<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 June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-3446
(LOGO) NEW ENGLAND ELECTRIC SYSTEM
(Exact name of registrant as specified in charter)
MASSACHUSETTS 04-1663060
(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 Shares, par value $1 per share, authorized and
outstanding: 64,898,262 shares at June 30, 1996.
<PAGE>
PART I FINANCIAL STATEMENTS
Item 1. Financial Statements
- ----------------------------
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Statements of Consolidated Income
Periods Ended June 30
(Unaudited)
<CAPTION>
Quarter Six Months
------- ----------
1996 1995 1996 1995
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Operating revenue $551,110 $533,547$1,137,330 $1,091,863
-------- ------------------ ----------
Operating expenses:
Fuel for generation 72,440 58,468 146,732 107,427
Purchased electric energy 124,893 140,290 250,583 285,785
Other operation 126,075 119,056 241,596 231,133
Maintenance 34,638 33,997 66,921 75,126
Depreciation and amortization 65,230 68,832 130,906 140,825
Taxes, other than income taxes 35,996 32,244 74,621 67,559
Income taxes 22,705 20,779 61,883 50,742
-------- ------------------ ----------
Total operating expenses 481,977 473,666 973,242 958,597
-------- ------------------ ----------
Operating income 69,133 59,881 164,088 133,266
Other income:
Allowance for equity funds used during
construction 2,771 5,381
Equity in income of generating companies 2,819 2,777 5,487 5,329
Other income (expense), net 44 (59) (491) 493
-------- ------------------ ----------
Operating and other income 71,996 65,370 169,084 144,469
-------- ------------------ ----------
Interest:
Interest on long-term debt 27,278 27,065 55,122 53,144
Other interest 6,306 3,765 10,573 8,351
Allowance for borrowed funds used during
construction (450) (3,272) (958) (6,596)
-------- ------------------ ----------
Total interest 33,134 27,558 64,737 54,899
-------- ------------------ ----------
Income after interest 38,862 37,812 104,347 89,570
Preferred dividends of subsidiaries 1,993 2,173 4,165 4,345
Minority interests 1,868 2,108 3,685 4,032
-------- ------------------ ----------
Net income $ 35,001 $ 33,531$ 96,497 $ 81,193
======== ================== ==========
Average common shares 64,898,27464,958,82364,888,323 64,964,238
Net income per average common share $.54 $.52 $1.49 $ 1.25
Dividends declared per share $.59 $.59 $1.180 $1.165
Statements of Consolidated Retained Earnings
Retained earnings at beginning of period $854,720 $789,350 $831,529 $779,045
Net income 35,001 33,531 96,497 81,193
Dividends delcared on common shares (38,332) (38,332) (76,637) (75,689)
Premium on redemption of preferred stock (450) (450)
-------- -------- -------- --------
Retained earnings at end of period $850,939 $784,549 $850,939 $784,549
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Statements of Consolidated Income
Twelve Months Ended June 30
(Unaudited)
<CAPTION>
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Operating revenue $2,317,179 $2,240,908
---------- ----------
Operating expenses:
Fuel for generation 276,803 212,605
Purchased electric energy 513,168 559,903
Other operation 511,184 500,030
Maintenance 127,853 164,546
Depreciation and amortization 254,747 285,712
Taxes, other than income taxes 139,693 126,884
Income taxes 139,481 111,044
---------- ----------
Total operating expenses 1,962,929 1,960,724
---------- ----------
Operating income 354,250 280,184
Other income:
Allowance for equity funds used during construction 2,471 10,869
Equity in income of generating companies 10,710 9,826
Other income (expense), net (7,290) (1,849)
---------- ----------
Operating and other income 360,141 299,030
---------- ----------
Interest:
Interest on long-term debt 110,343 101,411
Other interest 22,048 15,069
Allowance for borrowed funds used during construction (8,378) (11,574)
---------- ----------
Total interest 124,013 104,906
---------- ----------
Income after interest 236,128 194,124
Preferred dividends of subsidiaries 8,510 8,689
Minority interests 7,557 7,673
---------- ----------
Net income $ 220,061 $ 177,762
========== ==========
Average common shares 64,906,229 64,966,945
Net income per average common share $3.39 $ 2.74
Dividends declared per share $2.360 $2.315
Statements of Consolidated Retained Earnings
Retained earnings at beginning of period $ 784,549 $ 757,192
Net income 220,061 177,762
Dividends declared on common shares (153,221) (150,405)
Premium on redemption of preferred stock (450)
--------- ---------
Retained earnings at end of period $ 850,939 $ 784,549
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<CAPTION>
June 30, December 31,
ASSETS 1996 1995
------ ---- ----
(In Thousands)
<S> <C> <C>
Utility plant, at original cost $5,581,144$5,480,001
Less accumulated provisions for depreciation and amortization 1,783,968 1,710,991
--------------------
3,797,176 3,769,010
Net investment in Seabrook 1 under rate settlement 7,605 15,210
Construction work in progress 84,323 71,682
--------------------
Net utility plant 3,889,104 3,855,902
--------------------
Oil and gas properties, at full cost 1,272,417 1,266,290
Less accumulated provision for amortization 1,063,471 1,032,777
--------------------
Net oil and gas properties 208,946 233,513
--------------------
Investments:
Nuclear power companies, at equity 47,524 47,056
Other subsidiaries, at equity 38,322 40,259
Other investments 90,134 87,992
--------------------
Total investments 175,980 175,307
--------------------
Current assets:
Cash 2,759 7,064
Accounts receivable, less reserves of $20,226,000 and
$18,308,000 255,710 284,033
Unbilled revenues 60,139 66,300
Fuel, materials, and supplies, at average cost 83,385 73,724
Prepaid and other current assets 81,014 77,673
--------------------
Total current assets 483,007 508,794
--------------------
Deferred charges and other assets 389,639 417,360
--------------------
