Eversource 2008 Annual Report Download - page 72

Contributions: Currently, NU’s policy is to annually
fund the Pension Plan in an amount at least equal to
an amount that will satisfy the requirements of the
Employee Retirement Income Security Act and Internal
Revenue Code. NU’s Pension Plan has historically been
well funded, and a contribution has not been required to
be made to the plan since 1991. Due to the underfunded
balance at December31, 2008, NU is required to make
a contribution to the plan of approximately $150 million
to meet current minimum funding requirements. This
contribution would be paid just prior to the 2009 federal
income tax return filing in 2010.
For the PBOP Plan, it is currently NU’s policy to annually
fund an amount equal to the PBOP Plan’s postretirement
benefit cost, excluding curtailment and termination
benefits. NU contributed $36.2 million for the year ended
December31, 2008 to fund the PBOP Plan and expects
to make $37.3 million in contributions to the PBOP Plan
in 2009. Beginning in 2007, NU made an additional
contribution to the PBOP Plan for the amounts received
from the federal Medicare subsidy. This amount was $3.7
million in 2008 and is estimated to be $3.4 million in 2009.
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 eligible compensation with one percent in
cash and two percent in NU common shares allocated
from the Employee Stock Ownership Plan (ESOP). The
401(k) matching contributions of cash and NU common
shares made by NU were $12 million in 2008, $10.7 million
in 2007, and $11 million in 2006.
Eective on January 1, 2006, all newly hired, non-
bargaining unit employees, and eective on January 1,
2007 or as subject to collective bargaining agreements,
certain newly hired bargaining unit employees participate
in a new program under the 401(k) savings plan called
the K-Vantage benefit. These employees are not eligible
to participate in the existing defined benefit Pension Plan.
In addition, participants in the Pension Plan at January 1,
2006 were given the opportunity to choose to become
a participant in the K-Vantage benefit beginning in 2007,
in which case their benefit under the Pension Plan would
be frozen. NU makes contributions to the K-Vantage
benefit based on a percentage of participants’ eligible
compensation, as defined by the benefit document. The
contributions made by NU were $2 million in 2008, $1
million in 2007 and $0.1 million in 2006.
C. Employee Stock Ownership Plan
NU maintains an 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. Through December31, 2008, NU made
annual contributions to the ESOP trust equal to the
ESOP’s debt service, less dividends received by the ESOP.
NU’s contributions to the ESOP trust totaled $6 million
in 2008, $4.2 million in 2007 and $8.2 million in 2006.
Interest expense on the unsecured notes was $3.2 million
in 2006. For the years ended December 31, 2008, 2007
and 2006, NU recognized $8 million, $6.9 million and
$7.4 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
2005. The $175 million Series A note was fully repaid in
December 2006. As a result, no further interest expense
is being incurred for the ESOP.
All dividends received by the ESOP on unallocated shares
were used to pay debt service through December31,
2006. Dividends on the ESOP unallocated shares are not
considered dividends for financial reporting purposes.
During the first and second quarters of 2007, NU paid a
$0.1875 per share quarterly dividend. During the third
quarter of 2007 through the second quarter of 2008,
NU paid a $0.20 per share quarterly dividend. NU paid
a $0.2125 per share dividend during the third and fourth
quarters of 2008.
In 2008 and 2007, the ESOP trust allocated 469,601
and 363,470 of NU common shares, respectively, to
satisfy 401(k) Savings Plan obligations to employees.
At December 31, 2008 and 2007, total allocated ESOP
shares were 10,130,407 and 9,660,806, respectively,
and total unallocated ESOP shares were 669,778 and
1,139,379, respectively. The fair market value of the
unallocated ESOP shares at December 31, 2008 and 2007
was $16.1 million and $35.7 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 which NU employees and ocers are entitled to
participate. NU records compensation cost related to
these plans, as applicable, for shares issued or sold to
NU employees and ocers. 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 an immaterial eect on NU’s
consolidated financial statements and no eect on NU’s
EPS. For the years ended December 31, 2008 and 2007,
tax expense in excess of compensation cost totaling $1.6
million and $3.2 million, respectively, 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 period
has not been completed.
Under SFAS No. 123(R), NU accounts for its various share-
based plans as follows:
• For grants of restricted shares and restricted share
units (RSUs), NU records compensation expense over
the vesting period based upon the fair value of NU’s
common shares at the date of grant but records this
expense net of estimated forfeitures.
• Dividend equivalents on RSUs are charged to retained
earnings, net of estimated forfeitures.
• NU has not granted any stock options since 2002,
and no compensation expense has been recorded. All
options were fully vested prior to January 1, 2006.
• For shares sold under the ESPP, an immaterial amount
of compensation expense was recorded in the first
quarter of 2006, and no compensation expense will
be recorded in future periods as a result of a plan
amendment that was eective on February 1, 2006.
Incentive Plan: Under the Incentive Plan, NU is
authorized to grant up to 4.5 million new shares for
various types of awards, including restricted shares,
RSUs, performance units and stock options to eligible
employees and board members. At December 31, 2008
and 2007, NU had 2,705,615 and 3,055,083 of common
shares, respectively, available for issuance under the
Incentive Plan.
Restricted Shares: NU has granted restricted shares under
the 2002 through 2004 incentive programs that are subject
to three-year and four-year graded vesting schedules. The
remaining restricted shares of 6,250, with a per share and
total weighted average grant-date fair value of $18.65 and
$0.1 million, respectively, were fully vested in February
2008. The per share and total weighted average grant-date
fair value for restricted shares vested was $14.14 and $0.8
million, respectively, for the year ended December 31, 2007
and $14.52 and $1.1 million, respectively, for the year ended
December 31, 2006.
The total compensation cost recognized for restricted
shares was $12 thousand, net of taxes of approximately
$8 thousand for the year ended December31, 2008, $58
thousand, net of taxes of approximately $39 thousand for
the year ended December 31, 2007, and $0.6 million, net
of taxes of approximately $0.4 million for the year ended
December31, 2006.
RSUs: NU has granted RSUs under the 2004 through
2008 incentive programs that are subject to three-year
and four-year graded vesting schedules for employees,
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