Allegheny Power 2013 Annual Report Download - page 80
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65
Goodwill
In a business combination, the excess of the purchase price over the estimated fair values of the assets acquired and liabilities
assumed is recognized as goodwill. FirstEnergy evaluates goodwill for impairment annually on July 31 and more frequently if
indicators of impairment arise. In evaluating goodwill for impairment, FirstEnergy first assesses qualitative factors to determine
whether it is more likely than not (that is, likelihood of more than 50 percent) that the fair value of a reporting unit is less than its
carrying value (including goodwill). If FirstEnergy concludes that it is not more likely than not that the fair value of a reporting unit
is less than its carrying value, then no further testing is required. However, if FirstEnergy concludes that it is more likely than not
that the fair value of a reporting unit is less than its carrying value, then the two-step goodwill impairment test is performed to identify
a potential goodwill impairment and measure the amount of impairment to be recognized, if any.
FirstEnergy performed a qualitative assessment of the Regulated Distribution and Regulated Transmission segments as of July
31, 2013, and determined the fair values of these segments were, more likely than not, greater than their carrying values. Due to
excess generation supply in the region, which has caused a period of protracted low power and capacity prices impacting Competitive
operations, FirstEnergy performed a quantitative assessment of the Competitive Energy Services segment as of July 31, 2013.
The fair value of the Competitive Energy Services segment was calculated using a discounted cash flow analysis which was
dependent on subjective factors determined by FirstEnergy management. Assumptions used in the analysis include discount rates,
future power and natural gas prices, projected operating and capital cash flows and the fair value of debt. The estimated fair value
of the Competitive Energy Services segment exceeded its carrying amount (including goodwill) as of July 31, 2013. Estimates of
future cash flows are based upon relevant data at a point in time, which are subject to change and could vary from actual results.
Continued weak economic conditions, lower than forecasted power and capacity prices, and revised environmental requirements
could have a negative impact on future goodwill assessments.
See Note 1, Organization and Basis of Presentation for additional details.
NEW ACCOUNTING PRONOUNCEMENTS
New accounting pronouncements not yet effective are not expected to have a material effect on the financial statements of FE or
its subsidiaries.