------------------------------------------------
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D. C. 20549
-----------------------------------
FORM
10-Q
x
QUARTERLY REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
FOR THE
QUARTERLY PERIOD ENDED JUNE 30, 2010
- OR
-
¨
TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
-----------------------------------
Commission
File No. 333-103749
MAINE
& MARITIMES CORPORATION
A Maine
Corporation I.R.S.
Employer Identification No. 30-0155348
209 STATE
STREET, PRESQUE ISLE, MAINE 04769
(207)
760-2499
-----------------------------------
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes
x
. No
¨
.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such
files). Yes
¨
. No
¨
.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
|
Large
accelerated filer
¨
.
|
Accelerated
filer
¨
.
|
|
|
Non-accelerated
filer
¨
|
Smaller
reporting company
x
.
|
|
|
(Do not check
if a smaller reporting company)
|
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes
¨
. No
x
.
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of August 12, 2010.
Common
Stock, $7.00 par value – 1,683,949 shares
MAINE & MARITIMES
CORPORATION AND SUBSIDIARIES
Statements of Consolidated Operations
(Unaudited)
(In
thousands of dollars, except basic and diluted share and per share
information)
|
|
Three
Months Ended
June
30,
|
|
|
Six
Months Ended
June
30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Operating
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated
Revenues
|
|
$
|
7,275
|
|
|
$
|
7,330
|
|
|
$
|
17,330
|
|
|
$
|
17,432
|
|
Unregulated
Utility Services Revenues
|
|
|
12
|
|
|
|
354
|
|
|
|
34
|
|
|
|
548
|
|
Total
Operating Revenues
|
|
|
7,287
|
|
|
|
7,684
|
|
|
|
17,364
|
|
|
|
17,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated
Operation and Maintenance
|
|
|
4,439
|
|
|
|
3,766
|
|
|
|
9,038
|
|
|
|
7,554
|
|
Unregulated
Utility Services Operation and Maintenance
|
|
|
6
|
|
|
|
220
|
|
|
|
15
|
|
|
|
354
|
|
Other
Unregulated Operation and Maintenance (1)
|
|
|
164
|
|
|
|
229
|
|
|
|
504
|
|
|
|
388
|
|
Depreciation
|
|
|
783
|
|
|
|
804
|
|
|
|
1,488
|
|
|
|
1,400
|
|
Amortization
of Stranded Costs
|
|
|
2,584
|
|
|
|
2,701
|
|
|
|
5,167
|
|
|
|
5,401
|
|
Amortization
|
|
|
60
|
|
|
|
42
|
|
|
|
135
|
|
|
|
72
|
|
Taxes
Other Than Income
|
|
|
481
|
|
|
|
472
|
|
|
|
969
|
|
|
|
923
|
|
(Benefit
of) Provision for Income Taxes—Regulated
|
|
|
(498
|
)
|
|
|
(228
|
)
|
|
|
111
|
|
|
|
745
|
|
Benefit
of Income Taxes—Unregulated
|
|
|
(67
|
)
|
|
|
(55
|
)
|
|
|
(209
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
7,952
|
|
|
|
7,951
|
|
|
|
17,218
|
|
|
|
16,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
(Loss) Income
|
|
|
(665
|
)
|
|
|
(267
|
)
|
|
|
146
|
|
|
|
1,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Income (Deductions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Income of Associated Companies
|
|
|
33
|
|
|
|
33
|
|
|
|
95
|
|
|
|
61
|
|
Interest
and Dividend Income
|
|
|
-
|
|
|
|
7
|
|
|
|
-
|
|
|
|
8
|
|
Benefit
of Income Taxes
|
|
|
8
|
|
|
|
1
|
|
|
|
27
|
|
|
|
3
|
|
Other—Net
|
|
|
(40
|
)
|
|
|
(35
|
)
|
|
|
(69
|
)
|
|
|
(57
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income (Deductions)
|
|
|
1
|
|
|
|
6
|
|
|
|
53
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)
Income Before Interest Charges
|
|
|
(664
|
)
|
|
|
(261
|
)
|
|
|
199
|
|
|
|
1,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Debt and Notes Payable
|
|
|
418
|
|
|
|
455
|
|
|
|
839
|
|
|
|
906
|
|
Less
Stranded Costs Carrying Charge
|
|
|
(220
|
)
|
|
|
(305
|
)
|
|
|
(451
|
)
|
|
|
(636
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Interest Charges
|
|
|
198
|
|
|
|
150
|
|
|
|
388
|
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) Income Available for Common Stockholders
|
|
$
|
(862
|
)
|
|
$
|
(411
|
)
|
|
$
|
(189
|
)
|
|
$
|
995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
Shares of Common Stock Outstanding - Basic
|
|
|
1,683,274
|
|
|
|
1,680,574
|
|
|
|
1,682,937
|
|
|
|
1,680,137
|
|
Average
Shares of Common Stock Outstanding - Diluted
|
|
|
1,684,274
|
|
|
|
1,680,574
|
|
|
|
1,682,937
|
|
|
|
1,680,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(Loss) Earnings Per Share of Common Stock From Net (Loss)
Income
|
|
$
|
(0.51
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
(Loss) Earnings Per Share of Common Stock From Net (Loss)
Income
|
|
$
|
(0.51
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
0.59
|
|
(1)
Unregulated operation and maintenance expense and income tax benefits included
in continuing operations is the activity of the holding company, including
operating expenses of MAM USG, other corporate costs directly associated with
unregulated operations, and other costs that cannot be charged to the regulated
utility.
See Notes to
Unaudited Consolidated Financial Statements
MAINE & MARITIMES CORPORATION AND
SUBSIDIARIES
Statements of Consolidated Cash Flows
(Unaudited)
(In
thousands of dollars)
|
|
Six
Months Ended
June
30,
|
|
|
|
2010
|
|
|
2009
|
|
Cash
Flow From Operating Activities
|
|
|
|
|
|
|
Net
(Loss) Income
|
|
$
|
(189
|
)
|
|
$
|
995
|
|
Adjustments
to Reconcile Net (Loss) Income to Net Cash Provided by
Operations:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
1,488
|
|
|
|
1,400
|
|
Amortization
of Intangibles
|
|
|
135
|
|
|
|
72
|
|
Amortization
of Seabrook
|
|
|
555
|
|
|
|
555
|
|
Deferred
Income Taxes—Net
|
|
|
(1,444
|
)
|
|
|
(1,379
|
)
|
Deferred
Investment Tax Credits
|
|
|
(7
|
)
|
|
|
(9
|
)
|
Change
in Deferred Regulatory and Debt Issuance Costs
|
|
|
3,836
|
|
|
|
4,005
|
|
Change
in Benefit Obligations
|
|
|
(681
|
)
|
|
|
(276
|
)
|
Change
in Deferred Directors' Compensation
|
|
|
413
|
|
|
|
(80
|
)
|
Change
in Current Assets and Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
Receivable and Unbilled Revenue from Utility
|
|
|
1,183
|
|
|
|
3,660
|
|
Other
Current Assets
|
|
|
(62
|
)
|
|
|
(277
|
)
|
Accounts
Payable
|
|
|
680
|
|
|
|
(738
|
)
|
Other
Current Liabilities
|
|
|
1,772
|
|
|
|
267
|
|
Other—Net
|
|
|
150
|
|
|
|
(99
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash Flow Provided By Operating Activities
|
|
|
7,829
|
|
|
|
8,096
|
|
|
|
|
|
|
|
|
|
|
Cash
Flow From Financing Activities
|
|
|
|
|
|
|
|
|
Dividends
Paid
|
|
|
(168
|
)
|
|
|
(168
|
)
|
Repayments
of Long-Term Debt
|
|
|
(570
|
)
|
|
|
(700
|
)
|
Payments
of Capital Lease Obligations
|
|
|
(98
|
)
|
|
|
(97
|
)
|
Short-Term
Debt Repayments, Net
|
|
|
(3,100
|
)
|
|
|
(3,200
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash Flow Used For Financing Activities
|
|
|
(3,936
|
)
|
|
|
(4,165
|
)
|
|
|
|
|
|
|
|
|
|
Cash
Flow From Investing Activities
|
|
|
|
|
|
|
|
|
Change
in Restricted Investments
|
|
|
(198
|
)
|
|
|
(916
|
)
|
Investment
in Fixed Assets
|
|
|
(3,646
|
)
|
|
|
(3,530
|
)
|
|
|
|
|
|
|
|
|
|
Net
Cash Flow Used For Investing Activities
|
|
|
(3,844
|
)
|
|
|
(4,446
|
)
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease) in Cash and Cash Equivalents
|
|
|
49
|
|
|
|
(515
|
)
|
Cash
and Cash Equivalents at Beginning of Period
|
|
|
747
|
|
|
|
1,846
|
|
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents at End of Period
|
|
$
|
796
|
|
|
$
|
1,331
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
Paid During the Period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
842
|
|
|
$
|
936
|
|
Income
Taxes
|
|
$
|
1,046
|
|
|
$
|
2,391
|
|
Non-Cash
Activities:
|
|
|
|
|
|
|
|
|
Dividends
Declared, Not Yet Paid
|
|
$
|
84
|
|
|
$
|
84
|
|
Fair
Market Value of Stock Issued to Directors and Officers
|
|
$
|
54
|
|
|
$
|
58
|
|
See Notes
to Unaudited Consolidated Financial Statements
MAINE & MARITIMES CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
(In
thousands of dollars)
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
ASSETS
|
|
|
|
|
|
|
Plant:
|
|
|
|
|
|
|
Electric
Plant in Service
|
|
$
|
118,682
|
|
|
$
|
116,729
|
|
Non-Utility
Plant
|
|
|
77
|
|
|
|
101
|
|
Less
Accumulated Depreciation
|
|
|
(48,905
|
)
|
|
|
(47,690
|
)
|
|
|
|
|
|
|
|
|
|
Net
Plant in Service
|
|
|
69,854
|
|
|
|
69,140
|
|
Construction
Work-in-Progress
|
|
|
1,920
|
|
|
|
901
|
|
|
|
|
|
|
|
|
|
|
Total
Plant Assets
|
|
|
71,774
|
|
|
|
70,041
|
|
|
|
|
|
|
|
|
|
|
Investments
in Associated Companies
|
|
|
1,228
|
|
|
|
1,136
|
|
|
|
|
|
|
|
|
|
|
Net
Plant and Investments in Associated Companies
|
|
|
73,002
|
|
|
|
71,177
|
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
|
|
|
|
Cash
and Cash Equivalents
|
|
|
796
|
|
|
|
747
|
|
Accounts
Receivable (less allowance for uncollectible accounts of $200 in 2010 and
$439 in 2009)
|
|
|
5,776
|
|
|
|
6,584
|
|
Unbilled
Revenue from Utility
|
|
|
779
|
|
|
|
1,154
|
|
Inventory
|
|
|
1,174
|
|
|
|
889
|
|
Prepayments
|
|
|
428
|
|
|
|
651
|
|
Prepaid
Taxes
|
|
|
-
|
|
|
|
1,616
|
|
|
|
|
|
|
|
|
|
|
Total
Current Assets
|
|
|
8,953
|
|
|
|
11,641
|
|
|
|
|
|
|
|
|
|
|
Regulatory
Assets:
|
|
|
|
|
|
|
|
|
Uncollected
Maine Yankee Decommissioning Costs
|
|
|
2,125
|
|
|
|
2,296
|
|
Recoverable
Seabrook Costs
|
|
|
6,674
|
|
|
|
7,229
|
|
Regulatory
Assets—Deferred Income Taxes
|
|
|
5,842
|
|
|
|
6,055
|
|
Regulatory
Assets—Post-Retirement Medical and Pension Benefits
|
|
|
1,366
|
|
|
|
1,379
|
|
Deferred
Fuel and Purchased Energy Costs
|
|
|
15,206
|
|
|
|
18,833
|
|
Unamortized
Premium on Early Retirement of Debt
|
|
|
374
|
|
|
|
478
|
|
Deferred
Regulatory Costs
|
|
|
1,981
|
|
|
|
2,527
|
|
|
|
|
|
|
|
|
|
|
Total
Regulatory Assets
|
|
|
33,568
|
|
|
|
38,797
|
|
|
|
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
|
|
|
|
Unamortized
Debt Issuance Costs
|
|
|
97
|
|
|
|
121
|
|
Restricted
Investments (at cost, which approximates market)
|
|
|
203
|
|
|
|
5
|
|
Miscellaneous
Assets
|
|
|
1,574
|
|
|
|
1,506
|
|
|
|
|
|
|
|
|
|
|
Total
Other Assets
|
|
|
1,874
|
|
|
|
1,632
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
117,397
|
|
|
$
|
123,247
|
|
See Notes
to Unaudited Consolidated Financial Statements
MAINE
& MARITIMES CORPORATION AND SUBSIDIARIES
Capitalization and Liabilities
(Unaudited)
(In
thousands of dollars)
|
|
June
30,
|
|
|
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
Capitalization
(see accompanying statement):
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
$
|
45,796
|
|
|
$
|
46,708
|
|
Long-Term
Debt
|
|
|
23,075
|
|
|
|
23,645
|
|
|
|
|
|
|
|
|
|
|
Total
Capitalization
|
|
|
68,871
|
|
|
|
70,353
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
Long-Term
Debt Due Within One Year
|
|
|
1,140
|
|
|
|
1,140
|
|
Notes
Payable to Banks
|
|
|
1,700
|
|
|
|
4,800
|
|
Accounts
Payable
|
|
|
4,266
|
|
|
|
3,627
|
|
Accounts
Payable—Associated Companies
|
|
