Eversource 2001 Annual Report Download - page 19

mately $20 million from the sale of interests in certain electric
generating facilities owned by Yankee subsidiaries to repay debt
and fund Yankee’s expanded capital expenditure program.
NU parent used the dividends and return of capital primarily
to repurchase approximately 14.3 million NU common shares in
2001 of which approximately 10.3 million shares were repur-
chased in the second quarter of 2001. In July 2001, the NU
Board of Trustees authorized the repurchase of 15 million addi-
tional NU common shares by July 2003. Under this authoriza-
tion, NU repurchased approximately 4 million shares by the end
of the year and has authorization to repurchase approximately
another 11 million shares.
In addition to repurchasing shares, NU spent another $31.7
million through Select Energy to acquire NMEM and through its
subsidiary Mode 1 Communications, Inc. (Mode 1) lent $15 mil-
lion to NEON Communications, Inc. (NEON) in the form of
subordinated convertible notes. On December 6, 2001, NEON
announced that it had retained an unaffiliated financial institu-
tion to explore, among other options, debt restructuring. On Jan-
uary 22, 2002, NEON announced it was seeking a waiver from
one of its significant unaffiliated suppliers on a $7.3 million pay-
ment that had been due on December 31, 2001. If that supplier
accelerates payment on its $42 million note from NEON, the
action would trigger a cross-default on $180 million of senior
notes previously issued by NEON. If NEON were to restructure
its debt obligations or declare bankruptcy, NU management
believes that some or all of its debt and equity investment in
NEON would be impaired. In addition to the $15 million of sub-
ordinated convertible notes, Mode 1 owns approximately 4 mil-
lion shares of NEON common stock. This equity investment had
a book value of $4.6 million, and a fair value of $11.2 million at
December 31, 2001. Subsequent to December 31, 2001, the mar-
ket value of NEON stock has decreased significantly.
NU continues to pursue additional investments in both the
regulated and unregulated energy businesses in the Northeast
United States or other strategic initiatives from time to time and
will weigh making those investments against continued share
repurchases.
Aside from the issuance of rate reduction bonds and certifi-
cates, the NU system undertook a number of refinancings in
2001. On February 28, 2001, NU issued $263 million of vari-
able-rate unsecured notes to repay an equal amount of bank debt
incurred a year earlier when NU acquired Yankee. On October
18, 2001, Northeast Generation Company (NGC) issued $440
million of amortizing senior secured debt. The $440 million
includes $120 million of bonds that mature on October 15, 2005,
at an interest rate of 4.998 percent, and $320 million of bonds
that mature on October 15, 2026, at an interest rate of 8.812 per-
cent. Proceeds from the issuance plus cash on hand were used to
return $75 million to NU parent through a combination of capi-
tal and common dividends and to repay bank borrowings NGC
had incurred to acquire 1,289 megawatts (MW) of predominant-
ly hydroelectric generation assets in early 2000. On December 19,
2001, PSNH refinanced $287.5 million of tax-exempt pollution
control revenue bonds (PCRBs) by issuing $109 million of
insured lower fixed-rate bonds and $178.5 million of insured vari-
able-rate bonds. At current rates, that refinancing is expected to
save PSNH in excess of $10 million annually. Also, in late 2001,
Holyoke Water Power Company (HWP) repaid all of its public
debt in connection with the sale of its hydroelectric generation
assets and electric distribution system to the City of Holyoke for
$17.5 million.
Primarily as a result of the Millstone sale and the issuance of
rate reduction bonds and certificates, NU’s consolidated capital-
ization ratio was significantly stronger at the end of 2001 than it
was a year earlier. Including capital lease obligations, but exclud-
ing rate reduction bonds as these bonds are nonrecourse to the
NU system, NU’s capitalization ratio was 54.3 percent debt, 2.4
percent preferred securities and 43.3 percent common equity at
the end of 2001, compared with 60.4 percent debt, 4.4 percent
preferred securities and 35.2 percent common equity at the end of
2000. The improved capitalization ratio and lowered overall risk
profile resulted in a series of upgrades of the NU system securities
through 2001. At the end of 2001, senior debt ratings on NU
parent securities were Baa1 and BBB, A2 and A- for CL&P, A3
and BBB+ for WMECO, and A3, BBB+, and BBB for PSNH.
Overall, those ratings were the highest for NU securities in
decades and are expected to continue to enhance the NU system’s
access to low-cost capital.
NU’s net cash flows provided by operating activities declined
to $376.7 million in 2001, compared with $578.4 million in
2000 and $614.2 million in 1999. In 2001, cash flows provided
by operating activities, decreased primarily due to an increase in
receivables and unbilled revenues, net, associated with the sales
growth at NU’s competitive energy subsidiaries. The level of com-
mon dividends totaled $60.9 million in 2001, as compared to
$57.4 million in 2000 and $13.2 million in 1999. This increase
was a result of NU paying a $0.10 per share quarterly common
dividend in the first two quarters of 2001 and a $0.125 per share
quarterly common dividend in the last two quarters of 2001, as
compared to paying a $0.10 per share quarterly common divi-
dend for all of 2000. The level of preferred dividends decreased to
$7.3 million in 2001, compared with $14.2 million in 2000 and
$22.8 million in 1999, reflecting NU’s ongoing effort to reduce
preferred stock outstanding. The NU system companies currently
forecast construction expenditures of up to $593 million for the
year 2002.
On September 28, 2001, NU paid a quarterly dividend of
$0.125 per share, an increase of 25 percent from a quarterly divi-
dend of $0.10 per share declared since the fourth quarter of 1999.
Similar dividends were declared for payment on December 31,
2001, and were declared in January 2002 for payment on March
29, 2002. NU anticipates increasing its dividend by approximate-
ly 10 percent annually and eventually paying out approximately
50 percent of the aggregate earnings of its regulated companies in
the form of common dividends. Such a program will be depen-
dent upon numerous factors, including NU’s ability to meet earn-
ings targets and the judgment of its Board of Trustees at the time.
Over the coming years, management expects WMECO and
NAEC to pay out substantially all of their earnings as dividends to
the parent company. PSNH is expected to pay out most of its
earnings in the form of dividends to the parent company. There
may also be an additional dividend to NU near the end of 2002,
depending on the amount of cash received as a result of the sale of
17
Return to First pageReturn to First pageReturn to HighlightsReturn to HighlightsReturn to Highlights