$5,146,676$5,190,876
====================
CAPITALIZATION AND LIABILITIES
------------------------------
Capitalization:
Common share equity:
Common shares, par value $1 per share:
Authorized - 150,000,000 shares
Issued - 64,969,652 shares
Outstanding - 64,898,262 shares and 64,923,721 shares $ 64,970 $ 64,970
Paid-in capital 736,814 736,823
Retained earnings 850,939 831,529
Treasury stock - 71,390 shares and 45,931 shares (2,501) (1,543)
--------------------
Total common share equity 1,650,222 1,631,779
Minority interests in consolidated subsidiaries 47,697 48,912
Cumulative preferred stock of subsidiaries 132,016 147,016
Long-term debt 1,609,179 1,675,170
--------------------
Total capitalization 3,439,114 3,502,877
--------------------
Current liabilities:
Long-term debt due within one year 52,585 23,960
Short-term debt 195,902 203,250
Accounts payable 132,163 157,486
Accrued taxes 31,289 15,894
Accrued interest 26,857 27,455
Dividends payable 37,626 38,683
Other current liabilities 113,743 73,104
--------------------
Total current liabilities 590,165 539,832
--------------------
Deferred federal and state income taxes 755,666 780,451
Unamortized investment tax credits 92,575 93,408
Other reserves and deferred credits 269,156 274,308
--------------------
$5,146,676$5,190,876
====================
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
<TABLE>
NEW ENGLAND ELECTRIC SYSTEM AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30
(Unaudited)
<CAPTION>
1996 1995
---- ----
(In Thousands)
<S> <C> <C>
Operating Activities:
Net income $ 96,497 $ 81,193
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 133,636 143,559
Deferred income taxes and investment tax credits, net (26,626) (3,703)
Allowance for funds used during construction (958) (11,977)
Amortization of unbilled revenues (4,104)
Minority interests 3,685 4,032
Decrease (increase) in accounts receivable, net
and unbilled revenues 36,117 46,040
Decrease (increase) in fuel, materials, and supplies (9,148) (13,303)
Decrease (increase) in prepaid and other current assets (3,127) (931)
Increase (decrease) in accounts payable (25,997) (38,272)
Increase (decrease) in other current liabilities 53,901 11,754
Other, net 16,525 (8,628)
--------- ---------
Net cash provided by operating activities $ 274,505 $ 205,660
--------- ---------
Investing Activities:
Plant expenditures, excluding allowance for
funds used during construction $(121,307) $(181,766)
Oil and gas exploration and development (6,127) (8,783)
Other investing activities (1,679) (465)
--------- ---------
Net cash used in investing activities $(129,113) $(191,014)
--------- ---------
Financing Activities:
Dividends paid to minority interests $ (5,300) $ (5,943)
Dividends paid on NEES common shares (77,239) (75,207)
Long-term debt - issues 41,850 143,000
Long-term debt - retirements (83,330) (66,160)
Changes in short-term debt (9,010) (7,790)
Redemption of preferred stock (15,000)
Premium on redemption of preferred stock (450)
Premium on reacquisition of long-term debt (260)
Repurchase of common shares (958) (1,490)
--------- ---------
Net cash used in financing activities $(149,697) $ (13,590)
--------- ---------
Net increase (decrease) in cash and cash equivalents $ (4,305) $ 1,056
Cash and cash equivalents at beginning of period 7,064 3,047
--------- ---------
Cash and cash equivalents at end of period $ 2,759 $ 4,103
========= =========
Supplementary Information:
Interest paid less amounts capitalized $ 61,972 $ 51,499
--------- ---------
Federal and state income taxes paid $ 80,653 $ 22,743
--------- ---------
Changes in assets and liabilities shown above, other than cash, exclude the effects from
the purchase of Nantucket Electric Company on March 26, 1996.
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 an environmental audit program in place
intended to enhance compliance with existing federal, state, and
local requirements regarding the handling of potentially hazardous
products and by-products.
NEES and/or its subsidiaries have been named as potentially
responsible parties (PRPs) by either the U.S. Environmental
Protection Agency (EPA) or the Massachusetts Department of
Environmental Protection for 23 sites at which hazardous waste is
alleged to have been disposed. Private parties have also contacted
or initiated legal proceedings against NEES and certain
subsidiaries regarding hazardous waste cleanup. The most prevalent
types of hazardous waste sites with which NEES and its subsidiaries
have been associated are manufactured gas locations. (Until the
early 1970's, NEES was a combined electric and gas holding company
system.) NEES is aware of approximately 40 such locations
(including nine of the 23 locations for which NEES companies are
PRPs) mostly located in Massachusetts. NEES and its subsidiaries
are currently aware of other sites, and may in the future become
aware of additional sites, that they may be held responsible for
remediating.
NEES has been notified by the EPA that it is one of several
PRPs for cleanup of the Pine Street Canal Superfund site in
Burlington, Vermont, where coal tar and other materials were
deposited. Between 1931 and 1951, NEES and its predecessor owned
all of the common stock of Green Mountain Power Corporation (GMP).
Prior to, during, and after that time, gas was manufactured at the
Pine Street Canal site by GMP. In 1989, NEES was one of 14 parties
required to pay the EPA's past response costs related to this site.
NEES remains a PRP for ongoing and future response costs. In
November 1992, the EPA proposed a cleanup plan estimated by the EPA
to cost $50 million. In June 1993, the EPA withdrew this cleanup
plan in response to public concern about the plan and its cost.
The cost of any cleanup plan is uncertain at this time. NEES
signed a settlement agreement in March 1996 establishing NEES's
apportionment percentage of these costs. NEES believes it has
adequate reserves for this site.