|
29
|
|
|
|
31
|
|
Accrued
Employee Benefits
|
|
|
1,242
|
|
|
|
1,198
|
|
Customer
Deposits
|
|
|
339
|
|
|
|
310
|
|
Taxes
Accrued
|
|
|
269
|
|
|
|
113
|
|
Interest
Accrued
|
|
|
80
|
|
|
|
83
|
|
Dividends
Payable
|
|
|
84
|
|
|
|
84
|
|
Unearned
Revenue
|
|
|
9
|
|
|
|
37
|
|
|
|
|
|
|
|
|
|
|
Total
Current Liabilities
|
|
|
9,158
|
|
|
|
11,423
|
|
|
|
|
|
|
|
|
|
|
Deferred
Credits and Other Liabilities:
|
|
|
|
|
|
|
|
|
Accrued
Removal Obligations
|
|
|
5,702
|
|
|
|
5,701
|
|
Fair
Value of Interest Rate Hedge
|
|
|
4,200
|
|
|
|
3,178
|
|
Uncollected
Maine Yankee Decommissioning Costs
|
|
|
2,125
|
|
|
|
2,296
|
|
Other
Regulatory Liabilities
|
|
|
541
|
|
|
|
1,005
|
|
Deferred
Income Taxes
|
|
|
18,656
|
|
|
|
20,719
|
|
Accrued
Postretirement Benefits and Pension Costs
|
|
|
5,444
|
|
|
|
6,137
|
|
Investment
Tax Credits
|
|
|
15
|
|
|
|
22
|
|
Miscellaneous
Liabilities
|
|
|
2,685
|
|
|
|
2,413
|
|
|
|
|
|
|
|
|
|
|
Total
Deferred Credits and Other Liabilities
|
|
|
39,368
|
|
|
|
41,471
|
|
|
|
|
|
|
|
|
|
|
Commitments,
Contingencies, and Regulatory Matters (Note 8)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Capitalization and Liabilities
|
|
$
|
117,397
|
|
|
$
|
123,247
|
|
See Notes
to Unaudited Consolidated Financial Statements
MAINE
& MARITIMES CORPORATION AND SUBSIDIARIES
Statement
of Consolidated Shareholders’ Equity (Unaudited)
(in
thousands of dollars, except share and per share data)
|
|
|
|
|
Common
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Shares Issued and Outstanding
|
|
|
Par
Value Issued ($7/Share)
|
|
|
Paid-In
Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other Comprehensive Income (Loss)
|
|
|
Total
|
|
Balance,
December
31, 2009
|
|
|
1,681,924
|
|
|
$
|
11,773
|
|
|
$
|
1,827
|
|
|
$
|
34,995
|
|
|
$
|
(1,887
|
)
|
|
$
|
46,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock Issued
|
|
|
1,350
|
|
|
|
9
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(189
|
)
|
|
|
|
|
|
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Comprehensive Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
Gain on Investments Available for Sale, Net of Tax Provision of
$4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
Changes
in Value of Foreign Exchange Translation Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Change
in Fair Value of Interest Rate Hedge, Net of Tax Provision of
$409
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(613
|
)
|
|
|
(613
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Comprehensive Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(797
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
Paid ($0.10 per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
(168
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June
30, 2010
|
|
|
1,683,274
|
|
|
$
|
11,782
|
|
|
$
|
1,871
|
|
|
$
|
34,638
|
|
|
$
|
(2,495
|
)
|
|
$
|
45,796
|
|
MAM had
five million shares of $7 per share common stock authorized, with 1,683,274 and
1,681,924 shares issued and outstanding as of June 30, 2010, and December 31,
2009, respectively. At June 30, 2010, and December 31, 2009, MAM had 500,000
shares of $0.01 per share preferred stock authorized, with none issued or
outstanding.
See Notes
to Unaudited Consolidated Financial Statements.
NOTES
TO UNAUDITED CONSOLIDATED
FINANCIAL
STATEMENTS
1. ACCOUNTING
POLICIES
Consolidation
and Basis of Presentation
The
accompanying unaudited consolidated financial statements include the accounts of
Maine & Maritimes Corporation (“MAM” or the “Company”) and the following
wholly-owned subsidiaries and affiliates:
1.
|
Maine
Public Service Company (“MPS”) and its wholly-owned inactive Canadian
subsidiary Maine & New Brunswick Electrical Power Company, Ltd
(“Me&NB”); and
|
2.
|
MAM
Utility Services Group (“MAM USG”), a wholly-owned United States
subsidiary.
|
MAM is
listed on the NYSE Amex under the symbol “MAM.”
In the
opinion of management, the accompanying unaudited balance sheets and related
interim consolidated statements of operations, cash flows, and stockholders’
equity include all adjustments necessary for their fair presentation in
conformity with accounting principles generally accepted in the United States of
America. These adjustments consist only of normal recurring
items.
Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, and expenses.
Examples of such estimates and assumptions include assumptions around recovery
of regulatory assets and liabilities, the estimate of unbilled utility revenue,
assumptions for the Company’s postretirement medical and pension plans, estimate
of the allowance for doubtful accounts, estimate of asset retirement
obligations, the estimated fair value of the interest rate hedge, estimated
Maine Yankee decommissioning costs, and the estimated settlement cost for claims
related to the former TMG subsidiaries. Actual results and outcomes
may differ from management’s estimates and assumptions.
Interim
results are not necessarily indicative of results for a full
year. The information included in this Form 10-Q should be
read in conjunction with information included in the MAM 2009 Form 10-K
filed March 25, 2010, with the U.S. Securities and Exchange Commission
(“SEC”).
As
previously disclosed on the Company’s current report on Form 8-K filed with the
SEC on March 12, 2010, and the Company’s 2009 Form 10-K, the Company entered
into a certain agreement and plan of merger by and among the Company, BHE
Holdings Inc. and BHE Holding Sub One Inc., dated as of March 12, 2010 (the
“Merger Agreement”), whereby BHE Holding Sub One Inc. will merge with and into
the Company, with the Company as the surviving entity. Stockholders
of the Company will receive $45.00 for each share of common stock of the Company
in the transaction.
The
merger was approved by MAM shareholders at its Annual Meeting on July 22, 2010,
as reported in the Company’s current report on Form 8-K filed with the SEC on
July 23, 2010. In addition to shareholder approval, the Merger
Agreement is subject to a number of other conditions that must be fulfilled in
order to obligate the parties to close the merger. Those conditions include:
regulatory approval of the merger by the Federal Energy Regulatory Commission
(“FERC”), the Maine Public Utilities Commission (“MPUC”), and the Nuclear
Regulatory Commission, the continued accuracy of certain representations and
warranties by both parties and the performance by both parties of certain
covenants and agreements. There can be no assurance that the
conditions to closing the merger will be fulfilled or that the merger will be
completed. In addition, the Merger Agreement can be terminated in
accordance with its terms.
The
Company and its directors have received two complaints from certain
shareholders, both seeking class action certification and alleging in substance
breach of fiduciary duty in connection with the board’s approval of the Merger
Agreement. As announced in the Company’s current report on Form 8-K
dated August 11, 2010, these complaints have been settled, subject to court
approval. Refer to Note 8 of these financial statements, Commitments,
Contingencies and Regulatory Matters, for more information regarding these
complaints.
The costs
associated with the transaction meet the definition of common costs under the
Company’s common cost allocation manual, and are therefore allocated between the
regulated electric utility and unregulated utility services
segments. For the three months ended June 30, 2010, approximately
$537,000 was allocated to the regulated electric utility, and $17,000 to the
unregulated utility services segment. For the six months ended June
30, 2010, approximately $1.44 million was allocated to the regulated electric
utility, and $45,000 to the unregulated utility services segment.
All
inter-company transactions between MAM and its subsidiaries have been eliminated
in consolidation.
Accounting
Policies
The
Company’s accounting policies are those disclosed in its 2009 Annual Report on
Form 10-K, which is hereby incorporated by this reference.
2. INCOME
TAXES
A summary
of Federal and State income taxes charged (credited) to income is presented
below. For accounting and ratemaking purposes, income tax provisions (benefits)
included in “Operating Expenses” reflect taxes applicable to revenues and
expenses allowable for ratemaking purposes on MPS regulated activities and
unregulated activities for MAM and MAM USG. The tax effect of items
not included in rate base or normal operating activities is allocated as “Other
Income (Deductions).”
(In
thousands of dollars)
|
|
For
the Three Months Ending June 30,
|
|
|
For
the Six Months Ending June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Current
income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
146
|
|
|
$
|
375
|
|
|
$
|
1,290
|
|
|
$
|
1,687
|
|
State
|
|
|
(38
|
)
|
|
|
144
|
|
|
|
252
|
|
|
|
550
|
|
Foreign
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(3
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
current income taxes
|
|
|
108
|
|
|
|
518
|
|
|
|
1,539
|
|
|
|
2,236
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(576
|
)
|
|
|
(678
|
)
|
|
|
(1,409
|
)
|
|
|
(1,354
|
)
|
State
|
|
|
(101
|
)
|
|
|
(120
|
)
|
|
|
(248
|
)
|
|
|
(239
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
deferred income taxes
|
|
|
(677
|
)
|
|
|
(798
|
)
|
|
|
(1,657
|
)
|
|
|
(1,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
credits, net
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(7
|
)
|
|
|
(8
|
)
|
Total
income taxes
|
|
$
|
(573
|
)
|
|
$
|
(284
|
)
|
|
$
|
(125
|
)
|
|
$
|
635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated
to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- Regulated
|
|
$
|
(498
|
)
|
|
$
|
(228
|
)
|
|
$
|
111
|
|
|
$
|
745
|
|
- Unregulated
|
|
|
(67
|
)
|
|
|
(55
|
)
|
|
|
(209
|
)
|
|
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating
|
|
|
(565
|
)
|
|
|
(283
|
)
|
|
|
(98
|
)
|
|
|
638
|
|
Other
income
|
|
|
(8
|
)
|
|
|
(1
|
)
|
|
|
(27
|
)
|
|
|
(3
|
)
|
Total
|
|
$
|
(573
|
)
|
|
$
|
(284
|
)
|
|
$
|
(125
|
)
|
|
$
|
635
|
|
For the
six months ended June 30, 2010, and 2009, the effective income tax rates were
39.9% and 39.0%, respectively. The principal reasons for the
effective tax rate differing from the US federal income tax rate are the
earnings from investments, an Empowerment Zone tax credit, and disallowed meals
and lobbying expenses.
The
Company has not accrued U.S. income taxes on the undistributed earnings of
Me&NB, as the withholding taxes due on the distribution of any remaining
amount would be principally offset by foreign tax credits. No
dividends were received from Me&NB in the first six months of 2010 or
2009.
