Eversource 2006 Annual Report Download - page 80

78 NU 2006 ANNUAL REPORT
The actual asset allocations at December 31, 2006 and 2005 approximated
these target asset allocations. The plans’ actual weighted-average
asset allocations by asset category are as follows:
At December 31,
Pension Benefits Postretirement Benefits
Asset Category 2006 2005 2006 2005
Equity Securities:
United States 46% 46% 54% 54%
Non-United States 16% 16% 14% 14%
Emerging markets 4% 4% 1% 1%
Private 5% 5% ——
Debt Securities:
Fixed income 19% 19% 29% 29%
High yield fixed income 5% 5% 2% 2%
Real Estate 5% 5% ——
Totals 100% 100% 100% 100%
Estimated Future Benefit Payments: The following benefit payments,
which reflect expected future service, are expected to be paid/(received)
for the Pension, SERP, and PBOP Plans:
(Millions of Dollars)
Pension SERP Postretirement Government
Year Benefits Benefits Benefits Benefits
2007 $116.4 $2.0 $44.6 $(4.5)
2008 119.7 2.1 45.4 (5.0)
2009 123.4 2.2 46.0 (5.4)
2010 127.5 2.3 46.4 (5.9)
2011 132.0 2.4 46.4 (6.3)
2012 – 2016 758.3 13.0 230.4 (37.0)
The government benefits represent amounts expected tobe received
from the federal government for the new Medicare prescription drug
benefit under the PBOP Plan related to the corresponding year’s
benefit payments.
Contributions: Currently, NU’spolicy is toannuallyfund the Pension
Plan in an amount at leastequal tothat which will satisfy the
requirements of the Employee Retirement Income Security Act and
Internal Revenue Code. For the PBOP Plan, it is currentlyNU’spolicy
toannuallyfund an amount equal to the PBOP Plan’s postretirement
benefit cost, excluding curtailment and termination benefits. NU does
not expect to make any contributions to the Pension Plan in 2007 and
expects to make $39.8 million in contributions to the PBOP Plan in
2007. Beginning in 2007, NU will makean additional contribution to
the PBOP Plan for the amounts received from the federal Medicare
subsidy. This amount is estimated at $3.2 million for 2007.
B. Defined Contribution Plans
NU maintains a 401(k) Savings Plan for substantially all NU employees.
This savings plan provides for employee contributions up to specified
limits. NU matches employee contributions up to a maximum of three
percent of eligiblecompensation with one percent in cash and two
percent in NU common shares. The 401(k) matching contributions of
cash and NU common shares made by NU were $11 million in 2006,
$10.7 million in 2005 and $10.5 million in 2004.
Effectiveon January 1, 2006, all newly hired, non-bargaining unit
employees, and effectiveon January 1, 2007 or as subject tocollective
bargaining agreements, certain newly hired bargaining unit employees
participatein a newdefined contribution savings plan called the
K-Vantage Plan. These participants arenot eligible to be participants
in the existing defined benefit Pension Plan. In addition, current
participants in the Pension Plan were given the opportunity to
choose to become a participant in the K-Vantage Plan beginning in
2007, in which case their benefit under the Pension Plan was frozen.
C. Employee Stock Ownership Plan
NU maintains an Employee Stock Ownership Plan (ESOP) for purposes
of allocating shares to employees participating in NU’s 401(k) Savings
Plan. Under this arrangement, NU issued unsecured notes during
1991 and 1992 totaling $250 million, the proceeds of which were
loaned to the ESOP trust (ESOP Notes) for the purchase of 10.8 million
newly issued NU common shares (ESOP shares). The ESOP trust is
obligated to make principal and interest payments to NU on the ESOP
Notes at the same rate that ESOP shares are allocated to employees.
NU makes annual contributions to the ESOP trust equal to the ESOP’s
debt service, less dividends received by the ESOP. NU’s contributions
tothe ESOP trust totaled $8.2 million in 2006, $11.2 million in 2005
and $12 million in 2004. Interest expense on the unsecured notes was
$3.2 million, $3.3 million and $5.7 million in 2006, 2005 and 2004,
respectively. For the years ended December 31, 2006, 2005 and 2004,
NU recognized $7.4 million, $7.7 million and $7.3 million, respectively,
of expense related to the ESOP, excluding the interest expense on the
unsecured notes. The $75 million series B note was fully repaid in
March of 2005. The $175 million series A note was fully repaid in
December of 2006. As a result, no further interest expense will be
incurred for the ESOP.
All dividends received by the ESOP on unallocated shares are used to
pay debt service and are not considered dividends for financial reporting
purposes. During the first and second quarters of 2005, NU paid a
$0.1625 per share quarterly dividend. During the third quarter of 2005
through the second quarter of 2006, NU paid a $0.175 per share quarterly
dividend. NU paid a $0.1875 per share dividend during the third and
fourth quarters of 2006.
In 2006 and 2005, the ESOP trust issued 523,452 and 590,173 of NU
common shares, respectively, to satisfy 401(k) Savings Plan obligations
toemployees. At December 31, 2006 and 2005, total allocated ESOP
shares were 9,297,336 and 8,773,884, respectively, and total unallocated
ESOP shares were1,502,849 and 2,026,301, respectively. The fair
market value of the unallocated ESOP shares at December 31, 2006
and 2005 was $42.3 million and $39.9 million, respectively.
D. Share-Based Payments
NU maintains an Employee Share Purchase Plan (ESPP) and other
long-term equity-based incentive plans under the Northeast Utilities
Incentive Plan (Incentive Plan). In the first quarter of 2006, NU adopted
SFAS No. 123(R), “Share-Based Payments,” under the modified
prospective method. Adoption of SFAS No. 123(R) had a de minimis
effect on NU’s financial statements and no effect on NU’s income/
(loss) per share. For the year ended December 31, 2006, a tax benefit
in excess of compensation cost totaling $1.1 million increased cash
flows from financing activities.
SFAS No. 123(R) requires that share-based payments be recorded
using the fair value-based method based on the fair value at the date
of grant and applies to share-based compensation awards granted on
or after January 1, 2006 or to awards for which the requisite service