<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 0-25748
GREAT BAY POWER CORPORATION
(Exact name of registrant as specified in its charter)
NEW HAMPSHIRE 02-0396811
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
COCHECO FALLS MILLWORKS, 100 MAIN STREET, SUITE 201 03820
DOVER , NEW HAMPSHIRE (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (603) 742-3388
20 LADD STREET, PORTSMOUTH, NEW HAMPSHIRE 03801-4080
(Former Address of principal executive offices) (Former Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark whether the registrant has filed all documents required
to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes X No
<TABLE>
<CAPTION>
Class Outstanding at August 7, 1996
<S> <C>
Common Stock, $0.01 Par Value per Share 7,955,648
</TABLE>
<PAGE> 2
GREAT BAY POWER CORPORATION
GREAT BAY POWER CORPORATION
INDEX
<TABLE>
<S> <C>
Part I. Financial Information:
Item 1 - Financial Statements.
Statements of Income and Loss - Three and Six
Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . 3
Balance Sheets at June 30, 1996
and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 4-5
Statements of Cash Flows - Six
Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . 7-11
Item 2 - Financial Discussion.
Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 11-17
Part II. Other Information:
Item 1 - Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 4 - Submission of Matters to a Vote of Securityholders . . . . . . . . . 17
Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . 18
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GREAT BAY POWER CORPORATION
STATEMENTS OF INCOME AND LOSS
(UNAUDITED)
(Dollars in Thousands, except shares and per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1996 1995 1996 1995
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Operating Revenues $7,305 $6,628 $14,196 $14,409
Operating Expenses:
Production 3,855 4,096 7,443 8,302
Transmission 229 229 488 471
Administrative & General 1,310 1,537 3,224 2,939
Depreciation & Amortization 874 784 1,748 1,520
Taxes other than Income 1,023 1,000 2,077 2,022
----------- ----------- ---------- -----------
Total Operating Expenses 7,291 7,646 14,980 15,254
----------- ----------- ---------- -----------
Operating Income (Loss) 14 (1,018) (784) (845)
Other (Income) Deductions:
Interest (Income) Expense (199) (414) (470) (801)
Decommissioning Cost Accretion 565 0 1,130 0
Decommissioning Trust Fund Income (83) 0 (161) 0
Miscellaneous 0 0 4 0
----------- ----------- ---------- -----------
Total Other (Income) Deductions 283 (414) 503 (801)
----------- ----------- ---------- -----------
Loss Before Income Taxes (269) (604) (1,287) (44)
Income Taxes 0 0 0 0
----------- ----------- ---------- -----------
Net Loss ($269) ($604) ($1,287) ($44)
=========== =========== ========== ===========
Weighted Average Number of Shares Outstanding 7,999,071 7,999,998 7,999,510 7,999,998
=========== =========== ========== ===========
Loss Per Share ($0.03) ($0.08) ($0.16) ($0.01)
=========== =========== ========== ===========
</TABLE>
(The accompanying notes are an integral part of these statements.)
3
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GREAT BAY POWER CORPORATION
BALANCE SHEET
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS:
Current Assets:
Cash & Cash equivalents $11,687 $8,874
Short-term Investments, at market 3,935 7,595
Accounts Receivable 2,747 1,535
Materials & Supplies 4,154 4,230
Prepayments & Other Assets 2,837 1,249
----------- -----------
Total Current Assets 25,360 23,483
----------- -----------
Property, Plant, & Equipment:
Utility Plant 104,791 104,696
Less: Accumulated Depreciation (5,487) (4,165)
----------- -----------
Net Utility Plant 99,304 100,531
Nuclear Fuel 10,308 9,925
Less: Accumulated Amortization (2,278) (304)
----------- -----------
Net Nuclear Fuel 8,030 9,621
Net Property, Plant & Equipment 107,334 110,152
----------- -----------
Other Assets:
Decommissioning Trust Fund 5,707 5,108
Deferred Debits & Other 33 28
----------- -----------
Total Other Assets 5,740 5,136
----------- -----------
TOTAL ASSETS $138,434 $138,771
=========== ===========
</TABLE>
(The accompanying notes are an integral part of these statements)
4
<PAGE> 5
GREAT BAY POWER CORPORATION
BALANCE SHEET
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts Payable and Accrued Expenses $96 $237
Taxes Accrued 0 1,293
Miscellaneous Current Liabilities 1,515 1,437
----------- -----------
Total Current Liabilities 1,611 2,967
Operating Reserves:
Decommissioning Liability 51,344 50,228
Miscellaneous Other 671 671
----------- -----------
Total Operating Reserves 52,015 50,899
Other Liabilities & Deferred Credits 2,958 2,672
Stockholders' Equity:
Common stock, $.01 par value
Authorized - 20,000,000 shares
Issued and Outstanding - 7,999,948 shares 80 80
Less: Treasury Stock - 13,300 Common Shares, at cost (96) -
Common Stock Warrants 1,000 -
Preferred Stock, $.01 par value
Authorized - 5,000,000 shares
Issued and outstanding - none - -
Additional paid-in capital 88,030 88,030
Accumulated Deficit (7,164) (5,877)
----------- -----------
Total Stockholders' Equity 81,850 82,233
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $138,434 $138,771
=========== ===========
</TABLE>
(The accompanying notes are an integral part of these statements.)
