Add
MAM to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| MAM > SEC Filings for MAM > Form 10-Q on 7-Nov-2008 | All Recent SEC Filings |
7-Nov-2008
Quarterly Report
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 other matters, legislation and regulation; construction and financing of new transmission facilities; development of MAM USG; attraction and retention of qualified employees; economy of the region and general economic conditions; competitive conditions; holding company structures; interest rate and debt covenant risk; pension plan investments; information technology; environmental risks; aging infrastructure and reliability; weather; vandalism, terrorism and other illegal acts; development of renewable generation in our service territory; professional liability; final settlement of remaining obligations of discontinued operations; divestiture of unregulated real estate; and foreign operations. Therefore, no assurances can be given that the outcomes stated in such forward-looking statements and estimates will be achieved.
Accounting Policies
Critical accounting policies are disclosed in the Company's 2007 Annual Report
on Form 10-K.
Results of Operations and Executive Overview
Net Income and Earnings Per Share
Quarters Ended September 30, Nine Months Ended September 30,
(Dollars in Thousands Except per Share
Amounts) 2008 2007 2008 2007
Income (Loss) from Continuing Operations
Regulated Electric Utility $ 812 $ (190 ) $ 3,012 $ 2,223
Unregulated Utility Services (138 ) - (233 ) -
Other* (546 ) (172 ) (732 ) (839 )
Income (Loss) from Continuing Operations 128 (362 ) 2,047 1,384
Income (Loss) from Discontinued
Operations
Unregulated Engineering Services 1 (108 ) (20 ) (634 )
Unregulated Software Technology - - - (247 )
Income (Loss) from Discontinued
Operations 1 (108 ) (20 ) (881 )
Net Income (Loss) $ 129 $ (470 ) $ 2,027 $ 503
Basic Earnings (Loss) Per Share $ 0.08 $ (0.28 ) $ 1.21 $ 0.30
|
On a consolidated basis, MAM has continued its 2008 trend of outperforming 2007 quarter and year-to-date financial performance for both continuing and discontinued operations. Net income from continuing operations for the third quarter is $128,000, up from a net loss from continuing operations of $(362,000) for the third quarter of 2007. The improvement in year-to-date net income from continuing operations from 2007 to 2008 is $663,000 or 47.9%. Generally, this positive financial performance is driven by three primary factors:
· Corporate wide cost control;
· Revenues from MAM USG covering corporate fixed overheads and costs; and
· Deferral of costs on MPS's balance sheet related to work on our proposed transmission investment in the MPC project.
The positive financial performance is led by MPS. Despite revenue volumes
being down due to lower KWH usage by our customer base, MPS continues to show
solid financial performance. While we believe the negative usage trend is a
result of the overall economy and high fuel and energy costs for consumers
causing some conservation of their usage, we do not believe that future
conservation measures by our customers will continue at the same declining
rate. MPS also experienced a reduction in direct and allocated expenses due to
(a) deferrals of costs for the MPC project and (b) labor cost of MPS employees
being utilized by and charged to our utility services group.
MPS and its partner, CMP, continue to pursue the MPC Project transmission studies. Also, the two parties executed a Joint Development Agreement on October 2, 2008. This agreement outlines the cost-sharing and decision-making terms of the development phase of the MPC project, as well as laying the groundwork for the structure of a Joint Ownership Agreement that will follow if the project is approved. On October 8, 2008, the MPUC denied a motion to dismiss the filing for a Certificate of Public Convenience and Necessity for this project. The MPUC has not yet issued a scheduling order in this case. Refer to Part II, Item 1 for further updates on the status of federal and state regulatory proceedings.
At MAM USG, our utility services group continues to grow its revenue largely as a result of electrical contracting work related to two wind farm projects. Although we are disappointed that the segment including all allocated overheads results in a loss for the quarter and year to date, the segment did absorb $61,000 and $270,000 for the quarter and year-to-date, respectively, of corporate overheads and common costs which would have otherwise been charged to the regulated utility and / or other operating segments.
