Eversource 2005 Annual Report Download - page 35

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$38.6 million sold at December 31, 2005 is not included as debt in the
consolidated financial statements. Under the delivery order with the
United States government, SESI is responsible for on-going maintenance
and other services related to the energy efficiency project installation.
SESI receives payment for those services in addition to the amounts
sold under the master purchase agreement.
SESI has entered into assignment agreements to sell an additional
$17.9 million of receivables. These sales will be complete upon
customer acceptance of the project installations. Until construction is
completed, the advances under the purchase agreement are included
in long-term debt in the consolidated financial statements and the
receivables are recorded under the percentage of completion method.
These off-balance sheet arrangements are not significant to NU’s
liquidity or other benefits.
Since NU Enterprises is in the process of exiting SESI, NU’s consolidated
statements of (loss)/income for the years ended December 31, 2005,
2004 and 2003 present the operations for SESI, including HEC/CJTS,
as discontinued operations as a result of meeting certain criteria requiring
this presentation. For further information regarding this classification,
see Note 4, “Assets Held for Sale and Discontinued Operations,” to
the consolidated financial statements. These off-balance sheet
arrangements are expected to be assigned to the purchaser when
SESI is exited.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates, assumptions and at times difficult,
subjective or complex judgments. Changes in these estimates,
assumptions and judgments, in and of themselves, could materially
impact the financial statements of NU. Management communicates to
and discusses with NU’s Audit Committee of the Board of Trustees all
critical accounting policies and estimates. The following are the
accounting policies and estimates that management believes arethe
most critical in nature.
Discontinued Operations Presentation: In order for discontinued operations
treatment to be appropriate, management must conclude that there is
acomponent of a business that is “held for sale” in accordance with
the provisions of SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,” and that it meets the criteria for dis-
continued operations. Based on the status of exiting these businesses,
discontinued operations presentation is only appropriate for SESI,
SECI-NH, Woods Network and Woods Electrical, all of which relate to
the energy services businesses. In the fourth quarter of 2005, NU
Enterprises sold SECI-NH and Woods Network to unaffiliated buyers
for approximately $6.5 million. In January of 2006, the Massachusetts
service location of SECI-CT was sold for approximately $2 million.
For further information regarding these companies, see Note 4, “Assets
Held for Sale and Discontinued Operations,” to the consolidated financial
statements. Management will continue to evaluate this classification in
2006 for the NU Enterprises’ energy services businesses, as well as
the wholesale and retail marketing businesses and the competitive
generation business that are being exited.
Impairment of Long-Lived Assets: The company evaluates long-lived assets
such as property, plant and equipment to determine if these assets are
impaired when events or changes in circumstances occur such as the
2005 announced decisions to exit all of the NU Enterprises businesses.
When the company believes one of these events has occurred, the
determination needs to be made if a long-lived asset should be classified
as an asset to be held and used or if that asset should be classified as
held for sale. For assets classified as held and used, the company
estimates the undiscounted future cash flows associated with the
long-lived asset or asset group and an impairment loss is recognized if
the carrying amount of an asset is not recoverable and exceeds its fair
value. The carrying amount is not recoverable if it exceeds the sum of
the undiscounted future cash flows expected to result from the use
and eventual disposition of the asset. For assets held for sale, a long-
lived asset or disposal group is measured at the lower of its carrying
amount or fair value less cost to sell.
In order to estimate an asset’s future cash flows, the company considers
historical cash flows, changes in the market and other factors that may
affect future cash flows. The company considers various relevant factors,
including the method and timing of recovery, forward price curves for
energy, fuel costs, and operating costs. Actual future market prices,
costs and cash flows could vary significantly from those assumed in
the estimates, and the impact of such variations could be material.
In 2005, management evaluated the wholesale and retail marketing
businesses and competitive generation long-lived assets and determined
that these assets should continue to be classified as assets
to be held and used. As assets to be held and used, they are required
to be tested for impairment because of the expectation that the long-
lived assets in these groups will be disposed of significantly before the
end of their previously estimated useful lives. As a result of impairment
analyses performed, assets totaling $8 million were determined to be
impaired and were written off. At December 31, 2005, NU determined
that no impairment existed for the competitive generation business
generation assets based on NU’s evaluation of their fair value using
discounted cash flows and an analysis of reference transactions.
In 2005, management also evaluated the energy services businesses
and determined that the assets of SESI, Woods Electrical, SECI-NH,
and Woods Network should be classified as assets held for sale. As
a result of impairment analyses performed, the company impaired
certain fixed assets by $0.8 million.
The assets and liabilities of the wholesale and retail marketing and
competitive generation businesses, along with the remaining two
energy services businesses, SECI-CT and Boulos, arebeing accounted
for as assets to be held and used. A change in classification from
assets to be held and used to assets held for sale may result in
additional asset impairments and write-offs.
For further information regarding these impairment charges and assets
held for sale, see Note 3, “Restructuring and Impairment Charges,”
and Note 4, “Assets Held for Sale and Discontinued Operations,” to
the consolidated financial statements.
Goodwill and Intangible Assets: SFAS No. 142, “Goodwill and Other
Intangible Assets,” requires that goodwill balances be reviewed for
impairment at least annually by applying a fair value-based test. NU