MODIFIED
FORM U-13-60
ANNUAL REPORT
FOR THE PERIOD
BEGINNING JANUARY 1, 1996 AND ENDING DECEMBER 31, 1996
TO THE
U.S. SECURITIES AND EXCHANGE COMMISSION
OF
HEC INC.
A SUBSIDIARY SERVICE COMPANY
DATE OF INCORPORATION: JUNE 19, 1990
STATE UNDER WHICH INCORPORATED:
THE COMMONWEALTH OF MASSACHUSETTS
LOCATION OF PRINCIPAL EXECUTIVE OFFICES OF REPORTING COMPANY
24 PRIME PARKWAY
NATICK, MA 01760
REPORT FILED PURSUANT TO ORDER DATED JULY 27, 1990
IN FILE NUMBER 70-7698
NAME, TITLE, AND ADDRESS OF OFFICER TO WHOM CORRESPONDENCE CONCERNING THIS
REPORT SHOULD BE ADDRESSED:
LINDA A. JENSEN, TREASURER
HEC INC.
24 PRIME PARKWAY
NATICK, MA 01760
NAME OF PRINCIPAL HOLDING COMPANY UNDER WHICH REPORTING
COMPANY IS ORGANIZED:
NORTHEAST UTILITIES
INSTRUCTIONS FOR THE USE OF MODIFIED FORM U-13-60
1. NUMBER OF COPIES - EACH ANNUAL REPORT SHALL BE FILED IN DUPLICATE.
THE COMPANY SHOULD PREPARE AND RETAIN AT LEAST ONE EXTRA COPY FOR ITSELF IN CASE
CORRESPONDENCE WITH REFERENCE TO THE REPORT BECOMES NECESSARY.
2. DEFINITIONS - DEFINITIONS CONTAINED IN INSTRUCTION 01-8 TO THE UNIFORM
SYSTEM OF ACCOUNTS FOR MUTUAL SERVICE COMPANIES AND SUBSIDIARY SERVICE
COMPANIES, PUBLIC UTILITY HOLDING COMPANY ACT OF 1935, AS AMENDED FEBRUARY 2,
1979 SHALL BE APPLICABLE TO WORDS OR TERMS USED SPECIFICALLY WITHIN THIS FORM U-
13-60.
3. ORGANIZATION CHART - THE COMPANY SHALL SUBMIT WITH EACH ANNUAL REPORT
A COPY OF ITS CURRENT ORGANIZATION CHART.
LISTING OF SCHEDULES AND ANALYSIS OF ACCOUNTS
SCHEDULE OR PAGE
DESCRIPTION OF SCHEDULES AND ACCOUNTS ACCT. NO. NO.
DESCRIPTION OF SYSTEM OF ACCOUNTING 3
COMPARATIVE BALANCE SHEET SCHEDULE I 4-5
COMPANY PROPERTY SCHEDULE II 6
ACCUMULATED PROVISION FOR DEPRECIATION AND
AMORTIZATION OF COMPANY PROPERTY SCHEDULE III 7
ACCOUNTS RECEIVABLE AND ACCOUNTS
RECEIVABLE FROM ASSOCIATE COMPANIES SCHEDULE V 8
MISCELLANEOUS DEFERRED DEBITS SCHEDULE IX 9
PROPRIETARY CAPITAL SCHEDULE XI 10
LONG-TERM DEBT SCHEDULE XII 11
CURRENT AND ACCRUED LIABILITIES SCHEDULE XIII 12
NOTES TO FINANCIAL STATEMENTS SCHEDULE XIV 13-14
COMPARATIVE INCOME STATEMENT SCHEDULE XV 15
ANALYSIS OF BILLING
- NON-ASSOCIATE COMPANIES ACCOUNT 458 16
DEPARTMENTAL ANALYSIS OF SALARIES ACCOUNT 920 17
OUTSIDE SERVICES EMPLOYED ACCOUNT 923 18-19
MISCELLANEOUS GENERAL EXPENSES ACCOUNT 930.2 20
RENTS ACCOUNT 931 21
TAXES OTHER THAN INCOME TAXES ACCOUNT 408 22
NOTES TO STATEMENT OF INCOME SCHEDULE XVIII 23
(INCLUDED ABOVE)
ORGANIZATION CHART 24
ANNUAL REPORT OF: HEC INC.
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
DESCRIPTION OF THE SYSTEM OF ACCOUNTING EMPLOYED BY HEC INC.:
HEC INC. MAINTAINS ITS ACCOUNTING BOOKS AND RECORDS ON A COMPUTER NETWORK USING
A GENERAL LEDGER SOFTWARE PACKAGE DEVELOPED BY BST CONSULTANTS. THE CHART OF
ACCOUNTS IS A STANDARD SET DEVELOPED FOR ARCHITECTURAL AND ENGINEERING FIRMS.
