Eversource 2003 Annual Report Download - page 69

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NU’s investment strategy for its Pension Plan and PBOP Plan is to maximize
the long-term rate of return on those plans’ assets within an acceptable
level of risk. The investment strategy establishes target allocations, which
are regularly reviewed and periodically rebalanced. NU’s expected long-
term rates of return on Pension Plan assets and PBOP Plan assets are
based on these target asset allocation assumptions and related expected
long-term rates of return. In developing its expected long-term rate of
return assumptions for the Pension Plan and the PBOP Plan, NU also
evaluated input from actuaries, consultants and economists as well as
long-term inflation assumptions and NU’s historical 20-year compounded
return of approximately 11 percent. The Pension Plan’s and PBOP Plan’s
target asset allocation assumptions and expected long-term rate of
return assumptions by asset category are as follows:
The actual asset allocations at December 31, 2003 and 2002, approximated
these target asset allocations. The plans’ actual weighted-average asset
allocations by asset category are as follows:
At December 31,
Pension Postretirement
Benefits Benefits
Asset Category 2003 2002 2003 2002
Equity securities:
United States 47.00% 46.00% 59.00% 55.00%
Non-United States 18.00% 17.00% 12.00% —
Emerging markets 3.00% 3.00% 1.00% —
Private 3.00% 3.00% ——
Debt Securities:
Fixed income 19.00% 21.00% 25.00% 45.00%
High yield fixed income 5.00% 5.00% 3.00% —
Real estate 5.00% 5.00% ——
Total 100.00% 100.00% 100.00% 100.00%
Currently, NU’s policy is to annually fund an amount at least equal to
that which will satisfy the requirements of the Employee Retirement
Income Security Act and Internal Revenue Code.
NU does not expect to make any contributions to the Pension Plan in
2004 and expects to make $41.3 million in contributions to the PBOP
Plan in 2004.
Postretirement health plan assets for non-union employees are subject to
federal income taxes.
B. 401(k) Savings Plan
NU maintains a 401(k) Savings Plan for substantially all NU employees.
This savings plan provides for employee contributions up to specified
limits. NU matches employee contributions up to a maximum of 3 percent
of eligible compensation with cash and NU shares. The matching
contributions made by NU were $9.9 million in 2003, $11.1 million in
2002 and $11.7 million in 2001.
C. Employee Stock Ownership Plan
NU maintains an Employee Stock Ownership Plan (ESOP) for purposes of
allocating shares to employees participating in the NU’s 401(k) Savings
Plan. Under this arrangement, NU issued unsecured notes during 1991
and 1992 totaling $250 million, the proceeds of which were loaned to
the ESOP trust for the purchase of 10.8 million newly issued NU com-
mon shares (ESOP shares). The ESOP trust is obligated to make principal
and interest payments on the ESOP notes at the same rate that ESOP
shares are allocated to employees. NU makes annual contributions to the
ESOP equal to the ESOP’s debt service, less dividends received by the
ESOP. All dividends received by the ESOP on unallocated shares are used
to pay debt service and are not considered dividends for financial reporting
purposes. During the first and second quarters of 2002, NU declared a
$0.125 per share quarterly dividend. During the third quarter of 2002
through the second quarter of 2003, NU declared a $0.1375 per share
quarterly dividend. NU declared a $0.15 per share dividend during the
third and fourth quarters of 2003.
In 2003 and 2002, the ESOP trust issued 607,020 and 607,475 of NU
common shares, respectively, to satisfy 401(k) Savings Plan obligations to
employees. At December 31, 2003 and 2002, total allocated ESOP
shares were 7,615,804 and 7,008,784, respectively, and total unallocated
ESOP shares were 3,184,381 and 3,791,401, respectively. The fair market
value of the unallocated ESOP shares at December 31, 2003 and 2002,
was $64.2 million and $57.5 million, respectively.
D. Equity-Based Compensation
ESPP: Since July 1998, NU has maintained an ESPP for all eligible
employees. Under the ESPP, NU common shares are purchased at
six-month intervals at 85 percent of the lower of the price on the first
or last day of each six-month period. Employees may purchase shares
having a value not exceeding 25 percent of their compensation as of the
beginning of the purchase period. During 2003 and 2002, employees
purchased 225,985 and 188,774 shares, respectively, at discounted
prices of $12.20 in 2003 and $14.15 and $15.39 in 2002. At December
31, 2003 and 2002, 1,585,241 shares and 1,811,226 shares remained
registered for future issuance under the ESPP, respectively.
At December 31,
Pension Benefits Postretirement Benefits
2003 2002 2003 2002
Target Assumed Target Assumed Target Assumed Target Assumed
Asset Rate of Asset Rate of Asset Rate of Asset Rate of
Asset Category Allocation Return Allocation Return Allocation Return Allocation Return
Equity securities:
United States 45.00% 9.25% 45.00% 9.75% 55.00% 9.25% 55.00% 9.75%
Non-United States 14.00% 9.25% 14.00% 9.75% 11.00% 9.25% ——
Emerging markets 3.00% 10.25% 3.00% 10.75% 2.00% 10.25% ——
Private 8.00% 14.25% 8.00% 14.75% ————
Debt Securities:
Fixed income 20.00% 5.50% 20.00% 6.25% 27.00% 5.50% 45.00% 6.25%
High yield fixed income 5.00% 7.50% 5.00% 7.50% 5.00% 7.50% ——
Real estate 5.00% 7.50% 5.00% 7.50% ————