The
taxpayer must conclude that a tax position must be more likely than not to be
sustained by the Internal Revenue Service upon examination in order for the
position to be recognized in the financial statements. There were no
adjustments required to the reported tax benefits at June 30, 2010 or December
31, 2009, due to Management’s assessment of the likelihood that the Company’s
tax positions will meet that standard. Further, the Company does not
expect that the amounts of unrecognized tax benefits will change significantly
in the next twelve months.
Interest
on income taxes, if any, is presented within interest
expense. Penalties associated with income taxes, if any, are
presented within Other Income (Deductions). As of June 30, 2010 and
December 31, 2009, the Company has accrued no interest or penalties related to
uncertain tax positions.
The
statutes of limitations for audits by Federal, Maine, New Hampshire,
Massachusetts and Canadian tax authorities have expired for all tax years ending
December 31, 2005, or earlier.
Management
of the Company has evaluated the positive and negative evidence bearing upon the
likelihood of the Company realizing its deferred tax assets. For the
quarter ended June 30, 2010 and the year ended December 31, 2009, Management
determined a valuation allowance was needed on the earnings on
investments. Certain distributions from MPS’s investments have been
treated for tax as dividend income, resulting in deferred tax assets of $391,000
at June 30, 2010, and $392,000 at December 31, 2009. As this may
become a capital loss for tax purposes, the Company cannot be assured capital
gains will exist to allow for the use of this loss, and a full valuation
allowance has been provided. Management assessed the remaining
deferred tax assets at June 30, 2010, and December 31, 2009, which consisted
principally of pension and post-retirement benefits, accumulated other
comprehensive income associated with the interest rate hedge and deferred
directors’ compensation, and determined no valuation allowance is
required.
The
Company files consolidated federal and State of Maine income tax
returns. The results of operations of each segment are calculated as
though each were a stand-alone entity, with the related current and deferred
income taxes booked in that segment. MAM USG has recorded a
receivable from MAM of $356,000 at June 30, 2010 and $171,000 at December 31,
2009, for current income taxes. MPS recorded a $1.42 million payable
to MAM at June 30, 2010 for current income taxes. MAM and MPS had no
intercompany payables or receivables related to current income taxes at December
31, 2009.
The
following summarizes accumulated deferred income tax (assets) and liabilities
established on temporary differences as of June 30, 2010, and December 31,
2009:
(In
thousands of dollars)
|
|
|
|
|
|
|
|
|
June 30, 2010
|
|
|
December
31, 2009
|
|
Seabrook
|
|
$
|
3,590
|
|
|
$
|
3,897
|
|
Property
|
|
|
12,707
|
|
|
|
12,539
|
|
Flexible
pricing revenue
|
|
|
(135
|
)
|
|
|
(191
|
)
|
Deferred
fuel
|
|
|
6,066
|
|
|
|
7,513
|
|
Pension
and post-retirement benefits
|
|
|
(2,140
|
)
|
|
|
(2,330
|
)
|
Other
Comprehensive Income
|
|
|
(1,638
|
)
|
|
|
(1,233
|
)
|
Deferred
Directors' Compensation
|
|
|
(711
|
)
|
|
|
(546
|
)
|
Other
|
|
|
917
|
|
|
|
1,070
|
|
|
|
|
|
|
|
|
|
|
Net
Accumulated Deferred Income Tax Liability
|
|
$
|
18,656
|
|
|
$
|
20,719
|
|
3. SEGMENT
INFORMATION
The
Company is organized based on products and services. Management
monitors the operations of the Company in the following operating
segments:
·
|
Regulated
electric utility: MPS and its inactive wholly-owned Canadian subsidiary,
Me&NB;
|
·
|
Unregulated
utility services: MAM USG; and
|
·
|
Other:
Corporate costs directly associated with the unregulated subsidiaries,
other costs not allocated to the regulated utility and inter-company
eliminations.
|
The
accounting policies of the segments are the same as those described in Note 1,
“Accounting Policies.” MAM provides certain administrative support
services to MPS and MAM USG. The costs of services provided to MPS
and MAM USG are billed to MPS and MAM USG based on a combination of direct
charges and allocations.
MPS also
provides services to MAM and other affiliates, including administrative
services, such as information technology, human resources and accounting, and
operational services. These administrative services are billed at
cost through inter-company transactions. Operational services for
which MPS has an established rate for charging third parties are charged to
affiliates at those established rates.
|
|
(In
thousands of dollars)
|
|
|
|
Three
Months Ended June 30, 2010
|
|
|
|
Regulated
|
|
|
Unregulated
|
|
|
|
|
|
|
Electric
Utility
|
|
|
Utility
Services
|
|
|
Other
|
|
|
Total
|
|
Revenues
from External Customers
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated
Operating Revenues
|
|
$
|
7,286
|
|
|
$
|
-
|
|
|
$
|
(11
|
)
|
|
$
|
7,275
|
|
Unregulated
Utility Operating Revenues
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Revenues
|
|
|
7,286
|
|
|
|
12
|
|
|
|
(11
|
)
|
|
|
7,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated
Operation & Maintenance
|
|
|
4,439
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,439
|
|
Unregulated
Operation & Maintenance
|
|
|
-
|
|
|
|
159
|
|
|
|
11
|
|
|
|
170
|
|
Depreciation
|
|
|
780
|
|
|
|
3
|
|
|
|
-
|
|
|
|
783
|
|
Amortization
of Stranded Costs
|
|
|
2,584
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,584
|
|
Amortization
|
|
|
60
|
|
|
|
-
|
|
|
|
-
|
|
|
|
60
|
|
Taxes
Other than Income
|
|
|
480
|
|
|
|
-
|
|
|
|
1
|
|
|
|
481
|
|
Income
Taxes
|
|
|
(498
|
)
|
|
|
(61
|
)
|
|
|
(6
|
)
|
|
|
(565
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
7,845
|
|
|
|
101
|
|
|
|
6
|
|
|
|
7,952
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Loss
|
|
|
(559
|
)
|
|
|
(89
|
)
|
|
|
(17
|
)
|
|
|
(665
|
)
|
Other
Income (Deductions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Income of Associated Companies
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33
|
|
Interest
and Dividend Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
Deductions
|
|
|
(32
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(32
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income
|
|
|
1
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Before Interest Charges
|
|
|
(558
|
)
|
|
|
(89
|
)
|
|
|
(17
|
)
|
|
|
(664
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Charges
|
|
|
195
|
|
|
|
5
|
|
|
|
(2
|
)
|
|
|
198
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(753
|
)
|
|
$
|
(94
|
)
|
|
$
|
(15
|
)
|
|
$
|
(862
|
)
|
|
|
(In
thousands of dollars)
|
|
|
|
Three
Months Ended June 30, 2009
|
|
|
|
Regulated
|
|
|
Unregulated
|
|
|
|
|
|
|
Electric
Utility
|
|
|
Utility
Services
|
|
|
Other
|
|
|
Total
|
|
Regulated
Operating Revenues
|
|
$
|
7,361
|
|
|
$
|
-
|
|
|
$
|
(31
|
)
|
|
$
|
7,330
|
|
Unregulated
Utility Operating Revenues
|
|
|
-
|
|
|
|
354
|
|
|
|
-
|
|
|
|
354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Revenues
|
|
|
7,361
|
|
|
|
354
|
|
|
|
(31
|
)
|
|
|
7,684
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated
Operation & Maintenance
|
|
|
3,766
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,766
|
|
Unregulated
Operation & Maintenance
|
|
|
-
|
|
|
|
436
|
|
|
|
13
|
|
|
|
449
|
|
Depreciation
|
|
|
801
|
|
|
|
3
|
|
|
|
-
|
|
|
|
804
|
|
Amortization
of Stranded Costs
|
|
|
2,701
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,701
|
|
Amortization
|
|
|
42
|
|
|
|
-
|
|
|
|
-
|
|
|
|
42
|
|
Taxes
Other than Income
|
|
|
472
|
|
|
|
-
|
|
|
|
-
|
|
|
|
472
|
|
Income
Taxes
|
|
|
(228
|
)
|
|
|
(35
|
)
|
|
|
(20
|
)
|
|
|
(283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
7,554
|
|
|
|
404
|
|
|
|
(7
|
)
|
|
|
7,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Loss
|
|
|
(193
|
)
|
|
|
(50
|
)
|
|
|
(24
|
)
|
|
|
(267
|
)
|
Other
Income (Deductions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Income of Associated Companies
|
|
|
33
|
|
|
|
-
|
|
|
|
-
|
|
|
|
33
|
|
Interest
and Dividend Income
|
|
|
7
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7
|
|
Other
Deductions
|
|
|
(34
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income
|
|
|
6
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Before Interest Charges
|
|
|
(187
|
)
|
|
|
(50
|
)
|
|
|
(24
|
)
|
|
|
(261
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Charges
|
|
|
139
|
|
|
|
1
|
|
|
|
10
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(326
|
)
|
|
$
|
(51
|
)
|
|
$
|
(34
|
)
|
|
$
|
(411
|
)
|
|
|
(In
thousands of dollars)
|
|
|
|
Six
Months Ended June 30, 2010
|
|
|
|
Regulated
|
|
|
Unregulated
|
|
|
|
|
|
|
Electric
Utility
|
|
|
Utility
Services
|
|
|
Other
|
|
|
Total
|
|
Revenues
from External Customers
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated
Operating Revenues
|
|
$
|
17,361
|
|
|
$
|
-
|
|
|
$
|
(31
|
)
|
|
$
|
17,330
|
|
Unregulated
Utility Operating Revenues
|
|
|
-
|
|
|
|
34
|
|
|
|
-
|
|
|
|
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Revenues
|
|
|
17,361
|
|
|
|
34
|
|
|
|
(31
|
)
|
|
|
17,364
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated
Operation & Maintenance
|
|
|
9,038
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,038
|
|
Unregulated
Operation & Maintenance
|
|
|
-
|
|
|
|
325
|
|
|
|
194
|
|
|
|
519
|
|
Depreciation
|
|
|
1,481
|
|
|
|
7
|
|
|
|
-
|
|
|
|
1,488
|
|
Amortization
of Stranded Costs
|
|
|
5,167
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,167
|
|
Amortization
|
|
|
135
|
|
|
|
-
|
|
|
|
-
|
|
|
|
135
|
|
Taxes
Other than Income
|
|
|
968
|
|
|
|
-
|
|
|
|
1
|
|
|
|
969
|
|
Income
Taxes
|
|
|
111
|
|
|
|
(122
|
)
|
|
|
(87
|
)
|
|
|
(98
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
16,900
|
|
|
|
210
|
|
|
|
108
|
|
|
|
17,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (Loss)
|
|
|
461
|
|
|
|
(176
|
)
|
|
|
(139
|
)
|
|
|
146
|
|
Other
Income (Deductions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Income of Associated Companies
|
|
|
95
|
|
|
|
-
|
|
|
|
-
|
|
|
|
95
|
|
Interest
and Dividend Income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Other
Deductions
|
|
|
(42
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(42
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income
|
|
|
53
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Interest Charges
|
|
|
514
|
|
|
|
(176
|
)
|
|
|
(139
|
)
|
|
|
199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Charges
|
|
|
380
|
|
|
|
9
|
|
|
|
(1
|
)
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
134
|
|
|
$
|
(185
|
)
|
|
$
|
(138
|
)
|
|
$
|
(189
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
116,836
|
|
|
$
|
559
|
|
|
$
|
2
|
|
|
$
|
117,397
|
|
|
|
(In
thousands of dollars)
|
|
|
|
Six
Months Ended June 30, 2009
|
|
|
|
Regulated
|
|
|
Unregulated
|
|
|
|
|
|
|
Electric
Utility
|
|
|
Utility
Services
|
|
|
Other
|
|
|
Total
|
|
Regulated
Operating Revenues
|
|
$
|
17,480
|
|
|
$
|
-
|
|
|
$
|
(48
|
)
|
|
$
|
17,432
|
|
Unregulated
Utility Operating Revenues
|
|
|
-
|
|
|
|
548
|
|
|
|
-
|
|
|
|
548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Revenues
|
|
|
17,480
|
|
|
|
548
|
|
|
|
(48
|
)
|
|
|
17,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated
Operation & Maintenance
|
|
|
7,554
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,554
|
|
Unregulated
Operation & Maintenance
|
|
|
-
|
|
|
|
646
|
|
|
|
96
|
|
|
|
742
|
|
Depreciation
|
|
|
1,394
|
|
|
|
6
|
|
|
|
-
|
|
|
|
1,400
|
|
Amortization
of Stranded Costs
|
|
|
5,401
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,401
|
|
Amortization
|
|
|
72
|
|
|
|
-
|
|
|
|
-
|
|
|
|
72
|
|
Taxes
Other than Income
|
|
|
923
|
|
|
|
-
|
|
|
|
-
|
|
|
|
923
|
|
Income
Taxes
|
|
|
745
|
|
|
|
(43
|
)
|
|
|
(64
|
)
|
|
|
638
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Operating Expenses
|
|
|
16,089
|
|
|
|
609
|
|
|
|
32
|
|
|
|
16,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income (Loss)
|
|
|
1,391
|
|
|
|
(61
|
)
|
|
|
(80
|
)
|
|
|
1,250
|
|
Other
Income (Deductions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
in Income of Associated Companies
|
|
|
61
|
|
|
|
-
|
|
|
|
-
|
|
|
|
61
|
|
Interest
and Dividend Income
|
|
|
8
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8
|
|
Other
Deductions
|
|
|
(54
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(54
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Other Income
|
|
|
15
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(Loss) Before Interest Charges
|
|
|
1,406
|
|
|
|
(61
|
)
|
|
|
(80
|
)
|
|
|
1,265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Charges
|
|
|
246
|
|
|
|
3
|
|
|
|
21
|
|
|
|
270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Income (Loss)
|
|
$
|
1,160
|
|
|
$
|
(64
|
)
|
|
$
|
(101
|
)
|
|
$
|
995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
127,743
|
|
|
$
|
1,300
|
|
|
$
|
(304
|
)
|
|
$
|
128,739
|
|
4. INVESTMENTS
IN ASSOCIATED COMPANIES
Maine
Yankee and MEPCO
MPS owns
5% of the common stock of Maine Yankee Atomic Power Company (“Maine Yankee”), a
jointly-owned nuclear electric power company, and 7.49% of the common stock of
MEPCO, a jointly-owned electric transmission company. Although MPS’s
ownership percentage of these entities is relatively low, it does have influence
over the operating and financial decisions of these companies through board
representation, and, therefore, MPS records its investment in MEPCO and Maine
Yankee using the equity method. This is consistent with industry
practice for similar jointly-owned units.