<PAGE>
Note A - Hazardous Waste - Continued
- ------------------------
In 1993, the Massachusetts Department of Public Utilities
approved a Massachusetts Electric Company (Massachusetts Electric)
rate agreement that allows for remediation costs of former
manufactured gas sites and certain other hazardous waste sites
located in Massachusetts to be met from a non-rate-recoverable,
interest-bearing fund of $30 million established on Massachusetts
Electric's books in 1993. Rate-recoverable contributions of $3
million, adjusted for inflation, are added to the fund annually in
accordance with the agreement. Any shortfalls in the fund would be
paid by Massachusetts Electric and be recovered through rates over
seven years.
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 NEES or its
subsidiaries. Where appropriate, the NEES companies intend to seek
recovery from their insurers and from other PRPs, but it is
uncertain whether, and to what extent, such efforts will be
successful. At June 30, 1996, NEES had total reserves for
environmental response costs of $49 million and a related
regulatory asset of $19 million. NEES 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.
Note B - Investments in Nuclear Units
- -------------------------------------
Millstone 3 and Connecticut Yankee
NEP is a 12 percent joint owner of the Millstone 3 nuclear
generating unit (Millstone 3), a 1,150 megawatt (MW) unit and has
a 15 percent ownership interest in Connecticut Yankee Atomic Power
Company (Connecticut Yankee) which owns a 580 MW nuclear generating
plant. Both plants are operated by subsidiaries of Northeast
Utilities (NU). In March 1996, the Millstone 3 unit was shut down
as the result of an internal safety review. On April 4, 1996, the
Nuclear Regulatory Commission (NRC) ordered Millstone 3 to remain
shut down pending verification that the unit's operations are in
accordance with NRC regulations and the unit's operating license.
NEP is not a joint owner of the Millstone 1 and 2 nuclear
generating units, which are also shut down under NRC orders.
<PAGE>
Note B - Investments in Nuclear Units - Continued
- -------------------------------------
On June 28, 1996, the NRC notified NU that the Millstone units
had been reclassified from Category 2 facilities to Category 3
facilities on the NRC "watch list". The NRC deems Category 3 plants
as having significant weaknesses that require them to remain shut
down until it is demonstrated that adequate programs have been
established and implemented to ensure substantial improvement. A
Category 3 designation also requires a vote of the NRC
Commissioners to restart the units. On August 6, 1996, the NRC
Chairman described problems at the Millstone units as pervasive and
indicated that a culture change is required. The NRC Chairman has
also announced that independent verification of corrective actions
taken at the units will be required prior to restart. It is
uncertain when Millstone 3 will be allowed by the NRC to restart,
although NEP believes that delays well beyond the end of 1996 are
likely.
Based on an estimate provided by NU, NEP accrued approximately
$3 million in the second quarter of 1996 for its portion of the
future incremental operation and maintenance costs related to
corrective actions at the Millstone 3 unit. These costs were
charged to other operation and maintenance expense. Additional
costs may be incurred beyond those already recognized. NEP has
been, and expects to continue until the unit is returned to
service, incurring approximately $1.5 million per month in
replacement power costs, which it has been recovering through its
fuel clause.
The Connecticut Yankee station was shut down on July 22, 1996
after a potential problem with the cooling systems was identified.
On July 31, 1996, the NRC identified in an inspection report
several additional issues which must be resolved prior to restart.
The report addressed numerous programmatic weaknesses, significant
deficiencies and errors, as well as issues similar to some
identified at the Millstone 1 unit. As a result, Connecticut
Yankee began a scheduled refueling outage early. On August 9,
1996, the NRC wrote to NU concerning recently identified safety
concerns that raise questions regarding the continued operation of
Connecticut Yankee. The NRC letter requires NU to resubmit under
oath its basis for continued operation of the unit. NEP cannot
predict when restart of Connecticut Yankee will occur.
Maine Yankee
NEP has a 20 percent ownership interest in Maine Yankee Atomic
Power Company (Maine Yankee) which owns an 880 MW nuclear
generating station. The Maine Yankee station shut down on July 20,
1996 after identifying a potential problem with the cooling system.
The station is in the process of returning to service. Maine
Yankee is also subject to an NRC independent safety assessment
(ISA) that began in June 1996. The ISA will be extensive and
<PAGE>
Note B - Investments in Nuclear Units - Continued
- -------------------------------------
results are not expected until the Fall of 1996. Other
nonaffiliated facilities which have been the subject of similar
assessments have incurred substantial additional capital and
operating expenditures. Prior to the shutdown, Maine Yankee had
been operating at only 90 percent power. Upon its return to
service, Maine Yankee will continue operating at 90 percent power
until the NRC authorizes operation at a higher level.
The New England Power Pool (NEPOOL) has indicated that with
several nuclear units in New England not in service, there could be
insufficient power supply available in New England to meet demand
during the remainder of the summer peak-load period. NEPOOL
members have taken steps to mitigate the load situation.
In general, it is unknown what the total ultimate impact of the
increased NRC scrutiny on the nuclear plants mentioned above will
have on NEP's operations and costs.
Note C - Purchased Power Contract Disputes
- ------------------------------------------
As previously reported, in October 1994, NEP was sued by, and
later filed counterclaims against, Milford Power Limited
Partnership (MPLP), a venture of Enron Corporation and Jones
Capital that owned a 149 MW gas-fired power plant in Milford,
Massachusetts. NEP purchased 56 percent of the power output of the
facility under a long-term contract with MPLP. On April 24, 1996,
NEP and MPLP executed a settlement agreement under which each party
agreed to the dismissal of the lawsuit and the counterclaims, the
restructuring of their power and fuel purchase arrangements, and
the payment by MPLP to NEP in the third quarter of 1996 of an
undisclosed amount of money. MPLP withdrew all allegations it made
against NEP, including claims that NEP deceived its regulators and
violated federal criminal statutes. The settlement has been
approved by the Federal Energy Regulatory Commission. On August 1,
1996, MPLP sold its partnership interest in the plant to
subsidiaries of American National Power, Inc.