5
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GREAT BAY POWER CORPORATION
STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
-------------- ---------------
<S> <C> <C>
Net cash flow from operating activities:
Net Loss ($1,287) ($44)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation & Amortization 1,748 1,520
Amortization of nuclear fuel 1,974 2,378
Decommissioning Trust Accretion 1,130 -
Decommissioning Trust Interest (161) -
(Increase) decrease in accounts receivable (1,212) 1,082
(Increase) decrease in materials & supplies (14) (68)
(Increase) decrease in prepaids and other assets (1,588) 715
Increase (decrease) in accounts payable (141) (228)
Increase (decrease) in taxes accrued (1,293) (1,150)
Other 356 (1,240)
-------------- ---------------
Net cash provided by (used in) operating activities (488) 2,965
-------------- ---------------
Net cash flows from investing activities:
Utility plant additions (429) (329)
Nuclear fuel additions (383) (1,094)
Payments to decommissioning fund (451) (402)
Decrease (Increase) in Short term investments 3,660 (5,031)
-------------- ---------------
Net cash provided by (used in) investing activities 2,397 (6,856)
-------------- ---------------
Net cash from financing activities:
Repurchase of Common Stock (96) 0
Common Stock Warrants 1,000 0
-------------- ---------------
Net cash provided by financing activities 904 0
-------------- ---------------
Net increase (decrease) in cash and cash equivalents 2,813 (3,891)
Cash and cash equivalents, beginning of period 8,874 18,533
-------------- ---------------
Cash and cash equivalents, end of period $11,687 $14,642
============== ===============
</TABLE>
(The accompanying notes are an integral part of these statements.)
6
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GREAT BAY POWER CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note A - THE COMPANY
Great Bay Power Corporation ("Great Bay" or the "Company") is a
public utility whose principal asset is a 12.1% joint ownership interest in the
Seabrook Nuclear Power Project in Seabrook, New Hampshire (the "Seabrook
Project"). Great Bay was incorporated in 1986 and was formerly known as EUA
Power Corporation. Great Bay sells its share of the electricity output of the
Seabrook Project in the wholesale electricity market, primarily in the
Northeast United States. Great Bay does not have operational responsibility
for the Seabrook Project. The Company's share of the Seabrook Project
capacity is approximately 140 megawatts ("MW"). Great Bay currently sells
all but 10 MW of its share of the Seabrook Project capacity in the short-term
market.
Until May 1, 1996, the Company had two employees, and substantially
all of the Company's power marketing and administrative functions were
performed on the Company's behalf by third parties pursuant to contractual
agreements. As of May 1, 1996, the Company had five employees and the Company
had assumed responsibility for virtually all of its administrative functions.
On April 11, 1996, BayCorp Holdings, Ltd. ("BayCorp"), a wholly-owned
subsidiary of the Company, filed a Form S-4 Registration Statement with the
Securities and Exchange Commission relating to the reorganization of the
Company into a holding company structure (the "Merger") pursuant to which the
Company would become a wholly-owned subsidiary of BayCorp, a new Delaware
company. If the Merger is consummated, BayCorp will be able to engage in
business activities, through subsidiaries other than the Company, from which
the Company is prohibited from engaging because of its status as an Exempt
Wholesale Generator ("EWG") under the Public Utility Holding Company Act of
1935. The restructuring is subject to regulatory approval by the Federal
Energy Regulatory Commission (the "FERC"), the Nuclear Regulatory Commission
(the "NRC") and the New Hampshire Public Utilities Commission (the
"NHPUC"). The Company has received regulatory approvals from the FERC and the
NHPUC and is awaiting approval from the NRC. At a meeting of shareholders held
on July 2, 1996, the shareholders of the Company voted to approve the Merger.