No
dividends were paid by Maine Yankee in the first six months of 2010 or
2009. MPS received dividends of $4,000 from MEPCO in the first six
months of 2010 and 2009. MEPCO also declared and paid a special
dividend in July 2010 of $824,000 to MPS.
5. DILUTED
EARNINGS PER SHARE
The
dilutive earnings per share impact of outstanding stock options
was:
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net
(Loss) Income (in thousands)
|
|
$
|
(862
|
)
|
|
$
|
(411
|
)
|
|
$
|
(189
|
)
|
|
$
|
995
|
|
Shares
Used in Computation of Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
Common Shares Outstanding in Computation of Basic (Loss) Earnings per
Share
|
|
|
1,683,274
|
|
|
|
1,680,574
|
|
|
|
1,682,937
|
|
|
|
1,680,137
|
|
Dilutive
Effect of Common Stock Options
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
673
|
|
Shares
Used in Computation of (Loss) Earnings per Common Share Assuming
Dilution
|
|
|
1,683,274
|
|
|
|
1,680,574
|
|
|
|
1,682,937
|
|
|
|
1,680,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(Loss) Income per Share (Basic)
|
|
$
|
(0.51
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
0.59
|
|
Net
(Loss) Income per Share (Diluted)
|
|
$
|
(0.51
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
0.59
|
|
Due to
the losses incurred in the second quarters of 2010 and 2009, and for the six
months ended June 30, 2010, the stock options were anti-dilutive for those
periods. There were 1,206 and 536 potentially dilutive shares in the
second quarters of 2010 and 2009, respectively, and 919 potentially dilutives
shares in the six months ended June 30, 2010.
6. DEFERRED
DIRECTORS’ COMPENSATION
The
compensation program for the MAM Board of Directors includes an option for the
director to defer some or all of his or her fees, rather than taking those fees
in cash each quarter. The first deferral option grants the director a
number of phantom shares of stock, with the number granted equivalent to the
fees earned for the quarter, divided by the closing share price on the last day
of that quarter. The cumulative deferred phantom shares are marked to
the closing share price on the last day of each quarter, and the adjustment is
recorded as expense. If applicable, any dividends paid are also
converted to an equivalent number of phantom shares, and are added to the
cumulative deferred total.
During
the second quarter of 2010, the equivalent of 482 shares was deferred, for a
total of 1,140 shares year-to-date. Through June 30, 2010, the
equivalent of 39,062 shares have been deferred. The share price on
that date was $44.31, resulting in a $1.73 million unfunded liability at June
30, 2010, recorded on the Consolidated Balance Sheet under “Miscellaneous
Liabilities.” The change in the value of the phantom shares resulted
in approximately $10,000 and $(22,000) of expense for the three months ended
June 30, 2010 and 2009, respectively, and approximately $361,000 and $(132,000)
of expense for the six months ended June 30, 2010 and 2009,
respectively. The plan allows for a lump sum distribution or a
monthly payment over ten years after termination of services by the
director. All directors currently participating in this deferral plan
have elected the ten-year payment option.
The
second deferral option allows directors to postpone payment of their fees in
cash and earn interest on the deferred amounts at a rate adjusted quarterly to
the five-year Treasury Note rate. The unfunded obligation under this
deferral program is $30,000 at June 30, 2010, and is also recorded under
“Miscellaneous Liabilities” on the Consolidated Balance Sheet.
7. BENEFIT
PROGRAMS
The
Company provides certain pension, post-retirement and welfare benefit programs
to its employees. Benefit programs are an integral part of the Company’s
commitment to hiring and retaining employees, providing market-based
compensation that rewards individual and corporate performance. The Company
offers welfare benefit plans to all employees, consisting of health care, life
insurance, long-term disability, and accidental disability insurance. The
Company also offers a retirement savings program to most employees in the form
of a 401(k) plan. This plan allows voluntary contributions by the employee and
may contain a contribution by the Company. The Company contributed
approximately $37,000 and $73,000 of 401(k) match during the three and six
months ended June 30, 2010, respectively, and $41,000 and $74,000 during the
three and six months ended June 30, 2009, respectively.
U.
S. Defined Benefit Pension Plan
The
Company has a non-contributory defined benefit pension plan covering MPS and
certain former MAM employees. No employees of other unregulated
businesses are eligible for this benefit plan. Benefits under the plan are based
on employees’ years of service and compensation prior to
retirement.
On
December 31, 2006, future salary and service accruals for current participants
in the plan ceased, and any new employees hired on or after January 1, 2006, are
not eligible for the pension plan. The Company agreed to additional
employer contributions to the Retirement Savings Plan to compensate employees in
part or in full, depending on their number of years of service, for this lost
benefit. This additional contribution ranges from 5% to 25% of each
eligible employee’s gross base pay, and is immediately fully
vested. This contribution was $386,000 and $381,000 in the first six
months of 2010 and 2009, respectively.
The
Company contributed $200,000 for the 2009 pension plan year in the first quarter
of 2010, and does not anticipate any additional contributions for the 2009 plan
year. The Company contributed $250,000 for the 2010 plan year in
April and July, and expects to contribute approximately $250,000 per quarter in
the fourth quarter of 2010 and the first quarter of 2011 for the 2010 plan
year.
The
following table sets forth the plan’s net periodic benefit cost:
(In
thousands of dollars)
|
|
Pension
Benefits
|
|
|
Pension
Benefits
|
|
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Interest
cost
|
|
$
|
266
|
|
|
$
|
271
|
|
|
$
|
532
|
|
|
$
|
542
|
|
Expected
return on plan assets
|
|
|
(295
|
)
|
|
|
(292
|
)
|
|
$
|
(590
|
)
|
|
|
(584
|
)
|
Recognized
net actuarial loss
|
|
|
65
|
|
|
|
36
|
|
|
$
|
130
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$
|
36
|
|
|
$
|
15
|
|
|
$
|
72
|
|
|
$
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Health
Care Benefits
The
Company provides certain health care benefits to eligible
employees. Eligible employees share in the cost of their medical
benefits, in addition to plan deductibles and coinsurance
payments. The plan also covers retiree medical coverage for employees
of Maine Public Service Company, the regulated utility. Employees
hired on or after October 1, 2005, are not eligible for post-retirement medical
coverage.
On
January 1, 2010, the Company transitioned all active and retired health
insurance plan participants and dependents to the New England Electrical Workers
Benefit Fund (“NEEWBF”). This transition yielded savings on monthly
premiums and the elimination of the contingent health insurance
premium. Employee contributions are estimated to cover 31% of the
2010 premium, compared to 29% in 2009. In addition, the NEEWBF plan
also provides significantly lower retiree premiums than the Company has
historically paid. The assumptions in the calculation of the
postretirement medical plan liability reflect these new rates. The
impact was an approximately $7.1 million reduction in the liability in
2009. This reduction will flow through the prior service cost
component of the net periodic postretirement medical cost over approximately ten
years.
There are
many assumptions inherent in the calculation of the postretirement medical
benefit valuation. The Company has assumed it will continue with the
NEEWBF plan for the foreseeable future, and that the premium structure of this
plan will remain the same, adjusted for healthcare
inflation. Further, the Company has funded its estimated obligation
for union retirees, and partially funded its obligation for non-union
retirees. A return on these assets is assumed for purposes of
calculating the liability. Should actual results differ from these or
other assumptions made in the calculation of the postretirement medical plan
obligation, the actual liability could be materially different from the
obligation presented on the Consolidated Balance Sheets.
The
following table sets forth the plan’s net periodic benefit cost:
(In
thousands of dollars)
|
|
Health
Care Benefits
|
|
|
Health
Care Benefits
|
|
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Service
cost
|
|
$
|
17
|
|
|
$
|
49
|
|
|
$
|
34
|
|
|
$
|
98
|
|
Interest
cost
|
|
|
41
|
|
|
|
139
|
|
|
|
82
|
|
|
|
278
|
|
Expected
return on plan assets
|
|
|
(45
|
)
|
|
|
(38
|
)
|
|
|
(90
|
)
|
|
|
(76
|
)
|
Amortization
of transition obligation
|
|
|
-
|
|
|
|
18
|
|
|
|
-
|
|
|
|
36
|
|
Amortization
of prior service cost
|
|
|
(179
|
)
|
|
|
(15
|
)
|
|
|
(358
|
)
|
|
|
(30
|
)
|
Recognized
net actuarial loss
|
|
|
64
|
|
|
|
50
|
|
|
|
128
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
periodic benefit cost
|
|
$
|
(102
|
)
|
|
$
|
203
|
|
|
$
|
(204
|
)
|
|
$
|
406
|
|
8. COMMITMENTS,
CONTINGENCIES AND REGULATORY MATTERS
Requests
for Approval of Reorganization
Bangor
Hydro Electric Company, MPS, MEPCO and Chester SVC Partnership filed a Request
for Approval of Reorganization with the MPUC under Docket No. 2010-089 on March
18, 2010. This joint petition requested that the MPUC approve BHE Holdings
Inc.’s proposed transaction to acquire all outstanding shares of Maine &
Maritimes Corporation. The initial case conference was held on April 15,
2010, and established a schedule anticipating the process will take
approximately six months. The actual duration and the ultimate
outcome cannot be predicted at this time.
BHE
Holdings Inc. and MAM also filed their joint application for approval from FERC
of the merger pursuant to Section 203 of the Federal Power Act. This
application was filed on May 11, 2010, and includes a request for expedited
consideration, which would result in issuance of an order by August 31,
2010. The actual duration of the proceeding and the outcome of this
application cannot be predicted at this time.
