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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 September 30, 2002
-------------------------
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 1-12527
---------------
BAYCORP HOLDINGS, LTD.
(Exact Name of Registrant as Specified in Its Charter)
------------------------------------------------------
DELAWARE 02-0488443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
51 DOW HIGHWAY, SUITE 7
ELIOT, MAINE 03903
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (207) 451-9573
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
---- -----
Class Outstanding at October 22, 2002
- --------------------------------------- -------------------------------
Common Stock, $0.01 Par Value per Share 8,471,569
BAYCORP HOLDINGS, LTD.
INDEX
PART I - FINANCIAL INFORMATION:
Item 1 - Financial Statements:
Consolidated Statements of Income and Comprehensive Income -
Three and Nine Months Ended September 30, 2002 and 2001............ 3
Consolidated Balance Sheets -
at September 30, 2002 and December 31, 2001........................ 4
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 2002 and 2001...................... 6
Notes to Financial Statements........................................ 7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 14
Item 3 - Quantitative and Qualitative Disclosures About
Market Risk........................................................ 20
PART II - OTHER INFORMATION:
Item 6 - Exhibits and Reports on Form 8-K............................ 20
Signature............................................................ 21
Certifications....................................................... 22
Exhibit Index........................................................ 24
2
BAYCORP HOLDINGS, LTD.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(Dollars in Thousands, except shares and per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Operating Revenues $ 15,559 $ 22,359 $ 41,053 $ 61,096
Operating Expenses
Production 5,074 5,995 18,492 16,934
Transmission 262 211 801 745
Purchased Power 13 5,604 276 22,931
Unrealized Gain on Firm Energy Contracts 0 (1,316) 0 (14,636)
Administrative & General 2,884 1,704 7,137 4,882
Depreciation & Amortization 941 998 2,821 2,993
Decommissioning Cost Accretion 1,231 816 3,694 2,446
Decommissioning Trust Fund Income (342) (424) (1,147) (1,184)
Taxes other than Income 840 919 2,650 2,833
----------- ----------- ----------- -----------
Total Operating Expenses 10,903 14,507 34,724 37,944
Operating Income 4,656 7,852 6,329 23,152
Other (Income) Deductions:
Interest and Dividend Income (164) (78) (439) (401)
Equity Loss in HoustonStreet Investment 0 0 0 450
Other (Income) deductions (11) 59 16 116
----------- ----------- ----------- -----------
Total Other (Income) Deductions (175) (19) (423) 165
Income Before Income Taxes 4,831 7,871 6,752 22,987
Income Taxes 0 0 0 0
----------- ----------- ----------- -----------
Net Income 4,831 7,871 6,752 22,987
Other Comprehensive Income,
Unrealized Loss on Securities (294) (48) (995) (261)
----------- ----------- ----------- -----------
Comprehensive Income $ 4,538 $ 7,823 $ 5,757 $ 22,726
=========== =========== =========== ===========
Weighted Average Shares Outstanding - Basic 8,376,140 8,334,264 8,386,914 8,334,264
Weighted Average Shares Outstanding - Diluted 8,763,558 8,579,467 8,719,134 8,575,993
Basic Net Income Per Share $ 0.58 $ 0.94 $ 0.81 $ 2.76
Diluted Net Income Per Share $ 0.55 $ 0.92 $ 0.77 $ 2.68
(The accompanying notes are an integral part of these consolidated statements.)
3
BAYCORP HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in Thousands)
September 30, December 31,
2002 2001
------------- ------------
ASSETS
Current Assets:
Cash & Cash Equivalents $ 12,445 $ 15,278
Restricted Cash - Escrow 0 1,903
Short-term Investments, at market 13,011 0
Accounts Receivable (Net of allowance of $1,100) 4,663 6,291
Accounts Receivable from Related Party 12 0
Materials & Supplies, net 4,669 4,708
Prepayments & Other Assets 2,005 1,372
--------- ---------
Total Current Assets 36,805 29,552
Property, Plant & Equipment and Fuel:
Utility Plant Assets 125,117 123,923
Less: Accumulated Depreciation (25,380) (22,944)
--------- ---------
Net Property, Plant & Equipment 99,737 100,979
Nuclear Fuel 16,701 23,365
Less: Accumulated Amortization (8,391) (12,096)
--------- ---------
Net Nuclear Fuel 8,310 11,269
Net Property, Plant & Equipment and Fuel 108,047 112,248
Other Assets:
Decommissioning Trust Fund 33,239 32,048
Deferred Debits & Other 908 424
--------- ---------
Total Other Assets 34,147 32,472
TOTAL ASSETS $ 178,999 $ 174,272
========= =========
(The accompanying notes are an integral part of these consolidated statements.)
4
BAYCORP HOLDINGS, LTD.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Dollars in Thousands)
September 30, December 31,
2002 2001
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Expenses $ 197 $ 1,607
Accrued Taxes 185 392
Accrued Misc. Seabrook Liabilities 432 1,115
Accrued Legal and Professional Expenses 43 244
Miscellaneous Current Liabilities 195 3,558
--------- ---------
Total Current Liabilities 1,052 6,916
Operating Reserves:
Decommissioning Liability 89,218 85,523
Miscellaneous Other 386 386
--------- ---------
Total Operating Reserves 89,604 85,909
Other Liabilities & Misc. Deferred Credits 9,061 7,892
Commitments & Contingencies
Stockholders' Equity:
Common stock, $.01 par value,
Authorized - 20,000,000 shares,
Issued and Outstanding - 8,471,569 and 8,586,316, respectively 85 86
Less: Treasury Stock - 0 and 185,052 shares,
respectively, at cost 0 (1,396)
Additional Paid-in Capital 91,129 93,357
Deferred Compensation 803 0
Accumulated Other Comprehensive Income (Loss) (772) 223
Accumulated Deficit (11,963) (18,715)
--------- ---------
Total Stockholders' Equity 79,282 73,555
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 178,999 $ 174,272
========= =========
(The accompanying notes are an integral part of these consolidated statements.)
