-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JkHQqJP5jVd7gwfT9u0P23veEJPFaSNOnKj8p/RCq35y5yCWgR+JMtZNO7pV45Ny uE/++hgEw/WP0pSjIfYJsg== 0001012127-04-000016.txt : 20040806 0001012127-04-000016.hdr.sgml : 20040806 20040806155906 ACCESSION NUMBER: 0001012127-04-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BAYCORP HOLDINGS LTD CENTRAL INDEX KEY: 0001012127 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRIC SERVICES [4911] IRS NUMBER: 020488443 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12527 FILM NUMBER: 04958170 BUSINESS ADDRESS: STREET 1: 1 NEW HAMPSHIRE AVENUE STREET 2: SUITE 125 CITY: PORTSMOUTH STATE: NH ZIP: 03801 BUSINESS PHONE: (603) 766-4990 MAIL ADDRESS: STREET 1: 1 NEW HAMPSHIRE AVENUE STREET 2: SUITE 125 CITY: PORTSMOUTH STATE: NH ZIP: 03801 FORMER COMPANY: FORMER CONFORMED NAME: GREAT BAY HOLDINGS CORP DATE OF NAME CHANGE: 19960424 10-Q 1 baycorpjune30200410q.txt BAYCORP HOLDINGS, LTD. 2ND QUARTER 2004 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 ------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ------------- Commission file number 1-12527 ------- BAYCORP HOLDINGS, LTD. (Exact name of registrant as specified in its charter) ------------------------------------------------------ Delaware 02-0488443 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1 New Hampshire Avenue, Suite 125 03801 Portsmouth, New Hampshire (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (603) 766-4990 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 is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.) Yes No X --- --- Class Outstanding at July 30, 2004 - ----------------------------------------- ---------------------------- Common Stock, $0.01 Par Value per Share 560,096 INDEX
PART I - FINANCIAL INFORMATION: Item 1 - Financial Statements: Consolidated Statements of Operations - Three and Six Months Ended June 30, 2004 and 2003 . . . . . 3 Consolidated Balance Sheets at June 30, 2004 and December 31,2003 . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2004 and 2003 . . . . . . . . . . 5 Notes to Financial Statements . . . . . . . . . . . . . . . . . 6 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . 12 Item 3 - Quantitative and Qualitative Disclosures About Market Risk . . . . . . . . . . . . . . . . . . . . . 19 Item 4 - Controls and Procedures . . . . . . . . . . . . . . . 20 PART II - OTHER INFORMATION: Item 2 - Changes in Securities and Use of Proceeds . . . . . . 21 Item 3 - Defaults Upon Senior Securities . . . . . . . . . . . 21 Item 4 - Submission of Matters to a Vote of Security Holders . 21 Item 5 - Other Information . . . . . . . . . . . . . . . . . . 22 Item 6 - Exhibits and Reports on Form 8-K . . . . . . . . . . 22 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . 24
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements - ----------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (Dollars in thousands except per share data) Three Months Ended Six Months Ended June 30, June 30, 2004 2003 2004 2003 ---- ---- ---- ---- Operating Revenues $1,443 $996 $2,477 $1,987 Operating Expenses Purchased Power 998 902 2,129 2,097 Unrealized Loss (Gain) on Energy Contracts 716 (498) 2,353 585 Administrative & General 625 909 1,052 1,793 -------- -------- -------- -------- Total Operating Expenses 2,339 1,313 5,534 4,475 Operating Loss (896) (317) (3,057) (2,488) Other Income Interest and Dividend Income 44 32 99 434 Other Income 667 320 676 327 -------- -------- -------- -------- Total Other Income 711 352 775 761 Income (Loss) Before Income Taxes, Minority Interest --------- -------- -------- -------- and Extraordinary Item (185) 35 (2,282) (1,727) Income Taxes 0 0 0 0 Minority Interest Income 2 0 2 0 -------- -------- -------- -------- Income (Loss) Before Extraordinary Item (183) 35 (2,280) (1,727) Extraordinary Item, Net of Income Tax 278 0 278 0 -------- -------- -------- -------- Net Income (Loss) $95 $35 ($2,002) ($1,727) ======== ======== ======== ======== Weighted Average Shares Outstanding - Basic 592,833 646,917 611,093 4,225,628 Weighted Average Shares Outstanding - Diluted 592,833 653,357 611,093 4,225,628 Income (Loss) Per Share before Extraordinary Item - Basic ($0.31) $0.05 ($3.73) ($0.41) Income (Loss) Per Share before Extraordinary Item - Diluted ($0.31) $0.05 ($3.73) ($0.41) Extraordinary Item Income Per Share - Basic $0.47 - $0.45 - Extraordinary Item Income Per Share - Diluted $0.47 - $0.45 - Net Income (Loss) Per Share - Basic $0.16 $0.05 ($3.28) ($0.41) Net Income (Loss) Per Share - Diluted $0.16 $0.05 ($3.28) ($0.41) (The accompanying notes are an integral part of these consolidated statements.)
3 CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Dollars in thousands except per share data)
June 30, December 31, 2004 2003 ---------- ------------ ASSETS Current Assets: Cash & Cash Equivalents $6,943 $7,469 Restricted Cash - Escrow 2,500 2,500 Accounts Receivable, net 799 339 Prepayments & Other Assets 145 1,085 -------- -------- Total Current Assets 10,387 11,393 Other Assets: Unrealized Gain on Energy Contract - at market - 3 Other Long Term Assets 1,264 1,508 -------- -------- Total Other Assets 1,264 1,511 TOTAL ASSETS $11,651 $12,904 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable and Accrued Expenses $1,118 $965 Accrued Taxes 82 95 Miscellaneous Current Liabilities 802 1,740 -------- -------- Total Current Liabilities 2,002 2,800 Deferred Gain on Energy Contract 1,666 1,798 Unrealized Loss on Energy Contract - at market 2,481 - Minority Interest in Subsidiary 186 - Commitments & Contingencies Stockholders' Equity: Preferred stock, $.01 par value Authorized - 1,000,000 shares - - Issued and Outstanding - 0 shares Common stock, $.01 par value Authorized - 4,000,000 shares Issued and Outstanding - 560,096 6 6 and 641,937 shares, respectively Additional Paid-in Capital (21,519) (20,531) Accumulated Earnings 26,829 28,831 -------- -------- Total Stockholders' Equity 5,316 8,306 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $11,651 $12,904 ======== ========
(The accompanying notes are an integral part of these consolidated statements.) 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
Six Months Ended June 30, 2004 2003 ---- ---- Net cash flow from operating activities: Net loss ($2,002) ($1,727) Adjustments to reconcile net loss to net cash used in operating activities: Minority Interest Income (2) - Extraordinary gain, net of income tax (278) - Unrealized loss on the mark-to-market of energy contract 2,485 716 Amortization of deferred gain on energy contract (132) (131) Non-cash compensation expense 86 296 Increase in accounts receivable (366) (12) (Increase) decrease in prepaids and other assets 1,220 256 Increase (decrease) in accounts payable and accrued expenses 110 452 Decrease in taxes accrued (13) 0 Decrease in miscellaneous and other liabilities (953) (4,283) ------- -------- Net cash provided by (used in) operating activities 155 (4,433) Net cash provided by investing activities: Consolidation of HoustonStreet 393 - ------- -------- Net cash provided by investing activities 393 - Net cash used in financing activities: Stock option exercise 0 1,776 Reacquired capital stock and options (1,074) (123,622) ------- -------- Net cash used in financing activities (1,074) (121,846) Net decrease in cash and cash equivalents (526) (126,279) Cash and cash equivalents, beginning of period 7,469 134,164 ------- -------- Cash and cash equivalents, end of period $6,943 $7,885 ======= ======== Supplemental disclosure of non-cash financing activities: Cash paid during the period for income taxes $12 $2,241 -------- --------
(The accompanying notes are an integral part of these consolidated statements.) 5 NOTES TO FINANCIAL STATEMENTS NOTE A - THE COMPANY BayCorp Holdings, Ltd. ("BayCorp" or the "Company") is an unregulated holding company incorporated in Delaware in 1996. BayCorp currently owns three subsidiaries including Great Bay Power Marketing, Inc., BayCorp Ventures, LLC and Great Bay Hydro Corporation. BayCorp also holds a majority interest in HoustonStreet Exchange, Inc. Until January 1, 2003, BayCorp had two principal operating subsidiaries that generated and marketed wholesale electricity, Great Bay Power Corporation ("Great Bay") and Little Bay Power Corporation ("Little Bay"). Their principal asset was a combined 15% joint ownership interest in the Seabrook Nuclear Power Project in Seabrook, New Hampshire (the "Seabrook Project" or "Seabrook") until November 1, 2002, when BayCorp sold Great Bay's and Little Bay's interest in Seabrook. That ownership interest entitled Great Bay and Little Bay to approximately 174 megawatts ("MWs") of the Seabrook Project's power output. Great Bay and Little Bay were each wholly-owned by BayCorp. In December 2002, BayCorp legally dissolved Great Bay and Little Bay. In October 2002, BayCorp created two subsidiaries, Great Bay Power Marketing, Inc. ("GBPM") and BayCorp Ventures, LLC. ("BCV"). GBPM was created to hold the purchased power agreement that Great Bay had with Unitil Power Corporation ("Unitil") and to arrange for the power supply to satisfy the agreement. See "Note C. Commitments and Contingencies. Purchased Power Agreements." Effective January 1, 2003, GBPM assumed the Unitil contract, previously held by Great Bay, and holds the letter of credit established to secure GBPM's obligations under the Unitil contract. BayCorp created BCV to serve as a vehicle through which the Company can make investments following the Seabrook sale and the expiration of the Company's tender offer. In September 2003, BayCorp created a third subsidiary, Great Bay Hydro Corporation ("GBH"). GBH entered into a purchase and sale agreement, dated as of October 30, 2003, with Citizens Communications Company ("Citizens") to acquire the generating facilities in Vermont owned by the Vermont Electric Division of Citizens. GBH completed the acquisition of the Vermont generating facilities and assumed operating responsibility of the generating facilities on April 1, 2004. The generating facilities include an operating hydroelectric facility of approximately 4 megawatts located in Newport, Vermont, diesel engine generators totaling approximately 7 megawatts located in Newport, Vermont and non-operating hydroelectric facilities in Troy, Vermont and West Charleston, Vermont. GBH uses the output of the Newport plant as a physical hedge for meeting a portion of BayCorp's supply obligations under the long-term contract to supply 9.06 megawatts to Unitil. GBH paid a nominal purchase price to Citizens for the generating facilities and 650 acres of real property associated with the generating facilities and this amount is reflected in the Company's financial statements. In addition, Citizens has agreed to indemnify GBH for the reasonably anticipated costs of complying with the requirements of the new operating license issued by the Federal Energy Regulatory Commission ("FERC") on November 21, 2003. GBH and Citizens will share the savings if the costs of compliance during the next three years are less than the anticipated amount. BayCorp also owns shares representing approximately 59.7% of the outstanding common shares of HoustonStreet Exchange, Inc. ("HoustonStreet"), which was incorporated in Delaware in 1999. A recapitalization of HoustonStreet was completed in the second quarter of 2004 and as a result, BayCorp's 6 ownership interest in HoustonStreet increased above 50%. As a result of this recapitalization, BayCorp began consolidating HoustonStreet as of May 1, 2004. Prior to May 1, 2004, BayCorp held a minority interest in HoustonStreet and accounted for HoustonStreet under the equity method. HoustonStreet developed and operates HoustonStreet.com, an Internet-based independent crude oil and refined products trading exchange in the United States. Sale of Seabrook Ownership - -------------------------- In October 2000, the Company announced that it reached an agreement with Northeast Utilities ("NU") under which the Company's generating subsidiaries, Great Bay and Little