CenterPoint Energy 2014 Annual Report Download - page 94

(4) Goodwill
Goodwill by reportable business segment as of both December 31, 2014 and 2013 are as follows (in millions):
CenterPoint Energy performs its goodwill impairment tests at least annually and evaluates goodwill when events or changes in
circumstances indicate that its carrying value may not be recoverable. The impairment evaluation for goodwill is performed by using a two-
step
process. In the first step, the fair value of each reporting unit, which approximate the reportable business segments, is compared with the
carrying amount of the reporting unit, including goodwill. The estimated fair value of the reporting unit is generally determined on the basis of
discounted cash flows. If the estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, then a second step
must be completed in order to determine the amount of the goodwill impairment that should be recorded. In the second step, the implied fair
value of the reporting unit’s goodwill is determined by allocating the reporting unit’
s fair value to all of its assets and liabilities other than
goodwill (including any unrecognized intangible assets) in a manner similar to a purchase price allocation. The resulting implied fair value of the
goodwill that results from the application of this second step is then compared to the carrying amount of the goodwill and an impairment charge
is recorded for the difference.
CenterPoint Energy performed its annual impairment test in the third quarter of each of 2014 and 2013 and determined, based on the results
of the first step, that no impairment charge was required for any reportable segment. Other intangibles were not material as of December 31,
2014 and 2013.
CenterPoint Energy’s annual impairment test in the third quarter of 2012 resulted in a non-
cash goodwill impairment charge in the amount
of $252 million
for the Energy Services reportable segment. The Energy Services reporting unit fair value analysis resulted in an implied fair
value of goodwill of $83 million for this reporting unit, and as a result, the non-
cash impairment charge was recorded in the third quarter of
2012. The adverse wholesale market conditions facing CenterPoint Energy’
s Energy Services business, specifically the prospects for continued
low geographic and seasonal price differentials for natural gas, led to a reduction in the estimate of the fair value of goodwill associated with this
reporting unit.
CenterPoint Energy estimated the value of the Energy Services reporting unit using an income approach. Under this approach, the fair value
of the reporting unit is determined by using the present value of future expected cash flows, which are based on management projections of
revenue growth, gross margin, and overall market conditions. These estimated future cash flows are then discounted using a rate that
approximates the weighted average cost of capital of a market participant.
84
Natural Gas Distribution
$
746
Energy Services (1)
83
Other
11
Total
$
840
(1) Amounts presented are net of accumulated goodwill impairment charge of $252 million
.