On July 11, 1996, various New England utilities that are
members of NEPOOL, including NEP, submitted a dispute to
arbitration regarding their Firm Energy Purchased Power Contract
with Hydro-Quebec. The dispute concerns the components of a
pricing formula. Based on NEP's interpretation of Hydro-Quebec's
claims, NEP's share of additional billings owed to Hydro-Quebec
would be approximately $3.5 million on a retroactive basis and an
estimated $3.8 million per year on a prospective basis through
2001. An arbitrator has not yet been appointed.
<PAGE>
Note D
- ------
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 consolidated financial statements in the Company's
1995 Annual Report.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
---------------------------------------------------------
Condition and Results of Operations
-----------------------------------
This section contains management's assessment of New England
Electric System's (NEES) financial condition and the principal
factors having an impact on the results of operations. This
discussion should be read in conjunction with the consolidated
financial statements and footnotes and the 1995 Annual Report on
Form 10-K.
Earnings
- --------
Earnings for the second quarter of 1996 were $.54 per share
compared with $.52 per share for the corresponding period in 1995.
The table below details the primary factors affecting consolidated
earnings:
<PAGE>
Period ending June 30,
----------------------
3 Months 6 Months
-------- --------
1995 earnings $ .52 $1.25
Increased revenues .09 .25
Decreased purchased power costs,
excluding fuel .13 .24
Seabrook 1 and Oil Conservation Adjustment
(OCA) amortization .06 .15
Increased depreciation, including
Manchester Street (.04) (.08)
Allowance for funds used during
construction (AFDC) (.07) (.14)
Other operation and maintenance expenses (.05) (.02)
Taxes, other than income taxes (.04) (.07)
Increased interest expense (.01) (.03)
Other (.05) (.06)
----- -----
1996 earnings $ .54 $1.49
===== =====
The increase in revenues reflects sales growth and retail rate
increases. Kilowatt-hour (kWh) sales to ultimate customers
increased 1.9 percent and 3.5 percent for the second quarter and
first six months of 1996, respectively. The increase for the first
six months is due, in part, to a return to more normal weather
conditions in the first quarter of 1996 as compared with unusually
mild weather experienced in the first quarter of 1995. For a
discussion of other items affecting earnings, see the "Operating
Revenue" and "Operating Expenses" sections.
<PAGE>
Competitive Conditions
- ----------------------
The electric utility business is being subjected to rapidly
increasing competitive pressures, stemming from a combination of
trends, including the presence of surplus generating capacity, a
disparity in electric rates among regions of the country,
improvements in generation efficiency, increasing demand for
customer choice, and new regulations and legislation intended to
foster competition. See the Company's Annual Report on Form 10-K
for the year ended December 31, 1995.
In states across the country, including Massachusetts and New
Hampshire, there have been an increasing number of proposals to
allow retail customers to choose their electricity supplier, with
incumbent utilities required to deliver that electricity over their
transmission and distribution systems (also known as "retail
wheeling"). In Rhode Island, such a proposal has been enacted into
law.
Rhode Island legislation
On August 7, 1996, the Governor of Rhode Island signed into
law legislation that will restructure the electric utility industry
in Rhode Island. Rhode Island is the first state to pass
comprehensive legislation providing retail customers with access to
alternative suppliers and providing utilities with recovery of
their stranded investments. The NEES companies supported this
legislation which affects New England Power Company (NEP) and The
Narragansett Electric Company (Narragansett).
<PAGE>
The legislation will allow all customers of electric utilities
to choose their power supplier under a phased-in approach, while
transmission and distribution rates will remain regulated. This
phase-in will begin on July 1, 1997 for customers representing
approximately 10 percent of Narragansett's load, followed by
another 10 percent on January 1, 1998, and the balance of customers
on July 1, 1998.
Under the new law, NEP's wholesale contract with Narragansett
will be terminated. In return, the cost of NEP's past generation
commitments to serve Narragansett's customers will be recovered
through a transition access charge on retail distribution rates.
Those commitments, which are currently estimated at approximately
$4 billion on a present value basis in total for NEP (of which
Narragansett's share is approximately $1 billion), consist of (i)
generating plant commitments, (ii) regulatory assets, (iii) the
above market component of purchased power contracts, and (iv) the
operating cost of nuclear plants which cannot be mitigated by
shutting down the plants. The aggregate amount of the transition
access charge will be reduced by the fair market value of the
utilities' non-nuclear generating assets. The value of such
generating assets will be determined by leasing, selling, spinning
off, or otherwise disposing of at least a 15 percent interest in
such generating facilities.
Sunk costs associated with generating plants and regulatory
assets will be recovered over a period of 12 years, with an
initial return on equity of one percentage point over the interest
rate on long-term "BBB" rated utility bonds. Once the transition
<PAGE>
access charge is adjusted to reflect the market valuation of the
non-nuclear generating plants, the return on equity will be
retroactively increased to 11 percent. Purchased power contracts
and nuclear decommissioning costs will be recovered as incurred
over the life of those obligations, a period expected to extend
beyond 12 years. The initial transition access charge will be set
at 2.8 cents per kWh through December 31, 2000, and is expected to
decline thereafter. Implementation of various aspects of the Rhode
Island legislation is subject to Rhode Island Public Utilities
Commission and Federal Energy Regulatory Commission (FERC)
approval.
The legislation also establishes performance-based rates for
distribution utilities, such as Narragansett. Under the
legislation, Narragansett will be entitled to increase its
distribution rates by approximately $10 million annually for 1997
and 1998. In addition, for those two years, Narragansett's return
on equity will be subject to a floor of 6 percent and a ceiling of
11 percent. Earnings over the ceiling will be shared equally
between customers and shareholders up to an absolute cap on return
on equity of 12.5 percent. To the extent that earnings fall below
the floor, Narragansett will be authorized to surcharge customers
for the shortfall.