Bay, would include their aggregate 15% ownership share of the Seabrook Project in the auction of NU's subsidiaries' shares of the Seabrook Project. As a result of the auction, which was conducted in 2001 and 2002, FPL Energy Seabrook, LLC ("FPL Energy Seabrook"), a subsidiary of FPL Group, Inc., agreed to purchase 88.2% of the 1,161 MW Unit 1 and 88.2% of the partially constructed Unit 2, for $836.6 million subject to certain adjustments, with payment deliverable fully in cash at closing. FPL Energy Seabrook assumed nearly all of the Company's Seabrook liabilities including the decommissioning liability for the acquired portion of Seabrook. On November 1, 2002, the Company closed the sale of its interests in Seabrook and received approximately $113 million in cash for its interests in the Seabrook Project (the "Seabrook Closing"). The Company funded certain escrows for potential closing adjustments and paid other costs of approximately $4.3 million. The remaining escrow amounts were included in prepayments and the potential closing adjustments were included in miscellaneous current liabilities. The amount escrowed was based on an estimate of those expenses. The Company received a one-time payment following the final reconciliation of and termination of all such escrow accounts in the second quarter of 2004 in accordance with the terms of the Escrow Agreements among the selling owners. No non-escrowed funds were required to pay for closing adjustments. As a result of the post-closing adjustments being settled for less than the Company had previously estimated and accrued for, the Company recorded other income of approximately $572,000 in the second quarter of 2004. Enron Claim - ----------- In January 2002, BayCorp reported that Great Bay received notice on December 21, 2001 from Enron Power Marketing, Inc. ("Enron") that Enron was terminating its contracts with Great Bay. Enron owed Great Bay $1,075,200 for power delivered prior to Enron's Chapter 11 bankruptcy filing on December 2, 2001. Great Bay also has an unliquidated claim against Enron for damages resulting from the termination of the contracts. During the fourth quarter of 2001, BayCorp recorded an expense of $1,100,000 to establish a reserve for doubtful accounts due to the uncertainty of collecting remaining amounts owed by Enron to Great Bay for power delivered prior to Enron's Chapter 11 bankruptcy filing. Enron filed a plan of reorganization on July 11, 2003, which is subject to the approval of creditors and the bankruptcy court. In December 2003, BayCorp sold a portion of its power delivery claim in the amount of $1,041,600 to an institutional investor for $343,700. BayCorp recorded this transaction as a recovery of bad debt. BayCorp retains the remaining portion of the power delivery claim as well as the claim for damages. Any recovery by the Company on account of this remaining claim against Enron is uncertain. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The unaudited financial statements included herein have been prepared on behalf of the Company pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") and include, in the opinion 7 of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of interim period results. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted or condensed pursuant to such rules and regulations. The Company believes, however, its disclosures herein, when read in conjunction with the Company's audited financial statements for the year ended December 31, 2003 as filed in Form 10-K on March 26, 2004 are adequate to make the information presented not misleading. The Company's significant accounting policies are described in Note 1 of Notes to Consolidated Financial Statements included in the Company's 10-K. The results for the interim periods are not necessarily indicative of the results to be expected for the full fiscal year. The Company currently utilizes forward and spot market purchases to maximize the value of its long- term power sales contract with Unitil (the "Unitil PPA"). Forward contracts (including the Unitil PPA) meeting the definition of a derivative and not designated and qualifying for the normal purchases and normal sales exception under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133) are recorded at fair value. In accordance with FASB's Emerging Issues Task Force Issue No. 02-03, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities (EITF Issue No. 02-03), revenues related to derivative instruments classified as trading are reported net of related cost of sales. NOTE C - COMMITMENTS AND CONTINGENCIES Purchased Power Agreements - -------------------------- In anticipation of the Seabrook sale, the Unitil PPA was amended as of November 1, 2002. The amendment primarily modified the existing PPA to reduce the amount of power delivered to 9.06 megawatts and the price that Unitil pays for power to $50.34 per megawatt hour, and provide that Great Bay would supply the power regardless of whether Seabrook is providing the power. The amendment also provided alternative security for Unitil's benefit, to replace and discharge the Third Mortgage that secured Great Bay's performance of the PPA. In connection with the amended PPA, the Company was required to deposit $2.5 million into a restricted account for the benefit of Unitil should Great Bay default. The amount is reflected as restricted cash in the accompanying balance sheet. The amendment received FERC approval. Great Bay assigned the Unitil PPA to GBPM as of January 1, 2003. This contract meets the definition of a derivative under SFAS No. 133. All sales, purchases and market value adjustments related to the Unitil PPA are reflected gross in the Company's financial statements as the Company has designated this forward contract as non-trading in accordance with EITF Issue No. 02-03. Additionally, in accordance with EITF Issue No. 02-03, the inception gain (initial value of $2.1 million) on the contract has been deferred and will be amortized over the life of the contract. For the quarter ended June 30, 2004, the Company had an unrealized loss on the mark-to-market of the Unitil PPA of $782,000 and had recognized a portion of the deferred gain on the Unitil PPA of $66,000. The deferred inception gain and unrealized loss on the Unitil PPA was $1,666,000 and $2,481,000, respectively, as of June 30, 2004. For the quarter ended June 30, 2003, the Company had an unrealized gain on the mark-to- market of the Unitil PPA of $432,000 and had amortized a portion of the deferred gain on the Unitil PPA of $66,000. The deferred inception gain and unrealized gain on the Unitil PPA was $1,929,000 and $1,459,000, respectively, as of June 30, 2003. 8 The Company realized net gains on energy commodity contract trading activity of approximately $8,000 and $46,000, respectively, for the three and six months ended June 30, 2004. The gross retail sales volume of such activity was approximately $467,000, recorded net of $459,000 of related cost of sales for the three months ended June 30, 2004. The gross retail sales volume of such activity was approximately $917,000, recorded net of $871,000 of related cost of sales for the six months ended June 30, 2004. There was no such activity in the three or six month periods ending June 30, 2003. NOTE D - INVESTMENT IN HOUSTONSTREET Prior to April 30, 2004, in addition to its equity interest in HoustonStreet, the Company held an $8.4 million secured note in HoustonStreet. In March 2001, HoustonStreet raised additional funding by selling senior secured notes to BayCorp and other investors. Collectively, these notes were referred to as the "HoustonStreet Series C Units." The outstanding principal and interest of this note to BayCorp as of April 30, 2004 was approximately $11 million. The Company had written this note down to zero as of December 31, 2000. The notes were originally due and payable in December 2001, and the maturity date was subsequently extended to January 15, 2004. The notes were not paid when due, and in February 2004, HoustonStreet was formally notified of the payment default. BayCorp and the other senior secured noteholders reserved their rights and proposed a recapitalization of HoustonStreet that would potentially provide effective control of HoustonStreet to the noteholders. The recapitalization was approved by the Board of Directors of HoustonStreet in March 2004 and was approved by HoustonStreet shareholders in April 2004. The effect of the recapitalization was to convert HoustonStreet's secured debt into equity and convert outstanding preferred stock in HoustonStreet into either the right to receive nominal cash consideration or a nominal amount of HoustonStreet common stock. All outstanding shares of HoustonStreet common stock prior to the restructuring were cancelled. As a result of the restructuring, as of May 1, 2004, holders of senior secured promissory notes held common stock of HoustonStreet representing approximately ninety-nine percent of the outstanding capital stock of HoustonStreet. Holders of preferred stock held approximately one percent of the outstanding capital stock as a result of the restructuring. This recapitalization at HoustonStreet was completed in the second quarter of 2004 and as a result, BayCorp owned shares representing approximately 59.7% of the outstanding common shares of HoustonStreet, effective May 1, 2004. In accordance with EITF Topic D-84, the Company followed step acquisition accounting to consolidate HoustonStreet. The fair value of current assets exceeded BayCorp's net investment in HoustonStreet by $278,000 resulting in negative goodwill upon application of step acquisition accounting. As a result, the Company recognized an extraordinary gain of $278,000 in the second quarter of 2004 in accordance with SFAS No. 141 "Business Combinations." Prior to the recapitalization, BayCorp held a minority ownership interest in HoustonStreet, owning approximately 46.4% of the voting power of all outstanding common and preferred shares of HoustonStreet and accordingly accounted for HoustonStreet under the equity method. 9 Summarized financial information for HoustonStreet, prior to consolidation, is as follows:
Four Months ended Six Months ended HoustonStreet: April 30, 2004 June 30, 2003 -------------- ------------ ------------ (Dollars in Thousands) Revenues $ 224 $467 Gross Loss (123) (23) Net Income (Loss) 13,318 (582)
NOTE E - EQUITY On January 31, 2003, BayCorp commenced an issuer tender offer to purchase up to 8,500,000 shares of its common stock at a price of $14.85 per share (the "Tender Offer" or "Offer"). The Company disclosed in the Offer to Purchase mailed to stockholders that the Board may decide to reduce the number of shares purchased in the Offer to preserve the Company's ability to use its approximately $90 million in net operating loss ("NOL") carryforwards. The Offer was scheduled to expire on March 3, 2003. On March 4, 2003, in view of the response to the Offer and the significant proration that would have been necessary to preserve the Company's NOL carryforwards, the Board determined and announced that it would not exercise its reserved right to prorate the shares tendered in the Offer to preserve the Company's ability to use the NOL carryforwards without limitation. The Company extended the expiration date of the Tender Offer to March 18, 2003 to provide stockholders additional time to tender shares that had not been tendered or to withdraw shares that had been tendered. At the extended expiration date of March 18, 2003, 9,207,508 shares had been properly tendered and not withdrawn (including options surrendered for repurchase and cancellation.) The Company exercised its discretion to purchase up to an additional 2% of outstanding shares, purchasing a total of 8,673,887 shares (and surrendered options) at a purchase price of $14.85, representing approximately 94.3% of the shares (and options) tendered, excluding odd lots, which were purchased without proration. Payment for all such shares and options was completed by March 24, 2003. The Company distributed approximately $123,622,000 to tendering stockholders and option holders. As of December 31, 2003 the Company had 641,937 shares outstanding and cash and cash equivalents and restricted cash of approximately $9,969,000. As of June 30, 2004 there were 560,096 shares outstanding and options to purchase 221,656 shares, 179,156 of which were exercisable. BayCorp has never paid cash dividends on its common stock. Any future dividends depend on future earnings, BayCorp's financial condition and other factors. NOTE F - STOCK OPTIONS The Company accounted for its stock option plans under Accounting Principles Board Opinion No. 25 and related interpretations, and as such no compensation cost was recognized on options that were granted prior to 2003 at fair market value and that had not been modified. On August 14, 2002 the Company announced that it would begin to account for all employee awards granted, modified, or settled after January 1, 2003 in 10 accordance with SFAS No. 123, "Accounting for Stock Based Compensation" and SFAS 148, "Accounting for Stock Based Compensation - Transition and Disclosure" on a prospective basis. Awards under the company's plans vest over periods ranging from one to three years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 2004 and 2003 differs from that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of Statement 123. The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period.