Regulated Operations
Regulated operations include MPS and Me&NB, the Company's regulated subsidiary
and its inactive unregulated Canadian subsidiary:
Quarters Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Net Income (Loss) - Regulated
Electric Utility (In thousands) $ 812 $ (190 ) $ 3,012 $ 2,223
Earnings (Loss) Per Share from
Regulated Electric Utilities $ 0.48 $ (0.11 ) $ 1.80 $ 1.33
|
Regulated Operating Revenue
Consolidated revenues (in thousands of dollars) and Megawatt Hours ("MWH") for
the quarters and nine months ended September 30, 2008, and 2007, are as follows:
Quarters Ended September 30, Nine Months Ended September 30,
2008 2007 2008 2007
Dollars MWH Dollars MWH Dollars MWH Dollars MWH
Residential $ 3,481 40,963 $ 3,531 41,515 $ 11,387 133,597 $ 11,424 135,637
Large Commercial 915 37,319 1,102 42,621 3,211 112,722 3,609 129,035
Medium Commercial 1,101 27,274 1,164 27,594 4,017 77,965 4,149 80,885
Small Commercial 1,373 21,277 1,373 20,952 5,255 68,615 5,290 69,249
Other Retail 227 842 232 849 690 2,541 688 2,544
Total Regulated
Retail 7,097 127,675 7,402 133,531 24,560 395,440 25,160 417,350
Other Regulated
Operating Revenue 743 614 1,986 1,722
Total Regulated
Revenue $ 7,840 $ 8,016 $ 26,546 $ 26,882
|
Similar to the first half of 2008, regulated operating revenue was down for the third quarter of 2008, compared to the same period of 2007. We are continuing to see the trend of customers ceasing or cutting back operations, or implementing conservation efforts in order to reduce energy consumption.
Residential revenue volume decreased 552 MWH or 1.3%, reducing revenue approximately $50,000 compared to the third quarter of 2007. Medium and small commercial customer volume was consistent with prior year; however, due to lower average rates in the medium commercial group, revenue for these customers is down $63,000.
In the third quarter of 2008, large commercial customer volume is down 5,302 MWH or 12.4% compared to the same period of 2007. As a result, revenue is down $187,000 or 17.0%. The decreases are due to the combination of rate reductions and various companies in our service territory, primarily in wood and lumber related industries, scaling back operations or closing. Large commercial customer transmission rates decreased approximately 18% on average with the rates effective July 1, 2008, and large commercial customers are no longer charged DSM rates, effective January 1, 2008.
Other regulated operating revenue has increased from prior year, up $129,000. Higher wheeling volume, primarily from a wind project located in MPS's service area, accounted for $96,000 of this increase.
Year-to-date, residential revenue dollars are down $37,000 or 0.3%. The 2,040 MWH or 1.5% decrease in volume was partly offset by slightly higher average rates. Medium and small commercial customer revenue is down $167,000 on a 3,554 MWH or 2.4% decrease in volume.
Large commercial customer volume is down 16,313 MWH or 12.6% for the year-to-date, resulting in a $398,000 decrease in revenue dollars.
Wheeling revenue is also up, resulting in the $264,000 increase in other regulated operating revenue for the first nine month of 2008 compared to the first nine months of 2007.
MPS's 2008 OATT formula was filed June 16, 2008, based on the 2007 test year. As described in earlier filings, MPS transmission rates are based on the Company's revenue requirement (transmission expenses plus the allowed rate of return on assets) less the wheeling revenue earned. The rates go into effect on June 1 for wholesale customers, and July 1 for retail customers. The additional wheeling revenue earned in 2007 over 2006 offset the revenue requirement in the 2008 OATT formula. As a result, the revenue requirement for the June 1, 2008 through May 31, 2009 rate period decreased approximately $230,000 or 28% for wholesale customers, and decreased approximately $670,000 or 18% for retail customers for the July 1, 2008 through June 30, 2009 rate period.
For more information on regulatory orders approving the most recent rate increases, see Part II, Item 1, "Legal Proceedings."
Regulated Utility Expenses
For the quarters and nine months ended September 30, 2008, and 2007, regulated
operation and maintenance expenses are as follows:
Quarters Ended September 30, Nine Months Ended September 30,
(In thousands of dollars) 2008 2007 2008 2007
Regulated Operation and Maintenance
Labor $ 1,191 $ 1,482 $ 3,562 $ 3,733
Benefits 322 799 919 1,511
Outside Services 378 466 885 907
Holding Company Management Costs 53 437 1,024 1,399
Insurance 147 158 405 431
Regulatory Expenses 216 276 829 776
Transportation 121 169 572 658
Maintenance 121 132 430 437
Other 400 473 965 1,084
Total Regulated Operation and Maintenance $ 2,949 $ 4,392 $ 9,591 $ 10,936
|
Regulated utility operating expenses are down $1.44 million or 32.9% in the third quarter of 2008, compared to the third quarter of 2007. Expenses decreased in every category, with the largest reductions as follows:
† Labor expenses are down $291,000 year-over-year, as a result of deferred labor related to the MPC project, and labor used on MAM USG projects.