On April
23, 2010, MAM and Emera each respectively made a notice filing under the
Hart-Scott-Rodino Act, the federal pre-merger notification
program. No action resulted from this filing, and the waiting period
has expired.
Purported
Class Action Complaints
On March
16, 2010, a purported class action lawsuit related to the proposed acquisition
of MAM by BHE Holdings Inc. (the “Acquisition”), captioned Duplisea v. Maine
& Maritimes Corporation, et al. (the “State Action”), was filed in the Maine
Superior Court, Aroostook County, against MAM and each of its directors
individually, alleging breach of fiduciary duty in connection with the
Acquisition. The State Action attempted to enjoin the proposed sale, but
did not seek financial penalties from the Company.
A second
purported class action lawsuit relating to the Acquisition, captioned
Johnson-Gee v. Maine & Maritimes Corporation, et. al. (the “Federal
Action”), was filed on April 16, 2010 in U.S. District Court in Maine, against
MAM, each of its directors individually, BHE Holdings Inc., and BHE Holdings Sub
One Inc. The Federal Action asserted nearly identical claims and was
based on generally the same allegations as the State Action. The
Federal Action also attempted to enjoin the Acquisition.
The
Company and the plaintiffs have agreed to settle these complaints, and are
awaiting court approval of the settlement agreement, as described in our Form
8-K filed on August 11, 2010. As of June 30, 2010, the Company’s
$500,000 deductible under its directors’ and officers’ insurance policy was paid
or accrued through a combination of legal expenses and the settlement agreement,
and no additional expenses are expected as a result of these
complaints. The unpaid expenses of $385,000 are reported under
“Accounts Payable” on the Consolidated Balance Sheet.
Merger
Contingencies
There are
several provisions of the Merger Agreement that may result in liabilities or
accelerate the payment of certain long-term liabilities if the merger is
approved by regulators and shareholders. First, on March 12, 2010,
certain of our executive officers (Brent Boyles, Michael Williams, Patrick
Cannon, Tim Brown, Randi Arthurs and Michael Eaton)
entered into letter
agreements that modified certain pre-existing change in control agreements and
awards under the previously approved 2010 Executive Compensation Plan as a
condition to entering into the Merger Agreement. As a result, MAM’s Board (at
the Performance and Compensation Committee’s recommendation) approved the letter
agreements as part of approving the Merger Agreement. These letter
agreements benefit the Parent by providing incentives to the executives to
continue their employment with MAM through the closing of the merger and at
least an appropriate transition period following the closing. In
addition, these letter agreements require payment of the short- and long-term
incentive awards at target levels at the time of the closing of the merger,
which in the aggregate is approximately $741,000. An additional
aggregate payment of $247,000 may also be made by the Company to the executives
if the maximum goals for the short-term incentive awards are
reached.
The
modified change in control agreements provide for payment of two times the
executive’s salary and benefits in the event of a change in control and
termination of the executive’s employment under certain
conditions. The estimated obligation for compensation and the value
of benefits, should the pending merger close, is approximately $1.83
million.
Based on
results for the year-to-date compared to targets, $31,000 has been accrued for
the short-term incentive accrual, reported in the Consolidated Balance Sheets
under “Accrued Employee Benefits.” Neither the long-term incentive
awards nor the change in control agreements have been accrued in these financial
statements.
The
Merger Agreement contained a provision requiring Management to attempt to
terminate the 3,932 outstanding stock options as part of the closing of the
transaction. On July 10, 2010, the holder of the options agreed to
cancel the options at closing of the merger transaction in exchange for the
right to receive a cash payment of approximately $58,000, the difference between
the $45 per share acquisition price and the exercise prices of the
options.
The
Merger Agreement also contains a provision that BHE Holdings Inc. will have
sufficient cash resources at closing to pay off the promissory notes MPS owes to
the Maine Public Utilities Financing Bank (“MPUFB”). These notes
total $22.6 million, $9 million of which is due in 2025, and $13.6 million due
in 2021. These notes are classified as long-term debt in the
Consolidated Balance Sheets.
Algonquin
Request for Certificate of Public Convenience and Necessity
On
December 21, 2009, Algonquin Power Fund (America) Inc. (“Algonquin”) filed a
Request for Certificate of Public Convenience and Necessity to Construct the
Northern Maine Interconnect Project (the “NMI Project”) with the MPUC under
Docket No. 2009-421. Originally, Algonquin proposed to construct a
new transmission line on the so-called Bridal Path, a transmission
corridor owned by MPS, which is part of the corridor in which MPS and
Central Maine Power (“CMP”) propose to construct the Maine Power Connection
Project. Algonquin has recently informed the MPUC that it will modify
its filing to propose constructing a new transmission line using an alternative
route. Based on statements made in proceedings to date, Algonquin has
yet to complete system studies and/or is in the early stages of development
activities. MPS will continue to actively contest Algonquin’s right
to use the Bridal Path and construct the NMI Project as proposed, on the basis
that MPS’s proposed project is in the best interests of northern Maine and its
customers. However, the outcome of this proceeding cannot be
predicted at this time.
FERC
Incentive Rate Treatment on MPC Transmission Line Project
In our
filing on July 18, 2008, MPS and CMP jointly filed with FERC for incentive rate
treatment on their MPC Project. For MPS, the incentive rate treatment
requested was 150 basis points above our current 10.5% return on equity for
transmission. Additionally, in the event the Project is cancelled,
MPS and CMP sought authorization to recover costs related to the abandonment of
the Project.
On
November 17, 2008, FERC conditionally approved the requested incentive rate
treatment and recovery of prudently incurred costs if the Project was abandoned
as a result of factors beyond the control of MPS and CMP. The
incentives are conditioned on the Project being included in ISO-NE’s Regional
System Plan as a Market Efficiency Transmission Upgrade.
On
November 19, 2009, under Docket No. EL08-77-001, FERC issued its Order Granting
Motion to Lodge and Dismiss Rehearing Requests, effectively rescinding the
incentive rate treatment and the abandoned plant approval, stating that the
Project is no longer active. MPS and CMP have requested
reconsideration of this decision on several grounds, including the ongoing
pursuit of the approvals needed for construction, and seek the recovery of
abandoned plant should the project ultimately be cancelled. MPS has
deferred $862,000 under “Miscellaneous Assets” on its Consolidated Balance
Sheets as of June 30, 2010. Management continues to believe these
costs are recoverable, through the construction of a line, as abandoned plant
through the FERC Order and/or through our Open Access Transmission Tariff
(“OATT”).
Federal
Energy Regulatory Commission 2010 Open Access Transmission Tariff Formula Rate
Filing
On June
15, 2010, MPS filed its updated rates under the 2010 OATT formula for both
wholesale and retail customers. The revenue increases were
approximately $1.11 million or 63.3% for wholesale customers, effective June 1,
2010, and $1.15 million or 63.3% for retail customers, effective July 1,
2010. Under the OATT formula, the cost of transmission service and
the return on transmission assets is reduced by the wheeling revenue charged
during the year to determine the revenue requirement. Due to higher
transmission costs and reductions in transmission wheeling revenue rates in 2008
and 2009, the revenue requirement increased in 2010.
Federal
Energy Regulatory Commission 2009 Open Access Transmission Tariff Formula Rate
Filing
On June
15, 2009, pursuant to Section 205 of the Federal Power Act, 16 U.S.C. Section
824d, and Title 18 CFR Sections 35.11 and 35.13 of the regulations of
the FERC, MPS submitted for filing its proposed revisions to its FERC OATT in
Docket No. ER 05 to modify its transmission rate formula. On June 15,
2009, MPS also filed its updated rates under the 2009 OATT formula for both
wholesale and retail customers. The revenue decreases were
approximately $81,000 or 14% for wholesale customers, effective June 1, 2009,
and $623,000 or 20% for retail customers, effective July 1, 2009.
The
parties reached a settlement which was approved by FERC on June 9,
2010. FERC corrected that approval on July 19, 2010. FERC
also issued an order approving the formula changes on July 23,
2010. The settlement as approved accepted all formula changes and
resulted in no change from the rates as filed.
Wheelabrator-Sherman
MPS was
ordered into a Power Purchase Agreement with Wheelabrator-Sherman in 1986, which
required the purchase of the entire output (up to 126,582 MWH per year) of a
17.6 MW biomass plant through December 31, 2006. Total stranded costs
included as regulatory assets under the caption “Deferred Fuel and Purchased
Energy Costs” in the Consolidated Balance Sheets related to this contract are
$15.2 million and $18.8 million at June 30, 2010, and December 31, 2009,
respectively.
Poly
Chlorinated Bi-Phenol Transformers
In
response to a Maine environmental regulation to phase out Poly Chlorinated
Bi-phenol (“PCB”) transformers, MPS has a program to eliminate transformers on
its system that do not meet the State environmental guidelines. The Company is
in the process of inspecting almost 13,000 distribution transformers over a
ten-year period. MPS is currently in its ninth year of this ten-year program.
Approximately 35% of the transformers inspected require “in service” PCB oil
sampling. In addition, transformers that pass the inspection criteria will
be refitted with new lightning arrestors and animal guards, where necessary. The
current total estimated cost of the project is $3.03 million; as of June 30,
2010, $2.99 million of this total has been spent. The remaining cost of
the project has been accrued on the Consolidated Balance Sheet as “Accrued
Removal Obligations.”
Financial
Information System Hosting Agreement
The
Company has a Financial Information System hosting agreement with OneNeck IT
Services to host and provide technical and functional support for its integrated
Oracle Financial Information System. The base hosting fees are
$537,500 per year through 2013.
Off-Balance
Sheet Arrangements
The
Company has several operating leases for office and field equipment, vehicles
and office space. The following summarizes payments made in the first
half of 2010 and 2009 for leases for a period in excess of one
year:
|
|
Six
Months Ended June 30,
|
|
(In
thousands of dollars)
|
|
2010
|
|
|
2009
|
|
Equipment
|
|
$
|
7
|
|
|
$
|
24
|
|
Rights
of Way
|
|
|
-
|
|
|
|
28
|
|
Total
|
|
$
|
7
|
|
|
$
|
52
|
|
The
future minimum lease payments have not changed materially from the amounts
reported as of December 31, 2009. Please refer to MAM’s 2009 Form
10-K for these future lease payments.
9. CAPITAL
LEASES
MPS
financed certain of its 2006 and 2007 vehicle and computer equipment purchases
through capital leases, totaling $820,000. The remaining liability as
of June 30, 2010, for these capital lease arrangements is approximately
$186,000, and is recorded within “Miscellaneous Liabilities” on the Consolidated
Balance Sheet. Future minimum lease payments have not changed from
the amounts reported as of December 31, 2009. Please refer to MAM’s
2009 Form 10-K for these future lease payments.
10. FAIR
VALUE DISCLOSURES
Fair
value measurements are determined based on the assumptions that market
participants would use in pricing the asset or liability. A
three-level fair value hierarchy is the basis for considering market participant
assumptions in fair value measurements. The input levels are defined
as follows:
·
|
Level
1 inputs: Unadjusted quoted prices in active markets for
identical assets or liabilities that the Company has the ability to
access.
|
·
|
Level
2 inputs: Inputs other than quoted prices included in Level 1
that are observable for the asset or liability, either directly or
indirectly, including quoted prices for similar assets and liabilities in
active markets, as well as other observable inputs for the asset or
liability, such as interest rates, foreign exchange rates, and yield
curves that are observable at commonly quoted
intervals.
|
·
|
Level
3 inputs: Unobservable inputs for the asset or liability,
typically based on an entity’s own assumptions, as there is little, if
any, related market activity.
|
In
instances where the determination of the fair value measurement is based on
inputs from different levels of the fair value hierarchy, the level in the fair
value hierarchy within which the entire fair value measurement falls is based on
the lowest level input that is significant to the fair value measurement in its
entirety. The Company’s assessment of the significance of a
particular input to the fair value measurement in its entirety requires
judgment, and considers factors specific to the asset or liability.