6/30/04 6/30/03 ------- ------- Net Loss: As Reported ($2,002) ($1,727) Stock compensation expense included in net loss 86 296 Stock compensation expense determined using fair value method for all awards (86) (237) -------- -------- Pro Forma . . . . . . . . . . . . ($2,002) ($1,668) Loss Per Share (Basic): as reported . ($3.28) ($0.41) Pro Forma . . . . . . . . . . . . ($3.28) ($0.40) Loss Per Share (Diluted): as reported ($3.28) ($0.41) Pro Forma . . . . . . . . . . . . ($3.28) ($0.40)
In October 2001, the Company issued 240,000 non-qualified options pursuant to the 2001 Non-Statutory Stock Option Plan. These options had an exercise price of $9.05 and vested upon the closing of the sale of the Seabrook Project. The Company recorded compensation expense related to contingent and repriced options of $77,000 for the six months ended June 30, 2003. In April 2003 and July 2003, the Company issued 132,000 and 10,000 options, respectively, pursuant to the 1996 Stock Option Plan and the 2001 Non-Statutory Stock Option Plan. These options have an exercise price of $14.45. The Company accounts for these options using the fair value method and recorded compensation expense of $43,000 in the second quarter of 2004 for these options. NOTE G - SEGMENT INFORMATION BayCorp is a holding company for Great Bay Power Marketing, Great Bay Hydro, BayCorp Ventures and HoustonStreet. The Company operates primarily in two segments, each of which is managed separately because each segment sells distinct products and services. Great Bay Power Marketing and Great Bay Hydro constitute the electricity generation and trading business segment, whose principal assets are the Unitil PPA and hydroelectric facilities of approximately 4 megawatts located in Newport, Vermont, diesel engine generators totaling approximately 7 megawatts located in Newport, Vermont and non-operating hydroelectric facilities in Troy, Vermont and West Charleston, Vermont. HoustonStreet developed and operates HoustonStreet.com, an Internet-based independent crude oil and refined products trading exchange in the United States. Management utilizes more than one measurement and multiple views of data to measure segment performance and to allocate resources to the segments. However, the dominant measurements are consistent with the company's consolidated financial statements and, accordingly, are reported on the same basis herein. Management evaluates the performance of its segments and allocates resources to them primarily based on cash flows and overall economic returns. 11
As of and for the six months GBPM ended June 30 ($000's) and Houston Elimina- GBH Street Other tions Total --------------------------- ------ ------ ------ ------ ------ 2004 - ---- Revenues $2,321 $156 $0 $0 $2,477 Operating Expenses 4,823 162 819 (270) 5,534 Interest Expense 0 0 0 0 0 Segment Net Income (Loss) (2,489) (3) 487 3 2,002 Total Assets 5,871 515 19,431 (14,166) 11,651 Capital Expenditures 0 0 0 0 0 - ---------------------------------------------------------------------------------------- 2003 - ---- Revenues $1,987 0 0 0 $1,987 Operating Expenses 2,915 0 1,830 (270) 4,475 Interest Expense 0 0 0 0 0 Segment Loss (911) 0 (816) 0 (1,727) Total Assets 6,136 0 24,409 (15,193) 15,352 Capital Expenditures 0 0 0 0 0
NOTE H - NEW ACCOUNTING PRONOUNCEMENTS None applicable to the Company. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. - -------------------------------------------------------------------------------- Overview BayCorp derived its revenues primarily through energy sales activities by GBPM and GBH in the second quarter of 2004 and from GBPM in the second quarter of 2003. GBPM currently holds one purchased power contract with Unitil. On April 1, 2004 GBH completed an acquisition of generating facilities including an operating hydroelectric facility of approximately 4 megawatts located in Newport, Vermont, diesel engine generators totaling approximately 7 megawatts located in Newport, Vermont and non-operating hydroelectric facilities in Troy, Vermont and West Charleston, Vermont. GBH assumed operating responsibility of the generating facilities on April 1, 2004. GBH uses the output of the Newport plant as a physical hedge for meeting a portion of the Company's supply obligations under the Unitil PPA. Expenses for the second quarter of 2004 and 2003 primarily consisted of the cost of purchased power and general and administrative costs. As of May 1, 2004, BayCorp began consolidating HoustonStreet for financial reporting purposes and HoustonStreet revenues and expenses are reflected in the Company's financials as of that date. The Company recognized an extraordinary gain of $278,000 in the second quarter of 2004 upon consolidation of HoustonStreet. See "Note D." The following discussion focuses solely on operating revenues and operating expenses and is presented in a substantially consistent manner for all of the periods presented. Results of Operations: Second Quarter of 2004 Compared to the Second Quarter of 2003 - -------------------------------------------------------------- Operating Revenues - ------------------ 12 BayCorp's operating revenues increased by approximately $447,000, or 44.9%, to $1,443,000 in the second quarter of 2004 as compared to $996,000 in the second quarter of 2003. The increase in revenues was primarily attributable to revenues of approximately $283,000 from the sale of electricity generated by Great Bay Hydro and the inclusion of HoustonStreet revenues of approximately $156,000. Expenses - -------- The Company purchases power to satisfy its power supply obligations. Purchased power expenses increased by approximately $96,000, or 10.6%, to $998,000 in the second quarter of 2004 as compared to $902,000 in the second quarter of 2003. The Company recorded a non-cash charge for an unrealized loss on the mark-to- market of its long term energy sales contract and recorded the amortization of the deferred inception gain on this contract for a total net unrealized loss of approximately $716,000 in the second quarter of 2004 as compared to a net unrealized gain of approximately $498,000 in the second quarter of 2003. The mark-to-market value of this long-term contract is based on current projections of power prices over the life of the contract. Forward power prices increased during 2003 and have continued to rise into the second quarter of 2004 primarily due to increases in the forward price of natural gas. In the New England Power Pool ("NEPOOL") power generating plants are usually dispatched in the order of increasing variable costs. The plants that are called upon to supply the last amount of demand are considered to be on the margin and set the price of power for all plants selling into the market. Since the completion of a significant amount of new gas-fired generation in NEPOOL, plants that use natural gas as a fuel source are frequently on the margin and therefore set the price of power in NEPOOL. Accordingly, the price of power in NEPOOL is highly influenced by the price of natural gas. Administrative and general expenses decreased approximately $284,000, or 31.2%, to $625,000 in the second quarter of 2004 as compared to $909,000 in the second quarter of 2003. The Company incurred costs related to the Tender Offer in the second quarter of 2003; there were no such costs incurred in the second quarter of 2004. In addition, the Company undertook numerous cost savings measures, including relocating its corporate offices to smaller space, reducing headcount and reducing the salaries of its President and its COO late in the second quarter of 2003 that have reduced administrative and general expenses in the second quarter of 2004 as compared to the second quarter of 2003. Other income increased approximately $347,000, to $667,000 in the second quarter of 2004 as compared to $320,000 in the second quarter of 2003. This increase was primarily due to receipts by the Company of one-time payments totaling approximately $572,000 following the final reconciliation and termination of certain escrow accounts that had been funded for potential closing adjustments and other costs specific to the Company's sale of its interests in the Seabrook Nuclear Power Plant in November 2002. The Company recognized an extraordinary gain of $278,000 in the second quarter of 2004 upon the consolidation of HoustonStreet. As of May 1, 2004, BayCorp's ownership in HoustonStreet was 59.7%, and in accordance with EITF Topic D-84, the Company followed step acquisition accounting to consolidate HoustonStreet. The fair value of current assets exceeded BayCorp's net investment in HoustonStreet by $278,000 resulting in negative goodwill upon application of step acquisition accounting. See "Note D." 13 Net Income - ---------- As a result of the above factors, for the second quarter of 2004, the Company recorded net income of approximately $95,000, or $0.16 per share, as compared to net income of approximately $35,000, or $0.05 per share, for the second quarter of 2003. Results of Operations: First Six Months of 2004 Compared to the First Six Months of 2003 - -------------------------------------------------------- Operating Revenues - ------------------ BayCorp's operating revenues increased by approximately $490,000, or 24.7%, to $2,477,000 in the first six months of 2004 as compared to $1,987,000 in the first six months of 2003. The increase in revenues in 2004 was primarily attributable to revenues of approximately $283,000 from the sale of electricity generated by Great Bay Hydro and the inclusion of HoustonStreet revenues of approximately $156,000. Expenses - -------- The Company recorded a non-cash charge for an unrealized loss on the mark-to- market of its long term energy sales contract and recorded the amortization of the deferred inception gain on this contract for a total net unrealized loss of approximately $2,353,000 in the first six months of 2004 as compared to a net unrealized loss of approximately $585,000 in the first six months of 2003. The mark-to-market value of this long-term contract is based on current projections of power prices over the life of the contract. Forward power prices increased during 2003 and have continued to rise in the first six months of 2004 primarily due to increases in the forward price of natural gas. In NEPOOL, power generating plants are usually dispatched in the order of increasing variable costs. The plants that are called upon to supply the last amount of demand are considered to be on the margin and set the price of power for all plants selling into the market. Since the completion of a significant amount of new gas-fired generation in NEPOOL, plants that use natural gas as a fuel source are frequently on the margin and therefore set the price of power in NEPOOL. Accordingly, the price of power in NEPOOL is highly influenced by the price of natural gas. Administrative and general expenses decreased approximately $741,000, or 41.3%, to $1,052,000 in the first six months of 2004 as compared to $1,793,000 in the first six months of 2003. The Company incurred costs related to the Tender Offer in the first six months of 2003; there were no such costs incurred in the second quarter of 2004. In addition, the Company undertook numerous cost savings measures, including relocating its corporate offices to smaller space, reducing headcount and reducing the salaries of its President and its COO late in the second quarter of 2003 that have reduced administrative and general expenses in the first six months of 2004 as compared to the first six months of 2003. Interest income decreased approximately $335,000, to $99,000 in the first six months of 2004 as compared to $434,000 in the first six months of 2003. Cash balances in the first six months of 2003 were significantly higher than in the first six months of 2004. On January 31, 2003, BayCorp commenced an issuer tender offer to purchase up to 8,500,000 shares of its common stock at a price of $14.85 per share. The Company exercised its discretion to purchase up to an additional 2% of outstanding shares, purchasing a total of 8,673,887 shares and options, representing approximately 94.3% of the shares and options tendered. The Company distributed approximately $123,603,000 in cash to tendering shareholders and options holders by March 24, 2003. See "Note E - Equity." 