REVENUES AND EXPENSES ARE RECORDED ON AN ACCRUAL BASIS. A MORE DETAILED
DESCRIPTION OF HEC'S ACCOUNTING POLICIES CAN BE FOUND IN THE NOTES TO THE
FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
SCHEDULE I - COMPARATIVE BALANCE SHEET
Give balance sheet of the Company as of December 31, 1996 and 1995
- ------------------------------------------------------------- ------------ ------------
ACCOUNT ASSETS AND OTHER DEBITS AS OF DECEMBER 31
- ------------------------------------------------------------- ------------ ------------
1996 1995
<S> <C> <C>
COMPANY PROPERTY
101 Company property (Schedule II) $ 3,947,718 $ 3,931,200
107 Construction work in progress (Schedule II) 0 0
------------ ------------
Total Property 3,947,718 3,931,200
------------ ------------
108 Less accumulated provision for depreciation and
amortization of company property (Schedule III) 2,129,027 1,824,127
------------ ------------
Net Company Property 1,818,691 2,107,073
------------ ------------
INVESTMENTS
123 Investments in associate companies (Schedule IV) 0 0
124 Other Investments (Schedule IV) 0 0
------------ ------------
Total Investments 0 0
------------ ------------
CURRENT AND ACCRUED ASSETS
131 Cash 1,057,329 1,320,449
134 Special deposits
135 Working funds 1,800 1,600
136 Temporary cash investments (Schedule IV)
141 Notes receivable
143 Accounts receivable (Schedule V) 4,936,550 5,621,761
144 Accumulated provision of uncollectible accounts
145 Notes receivable from associate companies
146 Accounts receivable for associate companies (Schedule V 388,930 933,039
152 Fuel stock expenses undistributed
154 Materials and supplies 62,734 0
163 Stores expense undistributed
165 Prepayments 101,368 173,107
174 Miscellaneous current and accrued assets
------------ ------------
Total Current and Accrued Assets 6,548,711 8,049,956
------------ ------------
DEFERRED DEBITS
181 Unamortized debt expense
184 Clearing Accounts
186 Miscellaneous deferred debits (Schedule IX) 2,808,452 975,191
188 Research, development, or demonstration expenditures 0 0
190 Accumulated deferred income taxes 0 298
------------ ------------
Total Deferred Debits 2,808,452 975,489
------------ ------------
TOTAL ASSETS AND OTHER DEBITS $ 11,175,854 $ 11,132,518
============ ============
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
SCHEDULE I - COMPARATIVE BALANCE SHEET
Give balance sheet of the Company as of December 31, 1996 and 1995
- ------------------------------------------------------------- ------------ ------------
ACCOUNT LIABILITIES AND PROPRIETARY CAPITAL AS OF DECEMBER 31
- ------------------------------------------------------------- ------------ ------------
1996 1995
<S> <C> <C>
PROPRIETARY CAPITAL
201 Common stock issued (Schedule XI) $ 100 $ 100
211 Miscellaneous paid-in capital (Schedule XI) 3,999,915 3,991,845
215 Appropriated Retained Earnings (Schedule XI) 0 0
216 Unappropriated Retained Earnings (Schedule XI) (195,727) (613,296)
------------ ------------
Total Proprietary Capital 3,804,288 3,378,649
------------ ------------
LONG-TERM DEBT
223 Advances from associate companies (Schedule XII) 0 0
224 Other long-term debt (Schedule XII) 250,000 100,000
225 Unamortized premium on long-term debt 0 0
226 Unamortized discount on long-term debt 0 0
------------ ------------
Total Long Term Debt 250,000 100,000
------------ ------------
CURRENT AND ACCRUED LIABILITIES
231 Notes Payable
232 Accounts Payable 4,785,171 4,992,582
233 Notes payable to associate co's (Schedule XIII) 475,000 1,675,000
234 Accounts payable to associate co's (Schedule XIII) 35,699 119,885
236 Taxes accrued 73,263 (140,693)
237 Interest Accrued
238 Dividends declared
241 Tax collections payable (Schedule XIII) 34,860 49,626
242 Misc. current and accrued liabilities (Schedule XIII) 1,302,112 546,257
------------ ------------
Total Current and Accrued Liabilities 6,706,105 7,242,657
------------ ------------
DEFERRED CREDITS
253 Other deferred credits
255 Accumulated deferred investment tax credits
------------ ------------
Total Deferred Credits 0 0
------------ ------------
283 Accumulated Deferred Income Taxes 415,461 411,212
------------ ------------
TOTAL LIABILITIES AND PROPRIETARY CAPITAL $ 11,175,854 $ 11,132,518
============ ============
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
For the Year Ended December 31, 1996
SCHEDULE II - COMPANY PROPERTY
BALANCE AT BALANCE AT
BEGINNING OTHER 1/ CLOSE
DESCRIPTION OF YEAR ADDITIONS SALES CHANGES OF YEAR
- --------------------------------------------------------------------------------------
COMPANY PROPERTY
Account
- ------
<S> <C> <C> <C> <C> <C>
301 ORGANIZATION 127,059 0 (111,405) 15,654
303 MISCELLANEOUS INTANGIBLE PLANT 0 0
304 LAND AND LAND RIGHTS 0 0
305 STRUCTURES AND IMPROVEMENTS 0 0
306 LEASEHOLD IMPROVEMENTS 11,366 0 11,366
307 EQUIPMENT 2/ 0 0
308 OFFICE FURNITURE & EQUIPMENT 936,157 136,006 (4,083) 1,068,080
309 AUTOMOBILES, OTHER VEHICLES 22,250 0 (4,000) 18,250
AND RELATED GARAGE EQUIPMENT
310 AIRCRAFT AND AIRPORT EQUIPMENT 0 0
311 OTHER COMPANY PROPERTY 3/ 2,834,368 2,834,368
------------------------------------------------
SUBTOTAL 3,931,200 136,006 (8,083)(111,405) 3,947,718
------------------------------------------------
107 CONSTRUCTION WORK IN 0
PROGRESS 4/
------------------------------------------------
TOTAL 3,931,200 136,006 (8,083)(111,405) 3,947,718
================================================
1/ PROVIDE AN EXPLANATION OF THOSE CHANGES CONSIDERED MATERIAL:
HEC Inc. Organization Costs fully amortized during 1996.