Massachusetts and New Hampshire proceedings
In February 1996, Massachusetts Electric Company
(Massachusetts Electric) filed with the Massachusetts Department of
Public Utilities (MDPU) a plan for retail choice similar to the
<PAGE>
Rhode Island legislation described above. Three other utilities
and the Massachusetts Division of Energy Resources (DOER) also
filed plans with the MDPU in February 1996. The DOER's plan calls
for direct access for all customers beginning in 1998, with a pilot
program beginning in 1997. The DOER's plan, however, proposes
that, in exchange for stranded cost recovery, utilities divest
their generating assets, either through sale or spinoff.
On May 1, 1996, the MDPU issued a set of proposed rules and
regulations governing the implementation of retail choice. The
proposed rules would allow all customers of Massachusetts investor-
owned utilities to choose their electricity supplier beginning in
1998 and would establish a price cap system for regulating the
rates for distribution service that would continue to be provided
by local utilities. The MDPU-proposed rules affirm the principle
of stranded cost recovery for utilities over ten years, but create
uncertainties concerning the extent of actual stranded cost
recovery. While the MDPU did not order mandatory divestiture of
generating assets, it stated that it might provide utilities
financial incentives to divest. Hearings on the proposed rules
were completed in July 1996. The MDPU has stated that it will
issue final regulations by year-end 1996 and issue orders on the
individual utility plans in 1997.
The New Hampshire Public Utilities Commission (NHPUC) is
expected to issue a preliminary restructuring plan for the electric
utility industry in New Hampshire in August 1996.
<PAGE>
FERC order
In April 1996, the FERC issued Order No. 888 addressing open
access transmission and required those utilities that own
transmission facilities to file open access tariffs to make
available transmission service to affiliates and nonaffiliates at
fair non-discriminatory rates. Order No. 888 also stated that
public utilities will be allowed to seek recovery of legitimate and
verifiable stranded costs from departing customers as a result of
wholesale competition. The FERC indicated that it will provide for
the recovery of retail stranded costs only if state regulators lack
the legal authority to address those costs at the time retail
wheeling is required. The FERC also stated that it would permit
stranded cost recovery under wholesale requirements contracts, such
as the contracts between NEP and its retail affiliates.
In response to the FERC Notice of Proposed Rulemaking issued
in advance of Order No. 888 discussed above, NEP and NEES
Transmission Services, Inc. (NEES Trans), a proposed new subsidiary
of NEES, filed transmission tariffs in March 1996 at the FERC. On
July 9,
1996, NEP, on behalf of the NEES companies, filed a transmission
tariff with the FERC that conforms with the requirements of Order
No. 888. This tariff became effective immediately upon filing,
subject to refund, and supersedes the NEES Trans tariff that was
previously filed in March 1996. If approved as filed, the
implementation of the tariff would not have a significant impact on
NEP's revenues.
<PAGE>
Risk factors
The major risk factors affecting recovery of at-risk assets
are: (i) regulatory and legal decisions, (ii) the market price of
power, and (iii) the amount of market share retained by the NEES
companies. First, there can be no assurance that a final
restructuring plan ordered by regulatory bodies, or the courts, or
through legislation will include an access charge that would fully
recover stranded costs and include a fair return on those costs as
they are being recovered. If laws are enacted or regulatory
decisions are made that do not offer an opportunity to recover
stranded costs, NEES believes it has strong legal arguments to
challenge such laws or decisions. Such a challenge would be based,
in part, on the assertion that subjecting utility generating assets
to competition without compensation for stranded costs, while
requiring utilities to open access to their wires at historic
cost-based rates, would constitute an unconstitutional taking of
property without just compensation. Second, the access charge
included in the Rhode Island legislation, as well as the one
proposed by the NEES companies in Massachusetts and New Hampshire,
recovers only the above market components of sunk costs, such as
plant expenditures and contractual commitments. Because of a
regional surplus of electric generation capacity, current wholesale
power prices in the short-term market are based on the short-run
fuel costs of generating units. Such wholesale prices are not
currently providing a significant contribution toward other
marginal costs, such as operation and maintenance expenses. NEES
<PAGE>
expects this situation to continue in a retail market. Third,
revenues will also be affected by the NEES companies' ability to
retain existing customers and attract new customers in a
competitive environment. Pilot programs underway in New Hampshire
and Massachusetts have been highly competitive, with many
competitors and very low power prices being offered to
participants. As a result of the pressure on market prices and
market share, it is likely that, even with a fully compensatory
transition access charge, the generating business will experience
revenue losses and increased revenue volatility for an
indeterminate period, which will limit its ability to contribute to
consolidated earnings and dividend growth during that period.
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 Standard
No. 71, Accounting for the Effects of Certain Types of Regulation
(FAS 71), requires regulated entities, in appropriate
circumstances, to establish regulatory assets and liabilities, and
thereby defer the income statement impact of certain costs that are
expected to be recovered in future rates. The effects of
regulatory, legislative, or utility initiatives, could, in the near
future, cause all or a portion of the operations of NEES
subsidiaries to cease meeting the criteria of FAS 71. In that
event, the application of FAS 71 to such operations would be
discontinued and a non-cash write-off of previously established
regulatory assets and liabilities related to such operations would
<PAGE>
be required. At December 31, 1995, NEES had consolidated pre-tax
regulatory assets (net of regulatory liabilities) of approximately
$600 million, of which about $500 million is related to its
subsidiaries' generation business (including approximately $200
million related to oil and gas properties regulated as part of the
generation business), and about $100 million is related to its
subsidiaries' transmission and distribution businesses. In
addition to the potential write-down of regulatory assets, write-
downs of plant assets could be required if competitive or
regulatory change should cause a substantial revenue loss, or lead
to the permanent shutdown or sale of any generating facilities.