Fair
value is a market-based measure and is considered from the perspective of a
market participant, not the Company. When market assumptions are not
available, the Company uses assumptions intended to reflect the assumptions
market participants would use in setting the fair value at the measurement
date. In periods of market dislocation, observable market data may be
limited or unavailable for certain assets and liabilities, reducing the level of
the inputs (from a Level 1 to a Level 2, for example). The Company
has not experienced such conditions, and there have been no changes to valuation
methods in the current period.
The
Company uses interest rate swaps to manage its interest rate
risk. Pursuant to its rate order in MPUC Docket 2003-85, MPS agreed
to fix its interest rates and the MPUC allowed recovery of the fixed interest
costs in rates. On September 9, 2003, MPS executed swap agreements
for the three variable-rate issues then outstanding, locking in the rates over
the remaining terms of the issues. The two series of tax-exempt bonds
issued by the MPUFB remain outstanding, with effective fixed interest rates for
the 1996 Series due 2021 and the 2000 Series due 2025 of 4.42% and 4.53%,
respectively.
The
valuation of these instruments is determined using a discounted cash flow
analysis on the expected cash flows of each derivative. This analysis
reflects the contractual terms of the derivatives, including the period to
maturity, and uses observable market-based inputs, including treasury bill
rates, matched to the term of the swaps. As these rates are
observable inputs, but are not quoted prices for an identical swap, Management
determined these are Level 2 inputs, as described above.
This
valuation methodology is consistent with the process used to value the swaps at
June 30, 2010, and December 31, 2009. The only change in assumptions
are the reduction in the remaining term of the swaps for the passage of time and
the changes to the assumed variable rates and discount rates based on current
market conditions.
At June
30, 2010, and December 31, 2009, the fair value of these qualified cash flow
hedges was a $4.2 million and $3.2 million liability, reflected as “Fair Value
of Interest Rate Hedges” in the accompanying Consolidated Balance
Sheets. For the six months ended June 30, 2010, the difference
between the fixed rates and the underlying variable rates on the issues of
approximately $471,000 was charged to interest expense, along with the interest
expense incurred on the corresponding debt issues.
In
tabular form by swap, the notional amounts and estimated fair values of the
Company’s interest rate derivative contracts as of June 30, 2010 and December
31, 2009, are (in thousands):
|
|
|
June
30, 2010
|
|
|
December
31, 2009
|
|
|
Consolidated
Balance Sheet Location
|
|
Notional
Amount
|
|
|
Estimated
Fair Value
|
|
|
Notional
Amount
|
|
|
Estimated
Fair Value
|
|
Interest
rate derivatives designated as cash flow hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps on 1996 Series Notes
|
Other
Liabilities
|
|
|
13,600
|
|
|
|
(2,412
|
)
|
|
|
13,600
|
|
|
|
(1,822
|
)
|
Interest
rate swaps on 2000 Series Notes
|
Other
Liabilities
|
|
|
9,000
|
|
|
|
(1,788
|
)
|
|
|
9,000
|
|
|
|
(1,356
|
)
|
The
weighted-average rates paid and received for interest rate swaps outstanding
during the first six months of 2010 were:
|
|
Weighted-Average
|
|
|
|
Interest
Received (Variable Rate on Debt)
|
|
|
Interest
Paid (Fixed Rate on Swaps)
|
|
Interest
rate swaps:
|
|
|
|
|
|
|
Interest
rate swaps on 1996 Series Notes
|
|
|
0.32
|
%
|
|
|
4.42
|
%
|
Interest
rate swaps on 2000 Series Notes
|
|
|
0.29
|
%
|
|
|
4.53
|
%
|
The
following table presents information about the effect of the Company’s
derivative instruments on Accumulated Other Comprehensive Income (“OCI”) and the
Consolidated Statements of Operations:
|
Gain
(Loss) Recognized in Accumulated OCI
|
Gain
(Loss) Reclassified from Accumulated OCI
|
Location
of Gain (Loss) on Consolidated Statements of Operations
|
|
For
Six Months Ended June 30,
|
For
Six Months Ended June 30,
|
|
2010
|
2009
|
2010
|
2009
|
Interest
Rate Swaps
|
(613)
|
1,142
|
(471)
|
(447)
|
Long-term
Debt and Notes Payable Interest
Charges
|
Net
losses in Accumulated OCI at June 30, 2010, will reverse into earnings as
payments are made for the difference between the fixed and variable interest
rates. The timing of this reversal is dependent on the variable
interest rates going forward.
Management believes the fixing of
interest rates over the terms of the Company’s debt will prove to protect both
shareholders and consumers from upward interest rate risk. MPS
received regulatory approval from the MPUC in Docket No. 2003-85 to enter into
these swaps, and has received regulatory treatment since inception of the swaps
in September 2003. Therefore, MPS has recorded the mark-to-market in
other comprehensive income within shareholders’ equity, instead of flowing the
changes in fair value through net income. These changes could impact
the Company’s net income if MPS’s shareholder’s common equity falls below the
minimum allowable 48% of common equity rates, the floor established by the MPUC
Order in Docket No. 2002-676 authorizing formation of the holding company,
MAM.
Specifically,
the loss in fair value on the interest rate swaps from December 31, 2009 to June
30, 2010, of $1.02 million, less the deferred tax of $409,000, has been recorded
as Other Comprehensive Income, affecting common shareholder’s
equity. The decrease in the liability during 2010 is due to changes
in the long-term interest rate forecasts and the passage of six months of the
term of the instruments.
PART
1. FINANCIAL INFORMATION
Item 2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking
Statements
This
filing contains certain "forward-looking statements" as defined in the Private
Securities Litigation Reform Act of 1995, related to the expected future
performance of our plans and objectives, such as forecasts and projections of
expected future performance or statements of Management’s plans and
objectives. These forward-looking statements may be contained in
filings with the SEC and in press releases and oral statements. We
use words such as “anticipate,” “estimate,” “predict,” “expect,” “project,”
“intend,” “plan,” “believe,” and other words and terms of similar meaning in
connection with any discussion of future operating or financial
performance. These statements are based on the current expectations,
estimates or projections of Management and are not guarantees of future
performance. Some or all of these forward-looking statements may not
turn out to be what the Company expected. Actual results will differ,
and some of the differences may be material.
Factors
that could cause actual results to differ materially from our projections
include, among others, the proposed merger transaction, regulation and
legislation, construction of new transmission facilities, financing risk for new
transmission facilities, risk from joint development agreement, contract risks
at MAM USG, attraction and retention of qualified employees, economy of the
region and general economic conditions, competitive conditions, holding company
structure, financing risks, pension plan investments, information technology,
climate change, environmental risks, aging infrastructure and reliability,
weather, vandalism, terrorism and other illegal acts, alternative generation
options, and professional liability. Therefore, no assurances can be
given that the outcomes stated in such forward-looking statements and estimates
will be achieved.
Merger
Update
On March
12, 2010, we announced that we had entered into an agreement and plan of merger
with BHE Holdings Inc. (“BHE Holdings”) and BHE Holding Sub One
Inc. BHE Holdings is the parent company of Bangor Hydro-Electric
Company, and is itself a wholly-owned subsidiary of Emera Inc., an energy and
services company with $5.3 billion in assets. Emera Inc. is also the
parent company of Nova Scotia Power Inc.
The
Merger Agreement provides for a business combination whereby the Company would
become a wholly-owned subsidiary of BHE Holdings and each outstanding share of
common stock of the Company will be converted into the right to receive $45.00
per share in cash, without interest.
Shareholder
approval of our merger was received and documented at our annual Shareholders’
meeting on July 22, 2010, and results communicated to the market on Form 8-K on
July 23, 2010. Over 99% of the votes cast were voted in favor of
adopting the merger agreement. This was a major milestone towards
completion of our merger.
In
addition to the positive vote from our Shareholders, consummation of the merger
is subject to other various customary closing conditions, including the absence
of injunctions or restraints imposed by governmental entities, the receipt of
required regulatory approvals and the absence of any material adverse change to
us. Requests for the necessary approvals were made in April 2010 with
the MPUC and the FERC. Please see Part II., Item I. Legal
Proceedings, for more information on the status of these filings.
While Management believes we have steadily progressed on these matters and
further believes these approvals will be successfully obtained, it cannot
predict the final outcome with certainty.
Until
closing, which we believe will occur before year end, we and our subsidiaries
will continue to operate in the ordinary course pursuant to the customary
covenants included in the Merger Agreement. For additional detailed
information related to the merger, please refer to the disclosures describing
the proposed merger in our Form 8-K filed on March 12, 2010, and in our Form
10-K for 2009. In addition, the proxy statement on Form 14A for our
annual meeting includes a comprehensive discussion of the process leading up to
the signing of the proposed merger and the board’s recommendation to vote for
its approval.
As noted
in our first quarter Form 10-Q, the Company and our directors received two
complaints from certain of our shareholders, both seeking class action
certification and alleging breach of fiduciary duty in connection with the
board’s approval of the Merger Agreement. A stipulation of settlement for both
actions was signed and submitted to the court as described in our Form 8-K filed
on August 11, 2010. (See Part II, Item 1, Legal Proceedings for
additional details).
Accounting
Policies
Critical
accounting policies are disclosed in the Company’s 2009 Annual Report on Form
10-K.
Results of
Operations and Executive Overview
Net (Loss) Income and
Earnings Per Share
|
|
Quarters
Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
(in
thousands except per share amounts)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
(Loss)
Income from Continuing Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
Regulated
Electric Utility
|
|
$
|
(753
|
)
|
|
$
|
(326
|
)
|
|
$
|
134
|
|
|
$
|
1,160
|
|
Unregulated
Utility Services
|
|
|
(94
|
)
|
|
|
(51
|
)
|
|
|
(185
|
)
|
|
|
(64
|
)
|
Other*
|
|
|
(15
|
)
|
|
|
(34
|
)
|
|
|
(138
|
)
|
|
|
(101
|
)
|
Net
(Loss) Income
|
|
$
|
(862
|
)
|
|
$
|
(411
|
)
|
|
$
|
(189
|
)
|
|
$
|
995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
(Loss) Income Per Share
|
|
$
|
(0.51
|
)
|
|
$
|
(0.25
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
0.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*The
“Other” line includes activities of the holding company (including corporate
costs directly associated with the unregulated subsidiaries and costs not
allocated to the regulated utility or unregulated utility services) and
inter-company eliminations.
Net
(loss) income above is allocated based upon the segments as presented in Note 3,
“Segment Information,” of the Consolidated Financial Statements. The
results by segment are explained more fully in the following
sections.
The
consolidated net loss of the Company for the second quarter of 2010 was
$862,000, a $451,000 larger loss than the second quarter of 2009 loss of
$411,000. The year to date loss for 2010 is $189,000, compared with
net income of $995,000 for the comparable period in 2009.
Similar
to the first quarter of 2010, the prevalent reasons for our financial
performance were:
1.
|
One-time
charges related to the Company’s proposed merger totaling $554,000 for the
second quarter and $1.11 million year to date. These charges
include, in pre-tax dollars, legal fees of $498,000 for the
quarter. Financial advisory fees of $300,000 and legal fees of
$683,000 represent the majority of the costs incurred year to
date.
|
2.
|
The
expenses for the change in the deferred directors’ liability resulting
from the increase in share price for the second quarter of $10,000 and
$351,000 year to date.
|
The
remaining after-tax variance in financial performance year to date compared to
last year of approximately $286,000 is related to a combination of lower
revenues and operational expense variances. For additional details of
the MD&A for each segment, please refer to the sections following this
summary.
We are
working with regulators to obtain approvals for the merger. Those
discussions include the potential impact on our regulated rates and the
determination of what combination of cost synergies and/or rate increases will
best serve our customers while providing for a fair return on our
assets. As the approval process for the merger with state regulators
continues to unfold, we will be in a better position to ascertain this impact,
but we cannot predict what terms may be required at this time.
MPS
continues to work with Central Maine Power Company on the Maine Power Connection
Project. The parties continue to focus on the Anchor Tenant Model
described in the Company’s 2009 Form 10-K. This line is currently
estimated to be approximately 40 miles long and to cost approximately $80 to
$130 million. This would result in an investment of approximately $40
to $65 million by MPS. The parties have entered into a System Impact
Study Agreement with ISO New England, and the parties plan to file a new
application with the MPUC for a certificate of public convenience and necessity
this fall.