The Company expects to complete the restructuring by the end of August 1996. As
a New Hampshire public utility, many transactions by the Company are subject to
approval by the NHPUC. If the Merger is consummated, while the activities of
the Company will continue to be subject to such regulation, the activities of
BayCorp will not be.
7
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GREAT BAY POWER CORPORATION
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial statements included herein have been prepared
on behalf of the Company, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal recurring adjustments,
necessary for a fair presentation of interim period results. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
omitted or condensed pursuant to such rules and regulations. The Company
believes, however, its disclosures herein, when read in conjunction with the
Company's audited financial statements for the year ended December 31, 1995,
are adequate to make the information presented not misleading. The results for
the interim periods are not necessarily indicative of the results to be
expected for the full fiscal year.
In March 1995, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 121, "Accounting for Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of", effective for fiscal years beginning
after December 15, 1995. SFAS No. 121 establishes accounting standards for the
impairment of long-lived assets and requires that assets which are no longer
probable of recovery be charged to earnings. The Company adopted SFAS No. 121
on January 1, 1996, and the adoption did not have a material impact on the
Company's financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation", effective for fiscal years beginning after December
15, 1995. SFAS No. 123 requires that financial statements include certain
disclosures related to stock-based employee compensation arrangements
regardless of the method used to account for them. The Company does not plan to
adopt the accounting under this pronouncement but rather adopt the required
audited pro forma disclosure in the year end financial statements. Based on
arrangements used by the pronouncement, the pro forma effects on earnings and
earnings per share are not expected to be material.
Note C - PECO SERVICES AGREEMENT AND WARRANT AGREEMENT
The Company and PECO Energy Company ("PECO") entered into a Services
Agreement dated as of November 3, 1995 (the "PECO Services Agreement"),
pursuant to which PECO was appointed as the Company's exclusive agent to
market and sell the Company's uncommitted portion of electricity generated by
the Seabrook Project. Proceeds from the sale of the Company's electricity
together with reservation fees payable by PECO to the Company are shared
between the Company and PECO in accordance with formulas set forth in the PECO
Services Agreement.
The PECO Services Agreement became effective on December 31, 1995 and
has an initial term of two years. The term will be automatically extended for
one additional year (to December 31, 1998) if PECO exercises the PECO Warrant
(as defined below) to purchase shares of Great Bay Common Stock, described
below. At any time prior to the Warrant Expiration Date (as defined below),
the Company is entitled to terminate the
8
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GREAT BAY POWER CORPORATION
PECO Services Agreement; however, if the PECO Services Agreement is so
terminated, the Company will be required to refund to PECO the $1,000,000
purchase price for the PECO Warrant, plus interest.
At the time that the Company entered into the PECO Services Agreement,
the Company and PECO entered into a Warrant Purchase Agreement, dated November
3, 1995 (the "PECO Warrant Purchase Agreement"), pursuant to which on
February 15, 1996, PECO purchased the PECO Warrant from the Company for
$1,000,000. The PECO Warrant entitles PECO to purchase 420,000 shares of the
Company's Common Stock at an exercise price of the higher of (1) $9.75 per
share, or (2) the highest trading price per share of the Company's Common
Stock prior to the Warrant Expiration Date. The $1,000,000 purchase price for
the PECO Warrant will be credited toward the aggregate exercise price of the
PECO Warrant upon exercise. If PECO does not exercise the PECO Warrant, the
purchase price for the PECO Warrant is wholly or partially refundable only if
the Company terminates the PECO Services Agreement for convenience prior to the
Warrant Expiration Date or if PECO exercises certain of its rights to terminate
the PECO Services Agreement. The PECO Warrant expires on September 30, 1996
(the "Warrant Expiration Date").
Note D - COMMITMENTS AND CONTINGENCIES
Nuclear Power, Energy and Utility Regulation
The Seabrook Project and the Company, as part owner of a licensed
nuclear facility, are subject to the broad jurisdiction of the NRC, which is
empowered to authorize the siting, construction and operation of nuclear
reactors after consideration of public health and safety, environmental and
anti-trust matters. The Company has been, and will be, affected to the extent
of its proportionate share by the cost of any such requirements made applicable
to Seabrook Unit 1.
