10-Q/APeriod: Q2 FY2004

EVERSOURCE ENERGY Quarterly Report (Amendment) for Q2 Ended Jun 30, 2004

Filed March 17, 2005For Securities:ES

Summary

Eversource Energy (ES), operating as Northeast Utilities (NU) at the time, reported mixed financial results for the six months ended June 30, 2004. While net income increased by 5% to $91.4 million compared to the same period in 2003, driven by higher revenues from both the Utility Group and NU Enterprises, a significant write-down impacted the second quarter. The company experienced increased operating revenues, largely due to higher electricity and gas prices and increased retail electric sales volumes. However, the Utility Group saw a decrease in net income for the second quarter, primarily due to higher pension expenses and lower unbilled revenues for PSNH, while CL&P's net income benefited from rate increases. NU Enterprises, particularly the merchant energy segment, showed improved performance in the first half of the year due to better margins and higher retail volumes, despite some anticipated quarterly earnings fluctuations related to contract structuring and the adoption of fair value accounting for certain natural gas contracts. Liquidity remained adequate, with cash and cash equivalents increasing slightly. Capital expenditures for the first half of the year were lower than initially projected due to delays in transmission projects. The company also announced an increase in its quarterly dividend. A key development noted is a restatement of previously issued financial statements due to an accounting error related to natural gas contracts, highlighting a material weakness in internal controls over financial reporting.

Key Highlights

  • 1Net income for the first six months of 2004 increased by 5% to $91.4 million compared to the same period in 2003, driven by higher revenues across segments.
  • 2Operating revenues rose by 15% in the second quarter and 15% year-to-date, reflecting higher energy prices and increased sales volumes, particularly in the Utility Group and NU Enterprises.
  • 3A $2.4 million after-tax write-down on an investment in a fuel cell developer impacted second-quarter 2004 earnings, reducing them by $0.02 per share.
  • 4NU Enterprises' merchant energy segment showed improved performance in the first half of 2004 due to better margins and higher retail volumes, but adoption of fair value accounting for natural gas contracts introduces potential earnings volatility.
  • 5Cash and cash equivalents increased to $48.7 million as of June 30, 2004, from $43.4 million at December 31, 2003, indicating adequate liquidity.
  • 6Capital expenditures for the first six months of 2004 totaled $311.6 million, lower than planned due to delays in transmission projects; revised full-year projection is $674.2 million.
  • 7The company restated previously issued financial statements for the period ending June 30, 2004, due to an accounting error concerning natural gas contracts, leading to the identification of a material weakness in internal controls over financial reporting.

Frequently Asked Questions

The company restated its financial statements due to an accounting error where certain natural gas contracts were incorrectly accounted for using accrual accounting instead of fair value accounting. This correction impacted balance sheet items like cash, derivative assets/liabilities, and accounts payable, though it did not affect net income for the period.

Net income for the first six months of 2004 increased by 5% to $91.4 million, compared to $87.1 million in the same period of 2003. This improvement was driven by higher operating revenues from both the Utility Group and NU Enterprises.

The merchant energy business is expected to show improved margins and higher retail volumes in the first half of 2004 compared to 2003. However, the adoption of fair value accounting for certain natural gas contracts introduces potential volatility in future earnings. The company has secured a significant portion of its anticipated sales for 2004 and continues to bid on future contracts.

Capital expenditures for the first six months of 2004 were $311.6 million, lower than initially projected due to delays in transmission projects, with the full-year projection revised to $674.2 million. Liquidity remained adequate, with cash and cash equivalents increasing to $48.7 million as of June 30, 2004.