2/ SUB-ACCOUNTS ARE REQUIRED FOR EACH CLASS OF EQUIPMENT OWNED. THE COMPANY
SHALL PROVIDE A LISTING BY SUB-ACCOUNT OF EQUIPMENT ADDITIONS DURING THE
YEAR AND THE BALANCE AT THE CLOSE OF THE YEAR.
Not applicable
3/ DESCRIBE OTHER COMPANY PROPERTY:
ENCORE Inservice Property - consists of energy efficient fixtures and metering
equipment installed in end-user facilities under a program sponsored by a New
England utility company. HEC Inc.is paid based on the savings generated by by
the fixtures over a specified period of time. The equipment remains the
property of HEC Inc. until the end of the life of the contract.
4/ DESCRIBE CONSTRUCTION WORK IN PROGRESS
None
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1996
SCHEDULE III
ACCUMULATED PROVISION FOR DEPRECIATION AND
AMORTIZATION OF COMPANY PROPERTY
BALANCE AT ADDITIONS OTHER 1/ BALANCE
BEGINNING CHARGED TO CHANGES AT CLOSE
DESCRIPTION OF YEAR ACCT 403/404 SALES ADD/(DEDUCT) OF YEAR
- ---------------------------------------------------------------------------------------------
COMPANY PROPERTY
Account
- ------
<S> <C> <C> <C> <C> <C>
301 ORGANIZATION 114,969 3,142 (111,380) 6,731
303 MISCELLANEOUS INTANGIBLE PLANT 0 0
304 LAND AND LAND RIGHTS 0 0
305 STRUCTURES AND IMPROVEMENTS 0 0
306 LEASEHOLD IMPROVEMENTS 4,066 1,500 5,566
307 EQUIPMENT 2/ 0 0
308 OFFICE FURNITURE & EQUIPMENT 566,744 127,862 (1,192) 693,414
309 AUTOMOBILES, OTHER VEHICLES 11,753 3,497 (1,200) 14,050
AND RELATED GARAGE EQUIPMENT
310 AIRCRAFT AND AIRPORT EQUIPMENT 0 0
311 OTHER COMPANY PROPERTY 3/ 1,126,595 282,671 1,409,266
--------------------------------------------------------
TOTAL 1,824,127 418,672 (2,392) (111,380) 2,129,027
========================================================
1/ PROVIDE AN EXPLANATION OF THOSE CHANGES CONSIDERED MATERIAL:
HEC Inc Organization Costs fully amortized in 1996
3/ AMORTIZATION OF ENCORE PROPERTY
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIAIRES
For the Twelve Months Ended December 31, 1996
SCHEDULE V - ACCOUNTS RECEIVABLE AND
ACCOUNTS RECEIVABLE FROM ASSOCIATE COMPANIES
INSTRUCTIONS: Complete the following schedule listing accounts receivable and
accounts receivable from each associate company. Where the service company
has provided accomodation or convenience payments for associate companies,
a separate listing of total payments for each associate company by sub-account
should be provided.
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
- -------------------------------------------------- ---------------------- -----------
Account
- ------
<S> <C> <C>
143 Accounts Receivable from clients $ 5,621,761 $ 4,936,550
------------ -----------
TOTAL $ 5,621,761 $ 4,936,550
============ ===========
146 Accounts Receivable from Associate Companies
The Connecticut Light & Power Company $ 811,649 $ 246,141
Western Massachusetts Electric Company 91,591 121,550
Public Service of New Hampshire 29,799 21,239
------------ -----------
TOTAL $ 933,039 $ 388,930
============ ===========
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1996
SCHEDULE IX - MISCELLANEOUS DEFERRED DEBITS
INSTRUCTIONS: Provide detail of items in this account. Items less than
$10,000 may be grouped, showing the number of items in each group.
