NSTAR/MA - 10-Q Quarterly Report

NSTAR
Form 10-Q - Quarterly Period Ended March 31, 2004

Table of Contents

Part I. Financial Information:				Page No.
	Item 1.	Financial Statements

			Condensed Consolidated Statements of Income	2

			Condensed Consolidated Statements of Comprehensive Income	3

			Condensed Consolidated Statements of Retained Earnings	3

			Condensed Consolidated Balance Sheets	4 - 5

			Condensed Consolidated Statements of Cash Flows	6

			Notes to Condensed Consolidated Financial Statements	7 - 15

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		16 - 27

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		27

	Item 4.	Controls and Procedures		27

Part II. Other Information:

	Item 1.	Legal Proceedings		27

	Item 2	Changes in Securities and Use of Proceeds		28

	Item 4.	Submission of Matters to a Vote of Security Holders		28

	Item 6.	Exhibits and Reports on Form 8-K		29

	Signature			30



Important Shareholder Information

NSTAR files its Forms 10-K, 10-Q and 8-K reports, proxy statements and other information with the Securities and Exchange Commission (SEC). You may access materials NSTAR has filed with the SEC on the SEC’s website at www.sec.gov. In addition, NSTAR’s Board of Trustees has various committees including an Audit, Finance and Risk Management Committee, an Executive Personnel Committee, a Board Governance and Nominating Committee and an Executive Committee. In 2003, the Board adopted the NSTAR Board of Trustees Corporate Guidelines on Significant Corporate Governance Issues, a Code of Ethics for the Principal Executive Officer, General Counsel, and Senior Financial Officers, and a Code of Ethics and Business Conduct for Directors, Officers and Employees. NSTAR’s SEC filings and Corporate Governance documents, including charters, guidelines and codes, and any amendments to such codes which are applicable to NSTAR’s executive officers, senior financial officers or trustees can be accessed free of charge on NSTAR’s website at www.nstaronline.com. Copies of NSTAR’s SEC filings may also be obtained by writing or calling NSTAR’s Investor Relations Department at the address or phone number on the cover of this Form 10-Q.

Table of Contents

Part I. Financial Information
Item 1. Financial Statements

NSTAR
Condensed Consolidated Statements of Income
(Unaudited)
(in thousands, except earnings per share)

	Three Months Ended
	March 31,
		2004			2003


Operating revenues	$	809,908		$	762,932


Operating expenses:
Purchased power and cost of gas sold		471,070			434,580
Operations and maintenance		106,495			109,836
Depreciation and amortization		65,539			62,144
Demand side management and renewable energy programs		17,470			16,870
Property and other taxes		28,757			26,379
Income taxes		33,070			28,522

Total operating expenses		722,401			678,331


Operating income		87,507			84,601


Other income (deductions):
Other income, net		963			1,056
Other deductions, net		(144	)		(617	)

Total other income (deductions), net		819			439


Interest charges:
Long-term debt		28,937			31,779
Transition property securitization		7,583			8,684
Short-term debt and other		1,928			3,037
Allowance for borrowed funds used during
construction (AFUDC)/capitalized interest		(328	)		(1,288	)

Total interest charges		38,120			42,212


Preferred stock dividends of subsidiary		490			490

Net income	$	49,716		$	42,338




Weighted average common shares outstanding:
Basic		53,033			53,033



Diluted		53,483			53,312




Earnings per common share:
Basic	$	0.94		$	0.80



Diluted	$	0.93		$	0.79




Dividends declared per common share	$	0.555		$	0.54

The accompanying notes are an integral part of the condensed consolidated financial statements.
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NSTAR
Condensed Consolidated Statements of Comprehensive Income
(Unaudited)
(in thousands)

	Three Months Ended
	March 31,
		2004		2003


Net income	$	49,716	$	42,338

Other comprehensive income, net:
Unrealized gain on investments		-		2,203

Comprehensive income	$	49,716	$	44,541

The accompanying notes are an integral part of the condensed consolidated financial statements.

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NSTAR
Condensed Consolidated Statements of Retained Earnings
(Unaudited)
(in thousands)

		Three Months Ended
		March 31,
		2004		2003


Balance at the beginning of the period	$	449,114	$	382,886
Add:
Net income		49,716		42,338

Subtotal		498,830		425,224

Deduct:
Dividends declared:
Common shares		29,433		28,638

Balance at the end of the period	$	469,397	$	396,586

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

NSTAR
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)


						March 31,				December 31,
						2004				2003

Assets

Utility plant in service, at original cost				$		4,228,094	$		4,254,848
	Less: accumulated depreciation					1,072,604			1,109,248

						3,155,490			3,145,600
Construction work in progress						85,717			70,500

	Net utility plant					3,241,207				3,216,100

Non-utility property, net						158,063				160,556

Goodwill						436,059				439,122

Equity and other investments						71,708				68,888

Current assets:
	Cash and cash equivalents					15,787				16,526
	Restricted cash					14,793				13,144
	Accounts receivable, net and accrued unbilled revenues					378,572				352,374
	Inventory, at average cost					43,744				79,743
	Other					55,334				39,172