14 Other income increased approximately $349,000, to $676,000 in the first six months of 2004 as compared to $327,000 in the first six months of 2003. This increase was primarily due to receipt by the Company of one-time payments totaling approximately $572,000 following the final reconciliation and termination of certain escrow accounts that had been funded for potential closing adjustments and other costs specific to the Company's sale of its interests in the Seabrook Nuclear Power Plant in November 2002. The Company recognized an extraordinary gain of $278,000 in the first six months of 2004 upon the consolidation of HoustonStreet. As of May 1, 2004, BayCorp's ownership in HoustonStreet was 59.7%, and in accordance with EITF Topic D-84, the Company followed step acquisition accounting to consolidate HoustonStreet. The fair value of current assets exceeded BayCorp's net investment in HoustonStreet by $278,000 resulting in negative goodwill upon application of step acquisition accounting. See Note D. Net Income - ---------- As a result of the above factors, for the first six months of 2004, the Company recorded a net loss of approximately $2,002,000, or $3.28 per share, as compared to a net loss of approximately $1,727,000, or $0.41 per share, for the first six months of 2003. Liquidity and Capital Resources - ------------------------------- As of June 30, 2004, BayCorp had approximately $6,943,000 in cash and cash equivalents and approximately $2,500,000 in restricted cash. The Company also had approximately $1,264,000 in a cash deposit at ISO NE. The Company purchases a portion of its power needed for resale from ISO NE and ISO NE requires financial assurance to protect NEPOOL against a payment default of one of its participants. The amount of collateral needed is calculated based upon formulas developed by ISO NE and NEPOOL. This deposit is reflected as an Other Long Term Asset in the Company's financial statements. BayCorp's cash generation for the six months ended June 30, 2004 was not sufficient to cover the cash requirements of the Company during this period. The Company believes that its current cash, together with the anticipated proceeds from the sale of electricity by GBPM and GBH, will be sufficient to enable the Company to meet the anticipated cash requirements of its current operations in 2004. However if the prices at which GBPM must purchase its power supply increase significantly from current levels, BayCorp or GBPM could be required to raise additional capital, either through a debt financing or an equity financing, to meet ongoing cash requirements. There can be no assurance that BayCorp or GBPM will be able to raise additional capital on acceptable terms or at all. BayCorp's cash and cash equivalents decreased approximately $526,000 during the first six months of 2004. The Company had a net loss of approximately $2,002,000 in the first six months of 2004. Included in this net loss was a non-cash charge to earnings of approximately $86,000 for compensation expense related to the accounting for stock options. Also included was a non-cash charge for the loss on the mark-to- market of the Unitil PPA of approximately $2,485,000 and a non-cash recognition of deferred gain on the Unitil PPA of 15 approximately $132,000. The Company also recognized a non-cash extraordinary gain of $278,000 upon the consolidation of HoustonStreet as of May 1, 2004. An increase in accounts receivable of approximately $366,000 was primarily attributable to GBH receivables of approximately $312,000. The decrease of approximately $1,220,000 in prepaids and other assets and the decrease of approximately $953,000 in miscellaneous and other current liabilities was primarily attributable to the final reconciliation and termination of certain escrow accounts that had been funded for potential closing adjustments and other costs specific to the Company's sale of its interests in the Seabrook Nuclear Power Plant in November 2002. The Company received approximately $572,000 in the first six months of 2004 relative to the termination of these accounts. An additional $367,000 was reversed from these accounts for the over accrual for these potential closing costs. An increase in accounts payable and accrued expenses of approximately $110,000 was primarily attributable to GBH payables of approximately $188,000. During the first six months of 2004, the Company repurchased 81,841 shares of its common stock for approximately $1,074,000, at an average per share price of approximately $13.13. The Company's contractual obligations as of June 30, 2004 were as follows:
Contractual Total Less Than 1-3 Years 3-5 Years More Than Obligations One Year 5 Years ----------- ----- -------- --------- --------- -------- Office Space Lease $8,800 $8,800 0 0 0
Following the sale of Seabrook and the completion of the Company's Tender Offer, the Company has evaluated and pursued a number of energy-related investment opportunities. The Company continues to focus on the acquisition of electric generating assets, an area where it feels that it has a solid understanding of the market and the value of and risks related to those assets. BayCorp is interested in acquiring either complete or partial ownership of generating facilities. There are a large number of generating assets currently offered for sale. These plants consist of both merchant and contracted facilities using a variety of fuels and located both domestically and internationally. There is also growing competition for the acquisition of these assets, with a number of new participants entering the market, including private equity funds, hedge funds, insurance companies and investment banks. The Company is focused on pursuing opportunities and assets that it believes will provide a return to stockholders commensurate with the risks. Generally, BayCorp has targeted the following operating assets: (1) merchant plants in regions with developed wholesale power markets such as New England, New York, PJM and Texas that are fueled by means other than natural gas (e.g. hydro, coal, nuclear), (2) international assets that have stable, long-term off- take contracts, and (3) either merchant or contracted renewable assets. BayCorp is also pursuing other energy-related investments including development of new power generation facilities and the further development of HoustonStreet, its online trading platform. BayCorp's first acquisition in the post-Seabrook period was the acquisition of the generating plants owned by Citizens through BayCorp's wholly-owned subsidiary, Great Bay Hydro. Great Bay Hydro entered into a purchase and sale agreement in October 2003 with Citizens to acquire all of the generating facilities in Vermont owned by the Vermont Electric Division of Citizens. The generating facilities include an operating hydroelectric facility of approximately 4 MWs located in Newport, Vermont, diesel engine generators totaling approximately 7 MWs located in Newport, Vermont and non-operating hydroelectric facilities in Troy, Vermont and West Charleston, Vermont. On April 1, 2004, BayCorp announced that Great Bay Hydro completed this 16 acquisition. Great Bay Hydro assumed operating responsibility for these facilities on April 1, 2004 and is using the output of the Newport plant as a physical hedge for meeting a portion of BayCorp's supply obligations under the long-term contract to supply 9.06 megawatts to Unitil. Great Bay Hydro paid a nominal purchase price to Citizens for the generating facilities and 650 acres of real property associated with the generating facilities. In addition, Citizens has agreed to indemnify Great Bay Hydro for the reasonably anticipated costs of complying with the requirements of the new operating license issued by the FERC on November 21, 2003. Great Bay Hydro and Citizens will share the savings if the costs of compliance during the next three years are less than the anticipated amount. The Company may pursue investments that would require additional equity or debt financing. The Company believes that such financing is available, but there can be no assurance that the Company would be successful in obtaining such financing. If the Company is not successful in obtaining additional financing, the Company may not be able to pursue certain investment alternatives. In such a case, the Company may be limited to opportunities that it can pursue given its current resources. The income from the Company's current and near-term expected operating businesses (the Unitil PPA and Great Bay Hydro acquisition) is insufficient to pay current operating expenses. The Company believes however, that its current cash, together with the anticipated proceeds from the sale of electricity by GBPM and GBH, will be sufficient to enable the Company to meet the anticipated cash requirements of its current operations in 2004. If the Company is unsuccessful in identifying and making additional investments, the Company may seek alternative strategies, including liquidation. If the Company decides to liquidate, cash may be reserved to pay for the expected expenses of liquidation and other liabilities of the Company, including potential runoff insurance policies and severance obligations that would be triggered. Critical Accounting Policies - ---------------------------- Preparation of the Company's financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities and revenues and expenses. Note 1 to the Consolidated Financial Statements in the Company's Form 10-K, filed March 26, 2004, is a summary of the significant accounting policies used in the preparation of the Company's financial statements. The following is a discussion of the most critical accounting policies used historically by the Company. Stock Options The Company accounts for its stock option plans under Accounting Principles Board Opinion No. 25 and related interpretations for options issued prior to 2003, and as such no compensation cost had been recognized for options granted at fair market value that had not been modified. In prior years, the Company repriced certain options, accelerated the vesting of others, made limited recourse loans for certain individuals to exercise options and issued contingent options. The Company recorded compensation expense related to these options. On August 14, 2002 the Company announced that it would expense the fair value of all stock options granted beginning January 1, 2003 in accordance with SFAS No. 123, "Accounting for Stock Based Compensation." Awards under the Company's plans vest over periods ranging from one to three years. Therefore, the cost related to stock-based employee compensation included in the determination of net income for 2004 and 2003 differs from that which would have been recognized if the fair value based method had been applied to all awards since the original effective date of Statement 123. 