Regulated
Operations
Regulated
operations include MPS and Me&NB, the Company’s regulated subsidiary and its
inactive unregulated Canadian subsidiary:
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net
(Loss) Income — Regulated Electric Utility (In thousands)
|
|
$
|
(753
|
)
|
|
$
|
(326
|
)
|
|
$
|
134
|
|
|
$
|
1,160
|
|
(Loss)
Earnings Per Share from Regulated Electric Utilities
|
|
$
|
(0.45
|
)
|
|
$
|
(0.19
|
)
|
|
$
|
0.08
|
|
|
$
|
0.69
|
|
Regulated Operating
Revenues
Consolidated
revenues (in thousands of dollars) and Megawatt Hours (“MWH”) for the three and
six months ended June 30, 2010, and 2009, are as follows:
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
Dollars
|
|
|
MWH
|
|
|
Dollars
|
|
|
MWH
|
|
|
Dollars
|
|
|
MWH
|
|
|
Dollars
|
|
|
MWH
|
|
Residential
|
|
$
|
3,388
|
|
|
|
40,452
|
|
|
$
|
3,424
|
|
|
|
40,317
|
|
|
$
|
7,568
|
|
|
|
89,837
|
|
|
$
|
7,898
|
|
|
|
94,172
|
|
Large
Commercial
|
|
|
733
|
|
|
|
33,900
|
|
|
|
694
|
|
|
|
31,979
|
|
|
|
1,819
|
|
|
|
66,154
|
|
|
|
1,510
|
|
|
|
62,159
|
|
Medium
Commercial
|
|
|
968
|
|
|
|
23,226
|
|
|
|
963
|
|
|
|
23,088
|
|
|
|
2,719
|
|
|
|
47,423
|
|
|
|
2,706
|
|
|
|
48,169
|
|
Small
Commercial
|
|
|
1,327
|
|
|
|
20,436
|
|
|
|
1,315
|
|
|
|
20,107
|
|
|
|
3,740
|
|
|
|
45,417
|
|
|
|
3,807
|
|
|
|
46,466
|
|
Other
Retail
|
|
|
229
|
|
|
|
854
|
|
|
|
229
|
|
|
|
854
|
|
|
|
456
|
|
|
|
1,708
|
|
|
|
455
|
|
|
|
1,706
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Regulated Retail
|
|
|
6,645
|
|
|
|
118,868
|
|
|
|
6,625
|
|
|
|
116,345
|
|
|
|
16,302
|
|
|
|
250,539
|
|
|
|
16,376
|
|
|
|
252,672
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
Regulated Operating Revenue
|
|
|
641
|
|
|
|
|
|
|
|
736
|
|
|
|
|
|
|
|
1,059
|
|
|
|
|
|
|
|
1,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Regulated Revenue
|
|
$
|
7,286
|
|
|
|
|
|
|
$
|
7,361
|
|
|
|
|
|
|
$
|
17,361
|
|
|
|
|
|
|
$
|
17,480
|
|
|
|
|
|
Regulated
revenue increased slightly from the second quarter of 2009 to the second quarter
of 2010, up $20,000. The primary cause of the improvement was an
increase in volume across all customer classes, particularly the 1,921 MWH or 6%
increase in large commercial revenue volume. This increase reflects
improvement in the wood and lumber industry. Other operating revenue
was down for the quarter, approximately $95,000.
Year to
date, total regulated retail revenue is down $74,000. The largest
decrease is in residential revenue and volume, down $330,000 or 4,335 MWH from
the first six months of 2009, due to warmer weather, particularly in the first
quarter of 2010. Similarly, small commercial customer volume is down
1,049 MWH or $67,000. The decreases in revenue were partly mitigated
by the improvements in large commercial revenue, which increased $309,000 or
3,995 MWH in the first two quarters of 2010 compared to the same period of
2009.
For more
information on the status of the most recent rate filings, see Part II, Item 1,
“Legal Proceedings.”
MPS revenue is seasonal,
with higher rates in place during the winter months. The following
table presents regulated revenues for the twelve months ended June 30, 2010 and
2009:
|
|
Twelve
Months Ended
June
30,
|
|
|
|
2010
|
|
|
2009
|
|
Total
Regulated Revenues
|
|
|
35,019
|
|
|
|
35,825
|
|
MPS
revenue is down $806,000 for the twelve months ended June 30, 2010, compared to
the twelve months ended June 30, 2009. The trend for lower large
customer volume experienced in 2008 and 2009 has begun to reverse in 2010, while
MPS experienced a significant decrease in residential and small commercial
volume due to the mild 2009-2010 winter.
Regulated
Utility Expenses
For the
three and six month periods ended June 30, 2010, and 2009, regulated operation
and maintenance expenses are as follows:
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
(In
thousands of dollars)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Regulated
Operation and Maintenance
|
|
|
|
|
|
|
|
|
|
|
|
|
Labor
|
|
$
|
1,351
|
|
|
$
|
1,317
|
|
|
$
|
2,697
|
|
|
$
|
2,524
|
|
Benefits
|
|
|
338
|
|
|
|
446
|
|
|
|
579
|
|
|
|
844
|
|
Outside
Services
|
|
|
600
|
|
|
|
392
|
|
|
|
1,063
|
|
|
|
694
|
|
Holding
Company Management Costs
|
|
|
993
|
|
|
|
392
|
|
|
|
2,173
|
|
|
|
688
|
|
Insurance
|
|
|
164
|
|
|
|
146
|
|
|
|
316
|
|
|
|
273
|
|
Regulatory
Expenses
|
|
|
283
|
|
|
|
274
|
|
|
|
604
|
|
|
|
585
|
|
Transportation
|
|
|
214
|
|
|
|
187
|
|
|
|
412
|
|
|
|
376
|
|
Maintenance
|
|
|
145
|
|
|
|
165
|
|
|
|
298
|
|
|
|
309
|
|
Rent
|
|
|
64
|
|
|
|
60
|
|
|
|
126
|
|
|
|
489
|
|
Other
|
|
|
287
|
|
|
|
387
|
|
|
|
770
|
|
|
|
772
|
|
Total
Regulated Operation and Maintenance
|
|
$
|
4,439
|
|
|
$
|
3,766
|
|
|
$
|
9,038
|
|
|
$
|
7,554
|
|
Regulated
utility operating expenses are up for both the three and six months ended June
30, 2010, over the corresponding periods of the prior year. Expenses
for the quarter are up $673,000, of which $601,000 is attributable to increase
holding company management costs. Transaction costs associated with
the merger are recorded as common costs, with approximately 97% of those costs
charged to MPS. Similarly for the year-to-date, expenses are up $1.48
million, due to the increase in holding company management costs.
Other
smaller changes account for the remaining difference.
Stranded
cost expenses of the regulated utility are as follows:
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
(In
thousands of dollars)
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Stranded
Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
Maine
Yankee
|
|
$
|
(48
|
)
|
|
$
|
70
|
|
|
$
|
(96
|
)
|
|
$
|
139
|
|
Seabrook
|
|
|
385
|
|
|
|
385
|
|
|
|
769
|
|
|
|
769
|
|
Deferred
Fuel
|
|
|
2,015
|
|
|
|
2,115
|
|
|
|
4,028
|
|
|
|
4,230
|
|
Sales
Volume Reconciliation
|
|
|
278
|
|
|
|
-
|
|
|
|
556
|
|
|
|
-
|
|
Special
Discounts Reconciliation
|
|
|
(87
|
)
|
|
|
-
|
|
|
|
(174
|
)
|
|
|
-
|
|
Generation
Asset Transition Cost True-Up
|
|
|
19
|
|
|
|
-
|
|
|
|
39
|
|
|
|
-
|
|
Special
Discounts
|
|
|
22
|
|
|
|
131
|
|
|
|
45
|
|
|
|
263
|
|
Total
Stranded Costs
|
|
$
|
2,584
|
|
|
$
|
2,701
|
|
|
$
|
5,167
|
|
|
$
|
5,401
|
|
The
stranded cost amortization expense for 2010, disclosed above, is in accordance
with MPUC Docket No. 2009-323, while the amortization for 2009 is in accordance
with MPUC Docket No. 2006-506. The amortization of the sales volume
reconciliation, the special discounts reconciliation and the generation asset
transition cost true-up was established in Docket 2009-323. In the
past, these costs were deferred for recovery or return to ratepayers and are now
flowing through rates. Consistent with past stranded cost orders, the
deferred fuel recovery was adjusted to maintain the current rates.
Unregulated
Utility Services
Unregulated
Utility Services is comprised of the operations of MAM USG.
|
|
Three
Months Ended June 30,
|
|
|
Six
Months Ended June 30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Revenue
|
|
$
|
12
|
|
|
$
|
354
|
|
|
$
|
34
|
|
|
$
|
548
|
|
Direct
Expenses
|
|
|
6
|
|
|
|
220
|
|
|
|
15
|
|
|
|
354
|
|
Gross
Profit
|
|
|
6
|
|
|
|
134
|
|
|
|
19
|
|
|
|
194
|
|
Other
Expenses
|
|
|
(121
|
)
|
|
|
(179
|
)
|
|
|
(243
|
)
|
|
|
(237
|
)
|
Common
Corporate Costs and Facilities Charges
|
|
|
(40
|
)
|
|
|
(41
|
)
|
|
|
(83
|
)
|
|
|
(64
|
)
|
Income
Tax Benefit
|
|
|
61
|
|
|
|
35
|
|
|
|
122
|
|
|
|
43
|
|
Net
Loss — Unregulated Utility Services
|
|
$
|
(94
|
)
|
|
$
|
(51
|
)
|
|
$
|
(185
|
)
|
|
$
|
(64
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
Per Share from Unregulated Utility Services
|
|
$
|
(0.06
|
)
|
|
$
|
(0.03
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.04
|
)
|
MAM USG
incurred a net loss of approximately $94,000 in the second quarter of 2010, and
$185,000 for the first six months of the year. The Company has
several outstanding bids at this time, but cannot predict whether or not it will
win those bids or be successful in executing the related
contracts. For the year to date, the majority of MAM USG’s 2010
revenue has been derived from an on-going windfarm maintenance
contract.
Other
Continuing Operations
|
|
Three
Months Ended
|
|
|
Six
Months Ended
|
|
|
|
June
30,
|
|
June
30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Net
Loss — Other Continuing Operations (in thousands)
|
|
$
|
(15
|
)
|
|
$
|
(34
|
)
|
|
$
|
(138
|
)
|
|
$
|
(101
|
)
|
Loss
Per Share from Other Continuing Operations
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(0.06
|
)
|
Other
continuing operations are the common costs of MAM that cannot be allocated to
MPS or MAM USG, the corporate costs of MAM directly associated with the former
unregulated businesses, and intercompany eliminations.
Interest
Charges
Interest
expense decreased from $455,000 in the second quarter of 2009 to $418,000 in the
second quarter of 2010. Year-to-date, interest charges are down
$67,000 from $906,000 in 2009 to $839,000 in 2010. These
reductions are due to payments of long- and short-term debt obligations,
including $3.77 million repaid in the first six months of 2010.
The
stranded cost carrying charge offset to interest expense has decreased $85,000
for the quarter and $185,000 for the first six months of 2010, compared to the
same periods in 2009. The decrease is due to the reduction of
stranded cost assets, as those assets are amortized and recovered in
rates.
Income
Tax Expense / Benefit
MPS
reported a $498,000 income tax benefit in the second quarter of 2010, compared
to a $228,000 benefit for the same period in 2009. The year-to-date
income tax provision for the regulated entity decreased from $745,000 in 2009 to
$111,000 in 2010. The lower net income at MPS, due to the reduction
in revenue and the increases in cost, primarily merger-related costs, is the
cause of these changes.
The
Company’s unregulated entities, MAM USG and the parent company, MAM, reported an
income tax benefit of $67,000 in the second quarter of 2010, compared to $55,000
in the second quarter of 2009. The first six months of 2010 resulted
in a $209,000 income tax benefit for those entities, compared to $107,000 in the
first six months of 2009, also due to an increased net loss.