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
- ---------------------------------------------------- --------------------- -----------
Account
- -------
<S> <C> <C>
186 Miscellaneous Deferred Debits
Accrued Revenue for energy systems & design
contracts, net $ 957,691 $ 2,793,452
West Virginia Legal Receivable 17,500 15,000
------------ -----------
TOTAL $ 975,191 $ 2,808,452
============ ===========
</Table)
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1996
SCHEDULE XI - PROPRIETARY CAPITAL
NUMBER OF PAR OR STATED OUTSTANDING CLOSE OF
SHARES VALUE NUMBER OF PERIOD
ACCT. CLASS OF STOCK AUTHORIZED PER SHARE SHARES TOTAL AMOUNT
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
201 COMMON STOCK 100 1 100 100
- ---------------------------------------------------------------------------------------------
INSTRUCTIONS: Classify amounts in each account with brief explanations, disclosing
the general nature of transactions which give rise to the
reported amounts.
DESCRIPTION AMOUNT
- ---------------------------------------------------------------------------------------------
211 Miscellaneous paid-in-capital 4,000,000
211.84 Currency Translation Adjustment (85)
215 Appropriated Retained Earnings None
------------
TOTAL 3,999,915
============
INSTRUCTIONS: Give particulars concerning net income or (loss) during the year,
distinguishing between compensation for the use of capital owed or
net loss remaining for servicing nonassociates per the General
Instructions of the Uniforn Systems of Accounts. For dividends paid
during the year in cash or otherwise, provide rate percentage,
amount of dividend, date declared and date paid.
BALANCE AT NET INCOME BALANCE AT
BEGINNING OR DIVIDENDS CLOSE
DESCRIPTION OF YEAR LOSS PAID OF YEAR
- ---------------------------------------------------------------------------------------------
216 Unappropriated Retained Earnings (613,296) 417,569 0 (195,727)
------------------------------------------------------
TOTAL (613,296) 417,569 0 (195,727)
======================================================
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC. AND SUBSIDIARIES
For the Year Ended December 31, 1996
SCHEDULE XII
LONG-TERM DEBT
INSTRUCTIONS Advances from associate companies should be reported separately for advances in
notes, and advances on open account. Names of associate companies from which
advances were received shall be shown under the class and series of obligation
column. for Account 224 - - Other long-term debt provide the name of creditor
company or organization, terms of obligation, date of maturity, interest rate,
and the amount authorized and outstanding.
- ------------------------------------------------ ---------- --------- --------- ---------- --------
BALANCE BALANCE
TERMS OF OBLIG. DATE AT AT
CLASS & SERIES OF INTEREST AMOUNT BEGINNING DEDUCTIONS CLOSE
NAME OF CREDITOR OF OBLIGATION MATURITY RATE AUTHORIZED OF YEAR ADDITIONS (1) OF YEAR
- ------------------------------------------------ ---------- --------- --------- ---------- --------
<S> <C> <C> <C> <C><C>
ACCOUNT 223 - $ $ $ $ $
ADVANCES FROM
ASSOCIATE
COMPANIES:
ACCOUNT 224 -
OTHER
LONG-TERM DEBT:
Arizona Public
Service Secured Note 12/31/00 8.04% 250,000 100,000 100,000
1996 Secured
Notes 12/31/00 7.79% 150,000 150,000
---------- --------- --------- ---------- --------
$ 250,000 $ 100,000 $ 150,000 $ 0 $250,000
========== ========= ========= ========== ========
(1) GIVE AN EXPLANATION OF DEDUCTIONS:
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1996
SCHEDULE XIII - CURRENT ACCRUED LIABILITIES
INSTRUCTIONS: Provide balance of notes and accounts payable to each
associate company. Give descriptions and amount of
miscellaneous current and accrued liabilities. Items
less than $10,000 may be grouped, showing the number
of items in each group.
BALANCE AT BALANCE AT
BEGINNING CLOSE
DESCRIPTION OF YEAR OF YEAR
- --------------------------------------------- ------------------- -----------
Account
- -------
<S> <C> <C>
233 NOTES PAYABLE TO ASSOCIATE COS. $ 1,675,000 $ 475,000
---------- -----------
TOTAL $ 1,675,000 $ 475,000
========== ===========
234 ACCOUNTS PAYABLE TO ASSOCIATE COS.
Northeast Utilities Service Company $ 119,885 $ 35,699
---------- -----------
TOTAL $ 119,885 $ 35,699
========== ===========
241 TAX COLLECTIONS PAYABLE $ 49,626 $ 34,860
---------- -----------
TOTAL $ 49,626 $ 34,860
========== ===========
242 MISCELLANEOUS CURRENT AND
ACCRUED VENDOR LIABILITIES
Accrued Audit Fee $ 20,200 $ 32,820
Accrued Commissions 38,872 10,639
Accrued Incentive Expense 226,564 234,326
Accrued Accounts Payable 35,193 15,020
Accrued Lighting Maintenance 31,152 28,068
Reserve for energy savings guarantee 104,000 104,000
Deferred Compensation 46,805 97,205
Accrued West Virginia Legal Credit 17,500 15,000
Subcontractor's Advances 0 744,356
Miscellaneous (7 items) 25,970 20,678
---------- -----------
TOTAL $ 546,256 $ 1,302,112
========== ===========
</TABLE>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996
SCHEDULE XIV
NOTES TO FINANCIAL STATEMENTS
INSTRUCTIONS: THE SPACE BELOW IS PROVIDED FOR IMPORTANT NOTES REGARDING THE
FINANCIAL STATEMENTS OR ANY ACCOUNT THEREOF. FURNISH
PARTICULARS AS TO ANY SIGNIFICANT CONTINGENT ASSETS OR
LIABILITIES EXISTING AT THE END OF THE YEAR. NOTES RELATING
TO FINANCIAL STATEMENTS SHOWN ELSEWHERE IN THIS REPORT MAY BE
INDICATED HERE BY REFERENCE.