5
BAYCORP HOLDINGS, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
Nine Months Nine Months
Ended Ended
September 30, September 30,
2002 2001
------------- -------------
Net cash flow from operating activities:
Net income $ 6,752 $ 22,987
Adjustments to reconcile net earnings to net
cash (used in) provided by operating activities:
Equity loss in HoustonStreet investment 0 450
Depreciation and amortization 2,821 2,645
Amortization of nuclear fuel 3,105 3,105
Unrealized gain on firm energy trading contracts 0 (14,636)
Non-cash compensation expense 1,125 0
Decommissioning trust accretion 3,694 2,446
Decommissioning trust interest and other charges (1,147) (765)
(Increase) decrease in accounts and other receivable 1,616 (3,943)
Increase in materials & supplies (121) (68)
Increase in prepaids, deferred debits and other assets (1,117) (1,796)
Decrease in accounts payable and accrued expenses (1,617) (7,106)
Increase (decrease) in misc. and other liabilities (3,145) 2,425
-------- --------
Net cash provided by operating activities 11,966 5,744
Net cash flows from investing activities:
Capital additions (1,413) (988)
Nuclear fuel additions (146) (1,010)
Payments to decommissioning fund (1,045) (1,963)
Investment in HoustonStreet 0 (450)
Decrease in restricted cash 1,903 1,782
Purchases of short term investments (16,585) 0
Sales of short term investments 3,574 2,761
-------- --------
Net cash (used in) provided by investing activities (13,712) 132
Net cash from financing activities:
Stock option exercise 153 0
Reacquired capital stock (1,240) 0
Other investments 0 0
-------- --------
Net cash used in financing activities (1,087) 0
Net increase in cash and cash equivalents (2,833) 5,876
Cash and cash equivalents, beginning of period 15,278 9,071
-------- --------
Cash and cash equivalents, end of period $ 12,445 $ 14,947
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes $ 1,036 $ 14
Supplemental Disclosure of Non-cash Financing Activities:
Stock option exercise in exchange for promissory notes $ 737 $ 0
(The accompanying notes are an integral part of these consolidated statements.)
6
BAYCORP HOLDINGS, LTD.
NOTES TO FINANCIAL STATEMENTS
NOTE A -- THE COMPANY
BayCorp Holdings, Ltd. ("BayCorp" or the "Company") is a holding company
incorporated in Delaware in 1996. BayCorp owns two subsidiaries that generate
and sell wholesale electricity, Great Bay Power Corporation ("Great Bay") and
Little Bay Power Corporation ("Little Bay"), each of which is wholly-owned as of
September 30, 2002. In addition, BayCorp owns 45.9% of HoustonStreet Exchange,
Inc. ("HoustonStreet"), an Internet-based independent crude oil and refined
products trading exchange.
Great Bay and Little Bay generate and sell wholesale electricity. Their
principal asset is a combined 15% joint ownership interest in the Seabrook
Nuclear Power Project in Seabrook, New Hampshire (the "Seabrook Project" or
"Seabrook"). This ownership interest entitles the companies to approximately 174
megawatts ("MWs") of the Seabrook Project's power output. Great Bay and Little
Bay are exempt wholesale generators ("EWGs") under the Public Utility Holding
Company Act of 1935 ("PUHCA"). Unlike regulated public utilities, Great Bay and
Little Bay have no franchise area or captive customers. The companies sell their
power in the competitive wholesale power markets. HoustonStreet, an equity
investment of BayCorp, developed and operates HoustonStreet.com.
In October 2000, the Company announced that it reached an agreement with
Northeast Utilities ("NU") under which the Company's generating subsidiaries,
Great Bay and Little Bay, will include their aggregate 15% ownership share of
the Seabrook Project in the current auction of NU's subsidiaries' shares of the
Seabrook Project. Under the terms of the agreement, BayCorp will receive the
sales price established by the auction process. In the event that the sale
yields proceeds for BayCorp of more than $87.2 million, BayCorp and NU will
share the excess proceeds. Should BayCorp's sales proceeds be less than $87.2
million, NU will make up the difference below that amount on a dollar for dollar
basis up to a maximum of $17.4 million. Under the agreement, BayCorp will be
paid separately for nuclear fuel and inventory. The agreement also limits any
top-off amount required to be funded by BayCorp for decommissioning as part of
the sale process at the amount required by the Nuclear Regulatory Commission
("NRC") regulations.
On April 15, 2002, the Company announced that BayCorp and other selling
owners reached an agreement with FPL Group, Inc. ("FPL Group") for the sale of
approximately 88% of the Seabrook Project. The purchase price for the entire
88.2% interest is $836.6 million, subject to certain adjustments at closing.
Under the terms of the purchase and sale agreement and BayCorp's agreement with
NU, Baycorp expects to receive approximately $113 million for its 15% ownership
interest in Seabrook, nuclear fuel and inventory. This amount assumes a November
1, 2002 closing and is based upon expected balances for nuclear fuel and
inventory and other purchase price adjustments. This amount is net of the
sharing of proceeds with NU under the October 2000 agreement and also net of any
top-off amount required to fund BayCorp's share of the Seabrook decommissioning
liability. Under the terms of the agreement with FPL Group, BayCorp and the
other selling owners are required to top-off the decommissioning trust fund to
ensure that the decommissioning fund balance is sufficient to satisfy the
requirements of the New Hampshire Decommissioning Financing Committee ("NDFC")
at the time of closing. The decommissioning top off and the amount received for
nuclear fuel and inventory are subject to adjustment to reflect actual values at
the time of closing.
7
BAYCORP HOLDINGS, LTD.
In August 2002, BayCorp announced that it had reached agreement with Unitil
Power Corporation ("Unitil") to amend a long-term electric power sales agreement
between Unitil and Great Bay. The original agreement provided for the sale of 10
megawatts of Great Bay's Seabrook entitlement to Unitil on a unit-contingent
basis at a price of $53.84 per MWh (subject to escalation if inflation rises
above 4%) through October 2010. Under the amended agreement, Great Bay will
supply Unitil with 9.06 MW of firm power (as opposed to Seabrook unit-contingent
power) at a price of $50.34 per MWh with the same escalation provisions and
term. The amendment also provides alternative security for Unitil's benefit, to
replace and discharge the mortgage on Great Bay's Seabrook interest that
currently secures Great Bay's performance of the agreement.
The amendment received Federal Energy Regulatory Commission ("FERC")
approval in August 2002. Great Bay has notified Unitil that the amended
agreement will be effective on November 1, 2002. The amended Unitil contract
will not be sold in the asset sale, and following the closing will constitute
the only significant non-liquid asset retained by either Great Bay or Little
Bay.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited financial statements included herein have been prepared on
behalf of the Company pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC") 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, 2001 as filed in Form 10-K,
are adequate to make the information presented not misleading. The Company's
significant accounting policies are described in Note 1 of Notes to Consolidated
Financial Statements included in the Company's 10-K. The results for the interim
periods are not necessarily indicative of the results to be expected for the
full fiscal year.