17 Principles of Consolidation The Company consolidates all majority-owned and controlled subsidiaries and applies the equity method of accounting for investments between 20% and 50%. All significant intercompany transactions have been eliminated. All sales of subsidiary stock are accounted for as capital transactions in the consolidated financial statements. The Company began consolidating its subsidiary, HoustonStreet, as a result of the recapitalization that occurred on April 30, 2004. As a result of the recapitalization, the Company's ownership in HoustonStreet increased from 46.4% to 59.7%. Energy Marketing Forward contracts (including the Unitil PPA) meeting the definition of a derivative and not designated and qualifying for the normal purchases and normal sales exception under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133) are recorded at fair value. In accordance with FASB's Emerging Issues Task Force Issue No. 02-03, Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading and Risk Management Activities (EITF Issue No. 02-03), revenues related to derivative instruments classified as trading are reported net of related cost of sales. Forward Looking Statements and Certain Factors That May Affect Future Results - --------------------------------------------------- This Quarterly Report contains forward-looking statements. For this purpose, any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects," "intends" and similar expressions are intended to identify forward-looking statements. There are a number of important factors that could cause the results of BayCorp and/or its subsidiaries to differ materially from those indicated by such forward-looking statements. These factors include, without limitation, those set forth below and elsewhere in this report. Business Opportunities and Development. As described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources," the Company has evaluated and pursued energy- related investment opportunities, has focused on the acquisition of electric generating assets and is considering other energy-related investments and the further development of HoustonStreet. There can be no assurance that the Company will be able to identify business opportunities that it believes to be attractive, or that it will be successful in pursuing any such opportunities, in view of factors that include competition for the acquisition of assets, the fact that many energy-related activities are subject to government regulatory requirements, the Company's limited resources and the probable need to obtain debt or equity financing in order to pursue certain opportunities. History of Losses. BayCorp reported an operating loss for the first six months of 2004 and for the year 2003 and reported operating income for the years 2002 and 2001. Prior to 2001, BayCorp had never reported an operating profit for any year since its incorporation. 18 Liquidity Need. As of June 30, 2004, BayCorp had approximately $10.7 million in cash and cash equivalents and restricted cash. The Company believes that such cash, together with the anticipated proceeds from the sale of electricity by GBPM and GBH will be sufficient to enable the Company and its wholly owned subsidiaries to meet their cash requirements in 2004. The direction of the Company's business and circumstances, foreseen or unforeseen, may cause cash requirements to be materially higher than anticipated and the Company or its wholly-owned subsidiaries may be required to raise additional capital, either through a debt financing or an equity financing, to meet ongoing cash requirements. There is no assurance that the Company or its subsidiaries would be able to raise such capital or that the terms on which any additional capital is available would be acceptable. Moreover, the Company's need to raise additional capital in order to pursue certain opportunities may affect the Company's competitive position with respect to such opportunities. If additional funds are raised by issuing equity securities, dilution to then existing stockholders will result. Primary Reliance on a Single Asset. BayCorp's principal source of revenue in the first six months of 2004 was GBPM's contract to sell power to Unitil. Accordingly, BayCorp's results of operations significantly depended on the successful and continued performance under the Unitil contract. On April 1, 2004, BayCorp announced that Great Bay Hydro completed the acquisition of all of the generating facilities in Vermont owned by the Vermont Electric Division of Citizens. Great Bay Hydro assumed operating responsibility for these facilities on April 1, 2004 and is currently using the output of the Newport plant as a physical hedge for meeting a portion of BayCorp's supply obligations under the Unitil contract. Extensive Government Regulation. The electric energy industry is subject to extensive regulation by federal and state agencies. GBPM and Great Bay Hydro are subject to the jurisdiction of the FERC. GBPM is required to file with FERC all contracts for the sale of electricity. Great Bay Hydro operates the Clyde River hydroelectric project under the terms of a license issued by FERC. FERC's jurisdiction also includes, among other things, the sale, lease, merger, consolidation or other disposition of facilities, interconnection of certain facilities, accounts, service and property records. Risks Related to HoustonStreet. HoustonStreet's revenues depend on continued and expanded use of Internet-based wholesale energy trading platforms. Electronic trading of wholesale energy is new and evolving, and thus may not achieve widespread market acceptance or emerge as a sustainable business. In addition, HoustonStreet will need to enhance trading liquidity in order to increase and sustain revenues. As a technology dependent business, HoustonStreet's business could suffer due to computer or communications systems interruptions or failures, technological change or adverse competitive developments. Further, as electronic commerce evolves, federal, state and foreign agencies could adopt regulations covering issues such as user privacy, content and taxation of products and services. If enacted, government regulations could materially adversely affect HoustonStreet's business. Although HoustonStreet currently is not aware that it infringes any other patents, it is possible that HoustonStreet's technology infringes patents held by third parties. If HoustonStreet were to be found infringing, the owner of the patent could sue HoustonStreet for damages, prevent HoustonStreet from making, selling or using the owner's patented technology or could impose substantial royalty fees for those privileges. If any of the foregoing risks materialize, or other risks develop that adversely affect HoustonStreet, or if HoustonStreet fails to grow its revenues and net income, BayCorp could lose all of the value of its investment in HoustonStreet. Item 3. Quantitative and Qualitative Disclosures About Market Risk - -------------------------------------------------------- Commodity Price Risk 19 The prices of electricity are subject to fluctuations resulting from changes in supply and demand. The Company tracks market exposure for any forward firm energy contracts in a mark-to-market model that is updated daily with current market prices and is reflected in the company's balance sheet. See "Note B - Summary of Significant Accounting Policies." The positive, or negative, value of the portfolio of forward firm energy commitments represents an estimation of the gain, or loss, that GBPM would have experienced if open firm commitments were covered at then-current market prices. GBPM had a net unrealized loss of $2,353,000 on its forward firm fixed energy contract as of June 30, 2004 and an unrealized loss of approximately $585,000 as of June 30, 2003. Item 4. Controls and Procedures - ------------------------------- Evaluation of Disclosure Controls and Procedures The Chairman, CEO, and President and the Vice President of Finance of the Company have reviewed and evaluated the effectiveness of disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 (the "Exchange Act") Rules 240.13a and 15(e)) as of the end of the fiscal quarter covered by this Quarterly Report. Based on that evaluation, the Chairman, CEO, and President and the Vice President of Finance have concluded that their current disclosure controls and procedures are, in all material respects, effective and timely, providing them with material information relating to that required to be disclosed in the reports the Company files or submits under the Exchange Act. The Company's management, including the Chairman, CEO and President and the Vice President of Finance, does not expect that the Company's disclosure controls and procedures or its internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, provides reasonable, not absolute, assurance that the objectives of the control system are met. The design of a control system reflects resource constraints; the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns occur because of simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all future conditions; over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Changes in Internal Controls There have not been any significant changes in the Company's internal controls or, to its knowledge, in other factors that have materially affected, or are reasonably likely to materially affect, these controls subsequent to the date of their evaluation. The Company is not aware of any significant deficiencies or material weaknesses and, therefore, no corrective actions were taken. Part II - OTHER INFORMATION 20 Item 2 - Changes in Securities and Use of Proceeds - -------------------------------------------------- Share Repurchase Plan. In September 2003, the Company's Board of Directors authorized the repurchase of up to ten percent of its fully diluted common stock on the open market or in negotiated transactions. The following table summarizes repurchases of BayCorp stock in the six months ended June 30, 2004:
Maximum Number of Shares that May Yet Shares Average Price Be Purchased Under Period Repurchased(1) Per Share the Plan ------ -------------- ------------- --------------------- February 2004 30,240 $13.05 May 2004 32,101 $13.19 June 2004 19,500 $13.10 24
(1) All shares were repurchased pursuant to the Company's repurchase plan announced September 29, 2003. Item 3. Defaults upon Senior Securities - --------------------------------------- Prior to the April 30, 2004 recapitalization of HoustonStreet resulting in BayCorp's ownership interest increasing above 50% and HoustonStreet becoming a majority-owned subsidiary, HoustonStreet had defaulted in the payment of its senior secured promissory notes. Such notes were cancelled in the recapitalization of HoustonStreet. See Notes to Financial Statements, Note D. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ The Company held its Annual Meeting of Stockholders on May 17, 2004. Proxies for the meeting were solicited pursuant to Regulation 14A, and there were no solicitations in opposition to management's nominees for Directors. All such nominees were elected. At the Annual Meeting, the following matters were voted on: 1. Six members were elected to the Board of Directors to serve until the next Annual Meeting of Stockholders of the Company and until their successors are duly elected and qualified. The following table sets forth the number of votes cast for and withheld for each nominee for Director.