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) GENERAL
HEC INC. (THE "COMPANY"), A WHOLLY-OWNED SUBSIDIARY OF NORTHEAST UTILITIES
("NU"), PROVIDES DESIGN AND ENERGY SERVICES FOR ENGINEERING AND
INSTALLATION OF ENERGY EFFICIENT EQUIPMENT. IN 1995, THE COMPANY
ESTABLISHED A NEW SUBSIDIARY, SOUTHWEST HEC ENERGY SERVICES L.L.C.
("SOUTHWEST HEC"). SOUTHWEST HEC WAS ESTABLISHED TO PROVIDE ENERGY
SERVICES IN THE SOUTHWESTERN UNITED STATES AND NORTHERN MEXICO. THE
CONSOLIDATED STATEMENTS OF THE COMPANY INCLUDE THE ACCOUNTS OF SOUTHWEST
HEC AND TWO WHOLLY-OWNED SUBSIDIARIES, HEC ENERGY CONSULTING CANADA INC.
AND HEC INTERNATIONAL CORPORATION. SIGNIFICANT INTERCOMPANY TRANSACTIONS
HAVE BEEN ELIMINATED IN CONSOLIDATION.
(B) REVENUE RECOGNITION
REVENUES INCLUDE AMOUNTS EARNED UNDER CONTRACTS FOR THE DESIGN AND
INSTALLATION OF ENERGY SYSTEMS AND THE REALIZATION OF ENERGY SAVINGS.
CERTAIN REVENUES ARE RECOGNIZED BY THE PERCENTAGE-OF-COMPLETION METHOD AS
WORK PROGRESSES FOR CONTRACTS IN PROCESS. OTHER REVENUES ARE RECOGNIZED AS
SAVINGS ARE REALIZED BY CUSTOMERS. LOSSES ON CONTRACTS ARE FULLY
RECOGNIZED IN THE PERIOD THEY BECOME ESTIMABLE. PARTICIPATION IN ENERGY
SAVINGS FOR CERTAIN FIXED PERIODS SUBSEQUENT TO RECOVERY OF INSTALLED COST
OF ENERGY SYSTEMS ARE RECOGNIZED IN THE PERIODS SUCH SAVINGS ARE ACHIEVED.
(C) DEPRECIATION
DEPRECIATION AND AMORTIZATION ARE PROVIDED USING STRAIGHT-LINE METHODS OVER
THE ESTIMATED USEFUL LIVES OF THE ASSETS.
(D) ORGANIZATION COSTS
COSTS INCURRED TO ORGANIZE THE COMPANY AND ITS SUBSIDIARIES ARE CAPITALIZED
AND AMORTIZED USING THE STRAIGHT LINE METHOD OVER A FIVE YEAR PERIOD. THE
AMORTIZATION PERIODS BEGAN ON JULY 1, 1990 FOR THE COMPANY AND ON NOVEMBER
1, 1994 FOR HEC INTERNATIONAL CORPORATION AND HEC ENERGY CONSULTING CANADA,
INC. AND ON JANUARY 1, 1996 FOR SOUTHWEST HEC ENERGY SERVICES LLC.
(2) SHORT-TERM DEBT
THE COMPANY IS A PARTICIPANT IN THE NORTHEAST UTILITIES SYSTEM MONEY POOL
(POOL). AS A LIMITED PARTICIPANT, HEC IS LIMITED TO BORROWING FUNDS
PROVIDED BY NU PARENT. THE POOL PROVIDES A MORE EFFICIENT USE OF THE CASH
RESOURCES OF THE SYSTEM, AND REDUCES OUTSIDE SHORT-TERM BORROWINGS.
NORTHEAST UTILITIES SERVICE COMPANY (A WHOLLY-OWNED SUBSIDIARY OF NU)
ADMINISTERS THE POOL AS AGENT FOR THE MEMBER COMPANIES. BORROWING BASED ON
LOANS FROM NU PARENT BEAR INTEREST AT NU PARENT'S COST AND MUST BE REPAID
BASED UPON THE TERMS OF NU PARENT'S ORIGINAL BORROWING. AT DECEMBER 31,
1996 AND 1995, HEC HAD APPROXIMATELY $475,000 AND $1.7 MILLION IN
BORROWINGS AT 6.3 AND 4.7 PERCENT RESPECTIVELY, FROM THE POOL.
(3) LONG-TERM DEBT
SOUTHWEST HEC ENTERED INTO A VARIABLE DEBT AGREEMENT WITH ARIZONA PUBLIC
SERVICE ("APS") ON DECEMBER 7, 1995. THE NOTE REQUIRES AN INITIAL LOAN OF
$100,000 WITH ADDITIONAL ADVANCES TO SOUTHWEST HEC OF $50,000 QUARTERLY,
BEGINNING APRIL 1, 1996, UNTIL A MAXIMUM BALANCE OF $250,000 IS REACHED.