Previously, Great Bay utilized unit contingent and firm forward power sales
contracts to maximize the value of its 174 MW power supply from the Seabrook
Project. The Company follows the provisions of SFAS 133 Accounting for
Derivative Activities and Hedging Activities. The Company recorded the related
firm forward power sale contracts at fair value based on the estimated contract
replacement value at each balance sheet date. The Company had no firm forward
power sales contracts as of September 30, 2002 that required mark-to-market
accounting treatment. As a result, as of September 30, 2002, the Company had no
unrealized loss or gain on the mark-to-market of firm forward power sales
contracts recorded in accrued expenses. The net change in unrealized gain/loss
on forward firm power sales contracts included in the accompanying consolidated
statements of income for the quarters ended September 30, 2002 and September 30,
2001 was $0 and a gain of approximately $1,316,000, respectively, and for the
nine months ended September 30, 2002 and September 30, 2001 was $0 and a gain of
approximately $14,636,000, respectively. The Company's amended power sale
agreement with Unitil, as discussed earlier, will require mark-to-market
treatment when it becomes effective. The Company expects the agreement to become
effective on or about November 1, 2002.
8
BAYCORP HOLDINGS, LTD.
Certain amounts in prior periods have been reclassified to conform with
current period presentation.
NOTE C -- COMMITMENTS AND CONTINGENCIES
NUCLEAR POWER, ENERGY AND UTILITY REGULATION
The Seabrook Project and Great Bay and Little Bay, as part owners 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 antitrust matters. Great Bay and Little Bay have been, and will be, affected
to the extent of their proportionate share by the cost of any such requirements
made applicable to the Seabrook Project.
Great Bay and Little Bay are also subject to the jurisdiction of the FERC
under Parts II and III of the Federal Power Act and, as a result, are required
to file with FERC all contracts for the sale of electricity. FERC has the
authority to suspend the rates at which Great Bay and Little Bay propose 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, account and services and property records.
Because they both are EWG's, Great Bay and Little Bay are not subject to
the jurisdiction of the SEC under PUHCA. In order to maintain their EWG status,
Great Bay and Little Bay 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 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 and
Little Bay, their combined 15% joint ownership interest in the Seabrook Project
comprises an "eligible facility."
UTILITY DEREGULATION; PUBLIC CONTROVERSY CONCERNING NUCLEAR POWER PLANTS
The NHPUC and the regulatory authorities with jurisdiction over utilities
in New Hampshire and state legislatures of several other states in which Great
Bay and Little Bay sell electricity are considering or are implementing
initiatives relating to the deregulation of the electric utility industry.
Simultaneously with the deregulation initiatives occurring in each of the New
England states, the New England Power Pool ("NEPOOL") restructured to create and
maintain open, non-discriminatory, competitive, unbundled markets for energy,
capacity, and ancillary services. All of the deregulation initiatives open
electricity markets to competition in the affected states. While Great Bay and
Little Bay believe they are low-cost producers of electricity and will benefit
from the deregulation of the electric industry, it is not possible to predict
the impact of these various initiatives on the companies.
Nuclear units in the United States have been subject to widespread
criticism and opposition, which has led to construction delays, cost overruns,
licensing delays and other difficulties. Various groups have sought to prohibit
the completion and operation of nuclear units and the disposal of nuclear waste
by litigation, legislation and participation in administrative proceedings. The
Seabrook Project was the subject of significant public controversy during its
construction and licensing and remains
9
BAYCORP HOLDINGS, LTD.
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 the Company 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 the unit be completely decontaminated of any residual radioactivity. While
the owners of the Seabrook Project are accumulating monies in a trust fund to
pay decommissioning costs, if these costs exceed the amount of the trust fund,
the current owners at such time will be liable for the excess.
Should the proposed transaction for the sale of Seabrook be completed, the
Company would no longer be subject to these contingent liabilities.
DECOMMISSIONING LIABILITY
Based on the Financial Accounting Standards Board's ("FASB") tentative
conclusions, reflected on the February 7, 1996 Exposure Draft titled "Accounting
for Certain Liabilities Related to Closure and Removal of Long-Lived Assets,"
Great Bay and Little Bay have recognized as a liability their proportionate
share of the present value of the estimated cost of Seabrook Project
decommissioning. For Great Bay, the initial recognition of this liability was
capitalized as part of the Fair Value of the Utility Plant at November 23, 1994.
For Little Bay, the amount was provided for in the purchase price allocation at
the date Little Bay acquired its interest in Seabrook.
New Hampshire enacted a law in 1981 requiring the creation of a
state-managed fund to finance decommissioning of any nuclear units in the state.
The Seabrook Project's decommissioning estimate and funding schedule is subject
to review each year by the NDFC. The current estimated cost to decommission the
Seabrook Project (based on NDFC Docket 2001-1) is approximately $555.6 million
in 2001 dollars, assuming for decommissioning purposes, a remaining 25-year life
for the facility and a future cost escalation of 5.25% per year. The Company's
pro-rata share of this estimated cost of decommissioning in 2001 dollars is
$83.3 million.
The Staff of the SEC has questioned certain of the current accounting
practices of the electric utility industry regarding the recognition,
measurement and classification of decommissioning costs for nuclear generating
stations and joint owners in the financial statements of these entities. In
response to these questions, the FASB agreed to review the accounting for
nuclear decommissioning costs and, as a result, in August 2001, the FASB
approved the issuance of Statement of Financial Accounting Standards (SFAS) No.
143, "Accounting for Retirement Obligations." SFAS No. 143 provides accounting
requirements for the recognition and measurement of liabilities associated with
the retirement of long-lived assets and requires entities to record the fair
value of a liability for an asset retirement obligation in the period in which
it is incurred. Great Bay's and Little Bay's accounting for decommissioning is
based on the initial FASB exposure draft. The new statement requires that an
obligation associated with the retirement of a tangible long-lived asset be
recognized as a liability when incurred, and that the amount of the liability
resulting from (a) the passage of time and (b) revisions to either the timing or
amount of estimated cash flows should also be recognized. The new statement also
requires that, upon initial recognition of a liability for an asset retirement
obligation, an entity capitalize that cost by recognizing an increase in the
carrying amount of the related long-lived asset.
10
BAYCORP HOLDINGS, LTD.
