the rate recovery of
remediation costs of former manufactured gas sites and certain
other hazardous waste sites located in Massachusetts. Under that
agreement, qualified costs related to these sites are paid out of
a special fund established on the Company's books. The Company
made an initial $30 million contribution to the fund. Rate-
recoverable contributions of $3 million, adjusted since 1993 for
inflation, are added annually to the fund along with interest and
any recoveries from insurance carriers and other third parties. At
March 31, 1997, the fund had a balance of $17 million. Under a
1996 Massachusetts restructuring and rate settlement, an additional
$15 million will be transferred to the fund in 1997 out of existing
reserves for refunds. This settlement is pending approval with the
Federal Energy Regulatory Commission.
<PAGE>
Note A - Hazardous Waste - Continued
- ------------------------
Predicting the potential costs to investigate and remediate
hazardous waste sites continues to be difficult. There are also
significant uncertainties as to the portion, if any, of the
investigation and remediation costs of any particular hazardous
waste site that may ultimately be borne by the Company. Where
appropriate, the Company intends to seek recovery from its insurers
and from other PRPs, but it is uncertain whether, and to what
extent, such efforts will be successful. At March 31, 1997, the
Company had total reserves for environmental response costs of $37
million and a related regulatory asset of $14 million. The Company
believes that hazardous waste liabilities for all sites of which it
is aware, and which are not covered by a rate agreement, are not
material to its financial position.
In October 1996, the American Institute of Certified Public
Accountants issued new accounting rules for Environmental
Remediation Liabilities which become effective in 1997. These new
rules do not have a material effect on the Company's financial
position or results of operations.
Note B
- ------
In the opinion of the Company, these statements reflect all
adjustments (which include normal recurring adjustments) necessary
for a fair statement of the results of its operations for the
periods presented and should be considered in conjunction with the
notes to the financial statements in the Company's 1996 Annual
Report.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
---------------------------------------------------------
Condition and Results of Operations
-----------------------------------
This section contains management's assessment of Massachusetts
Electric Company's financial condition and the principal factors
having an impact on the results of operations. This discussion
should be read in conjunction with the Company's financial
statements and footnotes and the 1996 Annual Report on Form 10-K.
Earnings
--------
Net income for the first quarter of 1997 increased $ 3 million
over the same period last year. This increase was primarily due to
decreased demand charges from the Company's wholesale generating
affiliate, New England Power Company (NEP).
Industry Restructuring
----------------------
For a discussion of industry restructuring activities in
Massachusetts, Rhode Island and New Hampshire, see "Industry
Restructuring" in the Company's Form 10-K for 1996.
The NEES companies have reached an agreement with all three of
its unions - the Brotherhood of Utility Workers, the International
Brotherhood of Electrical Workers, and the Utility Workers Union of
America - regarding benefits and other assistance to union
employees that are affected by the restructuring of the electric
utility industry and the NEES companies divestiture of its
generation business. The NEES companies anticipates that industry
restructuring and divestiture will lead to workforce reductions.
Accounting Implications
Historically, electric utility rates have been based on a
utility's costs. As a result, electric utilities are subject to
certain accounting standards that are not applicable to other
business enterprises in general. Financial Accounting Standards
No. 71, Accounting for the Effects of Certain Types of Regulation
<PAGE>
(FAS 71), requires regulated entities, in appropriate
circumstances, to establish regulatory assets, and thereby defer
the income statement impact of certain costs expected to be
recovered in future rates. At December 31, 1996 the Company had
approximately $16 million in net regulatory assets (regulatory
assets of $56 million offset by regulatory liabilities of $40
million) in compliance with FAS 71. The Company believes that the
continuing rate-making policies and practices of the Massachusetts
Department of Public Utilities and the terms of the Massachusetts
settlement will enable the Company to recover both its specific
costs of providing ongoing distribution services and stranded costs
billed to it by NEP. The Company believes that these factors will
allow it to continue to apply FAS 71. However, the Company
understands that members of the Securities and Exchange Commission
(SEC) staff have raised questions concerning the continued
applicability of FAS 71 to certain other electric utilities facing
restructuring. In connection therewith, the Emerging Issues Task
Force of the Financial Accounting Standards Board has decided to
take under consideration how FAS 71 should be applied in light of
recent changes within the regulated utility industry. In the event
that future circumstances should cause the application of FAS 71 to
be discontinued, a noncash write-off of previously established
regulatory assets would be required.