ON OCTOBER 1, 1996, THE MAXIMUM WAS REACHED. THE INTEREST RATE IS SET
ANNUALLY BASED ON THE LONG-TERM INTEREST RATE APS REPORTS ON ITS FERC FORM
1. THE INTEREST FOR THE 1996 NOTES WAS 7.79%. APS HAS A TEN YEAR OPTION
TO CONVERT THE NOTE INTO A 50% OWNERSHIP INTEREST IN SOUTHWEST HEC.
(4) DEFINED CONTRIBUTION PLAN
THE COMPANY PARTICIPATES IN NU'S 401(K) PLAN WHICH COVERS SUBSTANTIALLY ALL
EMPLOYEES. ELIGIBLE EMPLOYEES MAY CONTRIBUTE UP TO 16% OF THEIR
COMPENSATION TO THE PLAN, AND THE COMPANY WILL CONTRIBUTE UP TO 3% OF EACH
EMPLOYEES COMPENSATION. EMPLOYEES BECOME VESTED IN CONTRIBUTIONS BY
SPECIFIED PERCENTAGES OVER A FIVE YEAR PERIOD.
(5) LEASES
THE COMPANY HAS CERTAIN OPERATING LEASES FOR OFFICES AND EQUIPMENT EXPIRING
AT VARIOUS DATES THROUGH 1999. DURING 1996 AND 1995, HEC CHARGED
APPROXIMATELY $274,000 AND $242,000, RESPECTIVELY, IN OPERATING LEASE
RENTAL PAYMENTS TO OPERATING EXPENSE. FUTURE MINIMUM RENTALS PAYABLE FOR
OPERATING LEASES ARE AS FOLLOWS:
1997 $ 283,706
1998 245,171
1999 245,171
TOTAL $ 774,048
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1996 and 1995
SCHEDULE XV - STATEMENT OF INCOME
YEAR ENDED YEAR ENDED
DECEMBER 31 DECEMBER 31
ACCOUNT DESCRIPTION 1996 1995
- ------------------------------------------------------- -------------------------
<S> <C> <C>
INCOME
457 Services rendered to Associate Companies $ 1,904,520 $ 2,531,854
458 Services rendered to Nonassociate Companies 42,111,293 30,889,001
421 Miscellaneous Income/(Loss) 240,312 209,396
----------- ------------
TOTAL INCOME 44,256,125 33,630,251
=========== ============
EXPENSE
904 Reserve for Uncollectible Accounts 38,500 63,600
920 Salaries and Wages 3,540,767 3,085,753
921 Office Supplies and Expense 6,465,966 8,928,617
922 Administrative Expense transferred-credit 0
923 Outside Services Employed 31,887,030 19,227,545
924 Property Insurance 35,113 41,747
925 Injuries and Damages 116,684 115,897
926 Employee Pensions and Benefits 341,054 347,701
928 Regulatory Commission Expense
930.1 General Advertising Expense 2,985 4,890
930.2 Miscellaneous General Expense 52,516 74,108
931 Rents 298,111 254,435
935 Maintenance of Structures and Equipment 31,067 36,691
403 Depreciation and Amortization Expense 415,530 415,798
404 Amortization - Organization Costs 3,142 14,733
408 Taxes other than Income Taxes 282,417 250,905
409 Income Taxes 245,039 251,333
410 Provision for Deferred Income Taxes 11,590 24,341
411 Provision for Deferred Income Taxes-Credit 2,389 6,852
411.5 Investment Tax Credit 0 0
426.1 Donations 0 0
426.5 Other Deductions 0 0
427 Interest on Long-term Debt 0 0
428 Amortize Debt Expenses 0 0
430 Interest on Debt to Associate Companies 55,022 116,722
431 Other Interest Expense 13,634 2,002
----------- ------------
TOTAL EXPENSE 43,838,556 33,263,670
----------- ------------
NET INCOME/(LOSS) $ 417,569 $ 366,581
=========== ============
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1996
ANALYSIS OF BILLING
NONASSOCIATE COMPANIES
ACCOUNT 458
EXCESS
OR TOTAL
DEFICIENCY AMOUNT
DESCRIPTION TOTAL COST 458-4 BILLED
- ---------------------------------------------------- -------------
<S> <C>
ENERGY MANAGEMENT SERVICES $ 40,276,436
DEMAND SIDE MANAGEMENT SERVICES 110,723
CONSULTING SERVICES 1,724,134
-------------
TOTAL $ 42,111,293
=============
INSTRUCTIONS: Provide a brief description of the services rendered
to each nonassociate company.
Energy Management Services:
Engineering and installation of energy conservation measures.
Demand Side Management Services:
Engineering and consulting services in the design, implementation,
and evaluation of demand side management programs.
Consulting Services:
Other engineering and design services.
