Eversource 2005 Annual Report Download - page 77

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E. Supplemental Executive Retirement and Other Plans
NU has maintained a 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 $26 million
and $24.2 million at December 31, 2005 and 2004, respectively, which
is included in deferred credits and other liabilities – other on the
accompanying consolidated balance sheets, represents NU’s actuarially-
determined obligation under the SERP. During 2005, 2004 and 2003,
$3.7 million, $4 million, and $3.9 million, respectively, was expensed
related to the SERP.
The SERP is the only NU retirement plan for which a minimum pension
liability has been recorded. Recording this minimum pension liability
resulted in a negative $0.4 million in accumulated other comprehensive
income at December 31, 2005.
NU maintains a plan for retirement and other benefits for certain current
and past company officers. The actuarially-determined liability for this
plan which is included in deferred credits and other liabilities – other
on the accompanying consolidated balance sheets, was $37.4 million
and $36.7 million at December 31, 2005 and 2004, respectively. During
2005, 2004 and 2003, $4.5 million, $4.5 million and $6.3 million,
respectively, was expensed related to this plan.
For information regarding SERP investments that are used to fund the
SERP liability, see Note 11, “Marketable Securities,” to the consolidated
financial statements.
F.Severance Benefits
The restructuring charges and liabilities described in Note 3,
“Restructuring and Impairment Charges,” do not include severance
costs related to employee terminations as a result of the decision to
pursue a fundamentally different business strategy and align the
structureof the company to supportthis business strategy. These
charges, totaling $16.9 million were recorded as other operating
expenses on the accompanying consolidated statement of (loss)/income
for the year ended December 31, 2005.
8. Goodwill and Other Intangible Assets
SFAS No. 142, “Goodwill and Other Intangible Assets,” requires that
goodwill and intangible assets deemed to have indefinite useful lives
be reviewed for impairment at least annually by applying a fair value-
based test. NU uses October 1st as the annual goodwill impairment
testing date. 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.
NU’s reporting units that maintained goodwill aregenerally consistent
with the operating segments underlying the reportable segments
identified in Note 17, “Segment Information,” to the consolidated
financial statements. Consistent with the way management reviews
the operating results of its reporting units, NU’s reporting unit under
the NU Enterprises reportable segment that maintains goodwill is the
merchant energy reporting unit. The merchant energy reporting unit is
comprised of the operations of Select Energy, NGC and the generation
operations of HWP and NGS. The other reporting unit that maintains
goodwill is the Yankee Gas reporting unit, which was classified under
the Utility Group – gas reportable segment. The goodwill recorded
related to the acquisition of Yankee Gas is not being recovered from
the customers of Yankee Gas. A summary of NU’s goodwill balances
at December 31, 2005 and 2004 by reportable segment and reporting
units is as follows:
At December 31,
(Millions of Dollars) 2005 2004
Utility Group – Gas:
Yankee Gas $287.6 $287.6
NU Enterprises:
Merchant Energy —3.2
Energy Services —29.1
Totals $287.6 $319.9
As a result of NU’s 2005 announcements to exit the competitive
wholesale and retail marketing businesses, the competitive generation
business and the energy services businesses, certain goodwill balances
and intangible assets were deemed to be impaired. The goodwill
balances in the NU Enterprises merchant energy and energy services
businesses were determined to be impaired in their entirety, and $3.2
million and $29.1 million, respectively, in write-offs were recorded.
The retail marketing business had an exclusivity agreement with an
unamortized balance of $7.2 million and a customer list asset with an
unamortized balance of $2 million that were also deemed to be impaired
and were written off. Additionally, the energy services businesses
intangible assets not subject to amortization were also impaired,
and an $8.5 million pre-tax write-off was recorded, while an additional
pre-tax $0.7 million of other intangible assets were also impaired. These
charges related to continuing operations are included in restructuring
and impairment charges on the accompanying consolidated statements
of (loss)/income and in the NU Enterprises reportable segment in Note
17, “Segment Information,” to the consolidated financial statements,
with the remainder included in discontinued operations.
NU recorded amortization expenses of $1.7 million, $3.6 million and
$3.7 million for the years ended December 31, 2005, 2004 and 2003,
respectively,related to these intangible assets prior to these write-offs.
NU completed its impairment analysis of the Yankee Gas goodwill
balance as of October 1, 2005, and has determined that no impairment
exists. In completing this analysis, the fair value of the reporting unit
was estimated using both discounted cash flow methodologies and an
analysis of comparable companies or transactions.
At December 31, 2005, NU Enterprises’ remaining intangible assets
totaled $0.1 million and relate to the energy services businesses which
are expected to be sold.
9. Commitments and Contingencies
A. RegulatoryDevelopments and Rate Matters
Connecticut:
CTA and SBC Reconciliation: The CTA allows CL&P to recover stranded
costs, such as securitization costs associated with the rate reduction
bonds, amortization of regulatoryassets, and IPP over market costs,
while the SBC allows CL&P to recover certain regulatory and energy
public policy costs, such as public education outreach costs, hardship
protection costs, transition period property taxes, and displaced worker
protection costs.