Allegheny Power 2010 Annual Report Download - page 81

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The discounted cash flow model of the reporting units, which are aggregated into operating segments, is based on the
forecasted operating cash flow for the current year, projected operating cash flows for the next five years (determined
using forecasted amounts as well as an estimated growth rate) and a terminal value beyond five years. Discounted cash
flows consist of the operating cash flows for each reporting unit less an estimate for capital expenditures. The key
assumptions incorporated in the discounted cash flow approach include growth rates, projected operating income,
changes in working capital, projected capital expenditures, planned funding of pension plans, anticipated funding of
nuclear decommissioning trusts, expected results of future rate proceedings and a discount rate equal to the assumed
long term cost of capital. Cash flows may be adjusted to exclude certain non-recurring or unusual items. Reporting unit
income, which excludes non-recurring or unusual items, was the starting point for determining operating cash flow and
there were no non-recurring or unusual items excluded from the calculations of operating cash flow in any of the periods
included in the determination of fair value.
Unanticipated changes in assumptions could have a significant effect on FirstEnergy’s evaluation of goodwill. At the time
of annual impairment testing, fair value would have to have declined in excess of 52% for energy delivery services to
indicate a potential goodwill impairment. Fair value would have to have declined more than 26% for CEI, 64% for TE,
38% for JCP&L, 56% for Met-Ed and 57% for Penelec to indicate potential goodwill impairment.
A summary of the changes in goodwill for the three years ended December 31, 2010 is shown below by operating segment,
which represent aggregated reporting units (see Note 15):
Energy Competitive
Delivery Energy
Goodwill Services Services Consolidated
(In millions)
Balance as of December 31, 2007 $ 5,583 $ 24 $ 5,607
A
djustments related to GPU acquisitions (32) - (32)
Balance as of December 31, 2008, 2009 and 2010 $ 5,551 $ 24 $ 5,575
A summary of the changes in FES’ and the Utilities’ goodwill for the three years ended December 31, 2010 is shown
below.
Goodwill FES CEI TE JCP&L Met-Ed Penelec
(In millions)
Balance as of December, 31 2007 $ 24 $ 1,689 $ 501 $ 1,826 $ 424 $ 778
A
djustments related to GPU acquisition - - - (15) (8) (9)
Balance as of December, 31 2008, 2009 and 2010 $ 24 $ 1,689 $ 501 $ 1,811 $ 416 $ 769
FirstEnergy, FES and the Utilities, with the exception of Met-Ed, have no accumulated impairment charge as of
December 31, 2010. Met-Ed has an accumulated impairment charge of $355 million, which was recorded in 2006.
Investments
At the end of each reporting period, FirstEnergy evaluates its investments for impairment. Investments classified as
available-for-sale securities are evaluated to determine whether a decline in fair value below the cost basis is other than
temporary. FirstEnergy first considers its intent and ability to hold the investment until recovery and then considers,
among other factors, the duration and the extent to which the security's fair value has been less than its cost and the
near-term financial prospects of the security issuer when evaluating investments for impairment. If the decline in fair
value is determined to be other than temporary, the cost basis of the investment is written down to fair value. FirstEnergy
recognizes in earnings the unrealized losses on available-for-sale securities held in its nuclear decommissioning trusts
since the trust arrangements, as they are currently defined, do not meet the required ability and intent to hold criteria in
consideration of other-than-temporary impairment. In 2010, 2009 and 2008, FirstEnergy recognized $33 million,
$62 million and $123 million, respectively, of other-than-temporary impairments. The fair values of FirstEnergy’s
investments are disclosed in Note 5(B).