The Company is also subject to the jurisdiction of the FERC under
Parts II and III of the Federal Power Act and, as a result, is required to file
with FERC all contracts for the sale of electricity. FERC has the authority to
suspend the rates at which the Company proposes to sell power, to allow such
rates to go into effect subject to refund and to modify a proposed or existing
rate if FERC determines that such rate is not "just and reasonable." FERC's
jurisdiction also includes, among other things, the sale, lease, merger,
consolidation or other disposition of facilities, interconnection of certain
facilities, accounts, service and property records.
Because it is an EWG, the Company is not subject to the jurisdiction
of the NHPUC under the Public Utility Holding Company Act of 1935. In order to
maintain its EWG status, the Company must continue to engage exclusively in the
business of owning and/or operating all or part of one or more "eligible
facilities" and to sell electricity only at wholesale (i.e., not to end users)
and activities incidental thereto. An "eligible facility" is a facility used
for the generation of electric energy exclusively at wholesale or used for
9
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GREAT BAY POWER CORPORATION
Note B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
the generation of electric energy and leased to one or more public utility
companies. The term "facility" may include a portion of a facility. In the
case of Great Bay, its 12.1% joint ownership interest in the Seabrook Project
comprises an "eligible facility." Upon completion of the restructuring
described in Note A above, the activities of the holding company will not be
subject to the limitations and restrictions required of EWGs.
Substantial controversy has existed for some time concerning nuclear
generating plants and over the years such opposition has led to construction
delays, cost overruns, licensing delays, demonstrations and other difficulties.
The Seabrook Project was the subject of significant public controversy during
its construction and licensing and remains controversial. An increase in
public concerns regarding the Seabrook Project or nuclear power in general
could adversely affect the operating license of Seabrook Unit 1. While Great
Bay cannot predict the ultimate effect of such controversy, it is possible that
it could result in a premature shutdown of the unit.
In the event of a permanent shutdown of any unit, NRC regulations
require that it be completely decontaminated of any residual radioactivity.
While the owners of the Seabrook Project are accumulating a trust fund (the
"Decommissioning Trust Fund") to pay decommissioning costs, if these costs
exceed the amount of the trust fund, the owners (including Great Bay) will be
liable for the excess.
Decommissioning Liability
Based on the Financial Accounting Standards Board's ("FASB")
tentative conclusions, the Company has recognized as a liability its
proportionate share of the estimated Seabrook Project decommissioning
("Seabrook Project's Decommissioning Liability"). The initial recognition
of this liability was capitalized as part of the fair value of the utility
plant at November 23, 1994. The estimated cost to decommission the Seabrook
Project, based on a study performed in 1994 for the lead owner of the Plant, is
approximately $414 million in 1995 dollars and $2.1 billion in 2026 dollars,
assuming a 36 year life for the facility and a future escalation rate of 4.25%.
Based on this estimate, the value of Great Bay's share of this liability in
1995 dollars was approximately $50.2 million, which had been recorded as a
liability on the December 31, 1995 balance sheet.
During the first half of 1996, the Company began to accrete its share
of the Seabrook Project's decommissioning liability at the 4.25% rate used in
the 1994 study. This accretion is a non-cash charge which recognizes the
future escalation in the Company's liability related to the closure and
decommissioning of its nuclear plant in current year dollars over the licensing
period of the plant. As a result of this accretion, the Company's share of the
estimated decommissioning cost as of June 30, 1996 was $51.3 million, which has
been recorded as a liability on the June 30, 1996 balance sheet.
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GREAT BAY POWER CORPORATION
Liquidity and Capital Expenditures
Great Bay anticipates that its share of the Seabrook Project's capital
expenditures for the 1996 fiscal year will total approximately $7.0 million,
primarily for nuclear fuel and various capital projects. This estimated amount
is based on the latest projections provided by the Managing Agent of the
Seabrook Project. This amount is lower than the amount expended in fiscal 1995
for capital expenditures because the cost of nuclear fuel is lower in a
non-refueling year.
On July 22,1996, the Company announced that it had received
approximately $7.0 million from the proceeds of the sale of unused steam
generators from Seabrook Unit 2 to Public Service Electric and Gas Company and
the co-owners of Salem Unit 1. The company had previously written off its
investment in Seabrook Unit 2 and will recognize a gain from the sale of the
steam generators in the third quarter of 1996.
Note E - EQUITY
On January 18, 1996, the Company held a special meeting of
stockholders. At the special meeting, the stockholders approved an amendment
to the Company's Restated Articles of Incorporation to increase the number of
authorized shares of Common Stock from 8,000,000 to 20,000,000 shares. In
addition, the stockholders authorized 5,000,000 shares of undesignated
Preferred Stock, the terms and rights of which may be designated from time to
time by the Board of Directors of the Company.