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1996
DEPARTMENTAL ANALYSIS OF SALARIES
ACCOUNT 920
NAME OF DEPARTEMENT OR SALARY NUMBER OF
SERVICE FUNCTION EXPENSE PERSONNEL
- ------------------------------------------ ---------------------------
<S> <C> <C>
ADMINISTRATION $ 1,014,942 11
ENGINEERING 1,883,513 47
MARKETING 642,313 11
------------ ------------
TOTAL $ 3,540,767 69
============ ============
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC.
AND SUBSIDIARIES
For Twelve Months Ended December 31, 1996
OUTSIDE SERVICES EMPLOYED
ACCOUNT 923
From Whom "A"-Associate Description
Purchased "NA"-Nonassociate Amount of Services
- --------------------------------------- --------------------------------------------
<S> <C> <C> <C>
SUBCONTRACTOR SERVICES
Ahlstrom Schaeffer NA 185,093 Electrical Contractor
Anthony Russo NA 113,894 Building Contractor
Bain Heating & Piping NA 926,721 Boiler Replacement Work
Black & McDonald NA 122,855 Electrical Contractor
B&G NA 701,175 Electrical/Lighting Contractor
Candela Systems NA 449,693 Electrical Contractor
Carrier Corp NA 306,924 Mechancial Contractor
CVM Electric NA 693,240 Electrical Contractor
Delphi Mechancial NA 263,239 Mechanical Contractor
Egg Electric NA 231,451 Electrical Contractor
Electri-Comm NA 297,968 Electrical/Lighting Contractor
HE Sargent NA 115,000 Mechanical Contractor
Hi-Amp NA 1,061,001 Electrical Contractor
Honeywell Incorporated NA 1,324,284 EMS Contractor
Johnson Controls NA 4,249,568 EMS Contractor
Landis &Staefa, Inc NA 1,569,402 EMS Contractor
Longo Industries NA 646,723 Mechanical Construction
Morales Electric NA 148,327 Electrical Contractor
O'Connell Electric NA 426,809 Electrical Contractor
Panko Electric NA 174,848 Electrical/Lighting
PEM NA 187,616 Electrical Contractor
Rolands NA 2,021,503 Electrical Contractor
Sensor Switch NA 634,459 Lighting Supplies & Installation
Syracuse Merit Electric NA 467,000 Electrical/Design Contractor
Temperature System NA 107,940 Supply and Install Motors
T.M Bier and Associates NA 532,779 Mechanical Contractor
Vanderlinde Electric NA 317,621 Lighting Installations
Windsor Electric NA 271,547 Lighting Retrofit Installations
One Hundred Ten Vendors NA 1,546,757
------------
TOTAL SUBCONTRACTORS $ 20,095,437
------------
SUBCONTRACTOR SUPPLIERS
Advance Energy & Lighting NA 275,448 Building Fixture Supplier
Baldwin-Hall NA 338,533 Lighting Supplier
Barbizon Systems NA 271,899 Lighting Supplier
Dual Lite NA 109,194 Lighting Supplier
Folz Electric NA 209,706 Lighting Supplier
Graybar Electric NA 595,241 Electrical Supplier
Kovalsky & Carr Electric NA 724,702 Electrical Supplier
Lightron NA 115,634 Light Fixture Supplier
Patton Wholesale Dist NA 276,372 Electrical Supplier
Schwing Electric NA 153,269 Electrical Supplier
Kelly & Hayes NA 3,883,646 Electrical/Lighting Supplier
Bulb Man NA 1,208,323 Lighting Supplier
Sensorswitch NA 634,459 Lighting Supplier
------------
TOTAL SUBCONTRACTOR SUPPLIERS $ 8,796,426
CONSULTING SERVICES
EEM NA 2,522,730 Engineering/Construction Mgment
Eighty Five Vendors NA 377,342
------------
TOTAL CONSULTING SERVICES $ 2,900,072
------------
LEGAL SERVICES
Three Vendors NA $ 14,817
------------
AUDITING SERVICES
Arthur Andersen NA $ 40,041
------------
MARKETING AGENTS & CONSULTANTS
Ten Vendors NA $ 10,271
------------
OTHER PROFESSIONAL SERVICES
Five Vendors NA $ 29,966
------------
TOTAL $ 31,887,030
============
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1996
MISCELLANEOUS GENERAL EXPENSE
ACCOUNT 930.2
INSTRUCTIONS: Provide a listing of the amount included in Account 930,
"Miscellaneous General Expense," classifying such expenses
according to their nature. Payments and expenses permitted
by Section 321(b)(2) of the Federal Election Campaign Act,
as amended by Public Law 94-283 in 1976 (2 U.S.C Section
441(b)(2) shall be separately classified.
DESCRIPTION AMOUNT
- ----------------------------------------------------------- --------------
<S> <C>
Utilities $ 12,184
Miscellaneous 30,457
Recruiting 9,876
--------------
TOTAL $ 52,516
==============
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1996
RENTS
ACCOUNT 931
INSTRUCTIONS: Provide a listing of the amount included in Account 931
"Rents," classifying such expenses by major groupings of
property, as defined in the account definition of the
Uniform System of Accounts.