This "Competitive Conditions" section contains forward-looking
statements as defined under the securities laws. Actual results
could differ materially from those projected. This section,
particularly under "Risk factors", lists some of the reasons why
results could differ materially from those projected.
Investments in Nuclear Units
- ----------------------------
Millstone 3 and Connecticut Yankee
NEP is a 12 percent joint owner of the Millstone 3 nuclear
generating unit (Millstone 3), a 1,150 megawatt (MW) unit and has
a 15 percent ownership interest in Connecticut Yankee Atomic Power
Company (Connecticut Yankee) which owns a 580 MW nuclear generating
plant. Both plants are operated by subsidiaries of Northeast
Utilities (NU). In March 1996, the Millstone 3 unit was shut down
as the result of an internal safety review. On April 4, 1996, the
Nuclear Regulatory Commission (NRC) ordered Millstone 3 to remain
<PAGE>
shut down pending verification that the unit's operations are in
accordance with NRC regulations and the unit's operating license.
NEP is not a joint owner of the Millstone 1 and 2 nuclear
generating units, which are also shut down under NRC orders.
On June 28, 1996, the NRC notified NU that the Millstone units
had been reclassified from Category 2 facilities to Category 3
facilities on the NRC "watch list". The NRC deems Category 3 plants
as having significant weaknesses that require them to remain shut
down until it is demonstrated that adequate programs have been
established and implemented to ensure substantial improvement. A
Category 3 designation also requires a vote of the NRC
Commissioners to restart the units. On August 6, 1996, the NRC
Chairman described problems at the Millstone units as pervasive and
indicated that a culture change is required. The NRC Chairman has
also announced that independent verification of corrective actions
taken at the units will be required prior to restart. It is
uncertain when Millstone 3 will be allowed by the NRC to restart,
although NEP believes that delays well beyond the end of 1996 are
likely.
Based on an estimate provided by NU, NEP accrued approximately
$3 million in the second quarter of 1996 for its portion of the
future incremental operation and maintenance costs related to
corrective actions at the Millstone 3 unit. These costs were
charged to other operation and maintenance expense. Additional
costs may be incurred beyond those already recognized. NEP has
been, and expects to continue until the unit is returned to
service, incurring approximately $1.5 million per month in
<PAGE>
replacement power costs, which it has been recovering through its
fuel clause.
The Connecticut Yankee station was shut down on July 22, 1996
after a potential problem with the cooling systems was identified.
On July 31, 1996, the NRC identified in an inspection report
several additional issues which must be resolved prior to restart.
The report addressed numerous programmatic weaknesses, significant
deficiencies and errors, as well as issues similar to some
identified at the Millstone 1 unit. As a result, Connecticut
Yankee began a scheduled refueling outage early. On August 9,
1996, the NRC wrote to NU concerning recently identified safety
concerns that raise questions regarding the continued operation of
Connecticut Yankee. The NRC letter requires NU to resubmit under
oath its basis for continued operation of the unit. NEP cannot
predict when restart of Connecticut Yankee will occur.
Maine Yankee
NEP has a 20 percent ownership interest in Maine Yankee Atomic
Power Company (Maine Yankee) which owns an 880 MW nuclear
generating station. The Maine Yankee station shut down on July 20,
1996 after identifying a potential problem with the cooling system.
The station is in the process of returning to service. Maine
Yankee is also subject to an NRC independent safety assessment
(ISA) that began in June 1996. The ISA will be extensive and
results are not expected until the Fall of 1996. Other
nonaffiliated facilities which have been the subject of similar
assessments have incurred substantial additional capital and
<PAGE>
operating expenditures. Prior to the shutdown, Maine Yankee had
been operating at only 90 percent power. Upon its return to
service, Maine Yankee will continue operating at 90 percent power
until the NRC authorizes operation at a higher level.
The New England Power Pool (NEPOOL) has indicated that with
several nuclear units in New England not in service, there could be
insufficient power supply available in New England to meet demand
during the remainder of the summer peak-load period. NEPOOL
members have taken steps to mitigate the load situation.
In general, it is unknown what the total ultimate impact of
the increased NRC scrutiny on the nuclear plants mentioned above
will have on NEP's operations and costs.
Retail Rate Activity
- --------------------
On May 6, 1996, the NHPUC approved a settlement agreement for
a $1.1 million rate increase for Granite State Electric Company
(Granite) which the Company began billing effective June 1, 1996.
<PAGE>
Operating Revenue
- -----------------
The following table summarizes the changes in operating
revenue:
Increase (Decrease) in Operating Revenue
Second Quarter Six Months
-------------- ------------
1996 vs 1995 1996 vs 1995
-------------- ------------
(In Millions)
Sales growth $ 9 $ 24
Retail rate increases 11 22
Rate adjustment mechanisms (7) (14)
Fuel recovery 10 27
Accrued New England Energy
Incorporated (NEEI) revenues (6) (10)
Unbilled revenues recognized
under rate agreements (2) (4)
Other 3 -
--- ----
$18 $ 45
=== ====
For a discussion of sales growth to ultimate customers, see the
"Earnings" section.
Retail rate increases for the second quarter and six months
ended June 30, 1996 reflect a Massachusetts Electric $31 million
base rate increase effective in October 1995, a Narragansett $12
million base rate increase effective in December 1995, and a
Granite $850,000 interim increase effective in November 1995 that
was later replaced by a $1.1 million rate increase, effective on
June 1, 1996. Rate adjustment mechanisms include true-ups for the
<PAGE>
pass-through of purchased power billings between NEP and the retail
companies.
For a discussion of fuel recovery see the fuel costs discussion
in the "Operating Expenses" section.
