Eversource 2004 Annual Report Download - page 79

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• The recognition of closure costs such as severance, benefit plan
curtailments, and lease termination payments.
• The recognition of losses associated with settling energy contracts
currently accounted for on an accrual method of accounting that have
negative fair values at the time of settlement.
• The termination of the normal purchase and sales exception to fair
value accounting for derivatives and the resulting recognition of losses
or gains on changes in fair value of the contracts since inception.
NU expects to record a charge in the first quarter of 2005 associated
with the wholesale marketing and energy services businesses. The level
of that charge will depend on a number of factors, including how the
disposition of those businesses is accomplished.
H. Consolidated Edison, Inc. Merger Litigation
Certain gain and loss contingencies exist with regard to the merger
agreement between NU and Consolidated Edison, Inc. (Con Edison) and
the related litigation.
On March 5, 2001, Con Edison advised NU that it was unwilling to close
its merger with NU on the terms set forth in the parties’ 1999 merger
agreement (Merger Agreement). On March 12, 2001, NU filed suit
against Con Edison seeking damages in excess of $1 billion.
On May 11, 2001, Con Edison filed an amended complaint seeking
damages for breach of contract, fraudulent inducement and negligent
misrepresentation in an unspecified amount, but which Con Edison’s
Chief Financial Officer has testified is at least $314 million. NU disputes
both Con Edison’s entitlement to any damages as well as its method of
computing its alleged damages.
The companies completed discovery in the litigation and submitted
cross motions for summary judgment. The court denied Con Edison’s
motion in its entirety, leaving intact NU’s claim for breach of the Merger
Agreement, and partially granted NU’s motion for summary judgment
by eliminating Con Edison’s claims against NU for fraud and negligent
misrepresentation.
An intervener in this litigation has made the claim that NU shareholders
at March 5, 2001 are entitled to damages from Con Edison, if any, and
not current NU shareholders.
Appeals on this and other issues are now pending and no trial date has
been set. At this stage of the litigation, management can predict neither
the outcome of this matter nor its ultimate effect on NU.
7. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each of the following financial instruments:
Cash and Cash Equivalents, Restricted Cash — LMP, and Special Deposits: The carrying
amounts approximate fair value due to the short-term nature of these
cash items.
SERP Investments: Investments held for the benefit of the SERP are recorded
at fair market value based upon quoted market prices. The investments
having a cost basis of $50.1 million and $33.8 million held for benefit of
the SERP were recorded at their fair market values at December 31, 2004
and 2003, of $55.1 million and $36.9 million, respectively. For further
information regarding the SERP liabilities and related investments, see
Note 4E, “Employee Benefits — Supplemental Executive Retirement and
Other Plans,” and Note 8, “Marketable Securities,” to the consolidated
financial statements.
Prior Spent Nuclear Fuel Trust: During 2004, WMECO established a trust to
fund the amounts due to the DOE for its prior spent nuclear fuel obligation.
These investments having a cost basis of $49.5 million were recorded at
their fair market value at December 31, 2004 of $49.3 million. For further
information regarding these investments, see Note 8, “Marketable
Securities,” to the consolidated financial statements.
Preferred Stock, Long-Term Debt and Rate Reduction Bonds: The fair value of NU’s
fixed-rate securities is based upon the quoted market price for those
issues or similar issues. Adjustable rate securities are assumed to have
a fair value equal to their carrying value. The carrying amounts of NU’s
financial instruments and the estimated fair values are as follows:
At December 31, 2004
Carrying Fair
(Millions of Dollars) Amount Value
Preferred stock not subject
to mandatory redemption $ 116.2 $ 101.4
Long-term debt —
First mortgage bonds 1,072.3 1,228.8
Other long-term debt 1,812.4 1,898.7
Rate reduction bonds 1,546.5 1,674.0
At December 31, 2003
Carrying Fair
(Millions of Dollars) Amount Value
Preferred stock not subject
to mandatory redemption $ 116.2 $ 87.5
Long-term debt —
First mortgage bonds 743.0 833.3
Other long-term debt 1,810.7 1,896.5
Rate reduction bonds 1,730.0 1,860.7
Other long-term debt includes $259.7 million and $256.4 million of fees
and interest due for spent nuclear fuel disposal costs at December 31,
2004 and 2003, respectively.
Other Financial Instruments: The carrying value of financial instruments
included in current assets and current liabilities, including investments
in securitizable assets, approximates their fair value.