DESCRIPTION AMOUNT
- ----------------------------------------------------- --------------
<S> <C>
Office Space $ 274,098
Equipment Rental 24,013
--------------
TOTAL $ 298,111
==============
</TABLE>
<TABLE>
<CAPTION>
ANNUAL REPORT OF HEC INC
AND SUBSIDIARIES
For the Twelve Months Ended December 31, 1996
TAXES OTHER THAN INCOME TAXES
ACCOUNT 408
INSTRUCTIONS: Provide an analysis of Account 408, "Taxes Other than Income
Taxes. Separate the analysis into two groups: (1) other than
U.S. Government taxes, and (2) U.S. Government taxes. Specify
each of the various kinds of taxes and show the amounts thereof.
Provide a subtotal for each class of tax.
KIND OF TAX AMOUNT
----------
<S> <C>
1) Other than U.S. Government taxes
City & County Taxes $ 3,619
State Franchise Taxes 503
State Unemployment Taxes 42,043
----------
Subtotal $ 46,165
----------
2)U.S. Government taxes
Employer's FICA Tax $ 230,093
Federal Unemployment Taxes 6,159
----------
Subtotal $ 236,252
----------
TOTAL $ 282,417
==========
</TABLE>
ANNUAL REPORT OF HEC INC AND SUBSIDIARIES
For the Year Ended December 31, 1996
SCHEDULE XVIII
NOTES TO STATEMENTS OF INCOME
INSTRUCTIONS: The space below is provided for important notes regarding the
statement of income or any account thereof. Furnish
particulars as to any significant increases in services rendered
or expenses incurred during the year. Notes relating to
financial statements shown elsewhere in this report may be
indicated here by reference.
See Notes to Financial Statements on pages 13 through 14.
ANNUAL REPORT OF HEC INC. AND SUBSIDIARIES
ORGANIZATION CHART (AS OF DECEMBER 31, 1996)
President - Thomas W. Philbin, Ph.D.
- Vice President - David S. Dayton
- Vice President - Customer Service - H. Donald Burbank, P.E.
- Vice President - Finance, Treasurer, and Clerk - Linda Jensen
- Vice President - Operations - James B. Redden, P.E.
ANNUAL REPORT OF HEC INC. AND SUBSIDIARIES
SIGNATURE CLAUSE
Pursuant to the requirements of the Public Utility Holding
Company Act of 1935 and in accordance with release numbers
22719, and order numbers File No. 70-7698, the undersigned
company has duly caused this report to be signed on its behalf
by the undersigned officer thereunto duly authorized.
HEC INC. AND SUBSIDIARIES
-----------------------------
(Name of Reporting Company)
By: /s/ Linda Jensen
-----------------------------
(Signature of Signing Officer)
Linda Jensen, Vice President-
Finance, Treasurer and Clerk
-----------------------------
(Printed Name and Title of
Signing Officer)
Date: April 25, 1997
-----------------------------
<TABLE> <S> <C>
<ARTICLE>OPUR2
<CIK>0000875017
<NAME>HEC INC. AND SUBSIDIARIES
<MULTIPLIER>1
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<BOOK-VALUE> PER-BOOK PER-BOOK
<NET-SERVICE-COMPANY-PROPERTY> 1,818,691 2,107,073
<TOTAL-INVESTMENTS> 0 0
<TOTAL-CURRENT-ASSETS> 6,548,711 8,049,956
<TOTAL-DEFERRED-DEBITS> 2,808,452 975,489
<OTHER-ASSETS-AND-DEBITS> 0 0
<TOTAL-ASSETS-AND-DEBITS> 11,175,854 11,132,518
<TOTAL-PROPRIETARY-CAPITAL> 3,804,288 3,378,649
<TOTAL-LONG-TERM-DEBT> 250,000 100,000
<NOTES-PAYABLE> 0 0
<NOTES-PAYABLE-ASSOCIATE-COMP> 475,000 1,675,000
<OTHER-CURR-AND-ACCRUED-LIAB> 6,231,105 5,567,657
<TOTAL-DEFERRED-CREDITS> 0 0
<DEFERRED-INCOME-TAX> 415,461 411,212
<TOT-LIABIL-AND-PROPRIET-CAP> 11,175,854 11,132,518
<SERVICES-ASSOCIATE-COMPANIES> 1,904,520 2,531,854
<SERVICES-NON-ASSOCIATE-COMP> 42,111,293 30,889,001
<MISC-INCOME-OR-LOSS> 240,312 209,396
<TOTAL-INCOME> 44,256,125 33,630,251
<SALARIES-AND-WAGES> 3,540,767 3,085,753
<EMPLOYEE-PENSION-AND-BENEFIT> 341,054 347,701
<OTHER-EXPENSES> 39,956,735 29,830,216
<TOTAL-EXPENSES> 43,838,556 33,263,670
<NET-INCOME> 417,569 366,581
<TOTAL-EXPENSES-DIRECT-COST> 43,838,556 33,263,670
<TOTAL-EXPENSES-INDIRECT-COST> 0 0
<TOT-EXP-DIRECT-AND-INDIRECT> 43,838,556 33,263,670
<PERSONNEL-END-OF-YEAR> 69 68
</TABLE>