Operating Revenue
-----------------
The following table summarizes the changes in operating
revenue:
Increase (Decrease) in Operating Revenue
First Quarter
-------------
1997 vs 1996
-------------
(In Millions)
Deliveries to ultimate customers $(2)
Purchased Power cost adjustment mechanism 2
Fuel recovery 13
Demand-side management (DSM) 1
Other 1
---
$15
===
<PAGE>
Kilowatt-hour deliveries to ultimate customers decreased 0.3
percent in the first quarter of 1997.
The purchased power cost adjustment mechanism is designed to
allow the Company to pass on to its customers changes in purchased
energy costs resulting from rate increases or decreases by NEP.
The mechanism is also designed to pass on to customers the effects
of NEP's seasonal rates.
The increase in fuel recovery revenues is due to increased
replacement power fuel purchases by NEP due to the reduced
generation of partially owned nuclear units. These costs are
passed on to the Company through NEP's fuel clause. The Company,
in turn, passes these costs on to its customers.
Operating Expenses
------------------
The following table summarizes the changes in operating
expenses which are discussed below:
Increase (Decrease) in Operating Expenses
First Quarter
-------------
1997 vs 1996
-------------
(In Millions)
Purchased electric energy:
Fuel costs $ 13
Other (5)
Other operation and maintenance:
DSM 1
Other 0
Taxes 2
---
$11
===
For a discussion of increased fuel costs, refer to the
"Operating Revenues" section.
The decrease in other purchased electricity is principally due
to a reduction in peak demand charges, reflecting milder weather in
the first quarter of 1997.
The increase in taxes is primarily due to increased income.
<PAGE>
Utility Plant Expenditures and Financing
----------------------------------------
Cash expenditures for utility plant totaled $23 million in the
first three months of 1997. The funds necessary for utility plant
expenditures during the period were provided by net cash from
operating activities, after the payment of dividends. The Company
plans to issue a net $20 million of long-term debt in 1997 to fund
capital expenditures.
At March 31, 1997, the Company had $22 million of short-term
debt outstanding including $17 million of commercial paper
borrowings. The Company currently has lines of credit with banks
totaling $90 million. These lines of credit are available to
provide liquidity support for commercial paper borrowings and other
corporate purposes. There were no borrowings under these lines of
credit at March 31, 1997.
For the twelve-month period ending March 31, 1997, the ratio of
earnings to fixed charges was 2.92.
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
On March 19, 1997, the Annual Meeting of Stockholders was
held. The following actions were taken by the unanimous vote of
the 2,398,111 shares having general voting rights represented at
the meeting:
The number of directors was fixed at eleven.
The following were elected as directors of the Company:
Urville J. Beaumont
Joan T. Bok
Sally L. Collins
Kalyan K. Ghosh
Charles B. Housen
Patricia A. McGovern
John F. Reilly
Lawrence J. Reilly
John W. Rowe
Richard P. Sergel
Roslyn M. Watson
Michael E. Jesanis was elected Treasurer and Robert King Wulff
was elected Clerk.
Coopers & Lybrand L.L.P. was selected as auditor for 1997.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
The Company filed no reports on Form 8-K during the quarter.
The Company is filing the following revised exhibit for
incorporation by reference into its registration statement on Form
S-3, Commission File No. 33-59145:
12 Statement re Computation of ratios
The Company is filing Financial Data Schedules.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report on Form 10-Q for
the quarter ended March 31, 1997 to be signed on its behalf by the
undersigned thereunto duly authorized.