Name For Withheld ---- ---- -------- Anthony M. Callendrello 580,064 21,973 Alexander Ellis 580,064 21,973 Stanley I. Garnett 580,064 21,973 Frank W. Getman Jr. 580,064 21,973 James S. Gordon 580,064 21,973 Thomas C. Leonard 580,064 21,973
21 2. The stockholders of the Company ratified the selection by the Audit Committee of Vitale, Caturano & Company, PC as the Company's independent auditors by a vote of 580,130 shares in favor of the proposal, 21,404 shares voted against the selection, and 503 shares abstained. Item 5. Other Information - -------------------------- On August 2, 2004, the Company issued its second quarter 2004 earnings release. The earnings release is attached as Exhibit 99 to this Form 10-Q. Item 6. Exhibits and Reports on Form 8-K - ----------------------------------------- (a) See Exhibit Index. (b) There were no reports on 8-K filed during the three months ended June 30, 2004. 22 Exhibit Description No. ---------- ----------- 2 Agreement and Plan of Merger of HSEMergerCo, Inc. with and into HoustonStreet Exchange, Inc. 31.1 Certification of President and Chief Executive Officer (principal executive officer) pursuant to Exchange Act Rules 13a-14 and 15d-14. 31.2 Certification of President and Chief Executive Officer (principal financial officer) pursuant to Exchange Act Rules 13a-14 and 15d-14. 31.3 Certification of Vice President of Finance and Treasurer (chief accounting officer) pursuant to Exchange Act Rules 13a-14 and 15d-14. 32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2 Certification of Vice President of Finance and Treasurer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 99 BayCorp Holdings, Ltd. Earnings Release for the quarter ended June 30, 2004. 24 EX-2 2 baycorpq2ex2.txt AGREEMENT AND PLAN OF MERGER Exhibit 2 AGREEMENT AND PLAN OF MERGER OF HSEMergerCo, Inc. (a Delaware corporation) WITH AND INTO HoustonStreet Exchange, Inc. (a Delaware corporation) AGREEMENT AND PLAN OF MERGER (hereinafter the "Agreement"), entered into as of this 22nd day of April, 2004, by and between HSEMergerCo, Inc., a Delaware corporation (hereinafter "MergerCo"), and HoustonStreet Exchange, Inc., a Delaware corporation, (hereinafter "HSE") (MergerCo and HSE are hereinafter sometimes collectively referred to as the "Corporations"). W I T N E S S E T H: WHEREAS, MergerCo is a corporation duly organized and existing under the laws of the State of Delaware, having been duly incorporated on April 19, 2004, and having a principal place of business located in Portsmouth, New Hampshire, with authorized capital stock consisting of ten thousand (10,000) shares of Common Stock having a par value of $.01 per share; and WHEREAS, HSE is a corporation duly organized and existing under the laws of the State of Delaware, having been duly incorporated on April 27, 1999, and having a principal place of business located in Portsmouth, New Hampshire, with authorized capital stock of Two Hundred Fifty-Eight Million Three Hundred Sixty-Three Thousand Seven Hundred Fifty-One (258,363,751), consisting of One Hundred Seventy Million (170,000,000) shares of Common Stock having a par value of $.01 per share, and Eighty- Eight Million Three Hundred Sixty-Three Thousand Seven Hundred Fifty-One (88,363,751) shares of Preferred Stock having a par value of $.01 per share, of which Three Million Seven Hundred Sixty Thousand Three (3,760,003) shares are designated as Series A Convertible Preferred Stock ("Series A Preferred Stock"), Two Million Three Hundred Thirty-Three Thousand Three Hundred Thirty- Four (2,333,334) shares are designated as Series B Convertible Preferred Stock ("Series B Preferred Stock"), and Eighty-Two Million Two Hundred Seventy Thousand Four Hundred Fourteen (82,270,414) shares are designated as Series C Convertible Preferred Stock ("Series C Preferred Stock"); and WHEREAS, the Board of Directors of HSE believes it is advisable and in the best interest of the Corporation and their Shareholders that the Corporations be merged to form a single Delaware corporation; and WHEREAS, the Boards of Directors of the Corporations believe it is advisable and to the advantage of the Corporations and their Shareholders that the Corporations be merged to form a single Delaware corporation; and WHEREAS, the Boards of Directors of the Corporations have authorized and approved such merger and the execution of this Agreement in connection therewith, pursuant to the authority granted by, and in accordance with, the provisions of Sections 251 and 253 of the Delaware General Corporation Law ("GCL"); and WHEREAS, the laws of the State of Delaware, under which the Corporations are organized, permit such a merger; and WHEREAS, for United States Federal income tax purposes, it is intended that the Merger (as defined in Section 1) shall qualify as a reorganization under the provisions of Section 368 of the Internal Revenue Code of 1986, as amended (the "Code") and this Agreement is intended to be and is adopted as a plan of reorganization within the meaning of Section 368 of the Code. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, and for the purpose of stating the method and terms and conditions of the merger of the Corporations, and such other details and provisions as the parties deem desirable, the parties hereto agree as follows: 1. Merger. Subject to the terms and conditions of this Agreement, at the Effective Time (as defined in Section 8 hereof) MergerCo shall be merged with and into HSE (hereinafter the "Merger"), the separate existence of MergerCo shall cease, and HSE (hereinafter sometimes referred to as the "Surviving Corporation") shall continue to exist by virtue of and be governed by the laws of the State of Delaware. In all respects, the Merger shall have the effect provided for in Section 259 of the Delaware GCL. It is the intention of the parties to this Agreement that the Merger be accomplished pursuant to and in accordance with the requirements of Section 368(a)(1)(A) of the Code. 2. Name of Surviving Corporation. The name of the Surviving Corporation shall be HoustonStreet Exchange, Inc. 3. Principal Place of Business. The principal place of business of the Surviving Corporation shall be One Cate Street, Portsmouth, New Hampshire 03801. 4. Certificate of Incorporation. The Certificate of Incorporation of HSE in effect immediately prior to the Effective Date of the Merger, amended as follows, shall be the Certificate of Incorporation of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law: 2 ARTICLE FIRST will be amended at the Effective Time to change the name of the corporation to HoustonStreet, Inc. ARTICLE FOURTH will be amended at the Effective Time to reduce the authorized capital to One Million (1,000,000) shares, consisting entirely of Common Stock, $0.01 par value per share, and to delete Part B, Part C, and Part D in their entirety. 5. Bylaws. The Bylaws of HSE in effect immediately prior to the Effective Date of the Merger shall be the Bylaws of the Surviving Corporation until thereafter changed or amended as provided therein or by applicable law. 6. Directors and Officers of the Surviving Corporation. The Directors and officers of HSE at the Effective Time shall be the Directors and officers of the Surviving Corporation until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. 7. Conversion of Shares. The basis and manner of converting shares of MergerCo and HSE at the time of the Merger shall be as follows: A. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of common stock of MergerCo, each share of issued and outstanding stock of MergerCo, shall be converted into one hundred (100) shares of common stock of the Surviving Company (the aggregate number of shares to be issued to each holder will be rounded to the nearest share). The remaining shares of authorized but unissued shares of stock of MergerCo shall, at the Effective Time, be cancelled and shall cease to exist. B. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any Series C Incentive Plan Rights granted by HSE pursuant to the 2002 Employee and Director Retention and Incentive Plan, each Series C Incentive Plan Right granted and outstanding, whether or not vested, shall be converted into 0.001888612 shares of common stock of the Surviving Company (the aggregate number of shares to be issued to each holder will be rounded to the nearest share). The 2002 Employee and Director Retention and Incentive Plan shall, at the Effective Time, be terminated and shall cease to exist. C. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Series A Preferred Stock of HSE except as expressly provided herein, each share of issued and outstanding Series A Preferred Stock of HSE, shall be converted into a right to receive, at the election of each holder of Series A Preferred Stock, in accordance with the terms and conditions hereof, either (i) 0.000637168 share of common stock of the Surviving Company ("Series A Stock Consideration") (the aggregate number of shares to be issued to each holder will be rounded to the nearest share) or (ii) cash in an amount equal to one dollar ($1.00) divided by the number of shares of 3 Series A Preferred Stock held by such shareholder ("Series A Cash Consideration"), such that if such shareholder elects to receive Series A Cash Consideration the total amount payable to such shareholder shall be $1.00 in exchange for all shares of Series A Preferred Stock held by such shareholder. The remaining shares of authorized but unissued shares of Series A Preferred Stock of HSE shall cease to exist at the Effective Time. D. At the Effective Time, by virtue of the Merger and without any action on the part of the holder of any shares of Series B Preferred Stock of HSE except as expressly provided herein, each share of issued and outstanding Series B Preferred Stock of HSE, shall be converted into a right to receive, at the elections of the holders of Series B Preferred Stock, in accordance with the terms and conditions hereof, either (i) 0.000637168 share of common stock of the Surviving Company ("Series B Stock Consideration") (the aggregate number of shares to be issued to each holder will be rounded to the nearest share) or (ii) cash in an amount equal to one dollar ($1.00) divided by the number of shares of Series B Preferred Stock held by such shareholder ("Series B Cash Consideration"), such that if such shareholder elects to receive Series B Cash Consideration the total amount payable to such shareholder shall be $1.00 in exchange for all shares of Series B Preferred Stock held by such shareholder. The remaining shares of authorized but unissued shares of Series B Preferred Stock of HSE shall cease to exist at the Effective Time. E. At the Effective Time, by virtue of the Merger and without any action on the part of the Surviving Corporation or the holder of any shares of common stock of HSE, each share of common stock of HSE issued and outstanding immediately prior to the Effective Time, shall be cancelled. F. At the Effective Time, by virtue of the Merger and without any action on the part of the Surviving Corporation or the holder of any warrant, option or other right to purchase any class of capital stock of HSE, each such warrant, option and right granted and unexercised immediately prior to the Effective Time, shall be cancelled. 