The new statement requires the initial measurement of the liability to be
based on fair value, where the fair value is the amount that an entity would be
required to pay in an active market to settle the asset retirement obligation in
a current transaction in circumstances other than a forced liquidation or
settlement. Because in most circumstances, a market for settling asset
retirement obligations does not exist, the FASB described an expected present
value technique for estimating fair value. The new statement is effective for
the Company on January 1, 2003. The Company does not expect the adoption of SFAS
143 to have a material impact on its Balance Sheet or reported results of
operations because of the pending sale of Seabrook.
Great Bay and Little Bay, consistent with industry practice, have been
recognizing a liability based on the present value of the estimated future cash
outflows required to satisfy their obligations using a risk free rate. As of
September 30, 2002, the estimated undiscounted cash outflows for Great Bay and
Little Bay, for decommissioning, based on the November 2001 NDFC study, with
decommissioning expenditures starting in 2024 and being completed in 2046, was
$418.3 million, which discounted at an average rate of 4.75%, over the funding
period, to September 30, 2002, represented a liability of approximately $89
million reflected in the accompanying balance sheet. The Company's wholly-owned
subsidiaries record any adjustments to the decommissioning liability due to
changes in estimates in the utility plant account.
Great Bay and Little Bay accrete their share of the Seabrook Project's
decommissioning liability. This accretion is a non-cash charge and recognizes
their liability related to the closure and decommissioning of their nuclear
plant in current year dollars over the licensing period of the plant. The
non-cash accretion charge recorded in the accompanied consolidated statements of
income was $1,231,000 and $816,000 for the three months ended September 30, 2002
and September 30, 2001, respectively and $3,694,000 and $2,446,000 for the nine
months ended September 30, 2002 and September 30, 2001, respectively. The change
in the accretion between years reflects adjustments to the estimated cost of
decommissioning by the NDFC.
Funds collected by Seabrook for decommissioning are deposited in an
external irrevocable trust pending their ultimate use. The earnings on the
external trusts also accumulate in the fund balance. The trust funds are
restricted for use in paying the decommissioning of Unit 1. The investments in
the trusts are recorded as investments available for sale. Great Bay and Little
Bay have therefore reported their investment in trust fund assets at market
value and any unrealized gains and losses are reflected in equity. There was an
unrealized holding loss of approximately $778,000 as of September 30, 2002.
Although the owners of Seabrook are accumulating funds in an external trust
to defray decommissioning costs, these costs could substantially exceed the
value of the trust fund, and the owners, including Great Bay and Little Bay,
would remain liable for the excess. Under the terms of the proposed sale of
Seabrook, the Company would no longer be subject to this obligation.
In June 1998, the New Hampshire State legislature enacted legislation that
provides that in the event of a default by Great Bay on its payments to the
decommissioning fund, the other Seabrook joint owners would be obligated to pay
their proportional share of such default. As a result of the enactment of this
legislation, the staff of the NRC notified Great Bay in July 1998 of the staff's
determination that Great Bay complies with the decommissioning funding assurance
requirements under NRC regulations.
In response to the obligations imposed on the other joint owners under the
New Hampshire legislation, Great Bay agreed to make accelerated payments to the
Seabrook decommissioning fund such
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BAYCORP HOLDINGS, LTD.
that Great Bay will have contributed sufficient funds by the year 2015 to allow
sufficient monies to accumulate, with no further payments by Great Bay to the
fund, to the full estimated amount of Great Bay's decommissioning obligation by
the time the current Seabrook operating license expires in 2026. Based on the
currently approved funding schedule and Great Bay's accelerated funding
schedule, Great Bay's decommissioning payments will be approximately $1.4
million in 2002 and would escalate at 4% each year thereafter through 2015.
Little Bay's share of decommissioning costs was prefunded by Montaup, the owner
of the 2.9% interest in the Seabrook Project that Little Bay acquired in
November 1999, and as such, periodic payments have not been required. As part of
that acquisition, Montaup transferred approximately $12.4 million into Little
Bay's decommissioning account, an irrevocable trust earmarked for Little Bay's
share of Seabrook decommissioning expenses. As of September 30, 2002 the fair
market value of the Little Bay decommissioning account was approximately $13.6
million.
On November 15, 1992, Great Bay and its predecessor's former parent,
Eastern Utilities ("EUA") entered into a settlement agreement that resolved
certain proceedings against EUA. Under the settlement agreement in 1992, EUA
agreed to guarantee up to $10 million of Great Bay's future decommissioning
costs of Seabrook Unit 1.
Pursuant to New Hampshire law and the purchase and sale agreement for the
sale of the Company's Seabrook interest, Great Bay and Little Bay are required
to "top off" their decommissioning trust funds so that the fund balance meets
the funding requirements established by the NDFC in Docket 2001-01. The balance
of the Great Bay and Little Bay decommissioning trusts, which are aggregated for
this purpose, was approximately $32.3 million as of June 30, 2002 and as of that
date was projected to be approximately $33 million at November 15, 2002, the
then anticipated closing date of the asset sale, based upon the anticipated
required contributions to the fund between July 1, 2002 and November 15, 2002.
The fund balance will fluctuate due to the market performance of the fund, and
the decommissioning top off and net proceeds will accordingly increase or
decrease. Based on that estimate, the Company estimates that its top off payment
will be approximately $7 million assuming a closing date of November 1, 2002.
NOTE D - INVESTMENT IN HOUSTONSTREET
As of December 31, 1999, the Company owned 100% of HoustonStreet. During
2000, HoustonStreet raised additional equity from outside investors and as a
result the Company's ownership fell below 50%. Subsequently, the Company wrote
its investment in HoustonStreet down to zero and suspended recognition of
additional HoustonStreet losses. Prior to the sale of a portion of its
investment in HoustonStreet, the Company recognized its share of the losses of
HoustonStreet in the consolidated financial statements. Summarized financial
information for the Company's investment in HoustonStreet, as accounted for by
the equity method, is as follows:
HoustonStreet:
Nine Months
ended Year ended Year ended
September 30, December 31, December 31,
2002 2001 2000
------------ ------------ ------------
Total Assets $ 784,600 $ 1,256,400 $ 11,958,600
Total Liabilities 13,557,300 14,784,100 15,395,800
Commission Revenues 748,200 1,899,500 523,400
12
BAYCORP HOLDINGS, LTD.