† Benefits expenses have decreased $477,000, due to several factors. The freeze of the MPS Pension Plan on December 31, 2006, resulted in $169,000 less pension expense in the third quarter of 2008 than the third quarter of 2007. Health insurance expense has also improved from last year, a reduction of $160,000. The remaining decrease is due to the allocation of benefits expense to MAM USG associated with the labor used on MAM USG projects.
† A reduction in legal expenses reduced outside service costs from $466,000 in the third quarter of 2007 to $378,000 in the third quarter of 2008.
† Holding company management costs represent charges from the parent company, MAM, to MPS for common corporate services, including directors' fees, investor relations, tax services and other such costs. Approximately $301,000 of the $384,000 decrease is a result of the changes in deferred directors' compensation expense, which fluctuates based on MAM's stock price. The increase in MAM's stock price in the third quarter of 2007 resulted in $75,000 of expense to MPS. MAM's stock price decreased in the third quarter of 2008, reducing MPS's holding company management costs by $226,000.
† Regulatory expenses decreased $60,000, compared to prior year, as a result of lower conservation expenses due to a change in the basis of the assessment.
Other smaller changes account for the remaining change.
Year to date, expenses are also down, approximately $1.35 million or 12.3%. The most significant decreases were:
† Labor and benefits expenses are down $763,000. Similar to the quarterly results, the largest reductions in expense year to date have been lower pension and postretirement medical expenses, lower health insurance expense, and more labor used on MAM USG projects.
† Holding company management costs are down approximately $375,000 year to date, as a result of the change in the deferred directors' compensation adjustment for the three quarters of 2007 and 2008.
† Transportation expenses have decreased $86,000. In the first quarter of 2007, more expense was incurred in repairing and maintaining the vehicle fleet, resulting in higher costs than normal.
Stranded cost expenses of the regulated utility are as follows:
Quarters Ended September 30, Nine Months Ended September 30,
(In thousands of dollars) 2008 2007 2008 2007
Stranded Costs
Maine Yankee $ 588 $ 721 $ 1,763 $ 2,162
Seabrook 384 384 1,153 1,153
Deferred Fuel 1,560 1,346 4,679 4,195
Cost Incentive Refund 62 63 187 187
Cancelled Transmission Plant 64 64 192 192
Special Discounts 70 70 210 210
Total Stranded Costs $ 2,728 $ 2,648 $ 8,184 $ 8,099
|
The stranded cost expenses presented above for both 2008 and 2007 reflect the impact of MPS's most recent stranded cost rate case, MPUC Docket No. 2006-506. The amortization amounts for the rest of 2008 are expected to remain consistent with the first three quarters. The changes from prior year are a result of the timing of recovery of stranded costs under the Docket, primarily related to Maine Yankee and deferred fuel. The recovery of Maine Yankee in the Docket correlates to Maine Yankee's cost budget, which is decreasing over time, while the recovery of deferred fuel is the levelizing mechanism, which allowed for less amortization of deferred fuel in 2007 than in 2008.
Unregulated Utility Services
(in thousands except per share amounts) Period Ending September 30, 2008
Quarter Nine Months
Operating Revenue $ 4,463 $ 7,837
Cost of Services 4,530 7,740
Gross Margin (67 ) 97
Other Operating Expenses 160 480
Income Tax Benefit 89 150
Net Loss - Unregulated Utility Services $ (138 ) $ (233 )
Loss Per Share from Unregulated Utility Services $ (0.08 ) $ (0.14 )
|
Unregulated utility services reduced consolidated net income by approximately $138,000 for the third quarter of 2008, and $233,000 for the year to date. Estimated profit for the current projects was reduced, resulting in a negative gross margin for the quarter. However, USG continues to expect a gross profit on these projects, with the work on these projects scheduled to be completed during the fourth quarter of 2008. Other operating expenses include costs for bidding on projects, accounting, legal and other administrative costs. Other operating expenses also include common costs from the parent company, MAM, and facilities charges from MPS for use of its space and employees. These costs were $61,000 for the quarter and $270,000 for the year to date.