8. Elections of Merger Consideration. Subject to Section 7, each person who is a record holder of either Series A Preferred Stock or Series B Preferred Stock as of the Effective Time will be entitled, with respect to all of his or its shares of such class of stock, to make an unconditional election (a Series A Cash Consideration or Series A Stock Consideration election or a Series B Cash Consideration or Series B Stock Consideration election, as the case may be, collectively "Merger Consideration") on or prior to the Election Date (as defined in Section 8.D below). A. The Form of Election shall be used by each record holder of Series A Preferred Stock who wishes to elect to receive the Series A Cash Consideration or the Series A Stock Consideration. An election, if properly and timely made, shall be effective with respect to all such 4 shareholder's shares of Series A Preferred Stock. If a holder of Series A Preferred Stock fails to make a proper election on or prior to the Election Date, then such shareholder shall be deemed to have elected to receive Series A Stock Consideration in exchange for such shareholder's Series A Preferred Stock. B. The Form of Election shall be used by each record holder of Series B Preferred Stock who wishes to elect to receive the Series B Cash Consideration or the Series B Stock Consideration. An election, if properly and timely made, shall be effective with respect to all such shareholder's shares of Series B Preferred Stock. If a holder of Series B Preferred Stock fails to make a proper election on or prior to the Election Date, then such shareholder shall be deemed to have elected to receive Series B Stock Consideration in exchange for such shareholder's Series B Preferred Stock. C. The Surviving Corporation shall prepare and mail a form of election (the "Form of Election") to each holder of Series A Preferred Stock and/or Series B Preferred Stock as of the Effective Date. D. The Surviving Corporation will use reasonable efforts to make the Form of Election available to each holder of Series A Preferred Stock and/or Series B Preferred Stock as of the Effective Date within ten (10) days of the Effective Date. Any such holder's election to receive Series A Cash Consideration, Series A Stock Consideration, Series B Cash Consideration or Series B Stock Consideration, as the case may be, shall have been properly made only if the President of the Surviving Corporation shall have received at the Surviving Corporation's principal place of business, by 5:00 p.m. EDT, on the thirtieth (30th) day following the Effective Date (or if the thirtieth (30th) day following the Effective Date is not a Business Day, then the next succeeding Business Day) (the "Election Date") a Form of Election properly completed and signed and accompanied by certificates for the shares of the Series A Preferred Stock and/or Series B Preferred Stock, as applicable. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which banks in Portsmouth, New Hampshire are required by law to close. E. The determination of the President of the Surviving Corporation shall be binding as to whether or not elections to receive a type of Merger Consideration have been property made pursuant to this Agreement, and as to the time when elections were received by him. The President of the Surviving Corporation shall also make all computations contemplated by Section 7 and any such computation shall be conclusive and binding on the holders of shares of Series A Preferred Stock and/or Series B Preferred Stock. 9. Exchange Procedure. A. As soon as reasonably practicable following the Effective Time, and subject to proper elections having been made, the President of the Surviving Company shall mail to each holder of an outstanding certificate or certificates which prior thereto represented shares of 5 Series A Preferred Stock or Series B Preferred Stock that did not submit such certificate or certificates to the President of the Surviving Corporation with such holder's Form of Election (i) a letter of transmittal (which shall specify, as shall the Form of Election, that delivery shall be effected, and risk of loss and title to such certificate shall pass, only upon delivery of such certificates to the President of the Surviving Corporation), and (ii) instructions for use in effecting the surrender of the certificates for the Merger Consideration. The holder of such certificates shall after the Effective Time, subject to proper surrender to the President of the Surviving Corporation of such certificates for cancellation, be entitled only to a certificate or certificates representing the number of shares of common stock of the Surviving Corporation, if any, and/or the amount of cash, if any, into which the aggregate number of shares of Series A Preferred Stock or Series B Preferred Stock, as applicable, previously represented by such certificate or certificates surrendered shall have been converted pursuant to this Agreement. The Exchange Agent shall accept such certificates upon compliance with such reasonable terms and conditions as the President of the Surviving Corporation may impose to effect an orderly exchange thereof. After the Effective Date, there shall be no further transfer on the records of HSE or its transfer agent of certificates representing shares of HSE Series A Preferred Stock or Series B Preferred Stock and if such certificates are presented to the Surviving Corporation for transfer, they shall be cancelled against delivery of certificates for Surviving Corporation common stock or cash as hereinabove provided. If any certificate for such Surviving Corporation common stock is to be issued in, or if cash is to be remitted to, a name other than that in which the certificate for Series A Preferred Stock or Series B Preferred Stock surrendered for exchange is registered, it shall be a condition of such exchange that the certificate so surrendered shall be properly endorsed or otherwise in proper form for transfer. Until surrendered as contemplated by this Section 9, each certificate for shares of Series A Preferred Stock or Series B Preferred Stock shall be deemed at any time after the Effective Time of the Merger to represent only the right to receive upon such surrender the Merger Consideration. No interest will be paid or will accrue on any cash payable as Merger Consideration. B. No dividends or other distributions with respect to Surviving Corporation common stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered certificate for shares of Series A Preferred Stock or Series B Preferred Stock with respect to the shares of Surviving Corporation common stock represented thereby until the surrender of such certificate in accordance with this Agreement. Subject to the effect of applicable laws, following surrender of any such certificate, there shall be paid to the holder of the certificate representing shares of Surviving Corporation common stock issued in exchange therefor, without interest, (i) at the time of such surrender the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such shares of Surviving Corporation common stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and a payment date subsequent to such surrender payable with respect to such shares of Surviving Corporation common stock. 6 C. All shares of Surviving Corporation common stock issued and cash paid upon the surrender for exchange of certificates representing shares of Series A Preferred Stock or Series B Preferred Stock in accordance with the terms of this Agreement shall be deemed to have been issued (and paid) in full satisfaction of all rights pertaining to the shares of Series A Preferred Stock or Series B Preferred Stock theretofore represented by such certificates. 10. Effective Date and Time of Merger. The Merger shall become effective on such date ("Effective Date") and at such time as the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware, or at such other time as is permissible in accordance with the Delaware GCL and as MergerCo and HSE shall agree should be specified in the Certificate of Merger (the time the Merger becomes effective being the "Effective Time"). 11. Abandonment; Amendment. This Agreement may be abandoned or amended (subject to certain limitations under law) by appropriate mutual action of the Boards of Directors of the Companies at any time prior to the Effective Date. [signature page to follow] 7 IN WITNESS WHEREOF, MergerCo and HSE have caused this Agreement to be signed by their duly authorized officers, and their seals to be affixed, as of the day and year first above written. Witness: HSEMergerCo, Inc. (a Delaware corporation) /s/ Cynthia A. Johnson By /s/ Frank W. Getman Jr. - -------------------------- ---------------------------- Frank W. Getman Jr., President Witness: HoustonStreet Exchange, Inc. (a Delaware corporation) /s/ Cynthia A. Johnson By /s/ Frank W. Getman Jr. - -------------------------- ---------------------------- Frank W. Getman Jr., President STATE OF NEW HAMPSHIRE COUNTY OF ROCKINGHAM The foregoing instrument was acknowledged before me this 22nd day of April, 2004, by Frank W. Getman Jr., President of HSEMergerCo, Inc., a Delaware corporation, on behalf of the corporation. /s/ Janet P. Alperin ----------------------------------- Notary Public/Justice of the Peace My commission expires: June 6, 2006 STATE OF NEW HAMPSHIRE COUNTY OF ROCKINGHAM The foregoing instrument was acknowledged before me this 22nd day of April, 2004, by Frank W. Getman Jr., President of HoustonStreet Exchange, Inc., a Delaware corporation, on behalf of the corporation. /s/ Janet P. Alperin ----------------------------------- Notary Public/Justice of the Peace My commission expires: June 6, 2006 8 EX-31 3 baycorpq2ex311.txt CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER Exhibit 31.1 CERTIFICATIONS I, Frank W. Getman Jr., President and Chief Executive Officer of BayCorp Holdings, Ltd., certify that: 1. I have reviewed this quarterly report on Form 10-Q of BayCorp Holdings, Ltd.