On June 4, 1996, the Board of Directors of Great Bay adopted a
resolution authorizing the Company to repurchase up to an aggregate of 140,000
shares of the Company's Common Stock on the open market or in privately
negotiated transactions. The authority to repurchase shares established by
this resolution continues to the earlier of June 30,1997, or a determination by
the Board of Directors to discontinue such repurchases. As of July 22, 1996,
the Company had repurchased 44,300 shares at a cost of $335,050 as part of the
repurchase program and had shares outstanding at that date of 7,955,648.
The Company has never paid cash dividends on the Common Stock. The
Company currently intends to retain all of its future earnings and does not
anticipate paying a dividend in the foreseeable future.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
Great Bay is a public utility whose principal asset is a 12.1% joint
ownership interest in the Seabrook Project in Seabrook, New Hampshire. Great
Bay was incorporated in New Hampshire in 1986. The Company sells its share of
the electricity
11
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GREAT BAY POWER CORPORATION
output of the Seabrook Project in the wholesale electricity market, primarily
in the Northeast United States. Great Bay does not have operational
responsibility for the Seabrook Project. Instead, the daily operational and
management responsibilities of the Seabrook Project are carried out by a
Managing Agent, which is currently North Atlantic Energy Service Corporation
("NAESCO"), a wholly owned subsidiary of Northeast Utilities. Great Bay's
share of the Seabrook Project capacity is approximately 140 MW. Great Bay
currently sells all but 10 MW of its share of the Seabrook Project capacity in
the short-term market.
The Company's operating results and the comparability of these
results on an interim and annual basis are directly impacted by the operations
of the Seabrook Project, including the cyclical refueling outages (generally
18-24 months apart) as well as any unscheduled outages. During outage periods
at the Seabrook Project, the Company has no electricity available for resale
and consequently no revenues.
The Seabrook Project from time to time experiences both scheduled and
unscheduled outages. Great Bay incurs losses during outage periods due to the
loss of all operating revenues and additional costs associated with the outages
as well as continuing operating and maintenance expenses and depreciation.
Unscheduled outages or operation of the unit at reduced capacity can occur due
to the automatic operation of safety systems following the detection of a
malfunction. In addition, it is possible for the unit to be shut down or
operated at reduced capacity based on the results of scheduled and unscheduled
inspections and routine surveillance by Seabrook Project personnel. It is not
possible for Great Bay to predict the frequency or duration of any future
unscheduled outages; however, it is likely that such unscheduled outages will
occur. The Managing Agent of the Seabrook Project has scheduled the next
refueling outage for June 1997. Refueling outages are scheduled generally
every 18-24 months depending upon the Seabrook Project capacity factor and the
rate at which the nuclear fuel is consumed.
SECOND QUARTER OF FISCAL 1996 COMPARED TO THE SECOND QUARTER OF FISCAL 1995
Operating Revenues
Operating revenues increased by approximately $677,000, or 10.2%, to
$7,304,821 in the second quarter of 1996 as compared with $6,627,578 in the
second quarter of 1995. This increase was primarily due to higher availability
and production at the Seabrook Project resulting from no outages during the
second quarter of 1996 compared with an unscheduled outage occurring during the
second quarter of 1995. During the second quarter of 1996, the average
capacity factor at the Seabrook Project was 100.4% of the rated capacity
versus an average capacity factor of 87.4% for the same period in 1995. Sales
of electricity increased by approximately 15.7% to 308,094,070 kWhs in 1996 as
compared with 266,284,000 kWhs in 1995. This increase in kWh sales during the
second quarter of 1996 was partially offset by a decrease in the sales price
per kWh received by the Company during the second quarter of 1996 (determined
by
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GREAT BAY POWER CORPORATION
dividing total sales revenue by the total number of kWhs sold in the applicable
period), as compared to the same period in 1995. During the second quarter of
1996 the sales price per kWh decreased 4% to 2.37 cents per kWh as compared
with 2.48 cents per kWh in the 1995 period. Decreased electricity demand due
to mild temperatures and increased hydroelectric generating capacity due to a
strong winter run-off adversely affected prices during the second quarter of
1996. Great Bay's cost of power (determined by dividing total operating
expenses by Great Bay's 12.1% share of the power produced by the Seabrook
Project during the applicable period) decreased by 17.8% to 2.36 cents per kWh
during the second quarter of 1996 as compared to 2.87 cents per kWh during the
second quarter of 1995. This decrease was primarily the result of unscheduled
outages during the second quarter of 1995. Scheduled and unscheduled outage
time increases Great Bay's cost of power because Seabrook Project costs are
spread over fewer kWhs.