Other Revenues 725,000 -- --
Net Gain (Loss) 506,400 (10,156,000) (40,046,800)
Company's Proportional Equity
in Net Gain (Loss) $ 232,400 $ (4,661,600) $(22,259,000)
Gain (Loss) Reflected in
BayCorp Financials $ 0 $ 0 $ 0
As of September 30, 2002, the Company had no investments or receivables
from HoustonStreet recognized on the accompanying balance sheet. The Company
suspended recognition of equity losses beginning in 2000 after its investment in
and receivables from HoustonStreet were written down to zero. The Company has no
obligations to further fund HoustonStreet.
NOTE E - EQUITY
BayCorp has never paid cash dividends on its common stock. Any future
dividends depend on future earnings, BayCorp's financial condition and other
factors.
In March 2002, in connection with the exercise of stock options, the
Company received limited recourse promissory notes and stock pledge agreements
from its President, Frank Getman, and a director, John Tillinghast. Mr. Getman
was given two separate loans dated March 27, 2002, one for $167,502 and one for
$108,123. On March 7, 2002, Mr. Tillinghast was given a loan for $461,502. The
loans are secured by stock pledge agreements between the individuals and the
Company. The notes, which were approved by the Company's full board of
directors, bear interest at 5%. The notes and agreements were executed in order
to allow for the exercise of certain stock options before they expired. The
notes were given in lieu of cash payments for the exercise price of the options.
The total exercise price of these options was $737,127. Mr. Getman has pledged
56,250 shares under his agreements and Mr. Tillinghast has pledged 94,184 shares
under his agreement. The notes are due on the earlier of (i) December 31, 2003
or (ii) 30 days after the payment to Great Bay, Little Bay and BayCorp or its
common shareholders, as the case may be, of the proceeds of the sale of (a)
Great Bay's and Little Bay's interests in the Seabrook Project or (b) BayCorp
shares of capital stock of Great Bay and Little Bay or (c) the outstanding
shares of capital stock of BayCorp by merger, share exchange or otherwise. The
security agreements provide that the borrowers must maintain at least two times
the principal loan value in the event of partial repayments. The Company has no
agreements, formal or informal, to forgive the loans or change the terms on the
loans.
Upon maturity, the outstanding balance, and all accrued but unpaid
interest, shall be due and payable in full. The Company's current expectation is
that the Company's sale of its Seabrook asset will take place on November 1,
2002, with proceeds transferred at that time. The promissory notes issued to Mr.
Getman and Mr. Tillinghast will be repaid within 30 days of this closing, or on
or before December 1, 2002. The loans have been reflected in the accompanying
balance sheet as a reduction in equity as required by generally accepted
accounting principles. Compensation expense related to the exercise of these
stock options is measured based on the current market price of the Company's
common stock and the number of options exercised.
Unrealized gains (losses) on securities held by the Company in its
decommissioning trust fund and short-term investment accounts are recorded as
Accumulated Other Comprehensive Income (Loss) in the Company's balance sheet.
Accumulated other comprehensive income (loss) and the current period charge are
as follows:
Accumulated Other
Comprehensive Income
--------------------
Beginning Balance $ 223,000
Current Period Charge (995,000)
---------
Ending Balance $(772,000)
=========
NOTE F - NEW ACCOUNTING PRONOUNCEMENTS
In August 2001, the FASB issued Statement of Financial Accounting Standards
No. 143, Accounting for Asset Retirement Obligations ("SFAS 143"), effective for
the Company's 2003 fiscal year, which provides guidance on accounting for
nuclear plant decommissioning costs. SFAS 143 prescribes fair value accounting
for asset retirement liabilities, including nuclear decommissioning
13
BAYCORP HOLDINGS, LTD.
obligations, and requires recognition of such liabilities at the time incurred.
The sales agreement with NU established a minimum expected value for the
Company's investment in the Seabrook plant and the expected deal with FPL Group
established a fair value. The Company estimates that the current carrying amount
for the respective investment is the lower of the carrying amount or fair value
less cost to sell in accordance with SFAS No. 143.
In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-lived Assets," which replaces SFAS No. 121. This
new statement addresses financial accounting and reporting for the impairment or
disposal of long-lived assets. Although SFAS No. 144 supersedes SFAS No. 121, it
retains the fundamental provisions of SFAS No. 121 regarding measurement of
long-lived assets to be disposed of by sale. Under SFAS No. 144, asset
write-downs from discontinuing a business segment will be treated the same as
other assets held for sale. The new statement also broadens the financial
statement presentation of discontinued operations to include the disposal of an
asset group (rather than a segment of a business segment.) SFAS No. 144 was
effective beginning January 1, 2002. The initial adoption of SFAS No. 144 did
not have an impact on the Company's financial position or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Overview
BayCorp derives substantially all of its revenue through its energy sales
activities and its 100% equity interest in Great Bay and Little Bay. Great Bay
and Little Bay are electric generating companies whose principal asset is a
combined 15% joint ownership interest in the Seabrook Project.
The following discussion focuses solely on operating revenues and operating
expenses that are presented in a substantially consistent manner for all of the
periods presented.
RESULTS OF OPERATIONS: THIRD QUARTER OF 2002 COMPARED TO THE THIRD QUARTER OF
2001
Operating Revenues
BayCorp's operating revenues decreased by approximately $6,800,000, or
30.4%, to $15,559,000 in the third quarter of 2002 as compared to $22,359,000 in
the third quarter of 2001. The decrease in operating revenues was primarily
attributable to lower sales volume from the resale of purchased power in the
third quarter of 2002 as compared to the sales volume from the resale of
purchased power in the third quarter of 2001. During the third quarter of 2001
the Company was obligated to sell power on a firm basis. Great Bay purchased
power for resale pursuant to a purchase power agreement to support its firm
power sale obligation. There were no significant purchases of power for resale
made during the third quarter of 2002. The Seabrook capacity factor for the
third quarter of 2002 was 100% as compared to 99.2% for the third quarter of
2001.
During the three months ended September 30, 2002, Great Bay's average
selling price decreased 8.2%, to 4.05 cents per kilowatt hour ("kWh") as
compared to an average selling price of 4.41 cents per kWh for the same period
in 2001. Sales of electricity decreased by approximately 24.3% to 384,091,000
kWhs during the third quarter of 2002 as compared to approximately 507,549,000
kWhs in the third quarter of 2001. The decrease in kWhs sold was primarily
attributable to the lower sales volume from the resale of purchased power in the
third quarter of 2002 as compared to the same period in 2001.
14
BAYCORP HOLDINGS, LTD.
Expenses
Production and transmission expenses decreased approximately $870,000, or
14%, to $5,336,000 in the third quarter of 2002 as compared to $6,206,000 in the
third quarter of 2001. This decrease was primarily attributable to accrued
outage costs recorded in the third quarter of 2001. There were no accrued outage
costs recorded in the third quarter of 2002. Purchased power costs decreased
approximately $5,591,000, from $5,604,000 in the third quarter of 2001 to
$13,000 in the third quarter of 2002. During the third quarter of 2001, Great
Bay purchased power for resale pursuant to a Purchase Power Agreement with
Select Energy. There were no significant power purchases made during the third
quarter of 2002. Administrative and general expenses increased approximately
$1,180,000, or 69.2%, to $2,884,000 in the third quarter of 2002 as compared to
$1,704,000 in the third quarter of 2001. In the third quarter of 2002, the
Company recorded approximately $81,700 in non-cash compensation costs for
employee stock option costs relating to options that were repriced in 1998. The
Company also recorded non-cash compensation costs of approximately $480,400 for
certain options exercised in 2002. See Note E - Equity. Depreciation expense
decreased approximately $57,000, or 5.7%, and taxes other than income decreased
approximately $79,000, or 8.6%, during the third quarter of 2002 as compared to
the same period in 2001.
In the third quarter of 2001, Great Bay recorded unrealized gains on firm
forward power sales contracts of $1,316,000. The unrealized gain in the third
quarter of 2001 was due in part to Great Bay committing to sell less power under
firm forward contracts as of September 30, 2001 as compared to June 30, 2001.
Sales for the quarter ended September 30, 2002 were made on a unit contingent
basis as opposed to firm sales and the Company had no firm forward power
contracts as of September 30, 2002 that required mark-to-market accounting
treatment.
Decommissioning cost accretion increased $415,000, or 50.9%, to $1,231,000
in the third quarter of 2002 as compared to $816,000 in the third quarter of
2001. This accretion is a non-cash charge that reflects Great Bay's liability
related to the closure and decommissioning of the Seabrook Project in current
year dollars over the period during which the Seabrook Project is licensed to
operate. The change in accretion between periods reflects adjustments to the
estimated decommissioning cost by the NDFC.
Other income increased approximately $156,000, to $175,000 in the third
quarter of 2002 as compared to $19,000 in other income in the third quarter of
2001. The increase was primarily attributable to interest income earned on
higher average cash balances.
Net Income
As a result of the above factors, during the third quarter of 2002, the
Company recorded net income of approximately $4,831,000, or approximately $0.58
per share (basic), as compared to net income of approximately $7,871,000, or
approximately $0.94 per share (basic), during the third quarter of 2001.
RESULTS OF OPERATIONS: FIRST NINE MONTHS OF 2002 COMPARED TO THE FIRST NINE
MONTHS OF 2001
Operating Revenues
BayCorp's operating revenues decreased by approximately $20,043,000, or
32.8%, to $41,053,000 in the first nine months of 2002 as compared to
$61,096,000 in the first nine months of
15
BAYCORP HOLDINGS, LTD.
2001. The decrease in operating revenues was primarily attributable to lower
sales volume from the resale of purchased power in the nine months ended
September 30, 2002 as compared to the sales volume from the resale of purchased
power in the nine months ended September 30, 2001. During the nine months ended
September 30, 2001 the Company was obligated to sell power on a firm basis.
Great Bay purchased power for resale pursuant to a purchase power agreement to
support its firm power sale obligation. There were no significant purchases of
power for resale made during the same period in 2002.
Sales of electricity decreased by approximately 26.3% to 1,016,800,000 kWhs
in the first nine months of 2002 as compared to approximately 1,379,979,000 kWhs
in the first nine months of 2001. The Seabrook capacity factor for the first
nine months of 2002 was 88.9% as compared to 83.2% for the first nine months of
2001. Though Seabrook generation was lower in the first nine months of 2001, due
to unscheduled outages for maintenance and repairs, the Company purchased a
significant amount of power for resale during the first nine months of 2001 as
compared to the same period in 2002. During the nine months ended September 30,
2002, Great Bay's average selling price decreased 9.2%, to 4.04 cents per kWh as
compared to an average selling price of 4.43 cents per kWh for the same period
in 2001.
Expenses
Production and transmission expenses increased approximately $1,614,000, or
9.1%, to $19,293,000 in the first nine months of 2002 as compared to $17,679,000
in the first nine months of 2001. This increase was primarily attributable to
costs associated with the 2002 refueling outage. Purchased power costs decreased
approximately $22,655,000, from $22,931,000 in the nine months ended September
30, 2001 to $276,000 in the nine months ended September 30, 2002. During the
nine months ended September 30, 2001, Great Bay purchased power for resale to
cover firm sales contracts during unscheduled outages in addition to purchasing
power for resale pursuant to a Purchase Power Agreement with Select Energy.
There were no firm power sales contracts and there were no significant power
purchases made during the nine months ended September 30, 2002. Administrative
and general expenses increased approximately $2,255,000, or 46.2%, to $7,137,000
in the first nine months of 2002 as compared to $4,882,000 in the first nine
months of 2001. This increase was attributable in part to higher administrative
and general expenses for early retirement and other employee benefit related
costs at Seabrook during the first nine months of 2002 as compared to the first
nine months of 2001. In addition, during the nine months ended September 30,
2002, the Company recorded approximately $322,000 in non-cash compensation costs
for employee stock option costs relating to options that were repriced in 1998.
In addition, the Company recorded non-cash compensation costs of approximately
$803,000 for certain options exercised during the nine-month period. See Note E
- - Equity. Depreciation expense decreased approximately $172,000, or 5.7%, and
taxes other than income decreased approximately $183,000, or 6.5%, during the
first nine months of 2002 as compared to the same period in 2001.
In the nine months ended September 30, 2001, Great Bay recorded unrealized
gains on firm forward power sales contracts of $14,636,000. The unrealized gain
in the first nine months of 2001 was due in part to Great Bay committing to sell
less power under firm forward power sales contracts as of September 30, 2001 as
compared to December 31, 2000. Sales for the nine months ended September 30,
2002 were made on a unit contingent basis as opposed to firm sales and the
Company had no firm forward power sales contracts as of September 30, 2002 that
required mark-to-market accounting treatment.
16
Decommissioning cost accretion increased $1,248,000, or 51.0%, to
$3,694,000 in the nine months ended September 30, 2002 as compared to $2,446,000
in the nine months ended September 30, 2001. This accretion is a non-cash charge
that reflects Great Bay's liability related to the closure and decommissioning
of the Seabrook Project in current year dollars over the period during which the
Seabrook Project is licensed to operate. The change in accretion between periods
reflects adjustments to the estimated decommissioning cost by the NDFC.
BayCorp made no investments in HoustonStreet in the first nine months of
2002. BayCorp contributed $450,000 to HoustonStreet in the first nine months of
2001 and recorded this contribution as an equity loss in HoustonStreet
investment.
Net Income
As a result of the above factors, the Company recorded net income of
approximately $6,752,000, or approximately $0.81 per share (basic), for the
first nine months of 2002 as compared to net income of approximately
$22,987,000, or approximately $2.76 per share (basic), for the first nine months
of 2001.
Liquidity and Capital Resources
As of September 30, 2002, BayCorp had approximately $25,456,000 in cash and
cash equivalents, restricted cash and short-term investments. Approximately
$13,011,000 of the total cash was in short term investments at September 30,
2002. BayCorp's cash receipts for the nine months ended September 30, 2002 was
sufficient to cover the ongoing cash requirements of the Company during that
period. The Company believes that its current cash, together with the
anticipated proceeds from the sale of electricity by Great Bay and Little Bay,
will be sufficient to enable the Company to meet its anticipated cash
requirements.
The Company had net income of approximately $6,752,000 during the nine
months ended September 30, 2002. Cash expenditures during the first nine months
of 2002 included approximately $1,413,000 for capital additions, $146,000 for
nuclear fuel additions and $1,045,000 in decommissioning trust fund payments.
Additional cash expenditures included an increase in prepaids, deferred debits
and other assets of approximately $1,117,000 primarily for state income tax
payments and a decrease in accounts payable and accrued expenses of
approximately $1,617,000, primarily attributable to payments made in the first
quarter of 2002 for purchased power that was included in the December 31, 2001
accounts payable balance. A decrease of approximately $3,145,000 in
miscellaneous and other liabilities in the first nine months of 2002 was
primarily attributable to costs associated with the Seabrook refueling outage
that were partially accrued for and included in other liabilities. In the first
nine months of 2002, the Company repurchased 110,629 shares of its stock for
approximately $1,240,000.
Offsetting these cash expenditures were non-cash charges to income of
approximately $2,821,000 for depreciation and amortization, $3,105,000 for
nuclear fuel amortization and $2,547,000 for net decommissioning accretion and
decommissioning trust fund interest and other charges. In addition, there was a
decrease in accounts and other receivables of approximately $1,616,000 in the
first nine months of 2002 due to higher revenues in the month of December 2001
as compared to revenues in the month of September 2002.
During the first nine months of 2002, the Company recorded a non-cash
compensation charge of approximately $321,700 for employee stock option costs
relating to repriced options. Certain employee
17
BAYCORP HOLDINGS, LTD.
stock options were repriced in December 1998 based on the current market value
of the stock at that time. In accordance with generally accepted accounting
principles, these options are accounted for as a variable plan which gives rise
to compensation expense for subsequent increases in the market price of the
stock. Also during the first nine months of 2002, the Company recorded a
non-cash compensation charge of approximately $803,000 for certain options
exercised during the period as required by generally accepted accounting
principles. See Note E - Equity.
In the first nine months of 2002, cash received from stock option exercise
transactions was approximately $153,000.
The Company anticipates that its share of the Seabrook Project's capital
expenditures for the 2002 fiscal year will total approximately $5.8 million for
nuclear fuel and various capital projects. Should the proposed transaction for
the sale of Seabrook be completed before year-end, the Company's share of the
Seabrook Project's capital expenditures for 2002 may differ from this amount.
The Seabrook Project from time to time experiences both scheduled and
unscheduled outages. BayCorp incurs losses during outage periods due to the loss
of all revenue from the sale of generation 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 BayCorp to predict the frequency or duration of any
future unscheduled outages; however, it is likely that such unscheduled outages
will occur. Refueling outages are generally scheduled every 18 months depending
upon the Seabrook Project capacity factor and the rate at which the nuclear fuel
is consumed. During the second quarter of 2002, Seabrook conducted a
twenty-eight day refueling outage from May 4 to May 31. The Company's portion of
refueling outage and maintenance expenses for the 2002 refueling outage were
approximately $5,306,000.
With continued uncertainty about the possibility of additional terrorist
activities in the United States, the Nation's nuclear power plants, including
the Seabrook Project, remain at a high level of security. Immediately after the
attacks in New York and Washington D.C. on September 11, 2001, management of the
Seabrook Project activated enhanced security measures. On February 25, 2002, the
NRC issued an order to all nuclear plant licensees, requiring them to take
certain additional interim compensatory measures to address the generalized
high-level threat environment. These additional compensatory requirements will
provide the NRC with reasonable assurance that public health and safety and the
common defense and security continue to be adequately protected in the current
generalized high-level threat environment. These requirements will remain in
effect pending notification from the NRC that a significant change in the threat
environment occurs, or until the NRC determines that other changes are needed
following a more comprehensive reevaluation of current safeguards and security
programs. Seabrook remains at a high level of security and the management of
Seabrook has assured the joint owners of Seabrook that it will take actions
necessary to comply with the NRC order setting out the requirements for interim
compensatory measures. Compliance with these requirements will result in
additional incremental operating and capital costs, a proportionate share of
which will be paid by Great Bay and Little Bay. Should additional security
measures be required by the NRC, additional operating or capital costs could be
incurred at the Seabrook Project.
18
BAYCORP HOLDINGS, LTD.
On October 11, 2002 the Company mailed a proxy statement to shareholders
for a special meeting of shareholders to be held on October 29, 2002. At the
special meeting, BayCorp shareholders will be asked to consider and vote upon
the proposal to approve the sale of substantially all of the assets and the
assignment of certain liabilities of Great Bay and Little Bay to FPL Energy
Seabrook, LLC ("FPL Energy"), a subsidiary of FPL Group. If the sale is
completed, Great Bay and Little Bay will sell substantially all of their
respective non-cash assets to FPL Energy for their respective proportionate
shares of the purchase price. Because the Company is a holding company having
Great Bay and Little Bay as its primary operating subsidiaries, the sale of
substantially all of the assets of Great Bay and Little Bay may constitute, in
effect, a sale of substantially all of the assets of the Company. As the sole
stockholder of Great Bay and Little Bay, BayCorp has approved the purchase and
sale agreement. As part of the sale, BayCorp will transfer to FPL Energy nearly
all of its liabilities associated with Seabrook, including the decommissioning
liability. BayCorp will retain all of its cash and certain other assets in
addition to the sale proceeds. Assuming the exercise of all stock options
currently outstanding, BayCorp would have approximately 9.4 million shares
outstanding.