Accrued NEEI fuel revenues reflect losses incurred by NEEI on
its rate-regulated oil and gas operations. These revenues are
accrued in the year of loss, but are billed to customers through
NEP's fuel adjustment clause in the following year. The decrease
in NEEI losses in the quarter and six months is principally due to
increased gas prices as well as a reduced level of production.
Operating Expenses
- ------------------
The following table summarizes the changes in operating
expenses:
Increase (Decrease) in Operating Expenses
Second Quarter Six Months
-------------- ------------
1996 vs 1995 1996 vs 1995
-------------- ------------
(In Millions)
Fuel costs $ 12 $ 30
Purchased energy, excluding fuel (14) (25)
Operation and maintenance 8 2
Depreciation and amortization:
Seabrook 1 and OCA amortization (5) (12)
Depreciation, including
Manchester Street 4 9
Oil and gas properties (3) (7)
Taxes, other than income taxes 4 7
Income taxes 2 11
---- ----
$ 8 $ 15
==== ====
<PAGE>
Fuel costs represent fuel for generation and the portion of
purchased electric energy permitted to be recovered through NEP's
fuel adjustment clause. The increase in fuel costs in the second
quarter and first six months of 1996 reflects increased kWh sales
and additional fixed pipeline demand charges. These increases were
partially offset by reduced purchases of power from nonaffiliates
reflecting increased hydro generation and increased generation from
affiliated nuclear power suppliers. In accordance with a 1992 rate
agreement, approximately 50 percent of NEP's fixed pipeline demand
charges in prior years were deferred pending completion of the
Manchester Street Station repowering project. The remainder of
the fixed pipeline demand charges were passed through NEP's fuel
clause. The project was completed in the second half of 1995 and,
accordingly, no further amounts have been deferred. The deferred
amounts are currently being amortized over 25 years.
The portion of purchased electric energy costs not recovered
through NEP's fuel clause is shown as purchased energy, excluding
fuel. The decrease in purchased energy, excluding fuel, is
principally due to 1995 overhauls and refueling shutdowns at Maine
Yankee and two other partially-owned nuclear power units, as well
as reduced purchases of capacity from other suppliers. Purchased
power costs in 1995 also included NEP's portion of incremental
costs to repair steam generator tubes at Maine Yankee. Two of
these nuclear units, Connecticut Yankee, which is currently
shutdown, and Vermont Yankee are scheduled for refueling shutdowns
in the second half of 1996. See "Investments in Nuclear Units"
section.
<PAGE>
The increase in other operation and maintenance expenses for
the second quarter of 1996 includes costs associated with
Millstone 3. These costs reflect NEP's portion of future
incremental operation and maintenance costs related to corrective
actions at the unit.
The decrease in Seabrook 1 and OCA amortization reflects the
completion in mid-1995 of the amortization of a portion of Seabrook
1 costs and certain coal conversion costs. These decreases were
partially offset by increased depreciation of other utility plant,
including the Manchester Street Station.
The increase in taxes, other than income taxes in 1996 is due
to increased property taxes, including taxes on the Manchester
Street Station.
Allowance For Funds Used During Construction
- --------------------------------------------
AFDC decreased for the second quarter and first six months of
1996 due to the completion of the Manchester Street Station
repowering project in 1995.
Liquidity and Capital Resources
- -------------------------------
Plant expenditures in the first six months of 1996 amounted to
$121 million for the utility subsidiaries. The funds necessary for
utility plant expenditures were provided by net cash from operating
activities, after the payment of dividends.
<PAGE>
The financing activities of NEES subsidiaries for the first six
months of 1996 are summarized as follows:
Issues Retirements
------ -----------
(In Millions)
Long-term debt
- --------------
Narragansett $ 2 $ 2
NEP 40 50
Hydro-Transmission Companies 5
Narragansett Energy Resources
Company 1
NEEI 25
--- ---
$42 $83
=== ===
NEP refinanced $40 million of variable rate mortgage bonds and
Narragansett refinanced $2 million of long-term debt at an interest
rate of 7.24 percent in the first six months of 1996. On July 16,
1996, the Nantucket Electric Company (Nantucket), a retail
subsidiary, issued $28 million of long-term tax-exempt debt at
rates ranging from 4.10 percent to 6.75 percent. Massachusetts
Electric guaranteed the debt on behalf of Nantucket. The retail
subsidiaries plan to issue an additional $30 million of long-term
debt by the end of 1996.
Citing the passage of the restructuring legislation in Rhode
Island, Moody's Investor Services lowered the credit rating of NEP,
Massachusetts Electric and Narragansett from A1 to A2 for senior
secured debt. Standard & Poor's downgraded NEP's senior secured
debt credit rating from A+ to A for similar reasons. Duff & Phelps
Credit Rating Company had previously downgraded NEP's senior
secured debt from AA- to A+ in March 1996 in anticipation of
increasing competitive forces in the Northeast.
<PAGE>
In the second quarter of 1996, NEP redeemed all of its 7.24
percent series of cumulative preferred stock. A premium of
$450,000 in connection with this redemption was charged to retained
earnings in the second quarter.
Net cash from operating activities provided all of the funds
for oil and gas expenditures for the first six months of 1996.
NEEI capitalized oil and gas exploration and development costs of
$6 million in the first six months of 1996 which includes
approximately $4 million of capitalized interest costs.
At June 30, 1996, NEES and its consolidated subsidiaries had
available lines of credit and standby bond purchase facilities with
banks totaling $714 million. These lines and facilities were used
for liquidity support for $194 million of commercial paper
borrowings and for $372 million of NEP mortgage bonds in tax-exempt
commercial paper mode. Fees are paid on the lines and facilities
in lieu of compensating balances.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Information concerning restructuring dockets before state and
federal regulatory agencies, discussed in Part I of this report in
Management's Discussion and Analysis of Financial Condition and
Results of Operations, is incorporated herein by reference and made
a part hereof.
Information concerning a settlement agreement regarding a
lawsuit filed against New England Power Company (NEP) by Milford
Power Limited Partnership on October 28, 1994, discussed in this
report in Note C of Notes to Unaudited Financial Statements, is
incorporated herein by reference and made a part hereof.
Information concerning arbitration of a dispute regarding NEP's
purchased power contract with Hydro-Quebec discussed in this report
in Note C of Notes to Unaudited Financial Statements, is
incorporated herein by reference and made a part hereof.
Item 4. Submission of Matters to a Vote of Security-Holders
- ------------------------------------------------------------
On April 23, 1996, the Annual Meeting of Shareholders was held.
Directors were elected and received the following votes:
Director Votes For Votes Withheld
-------- --------- --------------
Joan T. Bok 52,557,700 1,256,397
Paul T. Joskow 52,735,875 1,078,222
John M. Kucharski 52,932,556 881,541
Edward H. Ladd 53,003,940 810,157
Joshua A. McClure 52,918,624 895,473
John W. Rowe 52,894,019 920,078
George M. Sage 52,966,685 847,412
Charles E. Soule 52,881,694 932,403
Anne Wexler 52,844,879 969,218
James Q. Wilson 52,891,201 922,896
James R. Winoker 52,904,273 909,824
The shareholders by a vote of 7,804,770 in favor, 37,464,474
against, and 2,130,221 abstaining, rejected a shareholder proposal
regarding the splitting of shares.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
The Company filed a report on Form 8-K dated May 30, 1996,
containing Item 5, Other Events.
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 June 30, 1996 to be signed on its behalf by the
undersigned thereunto duly authorized.
NEW ENGLAND ELECTRIC SYSTEM
s/Alfred D. Houston
Alfred D. Houston
Executive Vice President and
Chief Financial Officer
Date: August 14, 1996
The name "New England Electric System" means the trustee or
trustees for the time being (as trustee or trustees but not
personally) under an agreement and declaration of trust dated
January 2, 1926, as amended, which is hereby referred to, and a
copy of which as amended has been filed with the Secretary of the
Commonwealth of Massachusetts. Any agreement, obligation or
liability made, entered into or incurred by or on behalf of New
England Electric System binds only its trust estate, and no
shareholder, director, trustee, officer or agent thereof assumes or
shall be held to any liability therefor.
<PAGE>
Exhibit Index
-------------
Exhibit Description Page
- ------- ----------- ----
27 Financial Data Schedule Filed herewith
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND RELATED
CONSOLIDATED STATEMENTS OF INCOME, RETAINED EARNINGS AND CASH FLOWS OF NEW ENGLAND ELECTRIC SYSTEM, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995 DEC-31-1996 DEC-31-1995
<PERIOD-END> JUN-30-1996 JUN-30-1995 JUN-30-1996 JUN-30-1995
<PERIOD-TYPE> QTR-2 QTR-2 QTR-2 QTR-2
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 3,889,104 0 0 0
<OTHER-PROPERTY-AND-INVEST> 384,926 0 0 0
<TOTAL-CURRENT-ASSETS> 483,007 0 0 0
<TOTAL-DEFERRED-CHARGES> 389,639 <F1> 0 0 0
<OTHER-ASSETS> 0 0 0 0
<TOTAL-ASSETS> 5,146,676 0 0 0
<COMMON> 64,970 0 0 0
<CAPITAL-SURPLUS-PAID-IN> 736,814 0 0 0
<RETAINED-EARNINGS> 850,939 0 0 0
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,650,222 <F3> 0 0 0
0 0 0 0
132,016 <F2> 0 0 0
<LONG-TERM-DEBT-NET> 1,609,179 0 0 0
<SHORT-TERM-NOTES> 0 0 0 0
<LONG-TERM-NOTES-PAYABLE> 0 0 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 195,902 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 52,585 0 0 0
0 0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0 0 0
<LEASES-CURRENT> 0 0 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,506,772 0 0 0
<TOT-CAPITALIZATION-AND-LIAB> 5,146,676 0 0 0
<GROSS-OPERATING-REVENUE> 1,137,330 1,091,863 551,110 533,547
<INCOME-TAX-EXPENSE> 61,883 50,742 22,705 20,779
<OTHER-OPERATING-EXPENSES> 911,359 907,855 459,272 452,887
<TOTAL-OPERATING-EXPENSES> 973,242 958,597 481,977 473,666
<OPERATING-INCOME-LOSS> 164,088 133,266 69,133 59,881
<OTHER-INCOME-NET> 4,996 11,203 2,863 5,489
<INCOME-BEFORE-INTEREST-EXPEN> 169,084 144,469 71,996 65,370
<TOTAL-INTEREST-EXPENSE> 64,737 54,899 33,134 27,558
<NET-INCOME> 96,497 81,193 35,001 33,531
4,165 <F2> 4,345 <F2> 1,993 <F2> 2,173 <F2>
<EARNINGS-AVAILABLE-FOR-COMM> 96,497 81,193 35,001 33,531
<COMMON-STOCK-DIVIDENDS> 76,637 75,689 38,332 38,332
<TOTAL-INTEREST-ON-BONDS> 55,122 53,144 27,278 27,065
<CASH-FLOW-OPERATIONS> 274,505 205,660 100,048 61,152
<EPS-PRIMARY> $1.49 $1.25 $.54 $.52
<EPS-DILUTED> $1.49 $1.25 $.54 $.52
<FN>
<F1> Total deferred charges includes other assets.
<F2> Preferred stock reflects preferred stock of subsidiaries. Preferred stock dividends reflect preferred stock dividends
of subsidiaries.
<F3> Total common stockholders equity is reflected net of treasury stock at cost.
</FN>