MASSACHUSETTS ELECTRIC COMPANY
s/Michael E. Jesanis
Michael E. Jesanis, Treasurer,
Authorized Officer, and
Principal Financial Officer
Date: May 13, 1997
Exhibit Index
<PAGE>
Exhibit Index
-------------
Exhibit Description Page
- ------- ----------- ----
12 Statement re computation of Filed herewith
ratios
27 Financial Data Schedule Filed herewith
Exhibit 12
<PAGE>
<TABLE>
MASSACHUSETTS ELECTRIC COMPANY
Computation of Ratio of Earnings to Fixed Charges
(SEC Coverage)
(Unaudited)
<CAPTION>
12 Months
Ended
March 31, 1997 Years Ended December 31,
Actual -------------------------------------------------------------
(Unaudited) 1996 1995 1994 1993 1992
-------------- ---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 40,829 $37,926 $29,101 $34,726 $23,779 $34,905
- ----------
Add income taxes and fixed charges
- ----------------------------------
Current federal income taxes 25,840 25,867 9,437 (6,762) 5,606 3,977
Deferred federal income taxes (4,464) (6,052) 6,156 24,932 3,430 13,451
Investment tax credits - net (1,115) (1,118) (1,132) (1,228) (1,228) (1,228)
Massachusetts franchise tax 4,794 4,479 3,935 4,681 3,348 3,858
Interest on long-term debt 27,447 27,089 25,901 20,967 23,403 21,910
Interest on short-term debt and other6,828 6,473 6,784 6,366 3,638 3,657
-------- ------- ------- ------- ------- -------
Net earnings available for fixed charges $100,159 $94,664 $80,182 $83,682 $61,976 $80,530
-------- ------- ------- ------- ------- -------
Fixed charges:
Interest on long-term debt $ 27,447 $27,089 $25,901 $20,967 $23,403 $21,910
Interest on short-term debt and other6,828 6,473 6,784 6,366 3,638 3,657
-------- ------- ------- ------- ------- -------
Total fixed charges $ 34,275 $33,562 $32,685 $27,333 $27,041 $25,567
======== ======= ======= ======= ======= =======
Ratio of earnings to fixed charges 2.92 2.82 2.45 3.06 2.29 3.15
- ----------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEET AND RELATED STATEMENTS OF INCOME,
RETAINED EARNINGS AND CASH FLOWS OF MASSACHUSETTS ELECTRIC
COMPANY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> 3-MOS
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,098,453
<OTHER-PROPERTY-AND-INVEST> 0
<TOTAL-CURRENT-ASSETS> 231,123
<TOTAL-DEFERRED-CHARGES> 63,101 <F1>
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 1,392,677
<COMMON> 59,953
<CAPITAL-SURPLUS-PAID-IN> 201,172
<RETAINED-EARNINGS> 166,803
<TOTAL-COMMON-STOCKHOLDERS-EQ> 427,928
0
50,000
<LONG-TERM-DEBT-NET> 333,369
<SHORT-TERM-NOTES> 4,400
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 17,475
<LONG-TERM-DEBT-CURRENT-PORT> 40,000
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 519,505
<TOT-CAPITALIZATION-AND-LIAB> 1,392,677
<GROSS-OPERATING-REVENUE> 405,518
<INCOME-TAX-EXPENSE> 8,596
<OTHER-OPERATING-EXPENSES> 372,681
<TOTAL-OPERATING-EXPENSES> 381,277
<OPERATING-INCOME-LOSS> 24,241
<OTHER-INCOME-NET> (1,896)
<INCOME-BEFORE-INTEREST-EXPEN> 22,345
<TOTAL-INTEREST-EXPENSE> 8,709
<NET-INCOME> 13,636
778
<EARNINGS-AVAILABLE-FOR-COMM> 12,858
<COMMON-STOCK-DIVIDENDS> 11,991
<TOTAL-INTEREST-ON-BONDS> 7,083
<CASH-FLOW-OPERATIONS> 52,777
<EPS-PRIMARY> 0 <F2>
<EPS-DILUTED> 0 <F2>
<FN>
<F1> Total deferred charges includes other assets.
<F2> Per share data is not relevant because the Company's common stock is
wholly-owned by New England Electric System.
</FN>