Taxes
Other Than Income
Taxes
other than income for the second quarters of 2010 and 2009 are comparable, up
$9,000 from $472,000 in 2009 to $481,000 in 2010. For the first six
months of the year, taxes other than income totaled $969,000 for 2010, compared
to $923,000 for 2009, due to increases in property taxes.
Off-Balance
Sheet Arrangements and Financial Information System Hosting
Agreement
Please
refer to Note 8 of the financial statements.
Liquidity
and Capital Resources
The
Company’s cash and cash equivalents increased $49,000 from December 31, 2009, to
June 30, 2010, primarily due to strong operating cash flows from the stranded
cost free cash flow period. Cash flows from deferred regulatory and
debt issuance costs contributed $3.84 million of the $7.83 million of cash flows
provided by operating activities in the first six months of 2010, while the
amortization of Seabrook contributed another $555,000. For the first
six months of 2009, the Company generated $8.1 million of cash flow from
operating activities, with $4.01 million due to deferred regulatory and debt
issuance costs, and $555,000 from amortization of Seabrook.
Cash flow
used for financing activities was approximately $3.94 million, with $168,000 for
payment of dividends, and the remaining $3.77 million for payment of short- and
long-term debt and capital lease obligations. In 2009, $4.17 million
was used for financing activities. Short- and long-term debt and
capital lease obligation payments used $4.0 million, with the remaining $168,000
paid to shareholders as dividends.
Cash flow
used for investing activities was $3.84 million, $3.65 million of which was used
for investments in fixed assets, compared to $3.53 million invested in fixed
assets in 2009. In 2010, the change in restricted investments used
$198,000, while this change used $916,000 in 2009.
Management
foresees a continued significant expense and use of cash related to the proposed
merger and its related costs. The Company’s insurance deductible for
defending the class action lawsuits is $500,000, approximately $385,000 of which
was accrued but not paid as of June 30, 2010, and is accrued in “Accounts
Payable” on the Consolidated Balance Sheet. The balance of the
deductible was met through a combination of legal expenses and the settlement
agreement, and no additional expenses are expected as a result of these
complaints. The Company also anticipates significant legal expenses
associated with obtaining the required regulatory approvals. These
cash requirements, coupled with the $8.8 million of budgeted capital
expenditures and the lower rates and volume traditionally experienced in the
summer months, will likely require the Company to resume borrowing on its
short-term line of credit, perhaps at amounts higher than in recent years, until
the higher winter rates and sales volume resume and the capital expenditures
decrease next fall.
In
accordance with rate stipulations approved by the MPUC, for ratemaking purposes,
MPS is required to maintain a capital structure not to include more than 51%
common equity for the determination of distribution rates and 50% for stranded
cost rates. Also, in the order approving the reorganization of
MPS and the formation of MAM, the parties stipulated to several restrictions on
the capital structure of MPS and MPS’s ability to make dividend payments to
MAM. As of June 30, 2010, MPS is in compliance with these
conditions.
Under the
terms of their short- and long-term financing arrangements, MAM, MAM USG and MPS
agreed to certain financial and other covenants, such as debt service coverage
and earnings before interest and taxes ratios. In the event of a default, the
various lenders could require immediate repayment of the debt. A default could
also trigger increases in interest rates, difficulty obtaining other sources of
financings and cross-default provisions within the debt
agreements. MPS, MAM and MAM USG are in compliance with all debt
covenants as of June 30, 2010. On May 10, 2010, the covenants for the
MAM and MAM USG two-year working capital agreement were retroactively amended to
exclude costs associated with the proposed merger with BHE Holdings,
Inc.
Regulatory
Proceedings
For
regulatory proceedings, see Part II, Item 1, “Legal Proceedings,” which is
incorporated in this section by this reference.
Item 4. Controls and
Procedures
The
principal executive officer and principal financial officer evaluated the
effectiveness of the Company's disclosure controls and procedures as of the end
of the period covered by this report. "Disclosure controls and
procedures" are controls and other procedures of a company that are designed to
ensure that information required to be disclosed by the company in the reports
that it files or submits under the Securities Exchange Act of 1934, within the
time periods specified in the SEC rules and forms, is recorded, processed,
summarized and reported, and is accumulated and communicated to the Company's
Management, including its principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure. Based on their evaluation, the Company’s principal
executive officer and principal financial officer concluded that the Company's
disclosure controls and procedures are effective.
We
maintain a system of internal control over financial reporting designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.
There was no change in our internal control over financial reporting that
occurred during the most recent fiscal quarter that materially affected, or is
reasonably likely to materially affect, our internal control over
financial reporting.
PART
II. OTHER INFORMATION
Item 1. Legal
Proceedings
Requests
for Approval of Reorganization
Bangor
Hydro Electric Company, MPS, MEPCO and Chester SVC Partnership filed a Request
for Approval of Reorganization with the MPUC under Docket No. 2010-089 on March
18, 2010. This joint petition requested that the MPUC approve BHE Holdings
Inc.’s proposed transaction to acquire all outstanding shares of Maine &
Maritimes Corporation. The initial case conference was held on April 15,
2010, and established a schedule anticipating the process will take
approximately six months. The actual duration and the ultimate
outcome cannot be predicted at this time.
BHE
Holdings Inc. and MAM also filed their joint application for approval from FERC
of the merger pursuant to Section 203 of the Federal Power Act. This
application was filed on May 11, 2010, and includes a request for expedited
consideration, which would result in issuance of an order by August 31,
2010. The actual duration of the proceeding and the outcome of
this application cannot be predicted at this time.
On April
23, 2010, MAM and Emera each respectively made a notice filing under the
Hart-Scott-Rodino Act, the federal pre-merger notification
program. No action resulted from this filing, and the waiting period
has expired.
Purported
Class Action Complaints
On March
16, 2010, a purported class action lawsuit related to the proposed acquisition
of MAM by BHE Holdings Inc. (the “Acquisition”), captioned Duplisea v. Maine
& Maritimes Corporation, et al. (the “State Action”), was filed in the Maine
Superior Court, Aroostook County, against MAM and each of its directors
individually, alleging breach of fiduciary duty in connection with the
Acquisition. The State Action attempted to enjoin the proposed sale, but
did not seek financial penalties from the Company.
A second
purported class action lawsuit relating to the Acquisition, captioned
Johnson-Gee v. Maine & Maritimes Corporation, et. al. (the “Federal
Action”), was filed on April 16, 2010 in U.S. District Court in Maine, against
MAM, each of its directors individually, BHE Holdings Inc., and BHE Holdings Sub
One Inc. The Federal Action asserted nearly identical claims and was
based on generally the same allegations as the State Action. The
Federal Action also attempted to enjoin the Acquisition.
The
Company and the plaintiffs have agreed to settle these complaints, and are
awaiting court approval of the settlement agreement, as described in our Form
8-K filed on August 11, 2010. As of June 30, 2010, the Company’s
$500,000 deductible under its directors’ and officers’ insurance policy was paid
or accrued through a combination of legal expenses and the settlement agreement,
and no additional expenses are expected as a result of these
complaints. The unpaid expenses of $385,000 are reported under
“Accounts Payable” on the Consolidated Balance Sheet.
Algonquin
Request for Certificate of Public Convenience and Necessity
On
December 21, 2009, Algonquin Power Fund (America) Inc. (“Algonquin”) filed a
Request for Certificate of Public Convenience and Necessity to Construct the
Northern Maine Interconnect Project (the “NMI Project”) with the MPUC under
Docket No. 2009-421. Originally, Algonquin proposed to construct a
new transmission line on the so-called Bridal Path, a transmission
corridor owned by MPS, which is part of the corridor in which MPS and
Central Maine Power (“CMP”) propose to construct the Maine Power Connection
Project. Algonquin has recently informed the MPUC that it will modify
its filing to propose constructing a new transmission line using an alternative
route. Based on statements made in proceedings to date, Algonquin has
yet to complete system studies and/or is in the early stages of development
activities. MPS will continue to actively contest Algonquin’s right
to use the Bridal Path and construct the NMI Project as proposed, on the basis
that MPS’s proposed project is in the best interests of northern Maine and its
customers. However, the outcome of this proceeding cannot be
predicted at this time.
FERC
Incentive Rate Treatment on MPC Transmission Line Project
In our
filing on July 18, 2008, MPS and CMP jointly filed with FERC for incentive rate
treatment on their MPC Project. For MPS, the incentive rate treatment
requested was 150 basis points above our current 10.5% return on equity for
transmission. Additionally, in the event the Project is cancelled,
MPS and CMP sought authorization to recover costs related to the abandonment of
the Project.
On
November 17, 2008, FERC conditionally approved the requested incentive rate
treatment and recovery of prudently incurred costs if the Project was abandoned
as a result of factors beyond the control of MPS and CMP. The
incentives are conditioned on the Project being included in ISO-NE’s Regional
System Plan as a Market Efficiency Transmission Upgrade.
On
November 19, 2009, under Docket No. EL08-77-001, FERC issued its Order Granting
Motion to Lodge and Dismiss Rehearing Requests, effectively rescinding the
incentive rate treatment and the abandoned plant approval, stating that the
Project is no longer active. MPS and CMP have requested
reconsideration of this decision on several grounds, including the ongoing
pursuit of the approvals needed for construction, and seek the recovery of
abandoned plant should the project ultimately be cancelled. MPS has
deferred $862,000 under “Miscellaneous Assets” on its Consolidated Balance
Sheets as of June 30, 2010. Management continues to believe these
costs are recoverable, through the construction of a line, as abandoned plant
through the FERC Order and/or through our Open Access Transmission Tariff
(“OATT”).
Federal
Energy Regulatory Commission 2010 Open Access Transmission Tariff Formula Rate
Filing
On June
15, 2010, MPS filed its updated rates under the 2010 OATT formula for both
wholesale and retail customers. The revenue increases were
approximately $1.11 million or 63.3% for wholesale customers, effective June 1,
2010, and $1.15 million or 63.3% for retail customers, effective July 1,
2010. Under the OATT formula, the cost of transmission service and
the return on transmission assets is reduced by the wheeling revenue charged
during the year to determine the revenue requirement. Due to higher
transmission costs and reductions in transmission wheeling revenue rates in 2008
and 2009, the revenue requirement increased in 2010.
Federal
Energy Regulatory Commission 2009 Open Access Transmission Tariff Formula Rate
Filing
On June
15, 2009, pursuant to Section 205 of the Federal Power Act, 16 U.S.C. Section
824d, and Title 18 CFR Sections 35.11 and 35.13 of the regulations of
the FERC, MPS submitted for filing its proposed revisions to its FERC OATT in
Docket No. ER 05 to modify its transmission rate formula. On June 15,
2009, MPS also filed its updated rates under the 2009 OATT formula for both
wholesale and retail customers. The revenue decreases were
approximately $81,000 or 14% for wholesale customers, effective June 1, 2009,
and $623,000 or 20% for retail customers, effective July 1, 2009.
The
parties reached a settlement which was approved by FERC on June 9,
2010. FERC corrected that approval on July 19, 2010. FERC
also issued an order approving the formula changes on July 23,
2010. The settlement as approved accepted all formula changes and
resulted in no change from the rates as filed.
Item
1A. Risk Factors
The Risk
Factors identified in Item 1A. of MAM’s 2009 Form 10-K and MAM’s March 31, 2010,
Form 10-Q are incorporated herein by reference.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior
Securities
None
Item 4. Removed and
Reserved
Item 5. Other
Information
None
Item 6. Exhibits
The
following exhibits are attached:
·
|
Exhibit 32
Certification of Financial Reports
Pursuant to 18 USC Section 1350
|
The
following exhibits are incorporated by reference:
·
|
Exhibit
10 Stipulation of settlement of complaints, Exhibit 99.1 of Form 8-K filed
on August 11, 2010
|
·
|
Exhibit
22 Results of matters submitted to vote of security holders, Item 5.07 of
Form 8-K filed on July 23, 2010
|
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.
MAINE
& MARITIMES CORPORATION
(Registrant)
Date: August
12, 2010
/s/ Randi
J. Arthurs
-----------------------
Randi J.
Arthurs
Vice
President Accounting, Controller
and
Assistant Treasurer
30
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