Eversource 2006 Annual Report Download - page 83

NU 2006 ANNUAL REPORT 81
These benefits, which do not meet the definition of a pension plan
under SFAS No. 87 or SFAS No. 158, are accounted for on an accrual
basis and expensed as services are recorded in accordance with the
Accounting Principles Board Opinion (APB) No. 12, “Deferred
Compensation Contracts.”
F. Severance Benefits
As a result of its corporate reorganization, in 2005 NU recorded
severance and related expenses totaling $14.1 million relating to
expected terminations of Utility Group and NUSCO employees. These
severance benefits were recorded in other operating expenses and
were excluded from restructuring charges as described in Note 2,
“Restructuring and Impairment Charges,” because these amounts were
for severance benefits under an existing benefit arrangement. In 2006,
NU updated its prior estimates of Utility Group and NUSCO severance
benefits based upon actual termination data and updated its estimates
of expected personnel reductions. A total reduction in severance and
related expenses of $2.4 million was recorded and is included in other
operating expenses on the accompanying consolidated statements of
income/(loss) for the year ended December 31, 2006, primarily due to a
reduction in the expected number of terminated Utility Group and
NUSCO employees.
Severance benefits for employees in the retail marketing and competitive
generation businesses were not recorded in 2005, as management
expected to sell these businesses as going concerns with the
employees being transferred to the buyers. In 2006, NU recorded $7
million for severance and other employee benefits, as these benefits
became probable and estimable as a result of the sales of the retail
marketing business and NGC and Mt. Tom. Of this amount, $1.2
million was for enhanced minimum benefits and was included in
restructuring charges, with the remaining $5.8 million included in
other operating expenses on the accompanying consolidated statements
of income/(loss) for the year ended December 31, 2006 because these
amounts werefor benefits under an existing benefit arrangement.
7. Goodwill and Other Intangible Assets
SFAS No. 142, “Goodwill and Other IntangibleAssets,” 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 1stas 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 unit that maintains goodwill is consistent with the
operating segments underlying the reportable segments identified in
Note16, “Segment Information,” tothe consolidated financial
statements. The only reporting unit that maintains goodwill is the
Yankee Gas reporting unit, which was classified under the Utility
Group –gas reportablesegment. The goodwill recorded related to the
acquisition of Yankee Gas is not being recovered from the customers
of Yankee Gas. The goodwill balance held by the Yankee Gas reporting
unit at December 31, 2006 and 2005 is $287.6 million.
NU completed its impairment analysis of the Yankee Gas goodwill
balance as of October 1, 2006 and 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 and transactions.
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 these businesses were determined to be impaired in their
entirety, and $32.3 million 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. The charges related to continuing operations are included in
restructuring and impairment charges on the accompanying consolidated
statements of income/(loss) and in the NU Enterprises reportable
segment in Note16, “Segment Information,” tothe consolidated
financial statements, with the remainder included in discontinued
operations.
NU recorded amortization expense of $1.7 million and $3.6 million for
the yearsended December 31, 2005 and 2004, respectively, related to
these intangibleassets prior to these write-offs.
At December 31, 2006, NU Enterprises remaining intangible assets
relating to an energy services business which has not yet been sold
wereinsignificant.
8. Commitments and Contingencies
A. Regulatory Developments and Rate Matters
Connecticut:
Income Taxes: In 2000, CL&P requested from the IRS a PLR regarding
the treatment of UITC and EDIT related to generation assets that were
sold. On April 18, 2006, the IRS issued a PLR to CL&P regarding the
treatment of UITC and EDIT. EDIT are temporary differences between
book and taxable income that were recorded when the federal statutory
tax rate was higher than it is now or when those differences were
expected to be resolved. The PLR holds that it would be a violation of
tax regulations if the EDIT or UITC are used to reduce customers’ rates
following the sale of the generation assets. CL&P’s UITC and EDIT
balances related to generation assets that have been sold totaled $59
million and $15 million, respectively, and $74 million combined. CL&P
was ordered by the DPUC to submit the PLR to the DPUC within 10
days of issuance and retain the UITC and EDIT in their existing
accounts pending its receipt and review of the PLR. On July 27, 2006,
the DPUC determined that the UITC and EDIT amounts were no longer
required to be held in their existing accounts. As a result of this
determination, the $74 million balance was reflected as a reduction to
CL&P’s 2006 income tax expense with an increase to CL&P’s earnings
by the same amount.