Eversource 2002 Annual Report Download - page 56

The weighted average grant date fair values of options granted during
2002, 2001 and 2000 were $5.64, $6.94 and $7.50, respectively.
The weighted average remaining contractual lives for those options
outstanding at December 31, 2002 and 2001 are 7.50 years.
For further information regarding stock-based compensation, see Note 1C,
“Summary of Significant Accounting Policies – New Accounting Standards,”
and Note 1K, “Summary of Significant Accounting Policies – Stock-Based
Compensation,” to the consolidated financial statements.
E. Supplemental Executive Retirement and Other Plans
NU has maintained a Supplemental Executive Retirement Plan (SERP)
since 1987. The SERP provides its participants, who are executives of
NU, with benefits that would have been provided to them under NU’s
retirement plan if certain Internal Revenue Code and other limitations
were not imposed. The SERP liability of $20.1 million and $18 million
at December 31, 2002 and 2001, respectively, represents NU’s actuarially
determined obligation under the SERP. For information regarding the
SERP investments, see Note 9, “Fair Value of Financial Instruments,”
to the consolidated financial statements.
NU maintains a plan for retirement and other benefits for certain current
and past company officers. The actuarially determined liability for this
plan was $32.2 million and $25.2 million at December 31, 2002 and
2001, respectively.
5. Goodwill and Other Intangible Assets
Effective January 1, 2002, NU adopted SFAS No. 142, “Goodwill and
Other Intangible Assets,” which ceases amortization of goodwill and
certain intangible assets with indefinite useful lives. SFAS No. 142 also
requires that goodwill and intangible assets deemed to have indefinite
useful lives be reviewed for impairment upon adoption of SFAS No.
142 and at least annually thereafter by applying a fair value-based test.
Under SFAS No. 142, goodwill impairment is deemed to exist if the net
book value of a reporting unit exceeds its estimated fair value and if the
implied fair value of goodwill based on the estimated fair value of the
reporting unit is less than the carrying amount of the goodwill.
On July 1, 2002, the competitive energy subsidiaries acquired certain
assets and assumed certain liabilities of Woods Electrical, an electrical
services company and Woods Network, a network products and services
company, for an aggregate adjusted purchase price of $16.3 million. The
aggregate adjusted purchase price consisted of $4.2 million of tangible
net assets, $0.1 million of intangible assets subject to amortization,
consisting of customer backlog and employment related agreements,
$6.8 million of indefinite lived intangible assets not subject to amortization
consisting of $3.8 million associated with customer relationships
acquired and $3 million associated with tradenames acquired, and $5.2
million of goodwill. The customer backlog and employment related
agreements are being amortized over periods of one and three years,
respectively, and have a weighted average amortization period of 1.6
years. This purchase price allocation is preliminary and has been
adjusted since the acquisition date. Financial results of the acquired
companies are included in NU’s results of operations since July 1, 2002.
The goodwill recognized in these transactions in the aggregate amount
of $5.2 million was assigned to the competitive energy subsidiaries
reportable segment and is expected to be fully deductible for tax purposes.
Additionally, as part of these purchase agreements, an additional
payment of not more than $9.2 million would be contingently payable
by 2005 if certain earnings targets are met. Any contingent payments
made will be accounted for as part of the purchase price.
NU’s reporting units that maintain goodwill are generally consistent
with the operating segments underlying the reportable segments identified
in Note 13, “Segment Information,” to the consolidated financial
statements. During the fourth quarter of 2002, consistent with changes
in the way management reviews the operating results of its reporting
units, NU’s reporting units under the competitive energy subsidiaries
reportable segment were revised to include: 1) the wholesale marketing
reporting unit, 2) the retail marketing reporting unit, 3) the trading
reporting unit, and 4) the services reporting unit.The wholesale marketing,
retail marketing and trading reporting units are comprised of the operations
of Select Energy, NGC and HWP, and the services reporting unit is
comprised of the operations of SESI, NGS and its newly acquired
subsidiary Woods Electrical, Woods Network, and the nonenergy related
subsidiaries of Yankee, including YESCO. As a result, NU’s revised
reporting units that maintain goodwill are as follows:Yankee Gas, classified
under the regulated utilities – gas reportable segment, the wholesale
and retail marketing reporting unit and the services reporting unit
which are both classified under the competitive energy subsidiaries
reportable segment. The goodwill balances of these reporting units
are included in the table herein.
On November 30, 2001, Select Energy acquired Niagara Mohawk
Energy Marketing, Inc. (NMEM) for $31.7 million. NMEM was
subsequently renamed Select Energy New York, Inc. (SENY). During
2002, as a result of subsequent adjustments to SENY’s purchase price
allocation as a result of changes in the fair value of the assets and
liabilities acquired, $3.2 million of goodwill was recorded. This goodwill
amount is included in the wholesale and retail marketing reporting
unit at December 31, 2002.
NU has completed its initial and subsequent impairment analyses, on
January 1, 2002 and October 1, 2002, respectively, for all reporting units
that maintain goodwill under SFAS No. 142.YESCO holds a note from
an entity that purchased certain YESCO assets. Cash flows for YESCO
support the investment but not the goodwill recorded.
As a result, in 2002, a goodwill impairment loss totaling $0.4 million
was recognized in the services reporting unit. For all other reporting
units, NU has determined that no impairment exists. In completing
these analyses, the fair values of the reporting units were estimated
using both discounted cash flow methodologies and an analysis of
comparable companies or transactions. Except for the aforementioned
acquisitions and YESCO impairment, there were no other impairments
or adjustments to these goodwill balances in 2002.
Inclusive of the aforementioned acquisitions and the YESCO goodwill
write-off, at December 31, 2002, NU maintained $321 million of goodwill
that is no longer being amortized, $18.1 million of identifiable intangible
assets which continue to be amortized over an average period of 8.5
years and $6.8 million of intangible assets not subject to amortization.
Primarily based on revised financial information, the remaining period
of amortization related to the exclusivity agreement and the customer
list were reduced from 15 years to 8.5 years during the fourth quarter of
2002, resulting in a prospective increase to amortization expense related
to these intangible assets of $2 million annually. At December 31, 2001,
NU maintained $313 million of goodwill and $20.1 million of identifiable
intangible assets. Amortization of goodwill ceased on January 1, 2002.
54