			Total current assets			508,230				500,959


Deferred debits:
		Regulatory assets - power contracts				732,651				799,087
		Regulatory assets - retiree benefit costs				341,082				340,111
		Regulatory assets - other				736,152				715,849
		Other				79,813				79,988

		Total deferred debits				1,889,698				1,935,035


Total assets					$	6,304,965		$		6,320,660

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

NSTAR
Condensed Consolidated Balance Sheets
(Unaudited)
(in thousands)


		March 31,			December 31,
		2004			2003

Capitalization and Liabilities

Common equity:
Common shares, par value $1 per share,
100,000,000 shares authorized;
53,032,546 shares issued and outstanding	$	53,033		$	53,033
Premium on common shares		866,824			866,221
Retained earnings		469,397			449,114
Accumulated other comprehensive loss		(6,776	)		(6,776	)

Total common equity		1,382,478			1,361,592


Cumulative non-mandatory redeemable preferred
stock of subsidiary		43,000			43,000



Long-term debt		1,903,632			1,605,381
Transition property securitization		342,500			377,150

Total long-term debt		2,246,132			1,982,531

Total capitalization		3,671,610			3,387,123


Current liabilities:
Long-term debt		8,602			189,956
Transition property securitization		56,826			40,077
Notes payable		143,400			239,100
Accounts payable		197,367			224,987
Accrued expenses		247,061			231,838
Deferred income taxes		38,670			13,961

Total current liabilities		691,926			939,919



Deferred credits:
Accumulated deferred income taxes and unamortized
investment tax credits		778,313			765,507
Power contracts		732,651			799,087
Pension liability		42,233			46,659
Regulatory liability - cost of removal		232,803			223,074
Other		155,429			159,291

Total deferred credits		1,941,429			1,993,618


Commitments and contingencies

Total capitalization and liabilities	$	6,304,965		$	6,320,660

The accompanying notes are an integral part of the condensed consolidated financial statements.

Table of Contents

NSTAR
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

		Three Months Ended
		March 31,
		2004			2003


Operating activities:
Net income	$	49,716		$	42,338
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		65,724			62,349
Deferred income taxes and investment tax credits		37,282			24,101
AFUDC/Capitalized interest		(328	)		(1,288	)
Net changes in:
Accounts receivable and unbilled revenues		(26,198	)		(43,962	)
Accounts payable		(27,620	)		25,504
Other current assets		18,188			23,092
Other current liabilities		39,932			7,799
Net change from other operating activities		(78,118	)		(67,770	)

Net cash provided by operating activities		78,578			72,163


Investing activities:
Plant expenditures (excluding AFUDC/capitalized interest)		(49,686	)		(55,031	)
Other investments		(2,820	)		294

Net cash used in investing activities		(52,506	)		(54,737	)


Financing activities:
Long-term debt redemptions		(183,287	)		(166,472	)
Transition property securitization		(17,901	)		(16,959	)
Net change in notes payable		204,300			168,800
Dividends paid		(29,923	)		(29,128	)

Net cash used in financing activities		(26,811	)		(43,759	)


Net decrease in cash and cash equivalents		(739	)		(26,333	)
Cash and cash equivalents at the beginning of the year		16,526			53,438

Cash and cash equivalents at the end of the period	$	15,787		$	27,105




Supplemental disclosures of cash flow information:

Cash paid during the period for:
Interest, net of amounts capitalized	$	43,496		$	49,882

Income taxes	$	8,496		$	6,519

The accompanying notes are an integral part of the condensed consolidated financial statements.

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Notes to Condensed Consolidated Financial Statements

(Unaudited)

The accompanying notes should be read in conjunction with Notes to Consolidated Financial Statements included in NSTAR’s 2003 Annual Report on Form 10-K.

Note A. Business Organization and Summary of Significant Accounting Policies

1. About NSTAR

NSTAR (or the Company) is an energy delivery company serving approximately 1.4 million customers in 107 cities and towns in Massachusetts, including approximately 1.1 million electric customers in 81 communities and approximately 300,000 gas customers in 51 communities. NSTAR’s retail utility subsidiaries are Boston Edison Company (Boston Edison), Commonwealth Electric Company (ComElectric), Cambridge Electric Light Company (Cambridge Electric) (collectively operating as “NSTAR Electric”) and NSTAR Gas Company (NSTAR Gas). Reference in this report to “NSTAR” shall mean the registrant NSTAR or one or more of its subsidiaries as the context requires. Reference in this report to “NSTAR Electric” shall mean each of Boston Edison, ComElectric and Cambridge Electric. NSTAR also has ownership interests in and conducts non-utility, unregulated operations.

2. Basis of Consolidation and Accounting

The financial information presented as of March 31, 2004 and for the three-month periods ended March 31, 2004 and 2003 has been prepared from NSTAR’s books and records without audit by independent accountants. However, NSTAR’s independent accountants have performed a review of these interim financial statements in accordance with standards established by the American Institute of Certified Public Accountants. Financial information as of December 31, 2003 was derived from the audited consolidated financial statements of NSTAR, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP).

[X]		Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended March 31, 2004
		or
[ ]		Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from to


Massachusetts		04-3466300

(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)
800 Boylston Street, Boston, Massachusetts		02199

(Address of principal executive offices)		(Zip code)

Commission File Number:	1-14768