Operating Expenses
Production expenses for the second quarter of 1996 decreased by
$241,000, or 5.9%, compared with the second quarter of 1995. This decrease
was primarily the result of reduced operating costs at the Seabrook Project
reflecting lower staffing levels and a reduction in the level of outside
services, lower nuclear fuel amortization because the Seabrook Project added
less expensive nuclear fuel at the last refueling outage and lower outage
accruals as the result of the use of a 19 month assumed scheduled operating
cycle in the second quarter of 1996 and an 18 month cycle in the second quarter
of 1995. The change in the operating cycle reflects a change by the Managing
Agents of the Seabrook Project as to the assumed burn rate of the nuclear fuel.
Administrative and General expenses decreased by $227,000 during the
second quarter of 1996, a decrease of 14.8% over the comparable period in 1995.
This decrease was primarily due to reduced staffing levels and a reduction in
the level of outside service costs at the Seabrook Project.
Depreciation and amortization expenses increased 11.5% to $874,000 in
the second quarter of 1996 as compared to $784,000 during the second quarter of
1995. This increase was primarily attributable to the Company's utility plant
additions being depreciated over a shorter remaining license life and
amortization of the cost of the materials and supplies inventory that is
expected to be on hand at the expiration of the Seabrook Project's NRC
operating license.
Other (Income) Deductions
Other (Income) Deductions increased 168.4%, or $697,000, reflecting
$283,000 in Other Deductions during the second quarter of 1996 as compared to
Other Income of $414,000 recorded during the second quarter of 1995. This
increase was primarily due to the Company's accretion of its share of the
Seabrook Project's decommissioning liability. During the first quarter of
1996, Great Bay Power began to accrete its share of the Seabrook Project's
decommissioning liability to 1996 dollars rather than 1995 dollars. In
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GREAT BAY POWER CORPORATION
1995 there was no expense for Great Bay's share of the Seabrook Project's
decommissioning liability because the entire amount of Great Bay's share of
the Seabrook Project's decommissioning liability was reflected as a liability
on Great Bay's balance sheet under fresh start accounting principles. This
accretion expense is a non-cash charge and recognizes Great Bay's liability
related to the closure and decommissioning of its nuclear plant in current year
dollars over the licensing period of the plant. The accretion expense for the
second quarter ending June 30, 1996 was $565,000.
Interest (Income) Expense decreased 51.9%, or $215,000, reflecting
$199,000 in Interest Income for the second quarter of 1996 as compared to
$414,000 in Interest Income for the second quarter of 1995. The reduction in
Interest Income reflects a lower cash balance during the second quarter of 1996
as compared to the second quarter of 1995.
Net Loss
As a result of the above factors, during the quarter ended June 30,
1996, the Company recorded a net loss of $269,000, or approximately $0.03 per
share, as compared to a net loss of $604,000, or approximately $0.08 per share,
in the second quarter of 1995.
FIRST SIX MONTHS OF FISCAL 1996 COMPARED TO THE FIRST SIX MONTHS OF FISCAL 1995
Operating Revenues
Operating Revenues decreased by approximately $213,000, or 1.5%, to
$14,196,000 in the first half of 1996 as compared with $14,409,000 in the first
half of 1995. During the first half of 1996, the average capacity factor at the
Seabrook Project was 93.2% of the rated capacity versus an average capacity
factor of 94% of the rated capacity for the same period in 1995. Sales of
electricity increased by approximately 0.5% to 572,228,470 kWhs in 1996 as
compared with 569,453,000 kWhs in 1995. During the first six months of 1996
the average sales price per kWh decreased approximately 2% to 2.48 cents per
kWh as compared to 2.53 cents per kWh during the first six months of 1995.
Great Bay's cost of power decreased by 2.2% to 2.61 cents per kWh during the
first six months of 1996 as compared to 2.67 cents per kWh during the first six
months of 1995. This decrease was primarily the result of unscheduled outages
during the first six months of 1995. Scheduled and unscheduled outage time
increases Great Bay's cost of power because Seabrook Project costs are spread
over fewer kWhs.
Operating Expenses
Production expenses for the first half of 1996 decreased by $859,000,
or 10.3%, compared with the first half of 1995. This decrease was the result of
the same factors that
14
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GREAT BAY POWER CORPORATION
caused the decrease in production expenses in the second quarter of 1996 in
comparison with the second quarter of 1995.
Administrative and General expenses increased $285,000 during the
first half of 1996, an increase of 9.7% over the comparable period in 1995.
This increase was primarily due to the costs associated with the growth and
management of the Company, including transition and start-up costs associated
with the Company directly performing its own administrative functions following
the termination of its Marketing and Management and Administrative Services
Agreements with UNITIL Resources, Inc. and marketing fees paid to PECO. The
marketing fees paid to PECO are calculated based upon a revenue sharing
formula. The formula is materially dependent upon the capacity factor achieved
at the Seabrook Project and is subject to a biannual true-up in July and
January based on the actual capacity factor for the prior six-month period. If
the Seabrook Project annual capacity factor exceeds 85%, the Company is
entitled to retain a higher percentage of current year revenues and PECO is
required to make a true-up payment to the Company.
Depreciation and amortization expenses increased 15.0% to $1,748,000
in the first half of 1996 as compared to $1,520,000 during the first half of
1995. This increase was primarily attributable to the same factors that caused
the increase in depreciation and amortization in the second quarter of 1996 in
comparison to the second quarter of 1995.
Other (Income) Deductions
Other (Income) Deductions increased 163%, or approximately $1,304,000,
reflecting $503,000 in Other Deductions during the first six months of 1996 as
compared to Other Income of $801,000 during the first six months of 1995. This
increase was primarily due to the Company's recognition of its share of the
Seabrook Project's decommissioning liability. The accretion expense for this
liability for the first six months of 1996 was $1,130,000.
Interest (Income) Expense decreased 58.7%, or $331,000 during the first
six months of 1996 as compared to the first six months of 1995. This reduction
in Interest Income was the result of a lower cash balance during the first six
months of 1996 as compared to the first six months of 1995.
Net Loss
As a result of the above factors, during the six month period ending
June 30, 1996, the Company recorded a net loss of $1,287,000, or approximately
$0.16 per share, as compared to a net loss of $44,000, or approximately $0.01
per share, during the first six months of 1995.
15
<PAGE> 16
GREAT BAY POWER CORPORATION
Tax Loss Carryforwards
For federal income tax purposes, as of December 31, 1995, the Company
had net operating loss carry forwards ("NOLs") of approximately $167 million,
which are scheduled to expire between 2005 and 2010. Because the Company has
experienced one or more ownership changes, within the meaning of Section 382 of
the Internal Revenue Code of 1986, as amended, an annual limitation is imposed
on the ability of the Company to use $136 million of these carryforwards. The
Company's best estimate at this time is that the annual limitation on the use
of $136 million of the Company's NOLs is approximately $5.5 million per year.
The Company's other $31 million of NOLs are not currently subject to such
limitations.
Liquidity
The Company's cash and short-term investments decreased approximately
$847,000 during the first six months of 1996. Principal factors affecting
liquidity during the six months ended June 30, 1996 included the operating loss
discussed above, decommissioning trust fund payments of $451,000, an increase
in accounts receivable of $1,212,000 due to the resumption of power sales in
the first quarter of 1996 following reduced sales in December 1995 as a result
of the scheduled outage during that month and an increase in prepayments and
other assets of $1,594,000 primarily related to cash funding of the Company's
share of the Seabrook Project's operating costs and the June 1996 payment of
State of New Hampshire Nuclear Station Property Taxes.
A decrease in Taxes Accrued of $1,292,000 reflects the Company's
payment of its half year 1995 Town of Seabrook property taxes. In December of
1995, the Town of Seabrook, New Hampshire ("Town of Seabrook") issued a bill
for property taxes for the second half of 1995 to "North Atlantic Energy
Corp., et al." The Town of Seabrook informed Great Bay that it believed Great
Bay's share of this bill was $1,293,000. Great Bay initially refused to pay
the bill because Great Bay believes that the Town of Seabrook's assessment of
Great Bay's interest in the Seabrook Project was overstated and because the
bill failed to recognize Great Bay as an independent taxpayer with a separately
assessed and valued parcel of real estate. On April 30, 1996, Great Bay paid
the December 1995 property tax bill to avoid the Town of Seabrook placing a
lien on the Seabrook Project.