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) [paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and d) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or person performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Date: August 6, 2004 By: /s/ Frank W. Getman Jr. -------------------------- Frank W. Getman Jr. President and Chief Executive Officer (principal executive officer) EX-31 4 baycorpq2ex312.txt CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER Exhibit 31.2 CERTIFICATIONS I, Frank W. Getman Jr., President and Chief Executive Officer of BayCorp Holdings, Ltd., certify that: 1. I have reviewed this quarterly report on Form 10-Q of BayCorp Holdings, Ltd.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) [paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and d) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or person performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Date: August 6, 2004 By: /s/ Frank W. Getman Jr. ------------------------------ Frank W. Getman Jr. President and Chief Executive Officer (principal financial officer) EX-31 5 baycorpq2ex313.txt CERTIFICATION OF CHIEF ACCOUNTING OFFICER EXHIBIT 31.3 I, Patrycia T. Barnard, Vice President of Finance and Treasurer of BayCorp Holdings, Ltd. certify that: 1. I have reviewed this quarterly report on Form 10-Q of BayCorp Holdings, Ltd; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) [paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]; c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation; and d) disclosed in this quarterly report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or person performing the equivalent functions): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls. Date: August 6, 2004 By: /s/ Patrycia T. Barnard ------------------------ Patrycia T. Barnard Vice President of Finance and Treasurer (chief accounting officer) EX-32 6 baycorpq2ex321.txt SECTION 906 CERTIFICATION Exhibit 32.1 The following statement is being furnished to the Securities and Exchange Commission solely for purposes of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Re: BayCorp Holdings, Ltd. Ladies and Gentlemen: In connection with the report of BayCorp Holdings, Ltd. (the "Company") on Form 10-Q for the quarter ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Frank W. Getman Jr., President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of BayCorp Holdings, Ltd. Date: August 6, 2004 /s/ Frank W. Getman Jr. ------------------------ Frank W. Getman Jr. President and Chief Executive Officer (chief executive officer and chief financial officer) A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to BayCorp Holdings, Ltd. and will be retained by BayCorp Holdings, Ltd. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32 7 baycorpq2ex322.txt SECTION 906 CERTIFICATION Exhibit 32.2 The following statement is being furnished to the Securities and Exchange Commission solely for purposes of Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). Securities and Exchange Commission 450 Fifth Street, NW Washington, DC 20549 Re: BayCorp Holdings, Ltd. Ladies and Gentlemen: In connection with the report of BayCorp Holdings, Ltd. (the "Company") on Form 10-Q for the quarter ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Patrycia T. Barnard, Vice President of Finance and Treasurer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of BayCorp Holdings, Ltd. Date: August 6, 2004 /s/ Patrycia T. Barnard ----------------------- Patrycia T. Barnard Vice President of Finance and Treasurer (chief accounting officer) A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to BayCorp Holdings, Ltd. and will be retained by BayCorp Holdings, Ltd. and furnished to the Securities and Exchange Commission or its staff upon request. EX-99 8 baycorpq2ex99.txt BAYCORP HOLDINGS, LTD. 2ND QTR 2004 EARNINGS RELEASE Exhibit 99 BAYCORP HOLDINGS, LTD. 1 New Hampshire Avenue, Suite 125 Portsmouth, New Hampshire 03801 Phone (603) 766-4990 Fax (603) 766-4991 BayCorp Reports Second Quarter 2004 Operating Results ---------------------------------------------- August 2, 2004 --- BayCorp Holdings, Ltd. ("BayCorp") (AMEX: MWH) announced today its operating results for the second quarter ended June 30, 2004. BayCorp reported net income of $95,000, or approximately $0.16 per share, for the second quarter of 2004 as compared to net income of $35,000, or approximately $0.05 per share, for the second quarter of 2003. On April 1, 2004, BayCorp's subsidiary, Great Bay Hydro Corporation ("Great Bay Hydro"), completed the acquisition of the Vermont generating facilities of Citizens Communications Company. The generating facilities include an operating hydroelectric facility of approximately 4 megawatts located in Newport, Vermont and non-operating hydroelectric facilities in Troy, Vermont and West Charleston, Vermont. Great Bay Hydro assumed immediate operating responsibility for these facilities and is using the output of the Newport plant as a physical hedge for meeting a portion of BayCorp's supply obligations under its long-term contract to supply 9.06 megawatts. A recapitalization at HoustonStreet Exchange, Inc. ("HoustonStreet") was completed in the second quarter of 2004 and as a result, BayCorp's ownership interest in HoustonStreet increased to 59.7% and the Company began consolidating HoustonStreet effective May 1, 2004. BayCorp held a minority ownership interest in HoustonStreet in the second quarter of 2003 and accounted for HoustonStreet under the equity method in 2003. The increase in net income in the second quarter of 2004 as compared to the second quarter of 2003 was primarily attributable to other income of approximately $673,000 received in the second quarter of 2004 in the form of a one-time payment following the final reconciliation and termination of certain escrow accounts that had been funded for potential closing adjustments and other costs specific to the Company's sale of its interests in the Seabrook Nuclear Power Plant in November 2002. In addition, the Company recognized an extraordinary gain of $278,000 in the second quarter of 2004 upon the reconsolidation of HoustonStreet and recognized approximately $178,000 in net income attributable to operations at Great Bay Hydro. Page 2 of 4 Offsetting these income items, BayCorp recorded an unrealized loss on the mark-to-market of the Company's firm forward long-term energy contract. The Company recorded a non-cash charge for a net unrealized loss of approximately $716,000 in the second quarter of 2004 as compared to a net unrealized gain of approximately $498,000 in the second quarter of 2003. The mark-to-market value of this long-term contract is based on current projections of power prices over the life of the contract. Forward power prices were higher in the second quarter of 2004 as compared to the second quarter of 2003 primarily due to increases in the forward price of natural gas. Power generating plants that use natural gas as a fuel source are increasingly on the margin and therefore setting the forward price of power in the New England Power Pool ("NEPOOL"). Accordingly, the price of power in NEPOOL is highly dependent on the price of natural gas. Operating revenues increased $447,000, or 44.9%, to $1,443,000 in the second quarter of 2004 as compared to $996,000 in the second quarter of 2003. The increase in revenues in the second quarter of 2004 was primarily attributable to revenues of $283,000 from the sale of electricity generated by Great Bay Hydro and the inclusion of HoustonStreet revenues of approximately $156,000. Operating expenses in the second quarter of 2004 decreased $188,000, or approximately 10.4%, from $1,811,000 in the second quarter of 2003 to $1,623,000 in the second quarter of 2004. Operating expenses for the second quarter of 2004 included Great Bay Hydro expenses of approximately $107,000 and reflected HoustonStreet expenses of approximately $162,000. The reduction in operating expenses in the second quarter of 2004 as compared to the second quarter of 2003 was primarily attributable to a decrease in administrative and general expenses. The Company has undertaken numerous cost savings measures that have reduced administrative and general expenses. The Company reduced administrative and general expenses in the second quarter of 2004 by $298,000, or approximately 32.9%, to $607,000 as compared to $905,000 in the second quarter of 2003. For the six months ended June 30, 2004, BayCorp reported a net loss of $2,002,000, or approximately $3.28 per share, as compared to a net loss of $1,727,000, or approximately $0.41 per share, for the six months ended June 30, 2003. The increase in net loss for the six months ended June 30, 2004 as compared to the same period in 2003 was primarily attributable to the unrealized loss on the mark-to-market of the Company's firm forward long-term energy contract. The Company recorded a non-cash charge of approximately $2,353,000 for the net unrealized loss on this contract for the six months Page 4 of 4 BAYCORP HOLDINGS, LTD. STATEMENT OF INCOME (UNAUDITED) (Dollars in thousands, except shares and per share data)
2004 2003 2004 2003 ---- ---- ---- ---- Operating Revenues $1,443 $996 $2,477 $1,987 Operating Expenses 1,623 1,811 3,181 3,890 ------ ------ ------ ------ Operating Loss Before Mark to Market of Energy Contracts (180) (815) (704) (1,903) Unrealized Loss (Gain) on Energy Contracts 716 (498) 2,353 585 ------ ------ ------ ------ Operating Loss (896) (317) (3,057) (2,488) Other Income - net 711 352 775 761 ------ ------ ------ ------ Income (Loss) before Income Taxes, Minority Interest and Extraordinary Item (185) 35 (2,282) (1,727) Income Taxes 0 0 0 0 Minority Interest Income 2 0 2 0 ------ ------ ------ ------ Net Income (Loss) before Extraordinary Item (183) 35 (2,280) (1,727) Extraordinary Item - Gain on Consolidation of Subsidiary 278 0 278 0 ------ ------ ------ ------ Net Income (Loss) $95 $35 ($2,002) ($1,727) ====== ====== ====== ====== Weighted Average Shares Outstanding - Basic 592,833 646,917 611,093 4,225,628 Weighted Average Shares Outstanding - Diluted 592,833 653,357 611,093 4,225,628 Basic Net Income (Loss) Per Share before Extraordinary Item ($0.31) $0.05 ($3.73) ($0.41) Diluted Net Income (Loss) Per Share before Extraordinary Item ($0.31) $0.05 ($3.73) ($0.41) Basic Net Income Per Share - Extraordinary Item $0.47 - $0.45 - Diluted Net Income Per Share - Extraordinary Item $0.47 - $0.45 - Basic Net Income (Loss) Per Share $0.16 $0.05 ($3.28) ($0.41) Diluted Net Income (Loss) Per Share $0.16 $0.05 ($3.28) ($0.41) As of June 30, 2004, there were 560,096 shares of common stock outstanding. ###
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