Eversource 2005 Annual Report Download - page 67

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NEON for shares of Globix common stock. Prior to the merger
announcement, NU invested $2.1 million in 2004 in exchange for an
additional 341,000 shares of NEON common stock. Management
calculated the estimated fair value of its investment in NEON based
on the Globix share price at December 31, 2004 and the conversion
factor. Results of the calculation indicated that the fair value of NU’s
investment in NEON was below the carrying value at December 31,
2004 and was impaired. As a result, NU recorded a pre-tax write-down
of $2.2 million in 2004.
The merger closed on March 8, 2005, and NU received 1.2748 shares
of Globix common stock for each of the 2.1 million shares of NEON
stock it owned. In connection with the merger, NU recorded a pre-tax
write-down of $0.2 million. After the Globix merger, NU recognized
unrealized losses on its Globix investment in accumulated other
comprehensive income. During 2005, the value of Globix common
stock declined and management reviewed NU’s investment in Globix,
considering the length and severity of its decline in value, other factors
about the company, and management’s intentions with respect to
holding this investment. Based on these factors, management recorded
an additional pre-tax impairment charge in 2005 of $5.9 million to reflect
an other-than-temporary impairment. This amount is included in the
negative $0.9 million after-tax amount which was reclassified from
accumulated other comprehensive income and recognized in earnings
in 2005.
NU’s investment in Globix totaled $3.7 million and $9.8 million at
December 31, 2005 and 2004, respectively.
For information regarding marketable securities which also includes
NU’s investment in Globix, see Note 11, “Marketable Securities,”
to the consolidated financial statements.
Y. Counterparty Deposits
Balances collected from counterparties resulting from Select Energy’s
credit management activities totaled $28.9 million at December 31,
2005 and $57.7 million at December 31, 2004. These amounts are
recorded as current liabilities and included as counterparty deposits on
the accompanying consolidated balance sheets. To the extent Select
Energy requires collateral from counterparties, cash is received as a
part of the total collateral required. The right to receive such cash
collateral in an unrestricted manner is determined by the terms of
Select Energy’sagreements. Key factors affecting the unrestricted
status of a portion of this cash collateral include the financial standing
of Select Energy and of NU as its credit supporter.
Z. Provision for Uncollectible Accounts
NU maintains a provision for uncollectible accounts to recordits
receivables at an estimated net realizable value. This provision is
determined based upon a variety of factors, including applying an
estimated uncollectible account percentage to each receivables aging
category, historical collection and write-off experience and management’s
assessment of collectibility from individual customers. Management
reviews at least quarterly the collectibility of the receivables, and if
circumstances change, collectibility estimates are adjusted accordingly.
Receivable balances arewritten-off against the provision for uncollectible
accounts when these balances aredeemed to be uncollectible.
2. Wholesale Contract Market Changes
NU recorded $440.9 million of pre-tax wholesale contract market changes
for the year ended December 31, 2005, related to the changes in the
fair value of wholesale contracts that the company is in the process of
exiting. These amounts are reported as wholesale contract market
changes, net on the consolidated statements of (loss)/income. These
changes are comprised of the following items:
• A charge of $406.9 million related to the mark-to-market of certain
long-dated wholesale electricity contracts in New England and New
York with municipal and other customers. The charge reflects negative
mark-to-market movements on these contracts through December 31,
2005 as a result of rising energy prices, partially offset by positive
effects of buying out certain obligations in 2005 at prices less than
their marks at the time;
•Acharge of approximately $80 million related to purchases of
additional electricity for an increase in the load forecasts related to
afull requirements contract with a customer in the Pennsylvania-
New Jersey-Maryland (PJM) power pool;
• A benefit of approximately $38 million related to mark-to-market
gains on certain generation related contracts which the company
is in the process of exiting;
• A benefit of $59.9 million for mark-to-market gains primarily related
to retail supply contracts, by the wholesale business that were
previously held to serve certain retail electric load which the company
has exited or settled. Included in the $59.9 million is $30 million
related to retail supply contracts marked-to-market as a result of the
March 9, 2005 decision to exit the wholesale marketing business.
• A charge of $15.5 million in the fourth quarter of 2005 in connection
with the decision to exit the competitive generation business related
to marking-to-market two contracts to sell the output of its generation
in 2007 and 2008. NU Enterprises is in the process of exiting these
contracts. These two generation sales contracts wereformerly
accounted for under accrual accounting; however, accrual accounting
was terminated in the fourth quarter of 2005 due to the high probability
that these contracts would be net settled instead of physically delivered.
•Acharge of $36.4 million for mark-to-market contract asset write-offs
related to long-term wholesale electricity contracts and a contract
termination payment in March of 2005.
For further information regarding these derivative assets and liabilities
that arebeing exited, see Note 6, “Derivative Instruments,” to the
consolidated financial statements.
3. Restructuring and Impairment Charges
The company evaluates long-lived assets such as property, plant and
equipment to determine if these assets areimpaired 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 futurecash flows associated with the
long-lived asset or asset group and an impairment loss is recognized if