During the second quarter of 1996, the Company initiated a Common
Stock repurchase program as discussed in Note E above. As of June 30, 1996 the
Company had repurchased 13,300 shares at a cost of $96,425. As of July 22, 1996
the Company had repurchased 44,300 shares at a cost of $335,050. During the six
months ending June 30, 1996, the Company also received $1,000,000 as a result
of the PECO warrant purchase.
16
<PAGE> 17
GREAT BAY POWER CORPORATION
Offsetting these items were non-cash charges to income of $3,719,000
for depreciation and amortization and decommissioning trust fund accretion of
$1,130,000
On July 22, 1996, the Company announced that it had received
approximately $7.0 million from the proceeds of the sale of unused steam
generators from Seabrook Unit 2 to Public Service Electric and Gas Company and
the co-owners of Salem Unit 1. The Company had previously written off its
investment in Seabrook Unit 2 and will recognize a gain from the sale of the
steam generators in the third quarter of 1996.
PART II. OTHER INFORMATION.
Item 1. Legal Proceedings
In December of 1995, the Town of Seabrook, New Hampshire "Town of
Seabrook") issued a bill for property taxes for the second half of 1995 to
"North Atlantic Energy Corp., et al." The Town of Seabrook informed Great
Bay that it believed Great Bay's share of this bill was $1,293,000. Great Bay
initially refused to pay the bill because Great Bay believes that the Town of
Seabrook's assessment of Great Bay's interest in the Seabrook Project was
overstated and because the bill failed to recognize Great Bay as an independent
taxpayer with a separately assessed and valued parcel of real estate. On April
30, 1996, Great Bay paid the December 1995 property tax bill to avoid the Town
of Seabrook placing a lien on the Seabrook Project. Great Bay filed a petition
with the Town of Seabrook seeking a tax abatement of Great Bay's 1995 property
taxes. The Town of Seabrook denied Great Bay's abatement request and on June
19, 1996 Great Bay appealed the Town of Seabrook's decision to the Board of
Land and Appeals, Concord, New Hampshire. Management is unable to express an
opinion as to the outcome of this matter.
Item 4. Submission of Matters to a Vote of Securityholders
The Company held its Annual Meeting of Shareholders on April 16, 1996.
Proxies for the meeting were solicited pursuant to Regulation 14A, and there
were no solicitations in opposition to management's nominees for Directors.
All such nominees were elected. At the Annual Meeting, the stockholders of the
Company:
(1) elected a Board of Directors to serve until the next Annual
Meeting of Stockholders of the Company and until their
successors are duly elected and qualified (by a vote of
6,185,676 votes in favor of the proposal, 0 votes against the
proposal and 1,200 votes abstained, as to all Directors),
(2) approved the Company's 1995 Stock Option Plan (4,523,505
shares voted in favor of the proposal, 118,350 votes against
the proposal and no votes abstained),
17
<PAGE> 18
GREAT BAY POWER CORPORATION
(3) ratified the selection by the Board of Directors of Arthur
Andersen LLP as the Company's independent public accountants
for the current fiscal year (6,185,589 votes in favor of the
proposal, 578 votes against the proposal and 709 votes
abstained).
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index
(b) A Form 8-K dated April 19, 1996 was filed with the Commission
reporting, pursuant to Item 5, that the Registrant had filed a
registration statement on Form S-4 relating to the Merger on
April 11, 1996.
18
<PAGE> 19
GREAT BAY POWER CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GREAT BAY POWER CORPORATION
/s/ John A. Tillinghast
----------------------------
John A. Tillinghast
President, Treasurer and Chief Executive Officer
(Principal Accounting Officer)
Dated: August 14, 1996
19
<PAGE> 20
GREAT BAY POWER CORPORATION
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF GREAT BAY POWER CORPORATION FOR THE SIX MONTHS ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 11,687
<SECURITIES> 3,935
<RECEIVABLES> 2,747
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,991
<PP&E> 112,777
<DEPRECIATION> 5,443
<TOTAL-ASSETS> 138,434
<CURRENT-LIABILITIES> 1,611
<BONDS> 0
0
0
<COMMON> 80
<OTHER-SE> 81,770
<TOTAL-LIABILITY-AND-EQUITY> 138,434
<SALES> 14,196
<TOTAL-REVENUES> 14,196
<CGS> 11,756
<TOTAL-COSTS> 14,980
<OTHER-EXPENSES> 503
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,287)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,287)
<EPS-PRIMARY> (0.16)
<EPS-DILUTED> (0.16)
</TABLE>