Other Continuing Operations
Quarters Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Net Loss - Other
Continuing Operations (in
thousands) $ (546 ) $ (172 ) $ (732 ) $ (839 )
Loss Per Share from Other
Continuing Operations $ (0.33 ) $ (0.10 ) $ (0.44 ) $ (0.50 )
|
Other continuing operations are the corporate costs of MAM directly associated with the former unregulated businesses and intercompany eliminations. The divestiture of the unregulated software technology and engineering services operations reduced the costs included in this segment; however, some of these costs are expected to continue subsequent to the divestiture of the unregulated operations without other cost reduction or recovery efforts. The increase from a loss of $172,000 in the third quarter of 2007 to a loss of $546,000 in the third quarter of 2008 is a result of a reduction in the estimated income tax benefit as a result of the filing of the 2007 tax return.
Interest Expense
Interest expense of $173,000 for the third quarter of 2008 represents a $133,000 decrease from the $306,000 of interest expense recognized in the third quarter of 2007. This decrease is due to the reduction in long- and short-term debt. Total long- and short-term debt repayments from December 31, 2007, through September 30, 2008, were $5.46 million. Year-to-date interest expense of $891,000 was recognized through the first nine months of 2007, compared to $582,000 for the same period of 2008, also due to the reduction in debt outstanding.
Income Tax Expense / Benefit
The income tax provision for the third quarter of 2008 was approximately $344,000, compared to an income tax benefit of $329,000, as a result of the profit incurred in current period compared to last year's quarterly loss. Year to date, the provision increased from $886,000 in 2007 to $1.7 million in 2008, also as a result of the higher earnings.
Taxes Other Than Income
Taxes other than income consist primarily of property and payroll taxes. For the quarter, taxes other than income decreased $10,000, from $440,000 in the third quarter of 2007 to $430,000 in the third quarter of 2008. These expenses were also comparable for the year to date, with $1.34 million of expense incurred in the first nine months of 2008, compared to $1.33 million in the first nine months of 2007.
Off-Balance Sheet Arrangements and Financial Information System Hosting Agreement
Please refer to Note 8 of the financial statements.
Liquidity and Capital Resources
MAM has continued the trend of improving its liquidity position demonstrated in 2007 and the first half of 2008. In the nine months ended September 30, 2008, we have reduced our consolidated short-term debt by $1.1 million, and long-term debt by $4.4 million. This includes the repayment of all but $1.1 million of debt incurred in the discontinued unregulated engineering and software technology acquisitions and operations. We have also substantially improved our cash flow from operating activities, which increased by $2.6 million or 39.3% year over year due to favorable differences in net income and accounts payable.
The Company's cash and cash equivalents as of September 30, 2008, were $1.8 million, up from $910,000 at December 31, 2007. The "Statements of Consolidated Cash Flows" of the Company's Consolidated Financial Statements, as presented in Part I, Item 1 of this Form 10-Q, reflects the Company's sources and uses of capital.
Cash flow provided by operating activities for the first nine months of 2008 was $9.3 million, compared to $6.7 million in the first nine months of 2007. The increase in net income of $1.5 million from the first three quarters of 2007 to the first three quarters of 2008 and the increase in accounts payable, as a result of higher accruals at September 30, 2008, than December 31, 2007, for the MPC project, MAM Utility Services Group subcontractor expenses and construction season, were the largest factors in the increase in operating cash flow period-over-period. Net cash flow provided by operating activities was reduced the first three quarters of 2008, compared to the first three quarters of 2007, by $1.7 million from the change in accounts receivable and unbilled revenue, due to the higher receivable balances, primarily from USG projects that did not exist in the first three quarters of 2007.
Cash flow used for financing included the repayment of short- and long-term debt totaling $5.5 million in the first nine months of 2008. Cash flow used for financing activities for the first nine months of 2007 totaled $4.4 million, as long- and short-term debt was reduced.
Cash flow used for investing activities for the first three quarters of 2008 was $2.8 million. The $5.7 million use of cash for investments in fixed assets was mitigated by the change in restricted investments which provided cash flows from the capital reserve account upon final payment of the 1998 FAME Notes obligation. For the first nine months of 2007, cash flow used for investing activity totaled $2.7 million. The $4.6 million investment in fixed assets was offset by $1.8 million of proceeds from the sale of discontinued operations. Approximately $413,000 was used in the first nine months of 2007 for settlement of the stock contingencies associated with acquisitions in 2003 and 2004. The final stock contingency obligations from TMG acquisitions were settled in September 2007.
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 delivery 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 September 30, 2008, MPS is in compliance with these conditions.
MAM and certain of its subsidiaries are subject to 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. MAM and its subsidiaries are in compliance with all debt covenants as of September 30, 2008.
Regulatory Proceedings
For regulatory proceedings, see Part II, Item 1, "Legal Proceedings," which is incorporated in this section by this reference.
|
|