While it is the stated desire of all parties to conduct a single closing,
the purchase and sale agreement provides that multiple closings may occur on a
coordinated basis under stated terms and conditions so long as at least
fifty-one percent or more of the ownership interest shares (which must include
Northeast Utilities' ownership share) participate in the initial closing. Each
closing is scheduled to take place 10 days following the date on which all
applicable conditions to the closing have either been satisfied or waived by the
party for whose benefit the condition exists. The current target date for the
initial closing is November 1, 2002, although it is not certain that the initial
closing will occur on that date.
The Board of Directors has not yet determined what its strategic direction
will be following the consummation of the asset sale and is considering at least
three possible general alternatives. Immediately after the asset sale closing,
on a consolidated basis, BayCorp's material assets will consist of cash, its
interest in HoustonStreet, its Unitil power sales contract and expected net
operating loss carryforwards of approximately $70 million. It will have no
material liabilities other than ordinary course payables and an obligation to
sell power to Unitil under the amended Unitil agreement. Currently, the Company
anticipates pursuing one of the following three directions: liquidation and
dissolution, retention of the proceeds and acquisition, investment in, or
development of new lines of business, or a partial distribution of cash and
acquisition, investment in, or development of new lines of business. The Company
has not yet determined which option it will pursue. Furthermore, the Company may
not choose any of the options described above and instead may pursue one or more
other options the Company has not yet considered. Although the Board may explore
opportunities to acquire, invest in, or develop new lines of business, to date
the Board has not adopted a new strategic direction for the Company and can not
predict what, if any, businesses it may enter or strategies it may adopt.
Therefore, the Board can offer no indication of what risks and opportunities
might arise in the context of such a new direction or directions.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-
19
BAYCORP HOLDINGS, LTD.
looking statements. Without limiting the foregoing, the words "believes",
"expects", "anticipates", "plans", "intends" and similar expressions are
intended to identify forward-looking statements. Forward looking statements
include, without limitation, statements concerning the closing date of the
Seabrook sale and the expected proceeds, future net working capital and net
operating loss carryforwards,firm forward power sales contracts, the ability to
meet future anticipated cash requirements and BayCorp's share of Seabrook's 2002
capital expenditures and 2002 refueling and outage expenses. There are a number
of important factors that could cause the results of BayCorp and/or it
subsidiaries to differ materially from those indicated by such forward-looking
statements. Among the important factors that could cause actual results to
differ materially from those indicated by such forward-looking statements are
the factors set forth in the Company's Annual Report on Form 10-K under the
caption Management's Discussion and Analysis of Financial Condition and Results
of Operation - Certain Factors That May Affect Future Results, which are
incorporated by reference herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Commodity Price Risk
The price of electricity is subject to fluctuation resulting from changes
in supply and demand. Great Bay tracks its market exposure for any firm forward
power sales contracts in a mark-to-market model that is updated daily with
current market prices and any mark-to-market value is reflected in the company's
balance sheet. The positive, or negative, value of Great Bay's portfolio of firm
power commitments represents an estimation of the gain, or loss, that Great Bay
would have experienced if open firm commitments were covered at then-current
market prices. As of December 31, 2001 and as of September 30, 2002, Great Bay
had no firm forward, fixed price power sales contracts that required
mark-to-market accounting treatment.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index.
(b) The following report on Form 8-K was filed during the three month
period ended September 30, 2002:
The Company filed a Current Report on Form 8-K on July 25, 2002
that reported the Company's appointment of Deloitte and Touche LLP
as its independent public accountants for the 2002 fiscal year and
announced its dismissal of Arthur Andersen LLP.
20
BAYCORP HOLDINGS, LTD.
SIGNATURE
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.
BAYCORP HOLDINGS, LTD.
October 28, 2002 By: /s/ Frank W. Getman Jr.
-------------------------------------
Frank W. Getman Jr.
President and Chief Executive Officer
21
BAYCORP HOLDINGS, LTD.
CERTIFICATIONS
I, Frank W. Getman Jr., President and CEO of BayCorp Holdings, Ltd., certify
that:
1. I have reviewed this quarterly report on Form 10-Q of BayCorp
Holdings, Ltd.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of BayCorp as of, and for, the periods presented in this
quarterly report;
4. BayCorp's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to BayCorp, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of BayCorp's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. BayCorp's other certifying officer and I have disclosed, based on our
most recent evaluation, to BayCorp's auditors and the audit committee
of BayCorp's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect BayCorp's ability to record,
process, summarize and report financial data and have identified for
BayCorp's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in BayCorp's internal
controls; and
6. BayCorp's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: October 28, 2002 /s/ Frank W. Getman Jr.
--------------------------------------
Frank W. Getman Jr.
President and Chief Executive Officer
22
BAYCORP HOLDINGS, LTD.
I, Patrycia T. Barnard, Chief Accounting Officer and Treasurer of BayCorp
Holdings, Ltd., certify that:
1. I have reviewed this quarterly report on Form 10-Q of BayCorp
Holdings, Ltd.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of BayCorp as of, and for, the periods presented in this
quarterly report;
4. BayCorp's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to BayCorp, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of BayCorp's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. BayCorp's other certifying officer and I have disclosed, based on our
most recent evaluation, to BayCorp's auditors and the audit committee
of BayCorp's board of directors (or persons performing the equivalent
function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect BayCorp's ability to record,
process, summarize and report financial data and have identified for
BayCorp's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in BayCorp's internal
controls; and
6. BayCorp's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: October 28, 2002 /s/ Patrycia T. Barnard
--------------------------------------
Patrycia T. Barnard
Chief Accounting Officer and Treasurer
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BAYCORP HOLDINGS, LTD.
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
99.1 Certain Factors That May Affect Future Results, set out on pages
19-22 of the Company's Annual Report on Form 10-K for the period
ended December 31, 2001. Such Form 10-K shall not be deemed to be
filed except to the extent that portions thereof are expressly
incorporated by reference herein.
99.2 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
99.3 Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
24