Eversource 2005 Annual Report Download - page 68

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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.
NU Enterprises recorded $69.2 million of pre-tax restructuring and
impairment charges for the year ended December 31, 2005 related to
the decision to exit the merchant energy businesses and its energy
services businesses. The amounts related to continuing operations are
included as restructuring and impairment charges on the consolidated
statements of (loss)/income with the remainder included in discontinued
operations. These charges are included as part of the NU Enterprises
reportable segment in Note 17, “Segment Information,” to the
consolidated financial statements. A summary of those 2005 pre-tax
charges is as follows:
Year Ended
(Millions of Dollars) December 31, 2005
Merchant Energy:
Wholesale Marketing:
Impairment charges $9.7
Restructuring charges 6.7
Subtotal 16.4
Retail Marketing:
Impairment charges 9.2
Competitive Generation:
Impairment charges 1.5
Subtotal – Merchant Energy 27.1
Energy Services and Other:
Impairment charges 39.1
Restructuring charges 3.0
Subtotal – Energy Services and Other 42.1
Total restructuring and impairment charges 69.2
Restructuring and impairment charges included in
discontinued operations 25.1
Total restructuring and impairment charges
included in continuing operations $44.1
On March 9, 2005, NU concluded that NU Enterprises’ energy services
businesses arenot central to NU’s long-term strategy and do not meet
the company’sexpectations of profitability and as a result, the company
concluded that it would explore ways to exit those businesses in a
manner that maximizes their value. On November 7, 2005, NU
announced its decision to exit the remainder of its merchant energy
business segment, which includes the retail marketing and competitive
generation business. During 2005, as a result of impairment analyses
performed, assets of $9.7 million, $9.2 million and $1.5 million relating
to wholesale marketing, retail marketing, and competitive generation
businesses, respectively, including goodwill and intangible assets totaling
$12.4 million, were determined to be impaired and were written off.
In 2005, NU Enterprises hired an outside firm to assist in valuing its
energy services businesses and their exit. Based in part on that firm’s
work, the company concluded that $29.1 million of goodwill associated
with those businesses and $9.2 million of intangible assets were
impaired. Also in 2005, the energy services businesses and NU
Enterprises parent recorded an impairment charge of $0.8 million due
to the impairment of certain fixed assets.
In 2005, pre-tax restructuring charges totaling $9.7 million of which
$6.7 million and $3 million relate to the wholesale marketing and energy
services businesses, respectively, were recorded for employee termi-
nation costs, consulting fees and other costs. Additional restructuring
charges will be recognized as incurred and may include professional
fees and employee-related and other costs.
At December 31, 2005, NU determined that no additional impairment
existed for the competitive generation business assets based on NU’s
evaluation using cash flow methodologies and an analysis of comparable
companies or transactions.
The following table summarizes the liabilities related to restructuring
costs which are recorded in accounts payable and other current liabilities
on the accompanying consolidated balance sheet at December 31, 2005:
Employee
Termination Consulting
(Millions of Dollars) Costs Fees Total
Restructuring liability as of
January 1, 2005 $—$—$—
Costs incurred 2.3 7.4 9.7
Cash payments (0.5) (2.1) (2.6)
Restructuring liability as of
December 31, 2005 $1.8 $ 5.3 $ 7.1
4. Assets Held for Sale and Discontinued Operations
Assets Held for Sale: On March 9, 2005, NU announced the decision to
exit NU Enterprises’ energy services businesses. During the third
quarter of 2005, management determined that it expected to sell four
of its energy services within one year. Two of these businesses,
SECI-NH (including Reeds Ferry) and Woods Network, were sold on
November 8, 2005 and November 22, 2005, respectively.
Certain assets and liabilities of the energy services businesses are being
accounted for as held for sale. These businesses, which arevalued at
the lower of their carrying amount or fair value less cost to sell, are as
follows: SESI, a performance contracting subsidiarythat specializes in
upgrading the energy efficiency of large governmental and institutional
facilities, and Woods Electrical, a subsidiary of NGS which provides
third-party electrical services. These businesses are included as part
of the NU Enterprises reportable segment in Note 17, “Segment
Information,” to the consolidated financial statements. The major
classes of assets and liabilities that areheld for sale at December 31,
2005 areas follows: